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Problems at Mattel: Despite 'Barbie' success, its stock is a dud. Now an activist investor is circling

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Problems at Mattel: Despite 'Barbie' success, its stock is a dud. Now an activist investor is circling

If “Barbie” is awarded best picture at next month’s Academy Awards, it would only crown what has been an unprecedented moment for the world’s No. 1 selling doll.

The glossier half of the “Barbenheimer” sensation not only brought in nearly $1.5 billion at the global box office, but also renewed the cachet of a toy old enough to be Medicare eligible next month — earning Mattel some $150 million, including doll sales and other revenue streams last year.

It all seemed to validate the toy maker’s strategy of turning its legacy brands into modern media properties, with more than a dozen other live-action films coming up.

“Our job is to take brands that are timeless and make them timely,” is how Mattel Chairman and Chief Executive Ynon Kreiz put it in an interview.

Yet the El Segundo company is not feeling much affection from investors. (Nope, Mattel is not based in the film’s imposing Century City high-rise.) After surging during the pandemic, the company’s stock performance has been middling, despite a surge after “Barbie” was released and the recent stock market rally.

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This has caught the attention of an activist investor, which is pressuring Mattel to change course and better reward its shareholders.

The New York hedge fund Barington Capital Group isn’t calling for Barbie to be put on the auction block, but the same can’t be said for two of its other top brands: Its line of premium-priced American Girl dolls and its iconic Fisher-Price line of baby, toddler and preschool toys.

The marquee of the Los Feliz Theater features the films “Barbie” and “Oppenheimer,” last year.

(Chris Pizzello / Associated Press)

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Barington, which kicked off its campaign with a Feb. 1 letter to Kreiz, is also taking aim at Mattel’s executive compensation and governance structure, while calling for $2 billion in stock buybacks to provide a better return for investors. It hasn’t disclosed its stake in the company.

“We want to enhance value for all of the shareholders and owners of the company, including the management team,” said James Mitarotonda, chairman of Barington. “The company needs to either fix the businesses or sell them.”

Barington calculated that Mattel’s stock fell 13.2% in the two years preceding its letter, underperforming the Standard & Poor’s 500 index by more than 20%. Shares of Mattel have risen about 7% during February’s stock rally, closing at $19.61 on Tuesday. The stock hit a high of $26.97 during Kreiz’s tenure in May 2022.

Mattel’s got big people behind these other movies but you can’t assume these properties are going to be blockbusters

— Jim Chartier of Monness Crespi Hardt

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The hedge fund doesn’t have as high a profile as some other shareholder activists, such as Carl Icahn or Nelson Peltz, who is currently battling Disney. Barington, though, has waged roughly 100 campaigns, Mitarotonda said, including convincing L Brands, which is now Bath & Body Works, to spin off Victoria’s Secret as a separate company.

In response to the campaign, Mattel said it was looking “forward to engaging with Barington as we do with all our shareholders. We welcome this initial outreach and we are reviewing their letter.” Mitarotonda said Barington has since had “positive” discussions with Kriez but declined to discuss them in detail.

Given the unprecedented success of “Barbie,” Mattel seems an unlikely target for an activist investor.

Despite past turmoil in the toy industry and stiff competition from digital games, the company has experienced a comeback since Kreiz took over in 2018 — a year when the company posted a $1-billion loss. Barington acknowledged that, pointing to the company’s higher margins, lower debt leverage and $700 million growth in annual revenue by the third quarter of last year.

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“We recognize the meaningful improvements that you and your team have delivered over the last six years,” the letter stated.

However, the big growth in net sales was achieved in 2021 when parents were still saying home en masse with their kids. Since then, annual net sales have flatlined at $5.4 billion while annual net income declined about 75% over the three years to $214 million last year, according to FactSet. For the fourth quarter, the company reported a 16% increase in net sales, with sales flat for all of 2023.

Mattel wasn’t the only company hit by the toy industry’s soft 2023, which saw a 7% sales decline in 12 global markets, according to Circana. The consumer data analyst cited inflation and the continuing challenge of lower birth rates as issues. Mattel rival Hasbro, the maker of Transformers and G.I. Joe, reported a fourth-quarter decline in revenue and higher losses, sending shares skidding.

An Israeli native and UCLA business school graduate, Kreiz, 58, previously led YouTube content producer Maker Studios, which Disney acquired in 2014. He also had worked for Haim Saban, who made billions of dollars on the Power Rangers franchise. Kreiz was Mattel’s chairman when he was named chief executive, becoming the fourth person to hold the CEO title since 2012.

From the start, Kreiz’s goal was to supercharge Mattel’s lagging efforts to become a higher-valued entertainment company. That meant reviving efforts to get Barbie a starring role. The broader strategy includes television, digital games, publishing and consumer products. Mattel also is opening a small theme park in suburban Phoenix.

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“Barbie” succeeded beyond Mattel’s wildest expectations after Kreiz gave unusual creative control to director Greta Gerwig. (That choice paid off at the box office, but it didn’t do Kreiz any favors considering the film’s less-than-flattering portrayal of Mattel’s corporate chief by comedian Will Ferrell).

The company’s slate of films includes an upcoming Barney motion picture produced by Academy Award winning actor Daniel Kaluuya, a Hot Wheels movie by blockbuster producer J.J. Abrams and a Rock ‘Em Sock ‘Em Robots movie starring Vin Diesel.

It appears to be a formula for continued success, though analyst Jim Chartier of Monness Crespi Hardt & Co. said it’s important to remember the truism: There’s no guarantees in Hollywood. He noted how Mattel rival Hasbro had a hit with its 2007 “Transformers” film but couldn’t duplicate that with some other properties.

“Mattel’s got big people behind these other movies but you can’t assume these properties are going to be blockbusters,” said Chartier, who has a “buy” rating on Mattel and a $26 price target.

Still, no one is doubting the long-established toy industry strategy of courting Hollywood — the issue Barington has is with the other two big brands.

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Mattel’s infant, toddler and preschool segment, which includes Fisher-Price, has experienced a more than 40% decline in annual revenue since 2015 through the third quarter of last year, even as global revenue for such toys grew, according to Barington’s letter. Similarly, it said, American Girl’s annual revenue fell 61% since 2016, even as global doll revenue grew.

Barington calculated that without those sales declines, Mattel would have nearly doubled its four-year revenue growth rate. The investor suggested selling the businesses. “Mattel may not be the right owner of these brands,” its letter stated.

Mattel acquired Fisher-Price in 1993 and, according to the company, it remains the bestselling infant and preschool brand in the world. Even before Barington’s letter, Mattel announced a shake-up at Fisher-Price, telling employees in January that the toy line’s general manager and global head of infant and preschool, Chuck Scothon, would be leaving after six years at the helm.

The American Girl line of premium large dolls, which feature multiple collections, generally are priced at more than $100. The dolls are sold online and at major retailers, while Mattel operates retail boutiques, including in Los Angeles, where kids can hold parties, receive salon services and share tea time with their dolls.

Analyst Linda Bolton Weiser of D.A. Davidson said she thinks it’s more likely that Mattel would sell American Girl than Fisher-Price, since the doll line suffers from lower-priced competition.

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(Target, for example, sells an exclusive line of rival dolls called Our Generation that can cost a quarter of the price.)

Mattel shows no signs of abandoning the doll line it acquired in 1998. It is developing a film with Paramount for the big screen, and during comments Kreiz made in response to Barington’s letter on the Feb. 7 earnings call, he said Mattel is “very confident in the long-term value of American Girl.”

Mattel’s earnings announcement also stated that its board had approved a $1-billion share repurchase after buying back $203 million worth of shares in 2023. And the company announced two new directors with experience in media, tech and finance. Kreiz cautioned against reading into those developments. “These are things that we take our time to consider and analyze,” he said during the earnings call.

Mitarotonda called the $1-billion share buyback a “good start” and said he was “looking forward to more” in the future.

Barrington also has taken issue with Mattel over alleged excessive stock-based compensation to the management team. It said in its letter that Kreiz received $29.8 million in such compensation from 2020 through 2022, which was 44% higher than the median aggregate of what his peer chief executives received during that period.

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A woman and a man stand together at an event.

“Barbie” director Greta Gerwig and Mattel Chief Executive Ynon Kreiz are seen at the 2024 Oscars Nominees Luncheon at the Beverly Hilton Hotel this month.

(Jason Armond / Los Angeles Times)

Kreiz’s total compensation in 2022 was $11.9 million, including a base pay of $1.5 million, stock awards of $7.69 million and stock options of $2.56 million, according to a regulatory filing.

Weiser said that Kreiz has done an “excellent job” in a difficult industry. “He brought the company back from the brink of bankruptcy,” she said.

The criticism of Kreiz’s compensation was based on a peer group developed by the company to set its own compensation, Mitarotonda said, adding the fund’s letter didn’t note how the group appears stacked with higher-revenue companies, minimizing how excessive the stock awards actually were. Hershey, Live Nation and Campbell Soup are among the members.

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In regards to governance, Barington wants Kreiz to step down from his board chairmanship. Splitting the role from his chief executive duties are a fundamental principle of good corporate governance, Mitarotonda said, likening it to the checks and balances system enshrined in the U.S. Constitution.

“Does good governance create value in and of itself? No, it does not. But it does set the right culture in order for you to have a good management team that does deliver the right results,” he said.

Mattel is forecasting flat sales but profit growth this year as it continues to cut costs. Global toy sales are expected again to be soft, though not as poor as 2023.

The company plans an investor day March 7 when it is expected to roll out new products. During the earnings call, Kreiz said that this year it will expand Fisher-Price’s core product lines and introduce an “exciting new segment.”

Mitarotonda said he is eager to hear any company initiatives regarding Fisher-Price and American Girl.

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“Part of what we wanted to make sure is that they have a compelling plan to improve these businesses,” he said.

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After 57 years of open seating, is Southwest changing its brand?

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After 57 years of open seating, is Southwest changing its brand?

Jim Kingsley of Orange County, who recently flew Southwest on a two-leg journey from Minneapolis to Los Angeles, likened the budget-friendly airline to In-N-Out Burger.

Both brands are affordable, consistent and more simplistic compared with competitors, Kingsley said.

“They’re not trying to offer all the things everybody else offers,” he said, “but they get the quality right and it’s a good value.”

Change, however, is in the air.

Southwest, which since its founding nearly 60 years ago has positioned itself in the cutthroat airline industry as an easygoing, egalitarian option, upended that guiding ethos this week with word that it would get rid of its famous first-come, first-seated policy in favor of traditional assigned seats and a premium class option. They will also offer overnight, red-eye flights in five markets including Los Angeles.

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Experts say the changes, especially the switch to assigned seating, are a smart move and will appeal to many as the company tries to stabilize its precarious finances that included a 46% drop in profits in the second quarter from a year earlier to $367 million. But it remains to be seen whether Southwest will pay an intangible cost in making the moves: Will it be able to hold on to its quirky identity or will it put off loyal customers, and in doing so, become just another airline?

“You’re going to hear nostalgia about this, but I think it’s very logical and probably something the company should have done years ago,” said Duane Pfennigwerth, a global airlines analyst at Evercore.

“In many markets away from core Southwest markets, we think open seating is a boarding process that many people avoid,” he said.

That is all well and good, but “I didn’t ask for these changes,” Kingsley said. “Cost and quality is what I care about.”

Open seating has its pros and cons, Kingsley said, though he’s generally a fan. On his trip to Los Angeles, his group wasn’t able to get seats all together. But he likes that preferred seats are available on a first-come, first-served basis, instead of being offered for a high price.

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Eighty percent of Southwest customers and 86% of potential customers prefer an assigned seat, the airline said in a statement.

“By moving to an assigned seating model, Southwest expects to broaden its appeal and attract more flying from its current and future customers,” the airline said.

An even bigger draw of Southwest, according to Kingsley, is its policy of including two free checked bags per ticket. This perk often makes Southwest a better bargain, especially for longer trips or bigger groups, he said.

The free bags are a big deal to customers, experts said, and contribute to the airline’s consumer-friendly brand. The airline hasn’t indicated they plan to change their bag policy.

“Southwest has always had a really good, positive vibe,” said Alan Fyall, chair of Tourism Marketing at the University of Central Florida’s College of Hospitality. “It’s free bags, good prices and point-to-point routes. That’s what they stand for and that’s what people love about them.”

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Southwest’s change to assigned seating doesn’t mean they’re no longer a budget-friendly airline, Fyall said, but it does differentiate them from the lowest-cost, lowest-amenity options such as Frontier and Spirit.

The move will also require Southwest to update all or a portion of its fleet to include first-class seats. Currently, all seats on a Southwest flight are identical. Fyall said it’s worth the investment.

It’s an appropriate time for Southwest to make adjustments, said Chris Hydock, an assistant professor at Tulane University’s Freeman School of Business.

“They’ve not been profitable the last couple of quarters and they’ve had some activist investor pressure to increase their revenue,” he said.

Costs such as wages and maintenance have risen across the airline industry even as travel increased after the pandemic. Southwest saw a net loss of $231 million in the first quarter of 2024. Wall Street analysts estimate that assigned, premium seating could boost revenue by $2 billion per year.

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“This is one of the options where they could potentially increase their revenue and do something that a lot of consumers have a strong preference for anyway,” Hydock said.

For Southwest’s changes to pay off, it has to stick to its roots when it comes to its culture and brand, experts and travelers agreed.

“I love Southwest being different,” Kingsley said. “If they’re trying to be like the other airlines, I think they’re shooting themselves in the foot.”

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Column: 99 years after the Scopes 'monkey trial,' religious fundamentalism still infects our schools

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Column: 99 years after the Scopes 'monkey trial,' religious fundamentalism still infects our schools

Almost a century has passed since a Tennessee schoolteacher was found guilty of teaching evolution to his students. We’ve come a long way since that happened on July 21, 1925. Haven’t we?

No, not really.

The Christian fundamentalism that begat the state law that John Scopes violated has not gone away. It regularly resurfaces in American politics, including today, when efforts to ban or dilute the teaching of evolution and other scientific concepts are part and parcel of a nationwide book-banning campaign, augmented by an effort to whitewash the teaching of American history.

I knew that education was in danger from the source that has always hampered it—religious fanaticism.

— Clarence Darrow, on why he took on the defense of John Scopes at the ‘monkey trial’

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The trial in Dayton, Tenn., that supposedly placed evolution in the dock is seen as a touchstone of the recurrent battle between science and revelation. It is and it isn’t. But the battle is very real.

Let’s take a look.

The Scopes trial was one of the first, if not the very first, to be dubbed “the trial of the century.”

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And why not? It pitted the fundamentalist William Jennings Bryan — three-time Democratic presidential candidate, former congressman and secretary of State, once labeled “the great commoner” for his faith in the judgment of ordinary people, but at 65 showing the effects of age — against Clarence Darrow, the most storied defense counsel of his time.

The case has retained its hold on the popular imagination chiefly thanks to “Inherit the Wind,” an inescapably dramatic reconstruction — actually a caricature — of the trial that premiered in 1955, when the play was written as a hooded critique of McCarthyism.

Most people probably know it from the 1960 film version, which starred Frederic March, Spencer Tracy and Gene Kelly as the characters meant to portray Bryan, Darrow and H.L. Mencken, the acerbic Baltimore newspaperman whose coverage of the trial is a genuine landmark of American journalism.

What all this means is that the actual case has become encrusted by myth over the ensuing decades.

One persistent myth is that the anti-evolution law and the trial arose from a focused groundswell of religious fanaticism in Tennessee. In fact, they could be said to have occurred — to repurpose a phrase usually employed to describe how Britain acquired her empire — in “a fit of absence of mind.”

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The Legislature passed the measure idly as a meaningless gift to its drafter, John W. Butler, a lay preacher who hadn’t passed any other bill. (The bill “did not amount to a row of pins; let him have it,” a legislator commented, according to Ray Ginger’s definitive 1958 book about the case, “Six Days or Forever?”)

No one bothered to organize an opposition. There was no legislative debate. The lawmakers assumed that Gov. Austin Peay would simply veto the bill. The president of the University of Tennessee disdained it, but kept mum because he didn’t want the issue to complicate a plan for university funding then before the Legislature.

Peay signed the bill, asserting that it was an innocuous law that wouldn’t interfere with anything being taught in the state’s schools. The law “probably … will never be applied,” he said. Bryan, who approved of the law as a symbolic statement of religious principle, had advised legislators to leave out any penalty for violation, lest it be declared unconstitutional.

The lawmakers, however, made it a misdemeanor punishable by a fine for any teacher in the public schools “to teach any theory that denies the story of the Divine Creation of man as taught in the Bible, and to teach instead that man had descended from a lower order of animal.”

Scopes’ arrest and trial proceeded in similarly desultory manner. Scopes, a school football coach and science teacher filling in for an ailing biology teacher, assigned the students to read a textbook that included evolution. He wasn’t a local and didn’t intend to set down roots in Dayton, but his parents were socialists and agnostics, so when a local group sought to bring a test case, he agreed to be the defendant.

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The play and movie of “Inherit the Wind” portray the townspeople as religious fanatics, except for a couple of courageous individuals. In fact, they were models of tolerance. Even Mencken, who came to Dayton expecting to find a squalid backwater, instead discovered “a country town full of charm and even beauty.”

Dayton’s civic boosters paid little attention to the profound issues ostensibly at play in the courthouse; they saw the trial as a sort of economic development project, a tool for attracting new residents and businesses to compete with the big city nearby, Chattanooga. They couldn’t have been happier when Bryan signed on as the chief prosecutor and a local group solicited Darrow for the defense.

“I knew that education was in danger from the source that has always hampered it — religious fanaticism,” Darrow wrote in his autobiography. “My only object was to focus the attention of the country on the programme of Mr. Bryan and the other fundamentalists in America.” He wasn’t blind to how the case was being presented in the press: “As a farce instead of a tragedy.” But he judged the press publicity to be priceless.

The press and and the local establishment had diametrically opposed visions of what the trial was about. The former saw it as a fight to protect from rubes the theory of evolution, specifically that humans descended from lower orders of primate, hence the enduring nickname of the “monkey trial.” For the judge and jury, it was about a defendant’s violation of a law written in plain English.

The trial’s elevated position in American culture derives from two sources: Mencken’s coverage for the Baltimore Sun, and “Inherit the Wind.” Notwithstanding his praise for Dayton’s “charm,” Mencken scorned its residents as “yokels,” “morons” and “ignoramuses,” trapped by their “simian imbecility” into swallowing Bryan’s “theologic bilge.”

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The play and movie turned a couple of courtroom exchanges into moments of high drama, notably Darrow’s calling Bryan to the witness stand to testify to the truth of the Bible, and Bryan’s humiliation at his hands.

In truth, that exchange was a late-innings sideshow of no significance to the case. Scopes was plainly guilty of violating the law and his conviction preordained. But it was overturned on a technicality (the judge had fined him $100, more than was authorized by state law), leaving nothing for the pro-evolution camp to bring to an appellate court. The whole thing fizzled away.

The idea that despite Scopes’ conviction, the trial was a defeat for fundamentalism, lived on. Scopes was one of its adherents. “I believe that the Dayton trial marked the beginning of the decline of fundamentalism,” he said in a 1965 interview. “I feel that restrictive legislation on academic freedom is forever a thing of the past, … that the Dayton trial had some part in bringing to birth this new era.”

That was untrue then, or now. When the late biologist and science historian Stephen Jay Gould quoted that interview in a 1981 essay, fundamentalist politics were again on the rise. Gould observed that Jerry Falwell had taken up the mountebank’s mission of William Jennings Bryan.

It was harder then to exclude evolution from the class curriculum entirely, Gould wrote, but its enemies had turned to demanding “‘equal time’ for evolution and for old-time religion masquerading under the self-contradictory title of ‘scientific creationism.’”

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For the evangelical right, Gould noted, “creationism is a mere stalking horse … in a political program that would ban abortion, erase the political and social gains of women … and reinstitute all the jingoism and distrust of learning that prepares a nation for demagoguery.”

And here we are again. Measures banning the teaching of evolution outright have not lately been passed or introduced at the state level. But those that advocate teaching the “strengths and weaknesses” of scientific hypotheses are common — language that seems innocuous, but that educators know opens the door to undermining pupils’ understanding of science.

In some red states, legislators have tried to bootstrap regulations aimed at narrowing scientific teaching onto laws suppressing discussions of race and gender in the classrooms and stripping books touching those topics from school libraries and public libraries.

The most ringing rejection of creationism as a public school topic was sounded in 2005 by a federal judge in Pennsylvania, who ruled that “intelligent design” — creationism by another name — “cannot uncouple itself from its creationist, and thus religious, antecedents” and therefore is unconstitutional as a topic in public schools. Yet only last year, a bill to allow “intelligent design” to be taught in the state’s public schools was overwhelmingly passed by the state Senate. (It died in a House committee.)

Oklahoma’s reactionary state superintendent of education, Ryan Walters, recently mandated that the Bible should be taught in all K-12 schools, and that a physical copy be present in every classroom, along with the Ten Commandments, the Declaration of Independence and the Constitution. “These documents are mandatory for the holistic education of students in Oklahoma,” he ordered.

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It’s clear that these sorts of policies are broadly unpopular across much of the nation: In last year’s state and local elections, ibook-banners and other candidates preaching a distorted vision of “parents’ rights” to undermine educational standards were soundly defeated.

That doesn’t seem to matter to the culture warriors who have expanded their attacks on race and gender teaching to science itself. They’re playing a long game. They conceal their intentions with vague language in laws that force teachers to question whether something they say in class will bring prosecutors to the schoolhouse door.

Gould detected the subtext of these campaigns. So did Mencken, who had Bryan’s number. Crushed by his losses in three presidential campaigns in 1896, 1900 and 1908, Mencken wrote, Bryan had launched a new campaign of cheap religiosity.

“This old buzzard,” Mencken wrote, “having failed to raise the mob against its rulers, now prepares to raise it against its teachers.” Bryan understood instinctively that the way to turn American society from a democracy to a theocracy was to start by destroying its schools. His heirs, right up to the present day, know it too.

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NASA identifies Starliner problems but sets no date for astronauts' return to Earth

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NASA identifies Starliner problems but sets no date for astronauts' return to Earth

After weeks of testing, NASA and Boeing officials said Thursday they have identified problems with the Starliner’s propulsion system that have kept two astronauts at the International Space Station for seven weeks — but they didn’t set a date to return them to Earth.

Ground testing conducted on thrusters that maneuver Boeing’s capsule in space found that Teflon used to control the flow of rocket propellant eroded under high heat conditions, while different seals that control helium gas showed bulging, they said.

The testing was conducted after the thrusters malfunctioned when Starliner docked with the space station on June 6 and a helium leak that was detected before launch worsened on the trip to the station. The helium pressurizes the propulsion system.

However, officials said the problems should not prevent astronauts Suni Williams and Butch Wilmore from returning to Earth aboard the Starliner capsule, which lifted off on its maiden human test flight June 5 for what was supposed to be an eight-day mission.

“I am very confident we have a good vehicle to bring the crew back with,” Mark Nappi, program manager of Boeing’s Commercial Crew Program, said at a news conference.

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NASA and Boeing officials have said previously that the Starliner could transport the astronauts to Earth if there were an emergency aboard the space station, but they opted to conduct the ground tests to ensure a safe, planned return.

Decisions on whether and when to use Starliner or another vehicle will be made by NASA leaders after they are presented next week with all the information collected from the testing, which will include a “hot fire” test of the engines of the Starliner docked at the space station, Nappi said.

Rigorous ground testing conducted at NASA’s White Sands Test Facility on a thruster identical to the ones on the Starliner found that, despite the issues with Teflon degradation, the thruster was able to perform the maneuvers that would be needed to return Starliner to Earth, said Steve Stich, program manager for NASA’s Commercial Crew Program.

Official also have said that the Starliner still has about 10 times more helium than is needed to bring the capsule back to Earth.

The problems that have cropped up have been an embarrassment for Boeing, which along with SpaceX was given a multibillion-dollar contract in 2014 to service the station with crew and cargo flights after the end of the space shuttle program. Since then, Elon Musk’s Hawthorne-based company has sent more than a half-dozen crews up, while Boeing is still in its testing phase — with the current flight delayed for weeks by the helium leak and other issues that arose even before the thrusters malfunctioned.

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Should NASA make a decision not to bring the crew home on the Starliner — which could still return to Earth remotely — the astronauts could be retrieved by SpaceX’s Crew Dragon capsule, though SpaceX’s workhorse Falcon 9 rocket is currently grounded after a failure this month.

The Russian Soyuz spacecraft also services the station and carries American astronauts.

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