For Boeings’ new CEO, saving the 737 Max is only the first hurdle

Bloomberg Chicago | Updated on December 24, 2019 Published on December 24, 2019

File photo   -  REUTERS

Boeing Co’s incoming boss David Calhoun faces a daunting task when he takes over as chief executive officer next year: rescuing the 737 Max while mending the company’s fractured relationship with United States (US) regulators. But that is only the beginning of the hurdles awaiting him.

Calhoun, 62, who takes the reins January 13, will be leading a once-proud company whose reputation for engineering prowess is now in tatters. On top of the grounding of its best-selling plane after two deadly crashes, Boeing has suffered production stumbles with its KC-46 tanker, delays to its 777X jetliner and an embarrassing mishap that caused its new space capsule to miss a rendezvous with the International Space Station over the weekend.

Then, there are growing signs that jetliner sales are losing their lift after an unprecedented 15-year boom.

What about the demand for the aircraft? Airbus SEs sales successes at the top and bottom of the narrow-body market are likely to squeeze Max orders even after the global flying ban is lifted.

At the outset, Dave Calhoun has one job: manage the Max crisis in all its operational, financial, regulatory, and reputational dimensions, Seth Seifman, an analyst at JPMorgan Chase & Co, said in a note to clients Monday.

In addition to saving the Max, Calhoun will likely play a key role in product development and this starts with getting the 777X across the finish line but will extend to what new aircraft Boeing should develop.

Boeing climbed 2.9 per cent to $337.55 at the close in New York, the biggest gain in six weeks. The shares have tumbled 20 per cent since the second Max crash, the worst drop on the Dow Jones Industrial Average.

Restore confidence

Directors voted unanimously to install Calhoun, who had served as chairman since October, said a person close to the board.

He replaces Dennis Muilenburg, who resigned from the post after months of growing pressure from investors and a chorus of calls for his ouster from the US Congress and leading business publications. Earlier this month, Muilenburg drew a rare public rebuke from the Federal Aviation Administration (FAA), which is overseeing the Max’s return.

A change in leadership was necessary to restore confidence in the company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders, Boeing’s board said.

Director Larry Kellner, who once led Continental Airlines, will replace Calhoun as chairman. Chief Financial Officer Greg Smith will serve as interim CEO during a brief transition period while Calhoun, a senior executive at Blackstone Group Inc, unwinds a welter of corporate ties.

When he takes over in three weeks, Calhoun will face the daunting task of extricating Boeing from one of the bleakest chapters in its 103-year history.

The Chicago-based company told its suppliers to suspend parts shipments for a month starting in mid-January, a move that will ripple through a vast supply chain. Boeing said last week it would pause production of the Max indefinitely as about 400 new planes pile up in storage.

Stabiliser CEO

The new CEO will serve as a stabilizer as Boeing works itself out of the Max crisis, said Richard Aboulafia, aerospace analyst with Teal Group.

“There is no doubt with Congress and regulators this is a lot better, and in the short run that matters a lot,” Aboulafia said.

“But as Airbus gains ground with its A321neo plane and other popular models, Boeing also faces daunting product-development decisions -- starting with when to replace the Max and whether to go forward with a mid-sized jet to counter the A321neo. Those calls will be difficult for a newcomer to Boeings executive ranks with no engineering background,” Aboulafia said.

As a long-term leader, GE plus private equity would appear to be not the right background given their needs right now, he said of Calhoun.

Given his age, just a few years shy of Boeing’s typical retirement age for executives, one of the Calhoun’s most important tasks will be finding a successor.

He is likely to have a relatively short tour of duty at Boeing, Robert Stallard, an analyst at Vertical Research Partners, said in a note to clients. Calhouns priorities will getting the 737 Max back into service without further aggravation, and starting the process of finding a new CEO and senior management team that can potentially get Boeing back on track.

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Published on December 24, 2019
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