These 7 steps can give Boeing a path to recovery
By several accounts, this long-overdue reckoning resulted from a revolt by the company’s airline customers.
This was Boeing’s best week in many years. A dysfunctional management team was ousted. President and CEO David Calhoun will step down at the end of the year. Board chairman Larry Kellner announced that he would not stand for reelection. Stan Deal, CEO of Boeing Commercial Airplanes, left the company immediately.
By several accounts, this long-overdue reckoning resulted from a revolt by the company’s airline customers, concerned about missed production plans, uncertain new model-certification schedules, and high-profile incidents resulting from manufacturing “quality escapes.”
Now comes the hard part. Getting Boeing (BA) back on track will take years, maybe decades. Here’s what to watch for as the company tries to restore itself to health:
1. Who gets the top job? Calhoun, like 2005-2015 CEO Jim McNerney, was a Jack Welch-era General Electric (GE) alumni with a background in finance, and little else. Boeing needs someone less focused on financial abstractions and more focused on the hard work of running an airplane company. An engineering degree and program management experience would be a plus, along with a propensity for visiting factories and understanding resource needs. Ironically, Spirit AeroSystems (SPR) CEO Pat Shanahan, a Boeing veteran, would be a great choice, but there certainly are other solid candidates.
Another thing to watch for is Calhoun’s retirement. There is no reason for him to remain as CEO for the next eight months, and there are many reasons for him to not be part of the CEO selection process.
2. Who gets the other top job? Putting Stephanie Pope in charge of the Commercial unit may be a short-term measure, intended to stabilize a difficult situation in the aftermath of Deal’s departure. If she’s a long-term appointment, that would be very concerning. Her background is finance, just like Calhoun and McNerney, with no technical background and zero experience in jetliner design, development or manufacturing.
If both the company and unit CEO positions are filled by non-engineers, that would be disastrous. In fact, the only time that’s happened in Boeing’s history was in 2012-2015. That’s when the 737 MAX was developed, and certainly a low point in terms of company engineers having access to managerial authority.
Questions should be asked, and more people with aviation experience need to be appointed to the board.
3. The board needs a refresh: McNerney packed the board with rubber-stamping supporters and random celebrities, with very few engineering or technical degrees among them. Calhoun was a board member since 2009, providing zero oversight in a worsening situation. While a few new and more qualified members joined in recent years, there is the big question about their oversight, or lack thereof, in the past year or so, when things went off the rails. Who was protecting Calhoun despite the very wrong path the company was on? Removing Kellner is a good first step, but questions should be asked, and more people with aviation experience need to be appointed.
4. Change the culture: Southwest Airlines (LUV) founder Herb Kelleher said, “Your employees come first. And if you treat your employees right, guess what? Your customers come back, and that makes your shareholders happy.”
Boeing’s management reversed that order: they were obsessed with financial returns, while assets like technologies, products and, most of all, the workforce were barely priorities at all. The embarrassing litany of failed 737 MAX production goals resulted from executives who wanted the cash associated with jet deliveries, but didn’t understand the resource needs associated with building those jets. They also didn’t have the connections with the workforce needed to understand what was needed and what was possible.
The new management team needs to change this. They need a transformation every bit as profound as the transformation of General Electric from the old Jack Welch culture to the new GE, under Larry Culp. In fact, Culp would be an inspired choice for Boeing CEO.
As part of this process, and as part of the board refresh, it would be a great sign if Boeing gave one board seat to the unions. It could alternate between the engineers and the machinists.
5. Recruit the veterans: There’s a remarkable diaspora of former Boeing people with tremendous expertise in design and production. Incredibly, there’s been no outreach to them over the past few years, despite Boeing’s increasingly dire situation. They need to be brought in as consultants whenever possible.
Start talking about a new jet, and the enabling technologies, with an eye on launching it within two years.
6. Develop a new jet: In November 2022, Calhoun announced that the company wouldn’t introduce a new aircraft this decade, despite a massive competitive disadvantage against Airbus (FR:AIR) in the middle market (200-240 seats). Predictably, 2023 saw a record 1,300-plus orders for the middle market A321neo. Airlines had no choice but to take his announcement seriously, despite the damage it was doing to Boeing’s position. Engineers took it seriously too, and had few reasons to join an engineering company with no plans to do anything new.
The answer is simple: Start talking about a new jet, and the enabling technologies, with an eye on launching it within two years. In addition to getting Boeing’s market share back to 50%, introducing a new jet would attract new talent and galvanize a demoralized engineering workforce.
The recent decades have been a master class in mismanagement.
7. Bring back strategy. In November 2023 Calhoun abolished the company’s strategy department. Business unit strategy functions were gutted too. Bringing these capabilities back would be an excellent sign. This too is simple. A company with a future should have a strategy, and a way of allocating capital among business units.
Again, the road back for Boeing will be long. The recent decades have been a master class in mismanagement: a systematic neglect of what made the company great, with a single-minded focus on extracting cash. Per Oscar Wilde, they knew the price of everything and the value of nothing.
Strangely, this unpleasant reality implies hope. Boeing has many strong attributes – its products, its suppliers, its technologies, its people and its global presence. It’s in a global duopoly with high-entry barriers, and customers that eagerly want its products. The only thing missing was competent management. With good leadership, the company’s many virtues can be unleashed.
Richard Aboulafia is a managing director at AeroDynamic Advisory, an aerospace and defense management consultancy headquartered in Ann Arbor, Mich. He is based in Washington, D.C.