Podcast: Behind The Curtain With Boeing’s CEO

Joe Anselmo:           

 Welcome to the Check 6 podcast. I'm Joe Anselmo, Aviation Week's editorial director. Nine months after he was tapped to lead a turnaround of Boeing, Kelly Ortberg sat down with Aviation Week editors for his first in-depth interview. Editors Guy Norris, Sean Broderick, and I spent an hour with the CEO at Boeing's 737 MAX assembly facility outside Seattle, posing questions in a conference room and then continuing our conversation during a scroll through the factory. The full interview is posted online at Aviationweek.com and appears in the June 2nd print edition of Aviation Week & Space Technology Magazine. You can also find a link to it in the description of this podcast.

As you can expect, we've received lots of questions from our colleagues and others. How did it go? What was he like? What did you think of his answers? So we decided to give our Check 6 listeners a peek behind the curtain to answer those questions and yes, share our opinions.

Joining me on this podcast are Guy and Sean. We've also asked Aviation Week Business Editor Michael Bruno, to weigh in on the significance of what Ortberg said and joining us from Europe is Executive Editor Jens Flottau, who leads our coverage of Airbus.

Guy, it started off with a bump. It was my fault. I inelegantly posed a question to him about the F-47 and he seemed to think I was implying that the U.S. government gave them a contract they didn't deserve just to help the company. But then I guess we course corrected then it got better from there on. What did you think of the sit down and of Kelly?

Guy Norris:       

 Yeah, for a minute there, Joe, you had me worried When we started it was like, "Whoa, that's probably the best way to start." But as you say, we course corrected pretty quickly and of course Joe you know Kelly from his Rockwell Collins days going back, so it was quickly a more comfortable position I think that we all find ourselves in.

But no, I mean to be very honest I thought was he was very straightforward with his answers. He was sort of legitimately not too concerned with the issues that had plagued previous leaders of Boeing. I feel like he was building, standing on the shoulders really of the accomplishments of certainly in a way of Calhoun for example, certainly building on some of those platforms. But he was okay. I thought he was very honest and straightforward and the feeling I got was that this turning the corner moment was either on us or approaching. Has Boeing got its stack together again? And the feeling was yes, they were back in the driving seat.

Joe Anselmo:          

 So as you noted, I had interviewed him numerous times in the past, but I hadn't seen him since he retired from RTX and he walked in the room and I'm like, "This is the same guy, maybe a little bit older, still looks really youthful for 65." And I sat down and it was the same guy I remembered. Sean Broderick, what were some of your key takeaways?

Sean Broderick:       

 I think if I had to pick one word to describe him, at least based on that interview, I’d pick pragmatic. I didn't find him to be irrationally exuberant about Boeing's position. Of course, he was very upbeat on things like the backlog, things like demand for the airplanes, the direction of all three business units. I think you're going to get that from any quality leader, but I think he was also realistic in laying out some of the challenges and where Boeing is in this journey back to a dominant or at least a competent and consistent U.S. aerospace conglomerate.

Every time we sit down with one of these executives -- we've done this interview annually. I've done it for, I don't know, the last five years and of course you've done it for much longer -- you ask about new product development. Every year for the last what, 19 years we've asked about a new product. And most of the answers relate to the timing of when engine technology's mature enough, when airframe technology or production processes improve to a certain level.

Well, Kelly mentioned a two things that we don't hear a lot. One of them was Boeing needs to be ready to take on a new project and it's not just financial. Michael Bruno will weigh in and a big part of it right now is financial, but also in just their ability to focus the resources necessary and execute what you need to bring something as complex as a clean sheet commercial airliner to the market.

The other thing he said, and this is something that I claim doesn't get enough attention, is the current generation aircraft are problematic. They have advantages, but they're problematic. Engines and airframes too. They haven't been the smoothest entry into service over the last 10 years. Pick a platform. So Airbus and Boeing aren't -- the operators want consistency and they want dependability even if it costs them a little bit in efficiency.

And so once those challenges are overcome, you have really good products. And the airlines are a little bit hesitant to bet on something that's unproven and marginally better, especially after the last round of introductions, things like the geared turbofan, just to pick one issue. And he touched on that as well as something that the air framers and the engine suppliers, top tier suppliers, need to get better on in the next round. They can't introduce a set of new aircraft with durability issues. And so to me, that reflects the reality where we are. And it's a reality that a lot of folks, I think in our industry, whether it's mostly the pundits I would say, don't really recognize. They think if you're not building a new airplane, you're not moving forward. And I think Kelly recognizes that, look, it's more than about moving forward. It's about moving forward consistently and predictably.

Joe Anselmo:             

Sean, you mentioned that we asked him about when are you going to do a new airplane? I mean, Boeing has been getting pounded out there for years for sitting on their hands and not doing a new airplane. But I thought he outlined it more succinctly in a way than Dave Calhoun, his predecessor ever did. He said, "There's really three points here. One, when is the market ready, two, when is the technology ready and three, when are we ready and can financially handle that?" And he said, "None of those are ready yet and we're still bleeding cash." I thought that was really a really succinct way to sort of make that argument of why Boeing isn't moving faster on new airplane products.

Michael Bruno, you weren't there, but you cover all of Boeing's quarterly earnings. You've heard Kelly quite a few times speak on those. What were some of your key takeaways from this interview?

Michael Bruno:       

So first of all, wonderful that Mr. Ortberg sat down with us again. The ability to call you all in speaks volumes to the higher level, greater level of transparency and I think that's reflected across the board. While I wasn't with you for that interview, what I can report to you are some of the sentiments and the comments I continue to hear are certainly from the investor world, also a bit from the supply chain world and across the board there seems to be better engagement. There's more, dare I say, trust in Mr. Ortberg and what he's trying to do with the company. Nobody going back to Sean's wonderful reference to Alan Greenspan, I think in the irrational exuberance, nobody's got irrational exuberance yet and that seemed to be reflected in what Mr. Ortberg talked to you about.

He talked about, ‘We're still recovering,’ right? ‘We're on the road to recovery.’ He's exuding confidence that they're doing what's necessary. And the backbone of all of that is getting the 737 program to produce and deliver again because that is critical to the financial wherewithal of the company in order to get to a position where they're producing what's called free cash flow, which is positive cash flow from operations after you pay off your major frontline expenses. In order to get there, they've got to be producing and delivering 737 MAXs at rate 38 [per month] and above consistently and they seem to be on the way to doing it.

Now one or two quarters doesn't necessarily make a solid trend yet, but from what we are expecting and what Wall Street is expecting, they very well will get to rate 38 in MAX production this year. We already know that Spirit Aerosystems, the key supplier which is about to become part of Boeing, is producing at rate 42 on the MAX and it's critical, it's even more critical that Spirit be at rate 42 or wherever it is, it has to be above where Boeing's rate is going to be on the MAX program, and this all seems to be happening.

And 18 months ago it all seemed to be falling apart and nobody really thought or had an idea as to how to get the train back on track. We can go back and revisit things about what happened with the Calhoun era, how Ortberg was a little bit of a surprise, but a welcome surprise for taking over the corner office. But fast-forward to where we are today with your interview, people have more trust and confidence in what's going on.

Joe Anselmo:             

Jens Flottau, I didn't mean in my introduction to pigeonhole you as our Airbus reporter. You lead our commercial aviation team, so you obviously write about Boeing a lot as well. What in the interview surprised you if anything?

Jens Flottau:     

 I'm not sure there were many surprises in the interview, but just I was thinking about, what's the word that describes this best? Sean picked pragmatic. I agree with pragmatic, but to me what really stood out was him being so straightforward in many different ways. So you asked him about the 777X and his answer was he's still shocked about how long this took. So this is the CEO of Boeing being shocked about one of his programs, the bad performance of his programs. That's a pretty strong statement. He also said there's going to be more management changes, maybe not his direct reports, which would be obviously very, very highly visible, but maybe in the ranks below that. He put across that message in a very calm way that whoever doesn't follow along with the culture change will be out. All of that is coming across in a very calm manner and a very straightforward manner.

But it doesn't only go to the inside. It's also with regards to FAA processes. I remember back in the Calhoun days and shortly after the MAX crisis began to evolve, no one at the Boeing would dare to comment on anything the FAA would say in terms of certification timelines. We ask them again and again, when will whatever the MAX 10 be certified? We got no answer. Even before that, when will the MAX be ungrounded? No answer. The answer was always, "You have to ask the FAA. That's determined by the FAA, we are coordinating with them," and so on. So there was that ambiguity that I understood why that was there, but that seems to have completely changed.

And why do I say this? One of the answers he's given is about FAA processes and he says they've gotten way too elongated. And I think that's a pretty strong statement for a Boeing CEO given what's happened over the past few years. And I would say he's the first one who dares to say that, and I would agree with him. It has become all too elongated. It's become a big problem for Boeing, not only for Boeing. It's become a big problem for everyone, Airbus, the suppliers, any change that's being tried, invented is taking forever and it's become a big problem for everyone. For the Boeing CEO to say it is a big message that he just got across in a calm, silent way in this interview.

So having read it a few times in preparation for this podcast, I'm quite impressed with what he says and how he has it and how he's taking ownership of these issues.

Joe Anselmo:       

Guy Norris, we've talked a lot about commercial. We also asked him about space and I thought that was a really interesting answer because Boeing's a prime contractor on NASA's SLS launcher, the Trump administration is going after that. Starliner, their crew vehicle is really plagued. And I said, "Does Boeing have a future in the space?" And he said, "Absolutely." But then all he talked about was national security space, that Boeing was big in national security space and would remain big. And these other things. He was sort of like, "Well, I can't control what happens to them."

Guy Norris:       

Yeah, you're right. I think everybody's mentioned about his pragmatic, unruffled calm approach and being in taking ownership of things. That's the one area where I felt perhaps it was a bit like previous CEO interviews where there was a lot of uncertainty in that particular answer. He certainly didn't really give us many positive vibes when it came to the future of the SLS system. That was very clear and similarly with its role in future space exploration. So I think that's a changing picture. And the same with defense. I think he was a lot more sure of himself. Obviously your question got him rolling there on the F-47, but I think there again, you're seeing a transformation. Boeing's had this awful track record in recent years with execution on the KC-46, and even the T-7, the poster child of its model-based systems engineering approach was suddenly in trouble. I mean the list goes on and on.

So, to be able to say in our interview that the F-47 was a well-deserved, well-executed program, building up to contract signing I think says a lot about how he feels about how Boeing has transitioned. So that was a key thing.

And just one other thing before we move back to Michael was something you mentioned Joe, about how he really clearly stated the three things that need to happen before Boeing can even consider moving to a next product. One of the things we did ask him about was X-66. You remember just in the past few weeks, Boeing surprised everybody and maybe even NASA by pulling out really essentially from the X-66 sustainable flight demonstrator, which Dave Calhoun had previously sort of indicated could be the blueprint for Boeing's 737 replacement going forward. They've pulled way back from that. They've said that the thin-wing technology at the heart of that is still relevant and they're still pursuing it, but we kind of identified it as an aspect of perhaps Boeing and Ortberg's new real approach to product development.

  It really shows that going back to basics, reallocating resources immediately where they're more required to get the cash flowing in that Michael was talking about and at the same time stepping back and sort of reassessing where they need to be for the next product. And certainly X-66 unfortunately doesn't seem to fit the bill as it was originally planned.

Joe Anselmo:  

 In answering you on that, he said, "We didn't want to spend a lot of our resources on what I'll call mundane maintenance of an aircraft." That was a pretty blunt there. Michael Bruno, we also asked him about his leadership team and he's made some changes there, particularly on the defense side. And I said, "Is this your leadership team going forward?" And he said, "Not necessarily." He said, "It might not be people that report directly to me, but we're going to continue to make changes in leadership and if people don't get with the program, they're not going to be here." I thought that was quite a message he's sending.

Michael Bruno: 

Yeah, the proper message, to Mr. Ortberg's credit, absolutely. That's the right thing for a CEO to say, that's the right thing for a new CEO to say. Let's step back for a moment and realize he's only been in office since August and considering all of the sort of burning platform issues that Boeing had in front of him when he joined the strike happening in Seattle and whatever, there had been some disappointment that maybe more changes in management didn't happen quicker, right away in some corners, at least of the investment world and even the supply chain world. But there have been changes now and that he makes the message very clear that there will continue to be.

So I'm not trying to downplay what Mr. Ortberg said. He is saying the right thing and he is doing things, we have seen changes. So for him to say more changes can occur, it would actually be surprising if he said, "No, no, I've got my team solidified. This is the group going forward." You'd almost never want to say that anyway as a CEO because you never know what's going to happen. Somebody might get a better job offer and leave all of a sudden. You have to announce, "Oh my gosh, I've got to get a new CFO." And the market hates it when you surprise him with a major new leader like that.

But I want to step back to one other thing, by the way, is I was listening to Guy, your question to Guy about SLS and commercial space and it reminded me of something. I was struck in reading the interview you all did with him. And again, I wasn't there in the room, but this plays into what I'm hearing on the quarterly calls too and some of the supply chain conference stuff. Mr. Ortberg is stepping in and he's winning kudos for seemingly starting to turn the ship around and that's great and he's pragmatic and he's approachable and it's almost sometimes going to be unenthusiastic and even a little dour.

So those comments about commercial space with SLS, if the president is backing away from commercial space, SLS and Gateway and all that, well then Boeing's just going to follow. And if the president's going big into military space, that's where Boeing's going to go. And if sustainability doesn't seem like it's going anywhere, well Boeing doesn't necessarily need to be out front in front of that per se.

So I think the market is beginning to get the idea that Boeing, under this era of leadership, absolutely getting their own house in order, going to get back to being a positive cashflow business, pay down some debt and be a real sustainable business. But there may be these elements, these programs, these positions where Boeing isn't necessarily that huge leader out in front making these major changes happening, at least not in the short term. And I still think that that is something that the marketplace is grappling with because it used to be, remember back in the Muilenburg era of setting the big vision and that kind of stuff probably isn't going to be coming in the near future, at least.

Joe Anselmo:              

One other thing that struck me was he made a point of mentioning twice that they have the ear of the Trump administration all the way up to Donald Trump, and he said that twice. And I saw right after we saw him, he was on the Daily Show sitting next to Trump in Qatar during an announcement and they were making fun of him because he was stone-faced while Trump was saying something a bit bizarre. But when it came to tariffs, Boeing is massively exposed if these tariffs blow up into a widespread trade war. But he said, "Hey, I've got the ear of the president, they're listening to me and they don't want to harm Boeing." I thought that was interesting.

Michael Bruno:   

 I would just follow up on that and I think I would be surprised if Mr. Ortberg isn't talking to the president. Larry Culp at GE is talking. We now know that several executives have actually weighed in and how much of the president’s ear they have, but we were told they've delivered their message that they'd like to get back to the world of a tariff-free global aerospace marketplace. It's in everybody's best interest. It's the one thing Airbus and Boeing can agree on.

But what's interesting is with Boeing, they're not freaking out about the costs of tariffs, but they're not freaking out about that because they're sitting on tens and tens and tens and tens of billions of dollars of inventory that they're still trying to work through. So those tariff impacts really don't have much an effect until later this year or even next year and who knows what the policy is by then, it could all be completely different. So it's different for Boeing than other companies because other companies aren't sitting on that mountain of inventory backed up from the MAX crisis. But for Boeing right now, the tariffs are not necessarily the worst burning platform issue that they have facing them.

Guy Norris:       

Joe, I thought one other thing that we discussed with him was quite interesting. We did ask him whether he thought Boeing had fallen dramatically behind Airbus in terms of its commercial world and the market share. I mean obviously at the moment Airbus is standing on a roughly 60% market lead, which is historic in terms of its sort of market gain there. But he wasn't overly concerned. He thought no, he thought the product range was there and once they got over the hurdles of certification, 777X family, he thought was going to be a winner. And of course in the few days after our conversation, some record orders were notched up. But also he said the one area really he identified was the 737-10. 737-10 is the actual aircraft that's the only one that can compete with the 321neo. And I'm sure Jens has got a point to make on this, but yeah, he was pretty upbeat. I was surprised at how upbeat he was on that.

Jens Flottau:   

I was surprised too. And in fact that's the one point where I would dare to disagree with his conclusions there. Joe, your reference to the three points that he raised, is the market ready? Is the technology ready? Are we Boeing ready? I think that market share situation that Guy referred to is unsustainable in the longer term for Boeing, not only on the customer side, but also on the supplier side because you get the much better deals if your volumes are much higher, and if your competitor is twice as large as you are, then that's not great for pricing. So I would say when is the market ready? The market is ready now. The market has clearly decided whose aircraft it does favor on the narrowbody side I should say, but it's also true as he said, "Are we ready, and his answer is, "No." Yeah, I understand why he would say that. Financially they're probably not ready on the -- Michael, you want to weigh in?

Michael Bruno:      

Oh no, they're not ready. It would freak out Wall Street right now if they announced a new program for some aircraft. You're talking a $10, $20, $25 billion marker that they would be committing to and they've got a whole lot of debt and other things they got to pay off first.

Jens Flottau:  

But on the other two points, is the market ready? I would say absolutely. Is the technology ready? I would say yeah. It depends on how you define it, but I would say it's ready to. It's Boeing who's not ready.

Joe Anselmo:   

 Guy Norris, you've interviewed every Boeing CEO. I'm thinking back to Phil Condit? Phil Condit, Harry Stonecipher, Jim McNerney, Dennis Muilenburg, Dave Calhoun, and now Kelly Ortberg. Where does Ortberg fit in as a Boeing CEO? Is he different?

Guy Norris: 

Boy Joe, that's a tough one. Do you know what? I think he is actually. And I say that really because he's the most unruffled, calmest of all of them, I think so far. He's come into this situation from such a different perspective. He's sort of come in from the outside. He's been working with Boeing most of his career and certainly from Rockwell Collins days onwards in a very senior role. So I think his perspective is just so different to all his predecessors. They came from within, mostly from within the inner sanctums, apart from the GE eras. But yeah, I think he is different and I think it's going to be really interesting to see how this plays out because I just feel like he's like a steady hand on the tiller. He seems to give that aura and he really did give the impression that Boeing's got its mojo back and we're going to see how that really plays out.

Jens Flottau:        

Maybe one little anecdote here just to illustrate this. I remember one Farnborough Airshow actually. with Condit, and he was flying us in his BBJ to dinner for half an hour in one of the islands. I can't remember which one it was. The Channel Islands. So we flew there for dinner, we flew back at night just before curfew. That was kind of the Condit days. And I would say it's completely unimaginable for Ortberg to do anything like that.

Sean Broderick:          

Well, I'll give you an anecdote from an air show that relates to Kelly. Back when he was head of Rockwell Collins, I was making my way across the static display when it was something that every caught everybody's attention, probably the F-35 or something was doing a display. And so I pinned my back against the media center, and as we were waiting for the airplane to start, I looked to my right and who was standing there but Kelly Ortberg. He had stopped on his walk across the static to do the same thing and he wasn't surrounded by henchmen or bodyguards or anybody notable. I just gave him a nod and we kept watching the airplanes. So that to me says a lot about who he was then and I think he still is today.

Joe Anselmo:    

And if we had more time, we could get into Kelly and the culture. But that is all in the interview, his views on culture and reforming culture and how he plans to do it at Boeing. But we are just about out of time guys. So that is a wrap for this week's Check 6. A special thanks to podcast editor Guy Ferneyhough in London. To our listeners, we thank you for your time and join us again next week for another Check 6.