Aviation Week editors break down the seismic leadership changes announced by Boeing and what they mean for the company's future.

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Transcript

Joe Anselmo:

Welcome to Aviation Week's Check 6 podcast. I'm Joe Anselmo, editorial director and editor-in-chief of Aviation Week & Space Technology magazine. Eleven weeks after a door plug blew off an in-flight Boeing 737 MAX 9, the company is caving in to pressure to revamp its senior leadership team. Stan Deal is out as CEO of Boeing Commercial Airplanes. Steve Mollenkopf, an electrical engineer and former Qualcomm CEO who sits on Boeing's board, will take over as board chairman, and Mollenkopf will lead a search for successor to CEO Dave Calhoun, who will leave the company by the end of the year.

Joining us to explain what this all means is a team of Aviation Week editors, Business Editor Michael Bruno, Commercial Aviation Editor Jens Flottau, and Senior Propulsion Editor Guy Norris.

Michael, take it away. Give us a rundown of what's going on at Boeing.

Michael Bruno:

Well, welcome to the new Boeing. This is either the end of the beginning or the beginning of the end, but the one thing we can say for sure is today marks the transition to what could very well be a very different company at the end of this process. And what's the process? The real process at hand right now is the search for the new CEO, which was essentially announced today. Well, Dave Calhoun has marked that he will be there up until the end of the year. Who knows, if they find a replacement, he could leave even sooner.

But what we do know is that everything to date that had been announced under the Calhoun tenure will be immediately put on a shelf and ready for reevaluation. And that's everything from, if you're a shareholder, that $10 billion free cash flow benchmark, to whether or not they launch a new commercial aircraft, to how much of the defense and space business they decide to keep or get out of. As they've already indicated, they're looking to sell off some assets. Everything from as large as United Launch Alliance, down to some small business units. The whole strategy for Boeing is going to be kind of up for grabs with new leadership.

Who's that new leadership going to be? We don't really know. We do know that with a new chairman, there will be a mandate in order to look widely. It won't be just somebody from inside the company, there's a couple of reasons for that, one of which is there's a very thin bench of people right now who are expected to be able to step up in the CEO realm for a cross-aerospace and defense company. So the search is likely to look outside of Boeing, try to find somebody different but related to come in and run it.

The only major person who's sticking around is the CFO, and that's critical because you would want some sort of stability through this, not just for shareholders, but for anybody with a stake in the company, and that's customers included, you're going to want this company not to fall off the rails. And so Brian West, for all we know, is here at least until maybe a new CEO comes in and replaces the CFO with his or her own favorite partner. So lots of questions here. What we do know is this marks the transition to a new Boeing.

Joe Anselmo:

Michael, not long ago Stephanie Pope was appointed COO in a move that was widely seen as grooming her for Mr. Calhoun's job. Is this a change for her? Does this mean that she's less likely to take over as CEO?

Michael Bruno:

Traditionally when a new CEO comes in, she or he has the expected power to determine her own management team. So it's very traditional in corporate America, a new CEO comes in and basically all the executive vice presidents on up basically hand over their letter of resignation to be accepted and signed by the new CEO, or shredded. They want to keep that person in place or move them around. That's traditional. So no matter what was happening at Boeing, you would expect everybody at the head of the major divisions, that their job could very well be time limited simply by a new CEO coming in.

Having said that, Ms. Pope, I will say, in industry has widely been seen in doubtful ways about her ability to step into the CEO role in the near future, simply because she had not had that much exposure at other divisions, she hadn't run defense, or certainly not commercial, was not somebody who had walked factory lines for a good long time and knew these processes. She'd done a successful job coming up through Boeing Global Services, the small aftermarket and MRO division that Boeing started years ago, and she had recently been appointed COO, which is traditionally a stepping stone to the CEO position. But everything's in question now. Once you get a new CEO, that person has the writ to rewrite the company, including the people who are going to help him or her lead it.

Joe Anselmo:

Jens Flottau, Dave Calhoun came in when Dennis Muilenburg was fired as CEO during the original MAX crisis, and he came in as Mr. Fix-It. The job hasn't been completed, has it?

Jens Flottau:

No. If you look back, it's gotten worse. When Muilenburg was forced to leave, it was all about the MAX crisis. Now it's a broader crisis. It's production, it's market share, it's strategy, it's almost everything. And if I look at what the next Boeing management will have on its agenda, it's really two main things. One is just getting the basics right, which is getting out safe aircraft out the factory door that are of good quality. And then the longer term issue is getting a strategy in place that will make Boeing competitive again in the global market vis-a-vis Airbus. And as we've said many times, and as many others who are following this industry have said many times, Boeing will need a new narrowbody aircraft very, very soon. They cannot afford to wait as long as they have planned to under the Calhoun management team. That is a key element that whoever succeeds Calhoun will have to tackle as soon as possible. As Michael says, I have a hard time believing that Calhoun can really stay until the end of the year in his position, simply because it'll delay everything, all these decisions, by almost another year, and Boeing simply does not have the time to do that.

Joe Anselmo:

Guy Norris, we were talking shortly before we hit record on this podcast, and you were noting that from World War II to the acquisition of McDonnell Douglas in 1997, Boeing had just three CEOs. It seems to be a big shift since then.

Guy Norris:

Yeah, that's right, Joe. I was really just reflecting on the arc really of Boeing's leadership over this 80 years or so. And you're right, it's remarkable. If you look at, as you say, from the end of World War II to the Boeing McDonnell Douglas, so the announcement of the merger in '96, just three CEOs, Bill Allen, T. Wilson, and Frank Shrontz. And then you get into this new era, it becomes like Game of Thrones, really. You have this period of Phil Condit, Harry Stonecipher, James Bell, who was just a one-year interim position, and then finally they settled into this sort of a period where for once you had somebody who stayed more than a few years, with Jim McNerney who came in for a decade.

And that marks really the second phase of this post McDonnell Douglas adjustment, which was when they saw the entry into service of the 787 and all the problems that brought with it, the development of that aircraft, and of course the launch of the MAX, which really, when you look at it, you then have Dennis Muilenburg and Dave Calhoun come in. And if you look at it, in a way, both of those are kind of scalps. The MAX takes two more scalps. It's another fallout from that, added of course to the pandemic, which really reflects the sort of issues that Jens was bringing up, that really Dave Calhoun is still in the middle of trying to solve a lot of problems that weren't even there when the MAX was launched.

Joe Anselmo:

Guy, you and Jens recently wrote a story on the next narrowbody, and I was reading that this weekend and reflecting. The week I was born, the first 737 was on the cover of Aviation Week, I was in college when the A320 entered service, and it's very possible that I will be collecting social security before a successor to either of those is in service. What has happened to this once bold industry?

Michael Bruno:

And you're a young man, Joe, we should just point that out for the audience.

Guy Norris:

Well, of course. Gosh. Well, first of all, I think we should just mention, we are recording this within a couple of hours of these seismic events going on in Seattle and DC. And one of the things that just has happened is that Dave Calhoun was recently interviewed within the last couple of hours by CNBC, and in that interview he specifically mentioned this next generation single aisle.. It was one of the few things he mentioned specifically in the terms of product development, and it was regarding, what does he want to see in a successor? And he said, it's not just the production of the aircraft, it's the development of the next airplane. Our next leader's going to develop and call out the next airplane for the Boeing company. It will be a $50 billion investment. That's what will happen, that's what's on the next leader's watch.

And I think, as Michael was mentioning in the buildup to our recording just now, or maybe it was Jens, I'm sorry, I can't remember who said it, but he was almost relieved to reflect on the fact that it ain't going to be him. But everybody knows the pressure is building behind the dam wall to get this thing launched. Airbus is in a way, way better position to get on with it, as we all have known and said. Boeing, from one point to another, has been stonewalled itself, because it's in a position now where it can barely afford this $50 billion investment, and he's just put a price tag on it. That's five times bigger than any number I've ever seen before in terms of what could it cost. So I don't know, Jens, good point, what do you think?

Jens Flottau:

Yeah, and it's interesting. You say they can barely afford it now, they can also barely afford not to do this. One element that we also need to talk about is engineering skills. If you wait too long, a lot of the engineers will retire, will go away. You will lose the ability to develop new aircraft if you don't do that soon enough. And if you look at the Airbus side, they constantly have had that in mind over the past few years. They've done incremental development programs like the XLR, they've done the A350F, and they've started earlier than Boeing, to many people's surprise, to talk about the next generation narrowbody aircraft. One element was you need to keep your engineers busy, you need to keep that expertise and talent, and of course sustainability has played a big role over here in Europe. The interesting thing is, from the Airbus point of view, is that they are no longer looking at Boeing with regards to their own development plans, they're just doing their own thing. That's a position of strength that Boeing can only dream of.

Michael Bruno:

From my point of view, I just want to note that this is absolutely going to be an inflection point for Boeing, and the obvious is that there's a new CEO coming in. But I do feel like for the company, the Boeing we're going to see in a couple of years could very well be dramatically different, and that's because when you look at the forces that are pushing on Boeing right now, they're very different from even five years ago before the pandemic, and they're different in a way that's permanent. So on the commercial side, you'll hear a lot of talk, I think in the wider world, about, "Oh, well, let's just bring in an engineer and get back to basics and build great aircraft." Well, even if you do that, the marketplace is changing.

Comac, while a very distant third OEM, is growing every year, and will continue to grow. There's still also the threat from Embraer, if they try to come in on the small end of the market. And then there's the, who know? Who knows the disruptor that pops in? Guy, you've been covering one of these companies, blended wing and all that, and what if they just continued to get backing from somebody, either a rich billionaire or private equity and decide to make a go of making an airliner out of it? If they can be the Elon Musk and SpaceX of commercial aircraft, you could see a lot of airlines and lessors maybe jumping at them, or at least giving them enough money to make a go at it.

So yet that's just the commercial side. On the defense side, the large defense primes continue to be challenged by the advent of new technology, and that's including in old hardware like rockets. Again, SpaceX coming in and disrupting the entire space industry and that looks different. Aftermarket looks different from what Boeing thought it was going to be five, 10 years ago, and they've had to ditch this idea of this huge $50 billion benchmark they thought they were going to get to. There's a lot of competition right now for those dollars because one of the few growing sectors that are seen with a really high growth rate still coming at it.

And so that leads us to say, what is Boeing going to look like in the future with the new CEO? And this new CEO has the ability to help decide that. But Boeing could look really, really different in a couple of years once all this starts to get settled out. That isn't to say it's going to go away completely, but it could change. There are underlying assets there that are going to do really well no matter who owns them or what brand is on the door, but just getting a new engineer in the CEO corner office isn't necessarily going to bring Boeing back to the way it once was. I personally believe the market has changed so much that the company is bound for a bit more change before things settle.

Joe Anselmo:

Guy Norris, I wanted to follow up, Michael mentioned an engineer. Phil Condit is viewed as the last “airplane guy” that ran Boeing, when Alan Mulally, the father of the 777, was passed up in 2005 in favor of an outsider Jim McNerney. Do you think that we're going to see an engineer be picked in this next CEO search?

Guy Norris:

Well, I just want to get back to Michael's who knows type of scenario is there, isn't it really? I think that it wouldn't be out of the realm of possibility, although, as we've said, it's likely to be somebody outside of Boeing, I would say, currently in the mix. You could be looking at people like, well, let's be honest, Pat Shanahan might be in the frame, although he was Boeing and he's going to be part of the new bigger Boeing with Spirit AeroSystems.

Michael Bruno:

But who knows if that deal goes through, right?

Guy Norris:

Yeah, right. But you're going to be looking at somebody, I would say, like that. Let's see. If you look at the way that Dave Calhoun, and he said he's going to be part of the selection committee for the new person, I think part of the big issue is going to be they know that nothing's going to be sold fast and everybody's being pulled back and they say, even on things like 737 production, which is the cash machine, they want that to get back into action. He's saying, "Look, it really doesn't matter whether we want production to go up or not at this stage, and if the FAA and us, we just want to be in control of things again," and that's been the problem. They don't want to have travel work anywhere near what they've had in the past. They need desperately to get that supply chain to catch up, they have to change their behavior and they know it, and it's just this massive transition.

So whoever they're talking about to bring in has got to be cognizant of that. They can't be this starry-eyed visionary who's going to necessarily launch five new products. The ship already has to be stable, and they know that whoever comes in has to be part of that transition. So an engineer would be great, another Mulally or somebody like that. I don't think Alan would probably like to do it now because he probably wants to be enjoying retirement, but there's got to be somebody out there like that, and I think that's the sort of person they would love to get.

Jens Flottau:

And I just wanted to remark from the customer point of view, they're watching this very, very carefully. In the few hours that have passed since the announcement, I've heard from several of big airline customers of Boeing that have voiced concerns about who might replace Calhoun and that it would be another one who's more focused on finance than on engineering and quality. So from the customers will be watching this, the big customers will be watching this, big airlines will watch this, and will be very happy if this time engineering prevails.

Joe Anselmo:

Michael, you heard Jens talk about the need to urgently move forward with a new commercial airplane, but Boeing also has a very big business in defense and space and that's not doing all that great either. How does that business figure into all this?

Michael Bruno:

Yeah. Boeing is an aerospace and defense version of a multi-industrial company. So it's got commercial interests, large commercial aircraft, it does business jets. If you even look at that small piece of work, it does defense, it's in space, it does aftermarket across the board everywhere except space at the moment. I'm sure they'd love to get aftermarket in that if they could get their stuff launched. It's a very complex business with several different corners and different end markets, different customers. And while large commercial aircraft have been the headline maker for Boeing for the past couple of years, for the most part, the Pentagon on the defense side has been very concerned because Boeing's been underperforming on several programs, T7, KC46, unmanned vehicles, spacecraft, and so it's not the big moneymaker, the defense and space division is not the big moneymaker that it used to be. That changed about 20 years ago when we started up with what we call the super cycle, the last commercial super cycle, that lasted twice as long, about 14, 15 years, than they normally do. And defense and space had become a cash provider, a cash cow, where you could rely on the money coming in from the government, but Boeing really looked to make its money on the commercial side.

So giving up on the defense and space side is not easy because that is a revenue stream that they desperately, desperately need. And this actually goes back to the conversation about who would be the next CEO. Again, I don't think it's just as easy as saying, "Bring in an engineer and everything will get back to greatness." You do need somebody financially who can speak and has the trust of Wall Street, and there may be engineers who hate that idea, but this company has to make enough money to survive. If it shares plunge, an activist investor can step in and take it over, and you don't get to control what happens to it unless the government tries to stop it, and that'll be an entirely different case. So financially, there's still concerns here that the company has to take care of, even if you want somebody who knows actually how to put together an aircraft come in, which has been the fantasy for a lot of us for a long time.

Guy Norris:

I was just going to say, I thought that the other thing that, the timing of this from the defense side is crucial because Boeing currently is a finalist for the contract for the Air Force's next generation fighter, the NGAD, which is a massive contract. It's a franchise that will last for decades. Then there's the first part of the Air Force's new collaborative combat aircraft, which is all about autonomy and going into the next generation, so it's a pivotal time.

But the other thing I was going to mention is that, and this goes back to something Jens and I were talking in our feature about on the next narrowbody, the fact that Boeing is in such a squeeze now and it knows it's got to do something, it puts even more emphasis on things like the X-66 NASA program that Boeing's involved with to develop that technology for next generation. It's not a science project. It could be the key to Boeing's commercial future at least. So thank goodness for them that they've got the program launched and underway. You can't stop it now, it's going to go ahead. And that suddenly becomes, I think, a pretty massive lifeline to the future, particularly for Boeing's commercial side.

Joe Anselmo:

Michael, the interesting thing here is it's not quite a bloodbath in that the only person that's out the door immediately is Stan Deal at Boeing Commercial Airplanes.

Michael Bruno:

Yeah. So it's worth remembering that Calhoun says he could stay up until the end of the year, could leave sooner, but no later than the end of the year. The chairman, Kellner, is staying until the next shareholder meeting, where at least he's not running for reelection as chair of the board. I guess technically that means maybe he could still be a director or an advisor to the company even after that, but he won't be chair of the board. But those are going to be happening over the next weeks and months. The only immediate victim here of these management changes is Stan Deal at the head of BCA. And what's interesting to me is that he was brought in to fix BCA and was at one point considered on our shortlist of potential future CEO. It's a natural position to be considered in a short list if you're heading the largest division at Boeing, and you do it well, naturally that sets you up maybe to lead the whole organization, but we know now that's not going to be the case.

Guy Norris:

And just to follow Michael's comments there, I think if you look back on it, Stan Deal did a fantastic job in a way, given the circumstances. Don't forget, he also set up the shadow factory to get the 787 back into a production flow, recovering all of those, rebuilding essentially 100 787s to get them back into service. He orchestrated this transition and additional lineup at Everett for the MAX. So under the circumstances, I don't think he did such a bad job, and to be honest, I get the feeling that he really was aiming to call it a day pretty well when the 737-7 MAX version was certified, and of course, that has been delayed. But all in all, I don't see it as a huge surprise. In fact, really the surprise is, in a way, that some of this didn't happen before.

Joe Anselmo:

Well, he might've done a good job, but he's leaving behind a mess, isn't he?

Guy Norris:

Well, yeah, but I don't think, in terms of the overall strategy, things kept catching up with Boeing that were kind of, I wouldn't say out of their control, but like the supply chain issues, the fact that you're getting pulled in two directions at once. The airlines want their products yesterday and Boeing's still trying to catch up with a supply chain that's been out of whack ever since the pandemic. So between all of that, it's no wonder that the mess still continues.

Michael Bruno:

I do think though, following up on what Guy said, that, yeah, there's a mess at BCA, there's a mess at BDS. The only place there isn't a mess is at BGS, Boeing Global Services, and that's because it's relatively small and working in an extremely high growth market right now, it's hard to mess that one up. But with the divisional changes we've seen recently in recent years, Leanne Caret leaving at the head of BDS, and you could say she left behind a mess too, but that had to do with decisions that were made above her pay grade. The corner office decisions about what kind of programs to go after with must capture bids, low bids, low ball bids, and how that sets up the division to have to suffer later on. This always comes back to leadership setting the tone, the CEO, and to the degree, the chair, setting the tone of the strategy for the company and making the decisions, which is why Stan Deal may take some fall here for BCA, but everything in the end always comes back to the CEO.

Joe Anselmo:

Okay, guys, well, we could talk for a long time, but as you noted, Guy, this is just breaking news, we're still digesting it, and we will be reporting on this throughout the week on aviationweek.com. But for now, that is a wrap for this week's Check 6. Special thank you to our podcast editor in London, Guy Ferneyhough, thanks to Michael, Guy, and Jens for their time, and to our listeners, thank you for your time, and join us again next week for another Check 6.