Boeing Board begins search for new CEO – 03/27/2024 – Market

Boeing has reshuffled its leadership twice in recent months, naming its first COO in December and in February ousting the head of the 737 Max program after a panel came loose from a plane mid-air.

On Monday (25), the aircraft manufacturer went further, highlighting its struggle to contain a crisis that has left regulators, investors and customers questioning its safety record.

Dave Calhoun, appointed less than five years ago to try to resolve a crisis triggered by two 737 Max jet crashes in consecutive months, will step down as CEO at the end of the year.

Chairman Larry Kellner will leave in May, and Stan Deal, head of the commercial aircraft division since 2019, is retiring, replaced by Stephanie Pope, who has served as COO for less than three months.

Boeing’s board met over the weekend to finalize details, sources familiar with the situation said. But the company is once again faced with the task of finding a CEO capable of dealing with ongoing problems in manufacturing quality and increased scrutiny from regulators, customers and investors.

“We received the news of the management restructuring at Boeing with resigned exhaustion,” Morningstar analyst Nicolas Owens wrote in a note. Calhoun and Deal “have become too closely associated with the successive manufacturing defects discovered in the 737 Max and 787 lines since 2019 for their mantle of leadership to survive the next chapter.”

Steven Mollenkopf, the former CEO of chipmaker Qualcomm whose electrical engineering qualifications Boeing has emphasized, will take over as chairman, playing a critical role in leading the search for Calhoun’s successor.

Director of Boeing since 2020, Mollenkopf is no stranger to corporate turnarounds. While at Qualcomm, the company faced lawsuits from the US Federal Trade Commission, a hostile takeover bid, and shareholder pressure.

Mollenkopf isn’t waiting until May to take over: He and Kellner will participate in previously scheduled meetings with Boeing airline customers this week, people familiar with the matter confirmed.

Dave Calhoun, who received $65 million in salary and incentives in his first three years as CEO, told CNBC on Monday that as a member of Boeing’s board, he also has a say in who should succeed him, stating that he would like someone who “clearly has experience within our sector”.

Michael O’Leary, CEO of Ryanair, one of Boeing’s biggest customers, said he was “disappointed” by Calhoun’s departure, while highlighting some of the challenges awaiting his successor. Calhoun, he told the Financial Times, had carried Boeing through an “existential crisis and was finding a way out… until he was let down again by more mismanagement in Seattle.”

Boeing’s Renton factory, where the Max is built, is on the outskirts of Seattle. The most important thing Boeing could do was change management there, O’Leary added, calling it “too full of salespeople.”

“Seattle is a logistics business. It’s hard work and detail and logistics, and that’s what’s been missing there over the last 12 months. But the CEO of Boeing can’t go to Seattle and fix that. He also has a big defense business to think about,” O’Leary said.

Historically, the commercial aviation division generates the most revenue of Boeing’s three niche businesses, although the defense business outperformed it during the most difficult times of the Max and Covid-19 crises. But over the past two years, the defense division has reported losses.

O’Leary said she had not yet worked with Pope, who became chief operating officer in January and has been considered a strong candidate for the CEO role.

She has a solid track record of delivering profits in Boeing’s services business while the commercial and defense divisions struggled.

“She came from the financial side, which I think is a good starting point,” O’Leary said. “They are people with an eye for detail and the ability to pay attention to logistics.”

Another possibility is Dave Gitlin, a Boeing director who is the CEO of Carrier, which makes heating and cooling systems, Baird analyst Peter Arment wrote in a note. Gitlin has a background in aerospace, having previously held roles at Collins Aerospace and United Technologies.

A third contender is Patrick Shanahan, head of troubled Boeing supplier Spirit AeroSystems. Boeing is in talks about a possible acquisition of Spirit, which was spun off in 2005.

Shanahan spent three decades at Boeing and helped get 787 Dreamliner assembly back on track when it was facing delays. He was chosen during then-President Donald Trump’s administration as acting head of the Department of Defense.

Boeing will likely want a younger successor to allow him or her to stay in the role for a decade, Arment said. That could give an advantage to Pope or Gitlin, who are in their 50s. Shanahan is in his 60s, which “hurts his chances, but we know the market would love to see him selected.”

Much will depend on how — and whether — Pope can get Boeing’s commercial business back on track, one source said, noting that “that would be a significant achievement.”

Reestablishing relationships with frustrated airline customers will be just one of the challenges. She will have to work with the production employees who build the planes, regulators investigating Boeing’s manufacturing and quality control processes, and finally the company’s suppliers when the agency that regulates the industry allows the company to increase production. again.

Calhoun’s impending departure means Pope “has about nine months to instill significant behavioral changes in the commercial aircraft unit that have eluded his predecessors for nearly five years,” Morningstar’s Owens noted.

The departure of the head of Boeing is not enough to boost the aerospace group’s shares.

Concerns remain about the depth of management expertise at Boeing. Byron Callan, managing director at research group Capital Alpha Partners, said: “Given the company’s struggles in recent years, it is unclear to us how deep the internal talent pool is that could stabilize the company’s commercial aerospace operations.”

“At the very least, we would expect a new Boeing CEO with some experience in aerospace and manufacturing,” he added.

The company needed a “drastic cultural change,” Bank of America analyst Ron Epstein told clients, calling the latest changes “the right first steps toward removing the ‘old guard’ and making way for a new team.”

Uncertainties remain about how to address any changes required by the regulatory agency, the possible acquisition of Spirit and rebuild trust with customers, investors and travelers, Epstein said, but “this may be the first real chance, in a long time, that Boeing has had to clean house and redefine your own narrative.”