Boeing CEO’s job may be on line in 787 probe

Boeing Chief Executive Officer Jim McNerney has thrown himself into the investigation of the company’s 787 Dreamliner since its grounding by regulators, conferring at least twice a day with a half-dozen top executives.

“He wants to know in real time everything that’s happening” with the probe by Boeing employees and government agencies, said Tom Downey, the plane maker’s senior vice president of communications, who attends the meetings.

The stakes are high for McNerney, 63. His job may depend on whether and how soon he can resolve questions about the Dreamliner’s safety and win government approval for airlines to start flying the plane again.

The Dreamliner crisis is the biggest predicament McNerney has faced in his career, which has included running General Electric’s aircraft engines business and almost five years in charge of 3M Co. Boeing directors who named him CEO in 2005 considered him a prize who would restore the company’s reputation after a series of scandals and get the Dreamliner launched in a disciplined, cost-efficient way.

Now board members probably want to know what McNerney knew and when about the Dreamliner’s lithium-ion batteries, said Michael Useem, director of the Center for Leadership and Change Management at the University of Pennsylvania’s Wharton School. While investigators are focusing on the batteries and electrical system, they have yet to zero in on a cause of two incidents.

“The question Boeing directors have to be asking is what decisions were made when it came to developing and testing the batteries,” Useem said. “Is it an insidious technical problem or was it a management failure to not pinpoint problems, which goes right to the top?”

Boeing declined to make McNerney or board members available to comment on this story.

Boeing and the Federal Aviation Administration, working with accident investigators in the United States and Japan, are trying to determine what prompted charring and the release of fumes from the battery packs, a person familiar with the deliberations who wasn’t authorized to speak about them said last week.

Getting the Dreamliner cleared to fly again and keeping credibility with investors and customers is a “huge job” for McNerney, Useem said.

Welch protege

A graduate of Yale, where he played varsity baseball with future President George W. Bush, and Harvard Business School, McNerney worked briefly at Procter &Gamble and McKinsey &Co. before joining GE. During his 19 years there, he rose to become head of its lighting unit and later the aircraft engines business, and he was a finalist to succeed mentor Jack Welch as CEO. He lost that contest to Jeffrey Immelt in November 2000 and was quickly snatched by 3M to become its first outside CEO.

McNerney, more reserved than Welch, often followed his former boss’s management playbook. At 3M, he intensified performance reviews, cut about 11 percent of the workforce and reined in spending. He also imported GE’s Six Sigma program, a series of techniques designed to decrease production defects and increase efficiency. The plan had results: McNerney raised 3M’s operating profit margins to 23 percent from 17 percent. He won praise for bringing more order to the maker of Scotch tape, abrasives and thousands of other products in a period that 3M’s current CEO Inge Thulin in November said was highlighted by “efficiency, productivity and processes.”

McNerney’s successor at 3M, George Buckley, didn’t entirely agree. He dialed back McNerney’s emphasis on Six Sigma, arguing that while the program identified problems in processes and helped cut defects, it also sometimes squelched creativity.

Boeing already had begun work on the 787 when McNerney took charge. The idea was to produce a fuel-efficient jet using composite materials. To reduce costs, Boeing also devised a new manufacturing plan with 70 percent of the Dreamliner designed and built by suppliers around the world.

That gave Boeing less control than it traditionally had had when making new planes, and it contributed to seven delays in the Dreamliner program between 2007 and 2011. Intent on finding out for himself what was causing the bottlenecks, McNerney visited the factories of every major supplier around the world in late 2007 and early 2008, Downey said.

He also kept replacing executives in charge of the Dreamliner. Boeing has had four different heads of its commercial plane division since McNerney became CEO and four managers of the 787 program.

Boeing currently has 800 unfilled orders for the plane, whose list price starts at about $207 million.

Focus on details

McNerney’s focus on details and uncovering where problems have occurred and who’s responsible for them is apparent in his current round of meetings. Because of his knowledge of planes and electrical systems, “he asks a lot of very specific questions,” Downey said.

When McNerney learned on Jan. 7 that a battery fire had occurred on a Japan Airlines Co. 787 in Boston, he told his chief technology officer to supplement information coming from directors of the 787 program, Downey said. Since then, scores of Boeing managers and engineers from across the company have been assigned to work on the Dreamliner, and McNerney also has kept in touch with directors and government officials.

An All Nippon Airways 787 was forced to make an emergency landing in Japan on Jan. 16 after reporting smoke.

Boeing has tried to persuade the FAA to end the groundings by proposing a variety of inspections and having pilots monitor electronic signals from the batteries to prevent fires, the person said last week. The FAA has been reluctant to approve those steps without a clear idea of what caused the defects and how they can be prevented, the person said.

Although McNerney is rarely quoted in Boeing press releases, he issued two statements over the past two weeks as well as an internal message to all employees.

“We are confident that the 787 is safe,” he said in a Jan. 16 statement. “Boeing is committed to supporting the FAA and finding the answers as quickly as possible. The company is working around the clock with its customers, the various regulatory and investigative authorities.”

Leadership test

This is a leadership test for McNerney, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“Even if no one has been hurt on a 787, who wants to get on a plane that may go on fire?” Elson said. “It’s never good for a company when you question its basic product, so now McNerney has to convince customers and investors that the Dreamliner is OK.”

Every CEO knows that the ability to manage and solve crises, especially those involving safety or damage to the environment, determines how long one lasts in the corner office. Tony Hayward stepped down as CEO of British Petroleum in 2010 after downplaying the environmental impact of the Deepwater Horizon oil spill in the Gulf of Mexico. Meanwhile, Akio Toyoda remained president of Toyota amid the recall of more than 10 million vehicles for problems related to unintended acceleration in 2009 and 2010.

McNerney is taking an all-hands- on-deck approach to the Dreamliner crisis. Among the executives he wants to hear from several times a day are the head of Boeing’s commercial planes division, the chief technology officer and chief financial officer, Downey said. McNerney wants updates on customer and investor reaction as well as the probes.

It’s too early to know the extent of the 787’s problem and what it will cost in delays and repairs to put the jet back in the air, said Michael Derchin, an analyst at CRT Capital Group in Stamford, Conn.

“I think there’s confidence in Boeing in getting this thing fixed,” Derchin said. “It’s too soon to speculate whether anyone is going to be on the chopping block.”

Higher costs may put pressure on McNerney from investors who are expecting to share in the company’s rising cash flow as Dreamliner deliveries pick up this year and next. Boeing said in December it resumed a $3.6 billion stock-repurchase plan that it had suspended in 2009 amid the earlier 787 delays. The company also announced a 10 percent increase in its quarterly dividend to 48.5 cents a share from 44 cents.

Bob Nardelli, the former CEO of Home Depot and Chrysler who now heads XLR-8, an investment advisory firm, is betting on McNerney. The men were colleagues and rivals for the CEO job at GE.

“I have every confidence Jim is going to resolve this,” said Nardelli. “He’s taken on complex, unprecedented change with the Dreamliner, and he has all the background and experience to succeed.”

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