Dave Calhoun speaks during a 2017 interview in New York. (Christopher Goodney / Bloomberg News)

Dave Calhoun speaks during a 2017 interview in New York. (Christopher Goodney / Bloomberg News)

Boeing’s new CEO takes reins with company integrity in doubt

Dave Calhoun is entrusted with turning around a company that has been widely censured for arrogance.

By Julie Johnsson / Bloomberg News

The opening gambits by the Boeing Co.’s new boss show the risks Dave Calhoun is willing to take to reset the deeply troubled planemaker.

Calhoun, who officially took charge Monday, pushed to release humiliating internal messages last week, even though they might darken public perception for years to come — with Boeing’s own employees suggesting rot in a once-vaunted safety culture and mocking designers and regulators on the ill-fated 737 Max. He also was heavily involved in the decision to drop Boeing’s long-held opposition to simulator training for Max pilots, said people close to the company.

Those steps are just the start as Calhoun settles into a 36th-floor suite at Boeing’s Chicago headquarters, entrusted with turning around a company that has been widely censured for arrogance, failure to take responsibility after two crashes killed 346 people and unrealistic estimates of when the Max would be cleared to fly again. The bungling cost former CEO Dennis Muilenburg his job, and the bad news is far from over: Boeing is expected to reveal one of the largest writedowns in its history this month with fourth-quarter results.

“The company has a unique opportunity to get all the bad news on the table now,” said Jim Schrager, professor of entrepreneurship and strategy at the University of Chicago’s Booth School of Business. “It’s time to get this right and make the turnaround.”

The accounting charge is likely to be in the $6 billion range, said Cowen & Co. analyst Cai von Rumohr, as Boeing balloons a reserve to compensate airlines up to $12 billion. That’s another risk for investors, who have taken a hit from the crisis while dodging a full-fledged meltdown.

Through last week, the shares of Boeing stock had tumbled 22% since the second Max crash prompted a worldwide flying ban in March. That was the biggest drop on the Dow Jones Industrial Average.

Calhoun, a former General Electric Co. executive who became a senior leader at Blackstone Group, is far from an outsider at Boeing. He has served on the aerospace titan’s board for a decade, and he took over from Muilenburg as chairman in October. That means he is identified with the moves that have left the company’s standing with consumers, lawmakers and regulators in shambles.

Boeing’s reversal on simulator training was approved by the Calhoun-led board at its meeting in December, said people familiar with the deliberations, who asked not to be identified because the discussions were private.

When directors asked to Calhoun to take charge, they vowed to make Boeing more transparent. With his support, interim CEO Greg Smith followed through last week by releasing a new batch of internal messages that a key lawmaker in the U.S. Congress called “incredibly damning.”

In one exchange, a company pilot said the Max was “designed by clowns, who in turn are supervised by monkeys.” In other messages, employees bragged about their ability to hoodwink regulators.

Calhoun has already begun reaching out to the Federal Aviation Administration, which delivered a rare public rebuke of Muilenburg shortly before he was ousted in December. Calhoun’s top priority as CEO will be to look inward to the company’s issues and cultural rifts and to spend meaningful time at its Renton-Seattle-Everett manufacturing hub, said a person close to the board.

Revamping Boeing’s culture is especially critical for Calhoun and Larry Kellner, the former Continental Airlines chief who replaced him as Boeing chairman — given the lapses that have come to light from blue-ribbon panels poring over the Max’s development.

“It seems like there’s been an absolute breakdown,” said Bloomberg Intelligence analyst George Ferguson. “They’re going to have to find a way to ditch the arrogance. It’s hurt their relations with the FAA, customers and suppliers.”

The crisis has also left Boeing at risk of losing ground to Airbus in the global aerospace duopoly. Calhoun is convinced there is a way to simplify strategy and planning for Boeing’s numbingly complex operations, said the person familiar with the matter.

Then there’s the challenge of revitalizing a demoralized workforce. Muilenburg, an engineer and Boeing lifer, had pledged to reorganize the company’s engineering corps and create buffers to insulate workers from undo pressure from business managers. That task now falls to Calhoun, an accountant by training.

Some former colleagues at GE, where Calhoun spent 26 years, consider him close in personality to Jack Welch, said Rick Kennedy, author of “GE Aviation: 100 Years of Reimagining Flight.”

“He will make hard decisions at Boeing and he won’t hide behind them,” said Kennedy, a retired spokesman who worked closely with Calhoun for four years at GE’s aviation division. That extends to personnel decisions.

“It won’t be a cozy world,” Kennedy said.

Calhoun’s task is daunting. It could take months before the Max is back in service, and more than a year after that for the company to nurse its suppliers back to health and return the 737 to pre-crash production levels.

Other aircraft programs faced stumbles of their own, with the 777X airplane, the KC-46 military tanker and the Starliner spacecraft suffering high-profile problems and delays.

At GE Aviation, Calhoun built a team that included David Joyce, who went on to become the division’s long-time leader. While the aerospace industry was mired in a recession following the 9/11 attacks in 2001, Calhoun pitched Boeing hard on a cutting-edge engine for the plane that became the 787 Dreamliner.

The GEnx turbofan wasn’t an easy sell to GE management, either.

“Calhoun had to make a very aggressive business case in a very horrible market,” Kennedy said.

The GEnx went on to become the fastest-selling engine of its kind at GE, with 2,700 units in service or on order. And it provided key concepts for the smaller Leap power plant in the Max and many of Airbus’s A320neo jets. The Leap, produced by a GE-Safran alliance, has garnered 19,000 orders and commitments.

More recently, Calhoun has been instrumental in turning around Caterpillar as chairman and Nielsen Holdings as CEO. During his seven-year tenure leading the television ratings giant, which included taking it public, he took home at least $235 million in cash and stock sales.

For 62-year-old Calhoun, whose name had circulated in previous Boeing CEO searches, turning the manufacturer around would be the pinnacle of a four-decade career. What’s not known is how long he intends to stay at Boeing, where executives traditionally leave at age 65.

Will he be the visionary who pushed GE to bet big on a new engine in a horrible market? Or will the Wall Street veteran be content to “stabilize the company and then continue the cash-extraction process?” asked analyst Richard Aboulafia of the Teal Group.

By Aboulafia’s reckoning, Boeing spent $78 billion on shareholder returns over the past 15 years while milking the lucrative 737 and treating engineers as an expendable cost center. The cash cow is now vulnerable, and Boeing has no product to counteract the sales success of Airbus’s longest-range narrow-body jets.

If Boeing doesn’t tilt its strategy back to emphasizing product investment over stock buybacks once the Max crisis abates, it will hand its European rival the chance to build an insurmountable lead, Aboulafia warned.

“It will take five years to show up, 10 years to really show and 15 years to be irreversible,” Aboulafia said. “Game over.”

Bloomberg’s Anders Melin contributed.

Talk to us

More in Herald Business Journal

Small business relief effort inundated with 850 applications

The economy in and around Everett has struggled amid fallen revenues and uncertainty about the future.

Marysville drivers wait overnight for Chick-fil-A opening

The popular chicken restaurant began serving at 6:30 a.m. Thursday. Police plan to guide traffic for days.

‘Hundreds of millions’ in bogus jobless benefits paid out

Washington state has been reported as the top target of a Nigerian fraud ring.

Tulalip Resort Casino and Quil Ceda Creek to open Tuesday

Guests must wear a mask and occupancy is limited, the Tulalip Tribes announced Wednesday.

As Arlington gym closes, a Snohomish barber continues to cut

PA Fitness closed after the state attorney general filed a lawsuit. “We would lose,” a co-owner conceded.

FAA says it will let Boeing employees vouch for plane safety

The agency defended the current system but identified areas for improvement. Some lawmakers disagree.

Fraudsters using local identities for phony jobless claims

The Everett School District, for example, saw about 310 false claims using employees’ personal information.

State sues an Arlington gym for violating stay-home order

“It is my constitutional right to be open,” says a co-owner of PA Fitness. He plans to countersue.

Heavy traffic expected when Chick-fil-A opens in Marysville

The city warns there will likely be delays for days along 88th Street NE. near the new restaurant.

Somers announces $14 million in relief for small businesses

One program will target aerospace companies. The other will focus on service and retail industries.

Paine Field terminal to close for 71 days of ramp repairs

Alaska is down to one departure per day due to the coronavirus outbreak’s effect on travel.

Quarantini time! New state rule allows cocktails to-go

Enjoy a margarita or a Manhattan with lunch or dinner to go. At Buck’s in Everett, you keep the mason jar.