New Boeing chief McAllister tackles changing business strategy

RENTON — Boeing Commercial Airplanes’ new boss, Kevin McAllister, keeps a painting in his office of the Bethlehem Steel mill during its heyday in his hometown, Bethlehem, Pennsylvania. Growing up, he had a front row seat for the U.S. steel industry’s decline.

The painting is a “reminder that as a company we’ve got to reinvent ourselves every day,” McAllister told a handful of journalists in early June. It was his first interview since taking over at Boeing Commercial Airplanes in November.

McAllister joins Boeing at a time of major changes: It is pursuing a major shift in its business strategy with more focus on making money on airplanes after they leave the factory. Technology is changing how Boeing employees work. Advances in materials are allowing designers to push new boundaries. In the boardroom, Boeing’s corporate leadership has doubled down on sending more and more cash to shareholders. That cash comes, in part, from cost cutting that has caused some tension with employees and suppliers.

Boeing continues its bare-knuckle fight with European rival Airbus in the jetliner market. And competitors in China, Russia, Canada and, potentially, Brazil, are trying to elbow their way into the market.

McAllister has had a hectic seven months since joining Boeing Commercial Airplanes, the company’s biggest and most profitable division. It employs more than 70,000 people, the vast majority in Washington. His predecessor, Ray Conner, stayed on to help him find his way around.

The 53-year-old McAllister is the first outsider tapped to head Boeing Commercial Airplanes. He came from GE Aviation, where he worked for 27 years. He joined the company — one of the world’s biggest engine makers and a key Boeing supplier — in 1989 as an engineer, and worked his way up through the ranks. In 2008, he took over global sales and marketing for GE Aviation, and is widely credited with helping build record backlog growth for the nearly $25 billion GE business. He took over GE Aviation’s services division in 2014.

During his tenure with GE, he earned a reputation for balancing growth and profitability, said Richard Aboulafia, an industry analyst and vice president of the Teal Group in Washington, D.C.

Boeing’s success, McAllister said, depends on “continuing to improve the competitiveness for the company as a means to fund our future.” And to do that, “we connect the dots, we connect our people, we simplify our business, we drive faster decisions, and we ride on that great technology path that we have in the company.”

Last month’s Paris Air Show provided good headlines for Boeing. The company unveiled the 737 MAX 10, the biggest version of its best-selling jet, to a flurry of orders. It gave a substantial sneak peek of a potential 797 mid-sized jet. And, for the first time since 2012, it racked up more orders at the industry’s marquee air show than Airbus.

In the next few years, “we’ve got to deliver on both” production and development, he said.

Boeing plans to crank up 737 production from 42 a month now to 57 a month by 2019. Company leaders are counting on that increase to bring in more cash, making up for revenue declines in its 777 program. The company is making fewer 777s and having to sell them at steeper discounts as it gets closer to rolling out a successor, the 777X, which is assembled in Everett.

Other development programs include the 787-10 and the rest of the 737 MAX family: the MAX 7, a high-density version of the MAX 8 called the MAX 200 and the newest derivative, the MAX 10, which is slated to enter service in 2020.

Company leaders have indicated that a 797 likely would start flying in the mid-2020s. Beyond that, industry watchers expect the company to pursue an all-new replacement for the venerable 737, which first flew in 1967.

Boeing has taken on a big challenge with the 797: developing a small twin-aisle jetliner with the lower costs of a single-aisle airplane. Engineers at Boeing have already built a couple of hundred digital models, Aviation Week reported.

Success will depend greatly on whether engine makers can deliver jets with big enough gains in performance and efficiency.

The critical questions on the 797 are: “Can we do this airplane? And can we do it economically?” McAllister said.

He is not concerned by the drop in new airplane orders in recent years. “I think we’re seeing a pretty good market,” he said.

For now, the company expects steady demand from airlines in Asia and Europe, and growing demand starting in a few years from North American carriers needing to replace hundreds of aging aircraft.

Last year, Boeing committed to expanding its role in aftermarket sales and services, which includes selling spare parts, modifying in-service airplanes and maintenance support for airlines.

GE Aviation is well regarded among industry experts as an aftermarket leader, likely one reason Boeing Chief Executive Dennis Muilenburg wanted McAllister to run Boeing’s commercial airplanes division, Aboulafia said.

Boeing’s push into the aftermarket could put it at odds with some suppliers, which the company already has pressed to cut costs — and profits — on production and development contracts. Aftermarket sales have been a key revenue source for many suppliers. The aerospace giant’s focus on cost cutting will continue, McAllister said.

“We have to have the same accountability in the supply chain as we have in our business for productivity, for cost competitiveness,” he said. “We have some suppliers that are doing a terrific job, that are very focused on building capability for the future, and others that are less so. … Look, there’s choice in the market.”

Contract disputes, moving jobs out of state and workforce cuts have strained Boeing’s labor relations. The company has issued more than 1,000 layoff notices this year, a number expected to grow by the end of the year.

“I certainly don’t enjoy reducing headcount. It’s not something I wake up in the morning feeling good about,” McAllister said.

The cuts were necessary because of 777 production slowing down, he said. “I think we’ve done it in the right way,” emphasizing buyouts, attrition and hiring freezes over layoffs.

Direct contact with workers is critical. It lets him clearly deliver his message. “Let me tell you, you get a ton of clarity back,” McAllister said. “My definition of good day is frequently hearing what I didn’t necessarily want to hear, but is true.”

In Boeing offices and factories from Auburn to Everett, he’s received positive and critical feedback. “I found an energized workforce that wants us to make things simpler, that wants to make things faster, and that is pretty committed to winning in the marketplace,” McAllister said.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com. Twitter: @dcatchpole.