It seems as though with each passing week, the leadership challenges for Boeing continue to pile-up, and with that, the commercial aerospace manufacturer’s customer demand and supply network disruption challenges continue to permeate.

The latest stem from a number of differing challenge fronts.  Boeing 737 MAX 8

A Candid CEO Interview Blowback

In early March, The New York Times published highlights (Paid subscription or metered view) of an interview with the manufacturer’s newly appointed CEO, David Calhoun. In the interview, headlined as candid, Calhoun addresses the challenges he inherited as: “it’s more than I imagined it would be, honestly.”

The interview goes on to question his predecessor, Dennis Muilenburg, in what was described as blunt terms, regarding the former CEO’s: “overly optimistic timetables about when the Max would return to service,” and whether under Muilenburg’s leadership style, the turbocharging of monthly 737 MAX production rates were undertaken before the supply chain was ready, and may have compromised quality.  Calhoun indicated that airline customers grew livid after the company repeatedly voiced overly optimistic timetables about when the aircraft would return to service.

Further indicated in the Times interview was that Calhoun sought candid input from Boeing employees regarding what was needed to get done in order to the aircraft re-certified. That input reportedly prompted a decision to push back the re-certification timetable to sometime this summer.

In the interview, Calhoun was further quoted as indicating that pulling Boeing out of its hole the company has dug will take years.

Five days after the Times interview published, The Wall Street Journal reported (Paid subscription or metered view) that after reviewing an internal message addressed to Boeing’s senior leadership team, that Calhoun told company’s executives that he regretted voicing the candid criticisms of past company leadership reported in the Times interview. The WSJ provides the direct quote:

I am both embarrassed and regretful about the article. It suggests I broke my promise to former CEO Dennis Muilenburg, the executive team and our people that I would have their back when it counted most. I want to assure you that my promise remains intact.

A Boeing spokesman reportedly clarified to the WSJ that like many interviews, not all makes it to the story, and the CEO wanted to share the good work of company teams and the strength of the portfolio of products and services.

Obviously readers can draw their own conclusions about this candor turnabout in a matter of one week.

From our lens, it would appear that the current replacement CEO, recruited from the existing board, was being very candid about the corporate crisis he has inherited, and has since discovered. On the other hand, he might have run smack into Boeing’s existing corporate culture in the company’s management ranks.

Significant change management can be addressed either by an outsider, or an insider. With the former approach, a new outside leader usually comes with no vested interests in the company’s past culture. With the latter, there is a difficult tightrope of managing change and marshalling executive teams toward the many parallel priorities that need to be addressed, since there is mutual stakeholder interest at-stake.

Added Certification Challenges

The challenges related to re-certifying the MAX and restoring confidence in the aircraft continue to compound themselves.

Last week, the U.S. Federal Aviation Administration (FAA) formally recommended that Boeing be fined near $20 million for installing equipment on the 737 MAX and other aircraft without the agency’s formal approval. The fine was on top of a %.4 million fine imposed in January for installing sub-standard equipment on the aircraft.

Also last week, the FAA rejected Boeing’s proposal that it not-modify nor move certain aircraft wiring bundles, arguing that they do not pose an aircraft safety threat. While the FAA was clear that the aircraft would be returned to service only after assurances that all safety-related issues are addressed, Boeing seems to be set towards ongoing discussions regarding the wire bundles. FAA Chief Steve Dickson further indicated to lawmakers this week that the agency has no specific milestone timing for re-certifying the MAX, and the agency’s concerns are now centered on restoring global flying public confidence in the overall safety worthiness of the aircraft when it does return to operational service.

Earlier, the U.S. House of Representatives Transportation Committee’s Democratic Party majority issued preliminary findings relative to the year-long investigation into the aircraft’s two crashes. That report accused the company of overlooking safety in the interest of meeting production goals as well as making mis-guided design assumptions relative to the aircraft’s MCAS flight control system, now implicated in both accidents. The report recommended that the U.S. Congress needs to provide added guidance relative to the FAA’s aircraft certification process. The Committee’s Republican Party minority reportedly acknowledged problems with the FAA aircraft certification process but dismissed the need for “wholesale dismantlement.”


Order Book and Cancellation Trending

This week, the company reported that it booked more commercial aircraft cancellations than order during the month of February. Airline Air Canada cancelled orders for 11 MAX aircraft while other airlines elected to convert existing MAX orders to other aircraft models. For the month, 18 gross orders were booked and were offset by 46 total aircraft cancellations.

Ongoing Global Coronavirus Outbreak Forcing Tougher Decisions

Finally, with the ongoing novel COVID-19 Coronavirus outbreak now significantly impacting global air travel forcing global airlines in idling of existing operating aircraft, reports are that airlines are starting to indicate push back of planned deliveries of new aircraft, in order to preserve their own cash balances.

As a result, Boeing has now announced that the manufacturer  will immediately freeze hiring and will be implementing other measures, reportedly limiting non-essential travel as well as employee overtime.

Both the company’s CEO and CFO indicated that the aerospace manufacturer is facing the global economic disruption brought about by the virus outbreak.

According to a Reuters syndicated report published by the St.  Louis Post Dispatch, Boeing Chief Executive Dave Calhoun told employees that the company was taking steps to address the business pressures that result from “the pain our customers and suppliers are feeling.” The report citing informed sources, further indicated that layoffs or furloughs were also areal possibility” but were seen as a separate, later action. A second industry source had indicated to Reuters that job cuts were likely as the aviation industry is squeezed by plummeting travel demand and a year-old safety ban that was imposed on the 737 Max after two fatal crashes.

The Wall Street Journal, citing informed sources indicated that the company will soon draw down the remainder of a $13.8 billion loan secured last month and that expenses related to the freeze in MAX monthly production and compensation to airline customers are estimated to be nearing $20 billion.

Relative to past criticism on the company’s board electing to maintain a handsome cash dividend to investors, the building cash crisis is sure to raise added scrutiny from legislators and employees.

And, to make matters even more concerning, The Seattle Times reported yesterday that as of Wednesday evening, five workers at the manufacturer’s Everett Washington  wide body assembly facility have tested positive for coronavirus. Reportedly, the workers are in quarantine under medical care while other factory employees who were in direct contact were sent home to self-quarantine. Assembly line workers do not have the option of working virtually.

Also, this week, European business media has reported that rival Airbus has also begun to experience airline requests to delay expected new aircraft deliveries, which is expected to impact that manufacturers stated 2020 aircraft production and delivery goal.


Commentary Takeaways

With each passing week and month, Supply Chain Matters, industry and general media have all noted the continuing corporate crisis that Boeing has incurred from a number of factors related to a perceived arrogant corporate culture, straying from prior deep-engineering roots, eroding relationships with global air safety regulators and airline operators. Most important of all, are the resultant loss of 346 souls as a result of two aircraft accidents involving the MAX, which will invariably cause lingering concerns relative to the safety of this aircraft.

A company that could have been the envy of many with multi-year customer order backlogs and flush with enough cash to handsomely reward shareholders has dug itself into a deep financial and operational ditch and climbing out is ever more challenging.

The latest challenges will invariably add to more concerns among the 737 MAX’s extended supply network ecosystem relative to the short and longer-term operational and financial implications.

The manufacturer’s new CEO at a potential point of discovery of more troubling information, may have been too candid with the media. Tackling a difficult culture is sometimes easier for an outsider as opposed to an insider, which raises questions to the Board decision to appoint one its own to now lead the company as opposed to an outsider with vested internal interest in having been an observer.

When the painful decision was made in January to suspend monthly production, Boeing’s management team elected to retain existing production line workers for fear of losing highly developed skills. Of late, Calhoun seemed to be reaching out to the MAX supply network to lend some financial consideration related to monthly production suspension and eventual start-up.

Now, with little warning, the COVID-19 global outbreak adds a significant new unknown to the crisis, and a double whammy of both airline demand and supply network disruption.

If the decision is made to shed existing production workers, the risk of skills loss is real. If the decision leads to delaying resumption of monthly production, or in more reduced monthly production cadence, suppliers will again feel the impact.

Needless to state, Boeing’s management and supply chain ecosystem partners will be consumed by challenges for several more months to-come, if not more.


Bob Ferrari

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