This morning’s business news wire are humming with the headline that Boeing CEO Dennis Muilenburg has been fired by the company’s board.

Board Chairperson David Calhoun, a private equity executive, will now assume the CEO role, effective January 13, 2020, while existing board member Lawrence Kellner was named as non-executive board chair, effective immediately. Boeing CFO Greg Smith will serve as interim CEO during the brief transition period, while Mr. Calhoun exits his non-Boeing commitments.

The company’s investor announcement indicates in-part:

“The Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders.

Under the Company’s new leadership, Boeing will operate with a renewed commitment to full transparency, including effective and proactive communication with the FAA, other global regulators and its customers.

In October, the aerospace manufacturer’s board stripped Muilenburg from his role as board chair, indicating he could spend full-time attention to bring the 737 MAX back to global operational service. Shortly after, Kevin McAllister, president of the commercial aircraft unit was replaced.

This move comes amid continuing negative news and setbacks related to the company efforts, along with its creditability, in correcting the problems related to the 737 MAX aircraft’s flight systems, and continuing eroding relationship with global wide air safety regulators and respective airlines. Today’s edition of The Wall Street Journal features a highly critical report of the CEO, bluntly indicating that he failed to resolve friction with customers, regulators and global flyers, and that: “.. he appeared to rely too heavily on data and legal advice to make decisions as he sought to find what went wrong, communicate and get Boeing’s plane flying again.

The above assessment might strike a chord with long time Boeing followers who may recall prior Boeing corporate crises including the 787 Dreamliner grounding crisis involving troubling lithium ion battery components. Although that crisis did not come near to the human tragedy of the MAX crashes, there was a common theme on corporate arrogance and rely too much on legal perspectives.

This move further comes after last week’s noted botched mission of Boeing’s Starliner space capsule, which after a reported successful rocket launch, failed to secure proper orbit limiting any docking with the International Space Station. It was yet another public embarrassment of the company.

 

Supply Network Implications

Supply Chain Matters’ initial reaction regarding this Boeing CEO replacement is one of guarded concern. Grounded Boeing 737 MAX's

While it was rather obvious that the aerospace manufacturer needed a senior leadership change, the debate will now center on whether the company’s board should have reached out to an outsider to take the reins, a person not vested in the internal culture of the company and its existing management and leadership structures.  Then again, what superstar executive would want to come-in at this point without specific assurances. In his new role, Mr. Calhoun will have to address this need, perhaps in a second in command.

After the significant and far-reaching decision to temporarily suspend all monthly 737 MAX production,  there is obviously a lot at stake in terms of program’s supplier relationships and ongoing financial impacts not to mention that of global airlines with outstanding orders. There is a strong potential for lost momentum as well as lost jobs, particularly among smaller, specialty suppliers who do nor have the financial resources to overcome cutbacks in supplier payments.

Fixing the company’s creditability crisis, while addressing an obvious need to assure global flyers that the MAX will be a safe aircraft is obvious, while addressing a current reported indications of production quality lapses and a culture that values volume over quality conformance is yet another need that needs rather timely attention.

In investor circles, continuing to view Boeing as a lucrative investment based on healthy stock buybacks and added dividend yields is another sensitive area for the company. As noted in our last update, while announcing the production suspension, on the same day the company indicated it would continue to reward investors with the cash dividend, despite continuing to hemorrhage cash as over 400 aircraft remain grounded without customer payments.

By our lens, today’s announcement may bring very temporary relief to Boeing’s supply network ecosystem. It will likely be fleeting if aggressive actions are not undertaken to address ongoing engineering and operational process challenges as well as addressing suppliers with the most critical financial and workforce vulnerabilities.

 

Bob Ferrari

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