Boeing CEO, Removed as Chairman, Near Last Chance on 737 Max

(Bloomberg) — The clock is ticking ever more loudly for Boeing Co. Chief Executive Officer Dennis Muilenburg as the grounding of the 737 Max hits the seven-month mark.

The board removed him as chairman Oct. 11 after the close of the workweek, saying the change would enable Muilenburg to focus on returning Boeing’s best-selling jet to service. The directors expressed support for Muilenburg but pledged “active oversight” as they handed his chairman’s post to lead director David Calhoun, who has been mentioned in years past as a potential Boeing CEO.

The Friday-evening shakeup weakens Muilenburg, 55, as he tries to get the Max back in the air this quarter and prepares for a crucial appearance before Congress on Oct. 30. Boeing’s reputation and finances have been battered since two Max crashes killed 346 people and prompted a global grounding, and U.S. regulators have yet to schedule a crucial test flight needed to re-certify the plane.

“If they’re on course for re-certification in the fourth quarter as they maintain, then he could hang on,” Richard Aboulafia, an aerospace analyst at Teal Group, said of Muilenburg. “If it slips much beyond then, then his job is definitely at risk.”

The Chicago-based planemaker is also a bellwether for trade relations with China, which may seek further talks with the U.S. before agreeing to a “Phase One” deal, according to people familiar with the matter. Over the weekend, President Donald Trump announced a breakthrough in negotiations and said a partial agreement may lead to as much as $20 billion in sales of Boeing aircraft.

Boeing was little changed at $375.41 at 9:35 a.m. in New York. The shares are off a peak set in March before the second 737 Max crash and flying ban. Still, they’ve climbed 17% since mid-August as investors bet that the plane would soon return to service — the biggest gain on the Dow Jones Industrial Average over the period.

Investors who dinged Muilenburg early in the crisis for being slow with information and contrition now give him some credit for that partial recovery.

“He’s kept the stock price at a relatively even keel given the circumstances — a lot of people like that,” Aboulafia said.

Scathing Report

The decision to separate Muilenburg’s roles and name Calhoun as the non-executive chairman came on the same day that a review panel of global aviation experts delivered a scathing assessment of missteps by the company and the U.S. Federal Aviation Administration in the development and certification of the Max.

Boeing exerted “undue pressures” on some of its own employees who had FAA authority to approve design changes, according to a 69-page summary of the panel’s findings. Regulators assessing the aircraft sometimes didn’t follow their own rules, used outdated procedures and lacked the resources and expertise to fully vet the design changes implicated in two fatal crashes.

Muilenburg retains directors’ “full confidence,” said Calhoun, 62, a senior executive at Blackstone Group Inc. and a former boss of General Electric Co.’s aviation division who stands out on Boeing’s board for his deep aerospace experience.
The CEO will have two critical chances to shape perceptions about his handling of the crisis this month: When third-quarter results are released on Oct. 23 and when he testifies before Congress a week later.

Financial Performance

Directors already should have insights into the financial results, which analysts anticipate to be dented by unexpectedly low deliveries of the 787 Dreamliner and other aircraft.

Boeing’s third-quarter tally of 63 deliveries, down from 190 a year earlier, was 12 jetliners less than predicted by Cowen & Co. analyst Cai von Rumohr. The shortfall probably pared $900 million from third-quarter revenue and 25 cents to 30 cents a share from estimated earnings, von Rumohr said in an Oct. 8 report.

When asked in an interview earlier this month if he was the right person to lead Boeing out of the deepening turmoil, Muilenburg responded: “This is not about me, right? It’s about our company and what we do for our customers.” He then said, “I will serve in this role with everything that I have as long as the board wants me serving in this role.”

Last week’s decision shows the board is willing to give Muilenburg time. Even so, it’s a shot across the bow and a decision they came to reluctantly. Boeing had successfully resisted earlier pressure from shareholder activists to split the roles.

“They wanted to maintain the stability of having him as CEO but they also clearly wanted to send a message of change and introduce a somewhat new approach to leadership,” Aboulafia said. “This really is going to focus attention on the next two months.”

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