Boeing chief executive Dave Calhoun will face investors next week as mounting pressure from customers, politicians and regulators puts his leadership of the crisis-hit US plane maker under harsh scrutiny.
The former GE executive is preparing to announce full-year earnings on Wednesday after a 20 per cent fall in Boeing’s shares since the dramatic blowout of a section of the fuselage on an Alaska Airlines flight on January 5.
The subsequent grounding of most of its 737 Max 9 jets has dealt a heavy blow to the group’s reputation and caused costly disruptions to its customers’ operations, leading top airline executives to vent their frustration publicly.
Ben Minicucci, chief executive of Alaska Airlines, vowed this week to “hold Boeing’s feet to the fire”, while American Airlines chief executive Robert Isom urged unnamed Boeing people to “get their act together” as he threatened to “hold them accountable”.
Even pilots are angry. Whatever Calhoun “was doing, it hasn’t worked”, said Dennis Tajer, an American captain and spokesperson for the Allied Pilots Association. While he said it was not the union’s role to call for management change, Tajer noted: “What we can call for is for you to build safe, reliable aeroplanes and consistently time after time. But you have not.”
Calhoun’s plans to ramp up production of its best-selling 737 Max aircraft were meanwhile foiled this week by the Federal Aviation Administration, as the US regulator probes the company’s manufacturing and quality processes.
Although the FAA also cleared the grounded Max 9 jets to return to service, the intervention on the ramp-up hit Boeing’s shares. The ban is also likely to delay deliveries to customers and hurt suppliers that are still reeling after the Covid pandemic.
For Calhoun, who has been paid $65mn in total pay and incentives since taking the top job in 2020 and had hoped that 2024 would be a transformative year for Boeing, the stakes are high.
The 66-year-old took over after two deadly crashes of Boeing’s Max 8 aircraft led to the ousting of then chief executive Dennis Muilenburg, who was criticised for his slow response to the crises. In 2021 in the midst of the Max 8 crisis, the board waived its mandatory retirement age of 65 and announced it would extend it to age 70 for Calhoun.
Calhoun had been on Boeing’s board since 2009, making him part of the team that oversaw its strategy during the Max 8 crisis and before. Since the Alaska Airlines incident, Calhoun has been quick to acknowledge the company’s mistakes, stressing that it will not “put planes in the air that we don’t have 100 per cent confidence in”.
He took that message to Washington this week, only to learn that Senator Maria Cantwell, who chairs the senate’s commerce committee, plans to summon Boeing executives to hearings to investigate its quality lapses.
One member of the committee, Texas senator Ted Cruz, said his conversation with Calhoun left him “hopeful there will soon be a thorough, public accounting of the cause of this accident beyond the current speculation in the press”. But he added that the committee would use former US president Ronald Reagan’s “trust, but verify” approach.
Apologies by Calhoun and Stan Deal, Boeing’s head of commercial airplanes, appear to have carried weight with some of the company’s constituents. Virginia senator Mark Warner, who represents the state where Boeing is based, said that while he was “obviously concerned” about the blowout on Alaska’s Max 9, he had confidence in Calhoun personally.
He had “seen a different approach in terms of transparency” from Boeing this time, Warner told reporters after a meeting with Calhoun on Wednesday.
No US airline boss has directly called for Calhoun’s head. But others argue that management change is essential to restoring confidence in Boeing — both at the very top and at the company’s commercial airplanes business.
“It’s urgently time to go — Calhoun’s tenure is an embarrassment,” said Richard Aboulafia, managing director at AeroDynamic Advisory.
“The [senior management] needs to go and they need a completely different culture starting at the top,” added Aboulafia, a longtime critic of the company’s leadership over what he says has been a focus on shareholder returns over products and people.
Ron Epstein, industry analyst at Bank of America, said the Max 9 issues would “only put further pressure on Boeing management”.
“We would not be surprised to see regulators, investors and customers push for a turnover in the ranks of senior management and the board of directors,” Epstein wrote in a recent note.
People close to Boeing insisted that the company had learnt from its previous mistakes and that since the Max 9 incident it had been “transparent” and “responsive” from the start. One person added that management had worked quickly to connect with customers, regulators and others and that it was important at this time to ensure “continuity” at the helm of Boeing.
Boeing said it was “focused on taking action to strengthen quality and safety across [the company]”.
The decision to extend Calhoun’s retirement age was made in part to give him time to turn around the US plane maker, an achievement that would have marked the pinnacle of a four-decade career that has spanned senior positions at Jack Welch’s GE and private equity firm Blackstone.
Calhoun has overseen the Max’s return to service after the two crashes, refreshed its top management team and created a board-level aerospace safety committee. And in a timely boost for Boeing, the plane maker last week delivered its first new Max to a Chinese airline since the grounding of the fleet in 2019.
Yet problems on the production lines and quality control issues have persisted, exacerbated by labour shortages coming out of the pandemic. The mis-steps are evidence that Calhoun’s promises to strengthen Boeing’s engineering culture and push through fundamental corporate change have so far not delivered, critics said.
His reluctance to consider investing any time soon in a new aircraft to take on rival Airbus’ popular A320 family has exacerbated concerns the culture at the top has not changed enough. Boeing last year abolished its corporate strategy department, leaving it to individual divisions, Aboulafia pointed out.
Before this latest crisis, Boeing’s shares were trading at about 20 per cent lower than on the day Calhoun took over. Shares in its European rival Airbus, meanwhile, are at record highs as the company has been able to capitalise on the resurgent demand for new planes from airlines.
The FAA’s freeze on the Max ramp-up could now make another of Calhoun’s tasks — reducing Boeing’s debt from a total of $52bn at the end of the third quarter — more difficult.
Boeing had been planning to open another 737 production line in Everett, Washington in the second half of the year. Without it, the company will struggle to meet demands from airlines clamouring for more planes.
Also at stake is Boeing’s ability to launch two new Max variants. It had hoped for certification of the Max 7 and the Max 10 this year but the FAA’s additional scrutiny could delay this.
Safety experts have previously raised concerns over Boeing’s request for an exemption from certain safety rules that would allow the Max 7 to be certified. Illinois senator Tammy Duckworth urged the FAA this week not to certify the Max 7 with the safety exemption.
Speaking at a company-wide safety meeting at Boeing’s Renton facility in Washington where it builds the 737 Max, in the days immediately following the Alaska incident, an emphatic Calhoun stressed the company would work to ensure that customers understand that “every aeroplane that Boeing has it’s name on in the sky is in fact safe”.
Calhoun has made public promises on safety and manufacturing before; if he is unable to deliver quickly this time he may not get another chance.
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