From Aviation Week:
What Muilenburg’s Demotion Means for NMA, Rate Increases And More
By Michael Bruno
The world is supposed to notice when a major public corporation suddenly demotes its chairman—the head of the board of directors—particularly if that person has amassed as much power as Boeing CEO and President Dennis Muilenburg. In other words, the demotion is supposed to mean something.
For many shocked observers, Boeing’s late-Friday Oct. 11 announcement that Muilenburg became just another director on the board is a consequence of Boeing’s 737 MAX fiasco. It is that, but it is also so much more.
“The move Friday evening to announce a removal of the title of chair of the board of directors from an existing CEO is not something we have seen in our space previously,” UBS analyst Myles Walton and his team write. “The explanation of creating more bandwidth for Muilenburg as CEO to focus full-time on running the company as it works to return the 737 MAX to service is reasonable, but it is hard not to see additional implications.”
Voices have been rising inside the industry over the necessity for Boeing to move beyond Muilenburg due to a growing list of problems—the MAX chief among them. Other outstanding issues include 777X development, 787 production quality, KC-46A charges, the late Starliner and Space Launch System programs for NASA and the prolonged launch of the new midsize airplane (NMA).
Almost all who spoke with Aviation Week wanted to be off the record, if only because Boeing is the aerospace and defense sector’s 800-lb. gorilla. A few critical observers had come out just before the Oct. 11 announcement, including consultant Ernest Arvai of AirInsight, an aviation analysis firm based in Washington. But the truth is the idea has been publicly mulled since at least an April shareholder proposal that tried—and failed—to split the Boeing chairman and CEO roles. Regardless, now it is out in the open for all to consider.
“Some will view this as the first step in a two-step leadership shuffle, while others will see it as preempting additional change at the top,” says Credit Suisse analyst Rob Spingarn. Either outcome is “equally” possible, he adds.
In the near term, Muilenburg’s demotion is not expected to lead to big surprises, according to several observers. Although Muilenburg continues as CEO, president and a director, GE Aviation veteran David Calhoun, previously Boeing’s independent lead director, now serves as non-executive chairman.
Calhoun has been on the board for a decade. After Harry Stonecipher was fired in 2005, Calhoun was a contender for CEO along with Alan Mulally, James Alabugh and Jim McNerney, who ultimately got the job. His industry familiarity and the non-executive role of his chairmanship do not portend out-of-the-box moves. After spiking more than 2% in regular stock trading on the first workday after the announcement, Boeing’s stock returned to around $370 share by Oct. 15—about the same as the day before the announcement.
More interesting now is what Muilenburg’s comedown means for Boeing’s myriad strategic efforts. “Overall, with a division of leadership between the CEO and chairman, we’d expect decisions to be more deliberate and likely more risk-averse,” Walton’s team says. “That decision-making likely spans the operation, from production rates to launch of new aircraft. With or without the management change, the probability of launching the NMA as envisioned a year ago was getting less likely with the higher risk profile on the overall corporation—777X certification delays, 737 MAX return to service and a more uncertain certification process. However, following the change on [Oct. 11], we expect the program will largely be on ice and/or morphed into the next narrowbody program.”
There are additional issues on the back burner that now face different decision-makers and conditions, too. For instance, industry insiders have long surmised that Boeing’s big move into aftermarket services demands more acquisitions beyond KLX Aerospace if Boeing is going to reach the $50 billion annual revenue target Muilenburg identified. Any billion-dollar-plus deal—let alone multibillion-dollar deal—is due to receive even more scrutiny now. Likewise, Boeing’s moves into autonomous systems, urban air mobility and new-space markets, under the guidance of its HorizonX corporate venture capital and Boeing Next development departments, also might face stiffer proof-of-concept requirements.
So imagine what Boeing leadership faces now, with countless shareholders watching special charges rack up, taxpayers seeing key defense and space programs slip and lawmakers hosting related hearings. Boeing may be able to make things that go hypersonic, but its decision-making could look more like a Wright Flyer.
