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Boeing’s Leadership Shake-Up Amid Ongoing Safety and Quality Concerns

Published March 25, 2024 4:04 PM
Giuseppe Ciccomascolo
Published March 25, 2024 4:04 PM

Key Takeaways

  • Boeing’s CEO Dave Calhoun and chairman Larry Kellner are stepping down due to pressure from internal and external forces.
  • The planemaker is grappling with a series of challenges, including safety incidents, production delays, and quality concerns.
  • Production slowdowns and cash burn are hurting Boeing’s financial health.
  • While there’s hope for improvement with the leadership shake-up, Boeing faces an uphill battle to regain trust.

The 737 Max crisis has precipitated a shake-up in Boeing’s leadership. CEO Dave Calhoun is set to relinquish  his position by the close of 2024, while board chairman Larry Kellner’s resignation will take effect at the annual meeting in May.

Challenges stemming from aircraft safety issues, quality concerns, and a sluggish rebound from the Covid-19 pandemic have compounded Calhoun’s responsibilities, making his tenure more arduous than initially anticipated. In a bid to revitalize the company’s trajectory and overcome recent setbacks, Boeing is enacting a change in top-level management.

Leadership Shake-Up

Replacing Kellner will be Steve Mollenkopf, a board member since 2020. Additionally, Stan Deal, the President and CEO of Boeing Commercial Airplanes, will be departing the company with immediate effect. Stepping into his role is Stephanie Pope, who recently assumed the position of Chief Operating Officer after leading Boeing Global Services.

The leadership change coincides with increasing pressure from airlines and regulators for Boeing to tackle internal issues amid a series of incidents affecting aircraft production and quality. Notably, an Alaska Airlines flight made an emergency landing on January 5 due to a door explosion, heightening scrutiny.

“As you are aware, the Alaska Airlines flight incident was a pivotal moment for Boeing. We must continue to respond to this event with humility and unwavering transparency, ensuring a steadfast commitment to safety and quality at every echelon of the organization,” remarked Calhoun in a missive  to employees.

Sources  indicated that Calhoun resisted the change until the last minute. However, internal and external dissent had been growing, prompting calls to reevaluate Boeing’s direction. Some highlighted Calhoun’s presence on the board during the tragic crashes of two Boeing 737 Max 8 aircraft in Indonesia in October 2018  and Ethiopia in March 2019 , which totalled 346 lives. These incidents resulted in a nearly two-year grounding of the aircraft, significant damage to Boeing’s reputation, federal investigations, and substantial financial losses.

Since Calhoun led the group, Boeing has faced continuous production delays. In October, during a meeting with analysts, he announced  a target of 50 Max per month by 2025. But, last week, it was said that not even 38 units would be reached. This is due to production monitoring by US aviation authorities.

Security Issues Revamped

Boeing has encountered yet another setback involving some fuselages of its 737s. This is potentially leading to the delay of approximately 50 plane deliveries. Spirit AeroSystems brought to light the issue of improperly drilled holes. The latter is a key supplier of Boeing fuselages.

“While this potential condition does not pose an immediate safety hazard and all 737s can continue to operate safely, we anticipate that rework will be necessary for around 50 undelivered aircraft,” Stan Deal explained in a letter . Boeing and Spirit AeroSystems are now conducting rigorous inspections to ensure the quality of their work. This is prompted by an alarming incident involving an Alaska Airlines 737 Max 9 . On January 5, the aircraft was compelled to make an emergency landing after a panel known as a door plug unexpectedly dislodged mid-flight shortly after departing from Portland, Oregon.

The US National Transportation Safety Board (NTSB) is currently probing the incident . At the same time, the Federal Aviation Administration (FAA) is scrutinizing  whether Boeing and its suppliers adhered to quality control protocols.

Adding to Boeing’s woes, the head of Emirates Airline issued a stark warning. Sir Tim Clark suggested  the company is on its “last chance.” This implies that it has exhausted its opportunities for redemption. Clark, a prominent figure in the aviation industry and a major Boeing customer, expressed concerns over what he perceives as a deteriorating performance from Boeing.

Clients Happy With The Changes

Ryanair’s Chief Executive Michael O’Leary said : “We welcome these much-needed management changes in Seattle. We look forward to working with Stephanie Pope to accelerate B737 aircraft deliveries to customers, including Ryanair in Europe, for Summer and Autumn 2024.”

“We also look forward to continuing to work with Boeing CEO Dave Calhoun and CFO Brian West. And to help Boeing recover its aircraft deliveries so that Ryanair can continue to grow strongly as Boeing’s no.1 customer here in Europe.”

Ryanair said it believed these changes “are necessary and good for Boeing and its customers.”

Emirates Airlines chair Tim Clark said: “They need to instill this safety culture that is second to none.” Emirates stands as one of Boeing’s primary customers and the largest airline globally. In November, it placed an order worth $52 billion at list prices for 95 Boeing 777 and 787 wide-body jets, primarily used for long-haul flights.

What’s Next For Boeing?

Boeing is facing liquidity concerns following the US aviation authorities’ mandated production slowdown of the 737 Max after the January 5 incident. Chief Financial Officer Brian West revealed  at a London conference that the company now expects a cash burn of $4 billion to $4.5 billion for the first quarter. This represents a significant increase from the initial estimate of $1 billion. Analysts predict an even larger outflow, exceeding $5 billion.

Achieving the $10 billion cash flow target by 2025-26 will take longer than anticipated. The company downwardly adjusted the monthly production goal for Max planes. The target is now below 38 planes per month, compared to the previous goal of 50 by 2025. Boeing has halted fuselage acceptance from Spirit AeroSystems due to missing parts or repairs, contributing to the slowdown of production. West emphasized the deliberate slowdown to ensure better outcomes, acknowledging the impending impact on the company’s targets.

Boeing stock performance
Boeing is down both year-to-date and since the beginning of the Covid-19 pandemic. l Source: Google Finance

Boeing‘s restructuring efforts have hindered short-term forecasting, West noted. The company suspended  its 2024 financial projections in January. West expects margins at Boeing’s commercial aircraft division to drop by approximately 20% in the first quarter, the weakest performance since late 2021.

At the time of writing, Boeing  stock records a slight uptick in value to $190.28. This indicates a positive sentiment towards leadership changes. However, Boeing has seen a 25% decline since the start of the year and a 50% drop since the pandemic’s onset in early 2020. Meanwhile, rival Airbus  has seen a 20% increase year-to-date and a 27% gain since early 2020. This further challenges Boeing’s market position.

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