Muilenburg becomes Boeing CEO, McNerney non-executive chairman and leaves a mixed legacy

June 23, 2015, c. Leeham Co: Dennis Muilenburg has been named chief executive officer of The Boeing Co., elevating him from president and chief operating officer, the company announced today. Jim McNerney, chairman and chief executive officer of The Boeing Co. since 2005, was named chairman of the board. He will leave the company next February.

McNerney leaves a legacy of bitter fights with Boeing’s biggest labor unions, a runaway cost overrun on the 787 and 747-8, sour relations with the supply chain and settling to be second fiddle in the single-aisle sector to Airbus.
He also leaves a legacy of attacking costs that had to be cut, increasing production rates to record levels and restoring Boeing’s stock price from a low of 2009 during the depths of the 787 program difficulties to more than $150.

Last January we posted a think piece about the challenges facing Muilenburg on the assumption he would become CEO.

Ascension to Chairman

CEO McNerney became chairman and CEO after two successive scandals in the CEO’s office. Phil Condit resigned after a massive scandal in 2001 involving a proposed lease deal for 100 KC-767 aerial refueling tankers for the US Air Force. We’ve written many, many stories about this (and so have hundreds of others) so we won’t recap the events here except to say the chief procurement officer for the USAF and the chief financial officer of Boeing went to jail. Condit resigned in connection with the scandal.

His successor, Harry Stonecipher, resigned following an internal sex scandal. He held the office only a few years. Other than his scandal, Stonecipher was known for launching the 787 program (at the time called the 7E7) and for his ruthless cost-cutting, including the approach toward the 787 that came back to haunt the program.
Then-Chairman Lew Platt led the search for Stonecipher’s permanent successor; then CFO James Bell had assumed the presidency on an interim basis. Ultimately, fellow board member McNerney, then CEO of 3M Co., was selected. Ironically, McNerney had warned of too much emphasis on 787 production cost cutting, according to an April 2003 article in The Wall Street Journal by Lynn Lunsford.

Restoring honor to the office

McNerney’s initial focus was to restore honor to the chairman’s office and a new commitment company-wide to ethics. At an early leadership meeting following his appointment, McNerney famously flashed the prison number of the former CFO.

McNerney was raised, so-to-speak, in the corporate culture of GE, where he held several executive positions in several divisions. He was responsible for the exclusive engine supplier deal between GE Aviation and Boeing for the 777-300ER, the 777-200LR and the 777F, a relationship that continues to this day and which gave GE the inside track to retain this position on the 777X.

McNerney’s ties to GE were said to have been instrumental in rejecting a recommendation by Boeing Commercial Airplanes to dual source the 737 MAX’s powerplants to GE’s CFM for the LEAP and Pratt & Whitney’s Geared Turbo Fan, according to multiple sources we spoke with.
The GE heritage shaped McNerney’s own cost-cutting philosophy. As CEO of 3M, he cut research and development funding in the name of increased profits and shareholder value. Once he became Boeing’s CEO, McNerney set about cutting costs and diminishing the clout of Boeing’s two principal unions, the International Association of Machines and its engineering union, SPEEA. The IAM has several districts, with 751 the primary “touch-labor” union at Boeing’s Renton and Everett plants; and 837 at its St. Louis defense operations.

Terrible labor relations

McNerney became CEO of Boeing on July 1, 2005. Three months later, 751 walked off the job over what would become familiar issues: cuts in the pension plan, give backs on other economic issues. The stage for this strike was probably set well before McNerney took office and it’s likely there was little he could have done to avoid a strike other than give IAM everything it wanted.

Boeing narrowly avoided a strike in 2002, when 751 members failed to get the super-majority votes they needed to walk out then.
It was in the interests of everyone to avoid strikes in the future. A 2008 book, You Can’t Order Change, was a highly sympathetic biography of sorts about McNerney (who, according to the author, didn’t cooperate in the writing). In the book, the author devoted a chapter to McNerney’s “improving” relations with IAM.
Not hardly. Within days of the book hitting the stands, 751 struck for what would be 57 days, coinciding with the global financial collapse. If there had been any hope of improved relations, those were gone: McNerney’s relations with Boeing’s unions began a long, downhill slide with that 2008 strike.

Relations with the engineers union weren’t good, either. Weaker than 751, McNerney could outsource and transfer jobs easier than with 751. And he did. But moving touch labor jobs wasn’t out of the question, either.

In 2009, McNerney decided to locate the second 787 assembly line in Charleston (SC). He’s used threats to locate new airplane derivates outside the Seattle area twice since to gain concessions from 751.

Musical chairs at Boeing Commercial Airplanes

With huge, multi-billion dollar cost overruns on the 787 and 747-8 program, McNerney was slow to make drastic changes at Boeing Commercial Airplanes. He lost BCA CEO Alan Mulally in September 2006 to Ford when Mulally was passed over, a second time, to become president of The Boeing Co. McNerney named Scott Carson, a finance expert but with no engineering background, as Mulally’s successor. Carson’s lack of engineering expertise was viewed by many as a detriment.

Carson unceremoniously retired in 2009 when the 787 once again was delayed over design and production issues.
Jim Albaugh, CEO of Boeing’s Integrated Defense Systems unit, became CEO of BCA. An engineer, Albaugh was an enigma to 751 and SPEEA. He was considered to be aloof and rather imperial in nature by 837 members. But Albaugh’s engineering background helped get the 787 program on track. Still, his personal and management style earned critics, one of whom characterizes Albaugh as the worst CEO of BCA in memory.

Albaugh also got crosswise with McNerney, including an unusual public spat. When Boeing finally launched the 737 MAX program in July 2011, Albaugh told employees at the 737 Renton plant the MAX would be assembled here. McNerney was quick to issue a public rebuke, saying this wasn’t a given. McNerney used uncertainty over the siting to extract new concessions from IAM 751 and win a dismissal of their complaint to the National Labor Relations Board over siting the second 787 assembly line in Charleston.

After a few more set-tos, Albaugh unceremoniously retired. He was succeeded by Ray Conner, who by all accounts, was just as surprised to get Albaugh’s job as the company and observers were to see Albaugh leave.

Muffing the single-aisle sector

Boeing had been dawdling for months whether to launch a new, clean-sheet design to replace the aging 737 or to re-engine the airplane. Albaugh was widely believed to favor a new airplane design. The Board of Directors, still looking at a 787 program that was billions of dollars over budget and at the time still awaiting entry-into-service, was widely believed to be adverse to the risk of a new airplane program.

The launch of the 737 MAX came when Airbus, in perhaps the most successful sneak attack since Pearl Harbor, was poised to win a huge contract from American Airlines for the A320ceo and A320neo. Boeing had no clue discussions were even going on. According to those familiar with the situation, McNerney stepped in and launched the 737 MAX with 48 hours of learning of the Airbus coup at American.

Airbus has since consistently outsold Boeing for the neo/MAX sector, currently retaining about 60% of the backlog.
McNerney last year said there will be no more “moonshots,” or new airplanes, a statement that probably got more attention than it deserved since the Airbus Commercial CEO, Fabrice Bregier, said much the same thing six months earlier. Still, with a marketplace believing Airbus then had the upper hand in the single aisle sector, McNerney’s statement proved discouraging for Boeing partisans and its BCA employees.
Then came the soft-launch of the A321 long range in October 2014. McNerney subsequently said Boeing won’t proceed with a 737 replacement until 2030, thus signaling that Boeing is content to play second fiddle to Airbus in the single-aisle sector for the next 15 years. Airbus formally launched what is now known as the A321LR in January 2015.

What will Muilenburg do?

With McNerney’s ascension to chairman, the question now is, will Muilenburg stick to the McNerney strategy or abandon it and launch a 737 replacement sooner than later. The 737-7 MAX is a niche airplane with just 65 orders. The 737-8 is a solid derivative but still trails the A320neo by some 500 sales. The 737-9, like the 737-900ER before it, pales to A321ceo/neo sales and despite what the Boeing public relations and marketing departments claim, the Airbus is the more capable airplane. Customers are buying the A321 on a ratio of 2.6:1. Muilenburg also faces decisions about what to do with the so-called Middle of the Market airplane, the production rates for the 747-8 and 777 Classic and whether and how soon to abandon the 747 altogether.

Muilenburg’s views are unknown. He came into the presidency from the defense side and hasn’t said much about commercial. What he has said doesn’t stray from McNerney’s party line, nor would this be expected as long as Muilenburg was No. 2. What course he will chart as No. 1 will be watched closely.

92 Comments on “Muilenburg becomes Boeing CEO, McNerney non-executive chairman and leaves a mixed legacy

  1. Fingers crossed, this may be good news for Boeing as a whole 😉

  2. Scott- excellent article- good summary. Re McNerney and unions, specifically 751. Few people outside BA or the union know or understand that the last 751 contract with McNerney fingerprints was NOT negotiated by the 751 people, and was NOT really approved by the members. The reason was that under IAM documents, T Buffenberger could and did negotiate with BA behind the backs of the local. And he had the sole power to approve. The so called vote pushed over the holiday time period was strictly for optics and deliberately designed to exclude those who were most likely out of town on vacation seeing gramdma. Even McNerneys ” mentor” Jack Welch later said that the concept of ‘ shareholder value – and cut theb ” bottom’ 10 percent of the employees every year was wrong and misguided. McNerney has pretty/ well proven Jack correct re the GE way.

  3. No insight to the behind the scenes politics but the shareholders may have finally had enough of the stonecipher era. He killed off dca at the end (with low /derivative only/ investment aimed at stock holder short term return) and seemed very consistent in that approach for BCA but for the outsourced 787 program.

    The Douglas failures were written long ago and the Boeing marriage to his ego almost killed the family. Glad it’s over, I just hope some sort of Entourage politics behind the scenes check his ego and short term visions.

  4. I can’t believe this wonderful editorial was written only after this stupefying announcement was made. But I should not be so surprised as Scott Hamilton know this file inside out and better than anyone else.

    What I find even more surprising is that Mcnerney would leave the CEO position now and the Chairman one in February. I don’t see much difference between that and being fired.

    • @Norman: That was sitting in the bank since January. I only had to update it.

      Hamilton

  5. This was probably in the making for some time but what may have precipitated it was the C Series spectacular appearance at PAS. This brand new baby made the 737 look like an archaeological artefact and turned Boeing into an overnight has-been in the narrowbody sector.

    • @Normand: LOL, CSeries had nothing to do with this. Your cheerleading CSeries is priceless!

      Hamilton

      • Me too I laughed when I wrote this. It was a wonderful opportunity to show my allegiance! But more seriously, what triggered that remark is that I viewed the recent C Series publicity as a small event in the Big Boeing World like a drop of water that made the glass overflow. For in my opinion the C Series is more of a threat for the 737 than the A320. And the man who decided to do nothing, i.e., the MAX, was the same guy who lost his job today.

    • The recent history of 737Max choice rather than a brand new single-aisle project will become a beautiful case study which will examine in management faculties to study strategic choice not to…
      A case study that will be more profitable by retaining the metaphor of Plato’s Cave ! Has Socrates describe a gathering of people who have lived chained to the wall of a cave all of their lives, facing a blank wall. The people watch shadows projected on the wall by things passing in front of a fire behind them, and begin to designate names to these shadows. The shadows are as close as the prisoners get to viewing reality.

  6. Leeham: McNerney’s ties to GE were said to have been instrumental in rejecting a recommendation by Boeing Commercial Airplanes to dual source the 737 MAX’s powerplants to GE’s CFM for the LEAP and Pratt & Whitney’s Geared Turbo Fan, according to multiple sources we spoke with.

    I am not so sure that was such a big mistake. For the main problem of the 737 is the landing gear height. And the advantage of the GTF engine is the relative size of its slow-moving fan, a size the 737 would not have been able to take advantage of.

    Leeham: The launch of the 737 MAX came when Airbus, in perhaps the most successful sneak attack since Pearl Harbor, was poised to win a huge contract from American Airlines for the A320ceo and A320neo.

    And like Pearl Harbor for United States this deal was a major turning point in Boeing’s history. Like PH it showed that Boeing was not sufficiently vigilant nor was it well prepared enough to stage a war in the narrowbody sector. A great opportunity was lost. This was a Big Chess Game and Boeing made the wrong move. But like most chess games this one is taking a long time to unfold. Hopefully Muilenburg will make the game-saving move before the 737 is checkmate.

    Leeham: McNerney’s statement proved discouraging for Boeing partisans and its BCA employees.

    That is where the tragedy is at Boeing. Great care is taken of Human Factors inside the cockpit, but on the shop floors and design offices of Boeing Commercial Airplanes the spirit is gone: The Boeing Spirit. This is often the result of a succession of CEOs who lack emotional intelligence. They all are brilliant people, but what distinguishes them from one another is the way they deal with their employees and customers. In that respect Bill Allen remains the best CEO Boeing ever had.

    • The Plymoth Valiant was a great competitior to the Mercedes in 1961, then GM did not evolve it fast enough and Mercedes improved its matching size model quicker. The risk with Boeing keeping the 737 too long and having no sucessor to the 727/757 size plane is that Airbus will get 63% of the narrowbody market and Boeing dwindling especially if the C-series gets up in size taking customers for 150-180pax short range operations. Airbus most likely is pouring in improvements with the neo, like new APU etc. as it was originally designed with Mirage 2000 technology. Boeing must do the MOM 200-250 seater pretty soon or the 737MAX will fare as the Plymoth Valiant.

    • Boeing’s mistake was not renewing the entire 737 design when doing the NG.

      The MAX had to be done very quickly in an immediate response, the NG didn’t.

    • Don’t forget what happened in the four years following Pearl Harbour.

      I believe Boeing is far, far removed from being in trouble.

      • That is a valid point, Boeing remains a very powerful company. But I am not sure their employees are as motivated as the US citizens were after December 7, 1941. What is needed is a Churchill to replace the Chamberlain that is leaving.

        • What Boeing need to do is invest in new designs. That takes money. I’m not sure they have the money.

          There are some interesting signs. The 777x is probably the cheapest way for them to stay in the large aircraft market. The 747-8 was also supposed to be that, but wasn’t. They’ve repeatedly not done a 737 replacement, nor a 757 replacement. They tried with the 787 but unfortunately got stung. And they have a big production gap looming before the 777x comes on stream.

          These are not the characteristics of a confident company flush with R&D budget.

          Meanwhile there’s a lot of talk about A380neo, A350-1100. A320’s and A330’s of various sorts continue to poor off the production line. The C series looks good.

          I think Boeing need to do a deal with Bombardier, license the C series or something. Bombardier need to ramp up, Boeing need a design.

          • At the same time, Boeing is pouring billions into share buybacks, etc…

  7. I won’t dig up the links but McNerney was saying the airlines would wait for an NSA around the end of the decade & Airbus was only catching on the 737NG AFTER CEO’s of Delta , SouthWest and Udvar Hazy were telling the opposite as blunt as it gets in the press.

    I was shocked at the time. Randy has been communicating similar truths that were so clearly incomplete and incorrect one only hoped Boeing didn’t believe them themselves.

    The Great Quaterly Results when everybody knew cash was pooring out everywhere, press taking a holdback approach to stay friends, all did not strenghten credibility of the Boeing brand over the last 10 years.

    McNerney in 2011. When 787 was delayed for years & all promises broken x times:
    https://youtu.be/6T9k6D1X-UM

  8. My first thought, McNerney 2016. But, he’s probably smart enough to go live the good life, while the rest of us toil and cower. 🙂

  9. And while the stock price is $150, the shenanigans used to get it there speak for themselves.

    Good riddance, stay tuned if the replacement is any better, can’t be any worse.

    Interesting too that cut everyone’s elses profits but keep his connection with GE and no completion, hypocrisy by any other name.

  10. Not giving Mullaly a change was probably also a bad choice. I guess he had the internal credibility to make difficult decisions without loosing work floor support. Because all knew he is a home grown Boeing guy and that’s where his loyalty is. Not a stock holders guy from elsewhere milking the company. Mullaly left and became extremely successful at Ford. As I said: bad choice.

    https://www.youtube.com/watch?v=4RU3U6mG4nU

  11. Sorry to see McNerney leaving !!
    He was so good helping John Leary !!!!

      • The guy who work as a salesman for a competitor … sorry for my poor mastering of english !!!

  12. What everybody wants to know but doesn’t ask:

    Who decided McNerney is being replaced?

    • Suggest you go to the top secret http://www.boeing.com site which explains everything. Dennis was elected to the Board, and the board made the decision. IMO- the 737Max fiasco and the mess with no 757 replacement were major factors. The board had previously allowed him to stay beyond the Normal retirement age of 65, and James had wanted to stay until the 100th anniversary of BA.

      But walking off and leaving a 29 Billion dollar mess re 787 didn’t help either.

  13. I want to say my opinion about the MOM. But first we have to understand that the main priority is for boeing in the short term to make the 787 profitable and fix their relations with the unions.
    Now about the MOM. Boeing has an ace up its sleeve. the 767.

    Most of you will now think that the 767 is an outdated aircraft plattform with no future other than a tanker conversion and some limited freighter aircraft sales. In reality the 767 is continiously improved. Aviation partners is design a split scimitar winglet while rockwell collins will design a 787 based avionic conversion for IAI.
    So the only thing boeing need to do is just to put a new engine. A GE9X generation engine would result in a 17% fuel reduction. with new winglets and new nacelle the 767-200 would have in total of 27% lower fuel consumption. It will have about 1bn dollar devel development cost.
    Composites and aluminum lithium can only be used by for the fuselage and wing skin therefore the maximum weight decrease is 3% of the total MTOW therefore the is no return on investment. So a 12bn dollar all new design MOM would simply be unable to surpass the cheap 767 MAX fuel efficiency and justify the 12bn price tag

      • MOM= middle of the market aircraft 200-250 or 220-280 seat capacity

      • MOM= middle of the market aircraft 200-250 or 220-280 seat capacity replace aircraft for 757/767-200/A300/A310

      • @Don, I hope your MOM remembers this on Mother’s Day…..

        • Gosh- that sounds sexist 🙂 . The problem with acronyms is that everyone makes up their own without explanation. it used to be that anytime someone used an acronym, they spelled out what it meant in that context the first time it was used in an article. Or even words have a different meaning depending on context.

          Take BA Sounds like BAH or maybe what a sheep says BA BA BA

          Could also be used to describe someones posterior 🙂

          • Its been in the news and on the Web sight a lot.

            At some point we assume you have been reading the posts

          • You assume wrong- To assume that anybody or everybody is following all posts and article on a given subject and familiar with all related acronyms. Few people read every post in every thread, depending on their background, point of view, time available and/or interest.
            And acronyms in the aerospace world are legion, and unique to a given subject or section.
            I’ve worked in the aerospace industry for over 30 years, in missiles startin before sputnik, in commercial aircraft since 707, in military aeospace starting with B-70, Thru B1A and nearly a decade on B2. In manufacturing, tooling, testing, etc With drilling, fastening, etc. I could easily pontificate on specific sections and use specific acronyms without further explanation- but I rarely do. A quickie example. A company called electro- Impact is making major tooling to drill and rivet aircraft assemblies all over the world. The initial acronym published about the specialized riveting process was EMR- About 15 years later the company using that process was named Electro- Impact. Bet you cannot find out what EMR really stood for. And have you ever heard of GEMCOR ? – I know what EMR stood for- simply cuz I developed the process and named it, and it was mentioned in many publications and a few patents ( which I do not hold ) Should I assume you know what it means because you seem to be an aerospace type or airplane type ?
            Have a nice day !

          • Don,

            With all due respect when I come across something odd I never heard of I Google it. Pretty much get what I need.

          • Grooan- fine simply google EMR and let us know what you get.

            Ditto for MOM

        • Leeham news please make an article about the 767 MAX !

          • @Hallaway We looked at a 767 MAX long ago. You might search.

    • I forgot to include that the aircraft will have boeing sky interior with 5 inch internal widening like the 777X having 8 abreast 16.9 seat width with 18 inch aisle and 1.8 inch armrest. In contrast the a330 in 9 abreast is 16.7. ideal for low cost carriers

      • Stathi,

        I don’t know what is worst, 8 abreast in 767 or 9 in 787? Wall trimming can be applied to A330 and provide >17″ seat width @ 9 abreast. It can work only for LCCs. Nobody would want to travel for 6 hours in this seat.
        If 767 was competitive to A330 then it would still be produced. With 2-3-2 you loose one seat per raw and this is the real advantage of A330. I don’t really understand this obsession with 767.
        I also don’t understand how you gain 10% from aero and new nacelles? Sounds ultra optimistic. Unless you want to change the whole wing.

        • For the same reason that airbus has the obsession with the a330 and continued with the a330neo because the 767 is an extremely efficient plattform. About the 11%. firstly the 6% comes from the blended winglet standard for the 767-300
          http://www.aviationpartnersboeing.com/products_767_300er.php.
          1.5% comes from split scimitar application
          https://leehamnews.com/2015/04/14/aviation-partners-boeing-next-step-a-scimitar-for-757-767/
          1.5 % from laminar flow nacelle and the last 2% comes from optimised slat 1 and upper belly fairing.
          secondly a 767 17.6 inches 8 abreast with 1.5 inch armreast 17 inch wide aisle and 5 inch internal widening
          finally the new 767 family will be 767-200 and 767-300 for a300 replacement . the 767-400 can provide the short range version of the 787-8 and a330-800neo and compete with the china-russian new widebody aircraft. every version except the 767-400 are in their non extended range form for the passenger versions. this result in 12% lower fuel consumption from lower MTOW. In total the decrease in fuel consumption is 40% vs a 767 without winglets

        • Everybody´s favorite aricraft to fly on and we would all like to resurect it. It will never happen though.

      • The 767MAX was buried by Boeing a long time ago.

        What you are going to do to the 767 sounds far more expensive than a new wing for the 787. What about the 787-3MOM?

        • There is now way to get enought weight out of the 787 to make it a MOM. The 787-8 is already very short compared to it’s fuselage wide. You would have to get ride of at least 40.000 lb weight. Now way in hell this makes any sense. The 787 is a longre-range plattform with all consequencies. The wing is allready CRP. Even if a “787-3” would work it would’nt be a MOM but fare bigger.

          The same problem occurs for a 767-based plane. To make the 767Max work you need to lower the upper deck for 8 abraest. When you’ve done this you get a A33x replacement shortly below the 787-8. That’s not the MOM Boeing is talking about – around the capabilities of the old 767-200 with 7-abreast.

    • Stathis:

      Boeing is making the 2C version of the 767 with a 787 cockpit already (i.e. for the tanker project but also will be available for any freighters)

      Leeham needs to model the 767NEO, I think it would work but it would also cannibalize some of the 787-8 market.

      Be interesting to see a Leeham report with their model.

  14. Boeing is working on a 757 Replacement with a concomitant need for a 737 Replacement. They can do them separately and in sequence, but not simultaneously, or they can be combined into a single design with multiple variants. I think Boeing wants to do them separately and will likely start with the 757 Replacement first.

    The MOM market is not as big as the NB market but it is more lucrative because the margins are much higher. That is why the A321neo success hurts so much. On the other hand Boeing is still selling the 737 MAX-8 in great numbers and probably believes the party will go on for ever. Or at least until the MOM R&D will have been completed. That is what I think is Boeing’s new strategy. But I don’t really know because Muilenburg has not returned my phone call yet. 🙂

  15. Here is another good reason for Boeing to do the MOM and extend the MAX’s life, or prolong its agony, depending on how you look at it.

    When completed the 737 MAX will have cost a relatively modest sum of money in R&D. The aircraft is selling well because it is cheap and it is cheap because it is selling well. It’s a two-way street. If Boeing spends a lot of money on a 737 Replacement this will be reflected in the asking price. As a consequence they won’t be able to compete with Airbus anymore, whose A320 family would still offer a reasonably good product for a much smaller price. And Boeing would still be offering a marginally superior aircraft to the C Series but one that would probably be much more expensive. So Boeing would find itself unable to compete with Airbus and its older but cheaper aircraft, while offering a similar technology aircraft to the C Series but with a much stiffer price tag.

    The above considerations might be why Boeing elected to abandon the NB market, at least temporarily, and switch in upper gear to do the MOM. I think DAD would approve (Dual Aisle Design).

    • “I think DAD would approve (Dual Aisle Design).”

      – Nicely done, sir! 😀

  16. new avionics and split scimitar wingtips are already developed and ready into production so what i am proposing is a 767 with new engines , upper belly fairing and slat 1 optimisation [ no development cost] and new cabin intrerior.The lower MTOW i said in my previous comment was the same thing to what airbus done with the a330 regional.The development cost will be 1-1.5 billion dollars. It is so simple no re wing no composites no alumimium lithium. Is this expensive ?

    • “Boeing could do a small MoM if they e.g. buy into the CSeries and open a second/ third line.”

      If you can’t beat them buy them! But in Bombardier’s case that would not be so easy. Not because Boeing cannot afford Bombardier but because despite its size it is still a family own business. Even if it is a public company the Bombardier/Beaudoin family controls a majority of the voting shares. If it hadn’t been like that there would be no C Series today. In 2002 Bombardier hired a new CEO to restructure the company which had run out of cash in the aftermath of 9/11. He was determined to cancel the C Series project and put up a fight with the family which won the fight and voted him out in 2004. The C Series was shelved nevertheless but Gary Scott (ex Boeing 737/757 Program Manager) was retained and was allowed to continue to work on the C Series but with a reduced workforce of approximately 50 people. The project was re-launched when the GTF engine became available. And since the family is more passionate about airplanes than money they want to continue in that business. They would do anything to stay in the aerospace sector even if they had to sell their lucrative train business to retain that privilege. They all had tears in their eyes this year at Le Bourget when they finally had the opportunity to show the world what they had accomplished.

  17. I suspect this a good time for a new CEO to come on board.

    Regardless of the past and the varied views people have on the performance of McNerney, Boeing have some immediate business matters that need be addressed.

    As we all know the 787 has been a financial debacle, the 747 doesn’t have the sales to keep the line at a rate where it can recover its investment costs and Airbus now have a range of products that could knock Boeing off its nice little wide body perch.

    A write off of 787 & 747 assets to the tune of $10-15 billion would be a nice starter. It would mean the 787 could effectively compete with the A330NEO and A350 without having a financial noose around its head. A write off of the 747-8 development costs could mean low rate production (and sales) of this airframe into the future would be more viable.

    From all accounts the 777X is going to hit its mark, the 787-9 and 787-10 will remain competitive in the market place and even though the 737MAX is trailing the A320NEO in sales, this aircraft is looking like being the most successful 737 series in the history of the program. Boeing now have long-term agreements with their workforce and a more diverse production base to build their aeroplanes.

    For me and as a investor I think now is the time to start clearing the some of the Boeing decks. Righting the financial 787 and 747 wrongs of the past in the whole scheme of things is not an insurmountable task, but enact it, a change in leadership is probably going to be the easiest way forward.

    • But if you wrote it all off they would have to start paying TAXES!

      Heaven forbid, we can’t have that.

      We pay them to make airplanes, not the other way around.

      What were you thinking?

      • The use of running losses on production aircraft ($25bill+ and increasing by millions for each one rolled out) as a development cost is a method to make it look like Boeing is profitable now.
        Low interest rates mean money can be borrowed to buy shares back and boost share price ( plus execs bonuses).

  18. The McNerney era was a disaster on a long-term for Boeing.
    – 787 rollout was a joke & Boeing said the program was on schedule – not true!
    – The investment in the 787 will be over $35 B to pick a number – program can not achieve a break even ever at a positive IRR – The investment numbers do not include compensation payments to airlines for the 787 delay. Look at the ANA compensation.
    – Helped GE gain sole source positions on the 777, 747-8 and retained their position on the 737 MAX. Not a great business strategy. Their customers are paying higher prices by the lack of competition. Boeing likes competition with suppliers and Boeing manufacturing sites for all key aircraft components except engines.
    – Surprised by Airbus AMR deal and forced to offer the 737 MAX at the last minute to advert losing the all the narrowbody business at AMR. The 737 is an old tired airplane. Boeing needs to develop a new product, this mistake will hurt them long-term. MD-90 is a history lesson.
    – Totally mismanaged the defense business. The team is St. Louis was best in the world and Boeing killed them!
    – Overall it appears McNerney was shown the door. He openly told investors he want to stay longer. Hopefully the new management team will restore a positive working relationship with their employees and suppliers! Develop a new 737/757 replacement aircraft with last least two engine suppliers. In addition, moving the corporate headquarters back to Washington state closer to their roots and many of the key operations.
    – The McNerney performance at Boeing proves all GE Jack Welch potential replacements were all poor performers at their new companies. Home Depot fired their GE man.

    • The 737 is NOT an old tired airplane.

      Its a airplane that is limited by its architecture and the era it came from.

      Fine enough airplane, just no future. redone too many times. Sad.

  19. Has anybody a better idea about the middle of the market aircraft ? Discuss

    • Looking at all alternatives of the last years and all comments and market developments my best at this stage.

      – capacity 170-250 seats. Range up to 4500NM. Not bigger / further, as this compromises efficiency and looses the enormous <200 seat<2000NM market..

      – A 3 3,-3 1.5 aisle cross section. People / trolleys can pass each other and it makes fuselage ligheter stretching it up to 45 seatrows.

      Going to a 2-3-2 cabin will likely make it uncompetitive against existing and future 3-3 cabin < 2000 seats.

      Basically this means take a A321, make it a bit wider, carbon and better wings. Like A330-7e7 12 years ago.

      • What you propose here is vey close to what I had myself envisioned when I mentioned that Boeing could combine the 737 Replacement and 757 Replacement into a single aisle design (SAD) versus a dual aisle design (DAD). I said previously that Boeing’s best option was to make the 737-800 the smallest variant and move up in capacity as the market seems to be doing right now. This way Boeing could replace the 737 and 757 with the same aircraft, which would cover the upper end of the 737 and the lower end of 757. It would be an acceptable compromise in my opinion. This 37/57 combo would likely be optimized around the A321 category. If I was Boeing that is what I would want to do, but I am not sure that is what they want. They may prefer to address the 757 Replacement head-on and leave the 737 Replacement option open for future ultra efficient designs. If the 757 Replacement starts too low it would kill that possibility from the start. The more I think about it though the more senses a combo design makes. But that would be SAD for DAD. On the other hand MOM would be very happy because she would have the 737 family with her.

        • Grooan- its been said that a PUN is the lowest form of Humour

          MOM always liked U best ! 🙂

          • Hi Don, while I have you on the line could you please talk to me about your experience with the B-70. North American made only two of them but it remains to this day my all-time favourite airplane. Harrison Storms said in his book “Angle of Attack” that they came to call this plane Jesus-Christ because each time a USAF official walked into the hangar and saw it for the first time they invariably said “JESUS-CHRIST!” 🙂

          • RE B-70. actually it was minimal. At the time I was working for Firestone GMD ( Guided Missilem Division ) on the Corporal Missile- the first nuke armed ballistic missile in service. Then North american was putting out for bids on what was called an Alert Pod- a wheeled APU slung under the belly which would start all engines, activate all systems nd then be disconnected just before plane started to taxi. At that time the issue was to be takeoff capable in a few minutes ( as I recall about 10- 15 )
            Sort of like a ready alert on fighters. There were two issues I was sort of involved in. One was for hydraulics- susing a special high temp fluid and a nitrogen pressurized reservoir system- the other was how to start all engines rapidly. I came up with a suggestion to use a push button sequence sort of like a then push button car radio on the pod which was remoted into a push button on the front landing gear- and it was incorporated into the firestone bid. But about that same time- the whole scenario changed.- and as I recall ( that was over 50 years ago ) the concept of an alert pod was dropped. Nuff said here- this could too easily turn into a old geezer counting coup discussion about ‘ back in the day “

          • “I came up with a suggestion to use a push button sequence sort of like a then push button car radio on the pod which was remoted into a push button on the front landing gear.”

            If I am not mistaken a similar solution was retained later on for the B-1. If I recall correctly an alerted crew would initiate the engine start procedure by pushing a button on the B-1 NLG. This may have been an offspring of your own idea.

      • Very good proposal keesje. But your new design has an achilles heel. The development cost of that aircraft will be 15 billion dollars. Carbon is also expensive to manufacture. This combination will push the unit price at around 180-200 million dollars. It also lack cargo space. So the disadvantages of your green are high price and low cargo space. On the other hand steve idea about the 767 MAX is much more interesting. The boeing 767 is lightweight platform but with ancient engines. The solution is a 767 MAX with ge9x engine laminar flow nacelle split scimitar winglet and some aerodynamic tweaks. All together will result in 23% lower fuel consumption. Combine with an ultra low price it will have lower operating costs than your all new aircarft. On top of that it will have the desired cargo space capacity.

        • While I continue to be interested in the 767 (even a 100 shrink) I don’t know that cargo capacity is a factor for this segment.

          Maybe yes maybe no but would need to see the results.

          What I don’t get is how a MOM gets them out of the bind in single aisle and what systems are common enough between what would seem to be a small wide body and a single aisle.

          Or it needs to be an updated 757 (all new) that can take on the 737-9, A321 range with a model longer to get into the 240 seat class.

          As the cost would be spread across thousands of aircraft (maybe 10k long term) the launch cost might not be that big a deal if done right, done right, done right.

        • Steve, you have a very good point. Keesje and I have pretty much the same vision on this issue, but you make me realize that I had completely forgotten to take the cargo capacity into consideration. A single MOM (single-aisle) would be able to take standardized containers but the volume would necessarily be limited. And I think the MOM category is where cargo capacity can make a big difference in terms of revenue. Which makes me believe more than ever that Boeing will probably opt for a dual-aisle design. But the question then is how long can the 737 hold the fort in the NB category. I think by the time MOM enters service the MAX will already be history. So if Boeing does the 757 Replacement first the 737 Replacement will have to follow immediately. If it’s not too late by then, of course.

          • Let me go one step further. Lionel informed us that the sweet spot will rise to 200 seats. 200 seats is the lower segment of the MOM aircraft. That means that the requirement for the 737,757,767,a300,a310 and a320 can be replace with one aircraft family. This is why boeing is so interterested on the MOM. Now steve has shown us why the 767-100 and -200MAXes with new GTF engines minor aerodynamic tweaks new avionics and cabin with 1.5 billion dollar cost and fuel savings of up to 32 percent will be a better solution than an all new plane. The boeing 767 MAX will be one of the most important and genius moves boeing has ever did.

  20. If I understand correctly, Boeing, presumably under McNerney’s direction, extracted tough deals from Washington State and the labor unions, before agreeing to site the 777X program in the state. They then moved many of the design and engineering functions out of the state, breaching the spirit,if not the letter, of the agreements. Disgraceful if so. Tough but fair is one thing. Tough and then breaking trust is another.

  21. Nothing to do with McNeanery and the GE we are out for ourselves crowd speaks of trust.

    Hypocrisy yes.

    Mcnenanry was into cowering workers. I think he would find Pakistan his ideal country.

    • What has Pakistan got to do with anything? If I did not know better I would see this as a profoundly racist comment.

  22. Scott

    Really enjoyed the balance, his reign was very much a mixed bag but at the same time an extended tenure in its own right is some achievement given the circumstance of his appointment. to lay short-term ism at his door as some do and conflict with the unions is to ignore the immensely difficult issues outstanding from MDD/B merger that some may argue are still not solved today.

    Even the CEO cannot on his own break a short termist culture with an unwillingness to invest consistently in new platforms. The 777 was invested in with reticence, the NG was. Sticker plaster on a gaping wound and the 787 was supposedly done on the cheap (haha),
    I see a guy who has managed Boeing in direct relation to shareholders wishes which is his fiduciary duty. He has been very successful in that. Unfortunately in this game short term share price movements are only part of the story. He has presided over the decimation of the commercial catalogue, lost the 47, 57 and the 67 (nearly) and is struggling on with the NG/ MAX with only the X and 787 being future proof. Of those two the 787 will always struggle to make a penny.
    I wouldn’t have wanted his job and I wouldn’t like to succeed him but I am guessing the remuneration to stay or go dulls the pain

    • Nice post Sowerbob, you have given a good summary of the Boeing CEO and his ‘accomplishments’. It’s now time to repair the damages and to rebuild what has been destroyed. Starting with the employees’s morale. Sometimes difficult periods bring the best in men and women, and it’s the same for corporations. I have the impression that the MOM project will be the turning point and will bring back some of the spirit that was lost. Boeing lined up too many losers in recent years:

      1. 787 (industrially)
      2.747-8 (commercially)
      3.737 MAX (technically)

      So far the 777X looks pretty good, but it started a little late and might arrive even later. If not too late.

      • Agree on Bob’s summary. Go to the Seattle Times comments section and you will read consistent and bitter hatred (I don’t think that’s too strong a word for it) for Jim McNerney. Astonishing, even allowing for the usual lack of moderation on that kind of forum. He clearly had to make difficult decisions, but good leaders will be respected for making difficult decisions – even by those that are at the receiving end of them.

  23. Steve: “Very good proposal keesje. But your new design has an achilles heel.”

    Definitely, multiple. The most worrying should be that 2 years after Boeing, Airbus comes with a slightly smaller, lighter, 10% more efficient A30X. Optimized for 150-210 seats, <3000NM. Which one do you think Southwest, AirAsia and Easyjet will order? ..

    Normand: "And I think the MOM category is where cargo capacity can make a big difference in terms of revenue. Which makes me believe more than ever that Boeing will probably opt for a dual-aisle design. "

    I think it would be pulverized by smaller aircraft, 150-170 seats <1500NM. By far the biggest market. On cargo: 3-3 with the same capacity as a 2-3-2 carries more LD3-45s..

    https://leehamnews.com/wp-content/uploads/2015/03/MOM-NSA-NLT-A322-cross-section2.png

    Forget the averages sizes, marketing stuff. 50 Seaters or A380s are included in many of those averages.. The average aircraft has 2.3 engines..

    I'm afraid this might end up that Boeing doesn't have much options then make a better A320. Or loose its NB market position.

    • “I think it would be pulverized by smaller aircraft, 150-170 seats <1500NM. By far the biggest market. On cargo: 3-3 with the same capacity as a 2-3-2 carries more LD3-45s."

      I had a close look at your diagram and I am forced to admit that the cargo advantage is not really there. So in Boeing's case it might be preferable to go the single-aisle route and try to hit two birds with one stone, like Airbus did with the A350. This way Boeing would find an immediate replacement for the 737 while answering the need, at least partially, to replace the 757. This new 797 would necessarily be slightly bigger than the 737, starting with the fuselage width, and would have to be optimized around a variant bigger than the MAX-8 but smaller than the MAX-9. Or if you prefer a 737-8.5 or 797-850. If Boeing gets this right it will be for them the equivalent of nailing down Fermat's Last Theorem.

  24. @ Travelhound

    “A write off of 787 & 747 assets to the tune of $10-15 billion would be a nice starter. It would mean the 787 could effectively compete with the A330NEO and A350 without having a financial noose around its head. A write off of the 747-8 development costs could mean low rate production (and sales) of this airframe into the future would be more viable.”

    How could you possibly do that and what impact would it have on the stock? Do you want to put Boeing into receivership? As far as I know the only way to write-off assets like this is to file for Chapter 11. Unless you mean for Boeing to show the real lost in the books in the coming quarters, like Bombardier did with the Learjet 85. But the actual lost doesn’t magically go away. It’s just there for all to see.

    • The market currently values Boeing around the $98 billion mark. A book write off of $10-15 billion shouldn’t change this valuation as investors on the whole would have priced in the 787’s current financial woes!

      A write off of 10-15 Billion would account to 10-15% of the Boeing stock. We have to remember Boeing;s forecast current operating margins are going to be very close to the 10% per share mark, so a write off this magnitude could filter itself through the system very quickly.

      We also have to remember such a write-off would have an immediate positive impact on operating margins.

      Boeing’s businesses are all in relatively good shape. Wouldn’t it be prudent to do a financial clean up these two programs?

      • “Boeing’s businesses are all in relatively good shape. Wouldn’t it be prudent to do a financial clean up these two programs?”

        Boeing’s businesses LOOK like they are in relatively good shape, but are they? My answer is I think not. But I don’t really know because I haven’t seen the books. And even if I saw them I would not be able to make much of it because I am not a CA. On the other hand I know enough about the aerospace business to say that Boeing finds itself in a precarious position right now:

        1. The 747’s future is bleak.
        2. The 787 is still a burden.
        3. The 737 is aging fast.
        4. The 777 is entering a painful transition period.

        And so is Boeing.

        • Well Wall Street certianly thinks Boineg’s future is bright and they are experts on this type of thing.
          Regardless…
          They are still making money on the 747 if it dies it will not have much effect. Like the 380 it is very much a sideline niche market these days but without the giant financial hangover of the 380.
          The 787 is a burden? Perhaps but a “burden” that will start making a profit this year. A model that continues to sell with well with over 800 orders on the books and with 300 already delivered The protracted development of the 8 model was not repeated with the smooth intro of the 9 and up coming 10 models. Yes there is going to be a financial hangover for a long time from it but at least it will have the sales to eventually dig out and it is outselling the 350.
          The 737 aging? Well all designs are but it’s pushing 3,000 orders. Would all aging aircraft be such problems! Yeah the neo is outselling it but so what? It’s not affecting that it’s going to turn a very healthy profit for a long time. Bottom line the MAX is an asset, not a liability.
          As for the 777x it’s hard to see how it’s bad news. Even the transition has been helped somewhat with classic 777 sales at the Paris Air Show.
          Factor in the revenue coming by having the largest aircraft production in the world.
          I’ve read your posts and know your rationale but I have to say I disagree.

  25. @ Matthew

    “What Boeing need to do is invest in new designs. That takes money. I’m not sure they have the money.”

    If they have enough money to buy back shares they have enough money to develop new models.

    “These are not the characteristics of a confident company flush with R&D budget.”

    This could change with anew CEO.

    “I think Boeing need to do a deal with Bombardier, license the C series or something. Bombardier need to ramp up, Boeing need a design.”

    Bombardier will eventually need to ramp up but there is no rush because there isn’t enough sales at this time. Ramping up will be done progressively and in synch with sales. When that happens I don’t see why Bombardier would need Boeing. They have just constructed a brand new assembly building well equipped with robots, and they benefit from a well trained and experienced workforce. If they needed additional workers they would start by recalling the thousands that have been laid off in recent years. And if that wasn’t enough they have immediate access to a pool of fresh graduates from the largest aerospace technical school in the world which happens to be located only a few miles away (École nationale d’aérotechnique, St-Hubert). They also have very well defined expansion plans to increase production when time comes. And all this has been put in place a long time ago by none other that Gary Scott, the ex Boeing 737/757 General manager. He was there at the time of inception and without him I am not sure the C Series would have been done this well.

    • I was really thinking in terms of Boeing needing Bombardier, not the other way around. Bombardier have a new design that looks promising. Boeing need a new design. I know that it’s not like-for-like, but it’s probably a whole lot better than what Boeing have planned (if anything) right now.

      They may have enough money for a share buy back, but that saps money away from R&D. Buying back shares is a way for a company board to inflate the share price in the short term (which is what most investors are looking for) rather than investing in the long term interests of the company. This also suits a retiring senior board member; they can sell off their options at a high price, and it won’t be their problem if their actions cause the company to experience problems at a later date… At the end of the day today’s shareholders probably don’t care too much about what is going to be happening to Boeing in 5 years time.

      • Matthew, what you say about share buyback, stock options, board members, etc., is an old business model that we see across North America and many other places around the world. But like you suggest it’s not working because the only people to benefit from that are CEOs and investors. Many wonderful companies have disappeared over the years because of that and a new earning system will have to be put in place to replace this completely obsolete way of doing business.

        Now to get back to Boeing, their biggest problem is that if they want to make a new NB they won’t be able to do it as cheaply as Bombardier did the C Series. In the end the latter will have cost nearly 6 billion dollars, but most observers think that it would cost at least 12 billion to Boeing to build an airplane a little bit bigger, but one that we not be much better. For the C Series represents the state of the art. But since the C Series is not for sale Boeing will have to take this longer and more expensive route. Their best option right now is probably to move away from the C Series category and replace the 737 with a bigger aircraft that would give them exclusive access to the MOM category. It would be like combining two different, but highly successful, aircraft into a single design with the best attributes from both. This represents quite a challenge, but if done right it could potentially put Boeing quickly back on track. On the other hand if they miss their target it could become the equivalent of shuffling the deck chairs onboard the Titanic. And if I was a Boeing stock holder I would try to spot a raft boat, just in case.

        • A MOM aircraft wouldn’t replace the 737. It’s going to be a twin aisle design that will be a 767 replacement if anything. Replacing the 737 won’t happen for more than decade.
          MOM does appear to be the next big project that Boeing will tackle. It will be interesting to see how it all shakes out.

          • “It will be interesting to see how it all shakes out.”

            It will indeed be very interesting to see what Boeing will have decided to do. But in the meantime it’s fascinating to just try to figure out what would be the best thing to do. We are talking big money here and very long lead times. Boeing cannot afford to miss on this one. At least we know they are pursuing a new design. Something they haven’t done for more than ten years.

  26. Dear Pickles,

    You have the right picture, but you are holding it upside down.

    “They are still making money on the 747 if it dies it will not have much effect.”

    The 747-8i turned out to be a much more elaborate project than they had originally bargained for and Boeing will never get their money back.

    “The 787 is a burden? Perhaps but a “burden” that will start making a profit this year.”

    How can you make a profit when you already have accrued a 30 billion FORWARD lost.

    “The 737 aging? Well all designs are but it’s pushing 3,000 orders. Would all aging aircraft be such problems!”

    Yes the 737 MAX is a great success, but it will be of the short-lived variety I am afraid. The MAX has only one successful variant: the MAX-8. Operators need a family of aircraft, not orphans. That is why many Boeing customers are migrating to Airbus. Once the backlog will have dried out Boeing will have to kill its cash cow. And that may come sooner than you think because the competition is fierce. The MAX has not flown yet but we already know that it is going to be an under-performer.

    “As for the 777x it’s hard to see how it’s bad news. Even the transition has been helped somewhat with classic 777 sales at the Paris Air Show.”

    The 777X isn’t bad news. Not until now anyway. The bad news is the transition period which will place an unbearable burden on Boeing’s finances. That is because there will be an extended period of time when the 777 Classic will generate little revenue because Boeing has to sell them at increasingly lower prices in order to find takers. At the same time Boeing is spending a fortune on the 777X development. That difficult period is only transitory in nature but may last longer than Boeing can afford.

    “Factor in the revenue coming by having the largest aircraft production in the world.”

    Revenues come from the profit you make on each unit sold. For the 787 we are not there yet. And when we get there, say next year, the deferred costs will absorb all that profit. And on the 777X Boeing will not make any money for years to come. As for the 737 MAX it will allow Boeing to survive in this very difficult transition period. But that product has an expiry date on it. We are actually past the Best Before date.

    • Dear Normand,

      The 787 is turning a profit on every unit sold. Of course the 30 billion program has been untouched until now. The 787 is actually turning a profit on models before the 380 and unlike so has sales to boot. So if the 787 is hanging over Boeing well the 380 hangover isn’t nearly over for Airbus yet. This with the twin hit of the 350 not even being near turning a profit on the three or so models built then I fail to see how thinkg are that much better for Airbus.

      “The 777X isn’t bad news. Not until now anyway. The bad news is the transition period which will place an unbearable burden on Boeing’s finances. ”

      I see not much fear form analysts that the 777x will be much more than brief burden much like Airbus will suffer with the 330.

      “Revenues come from the profit you make on each unit sold. For the 787 we are not there yet.”

      They will be making money on each aircraft sold by the end of this year. As for the MAX they still have the profit of over 1,000 NGens to still produce. If the MAX has a “best before” date on it well 2,900+ orders say that it hasn’t been reached yet.
      The 747i development was only a 2.5 billion hit and as much as everyone wants to throw dirt on it the resurgent freighter market might say otherwise regardless.

      In the end I read what a lot of analysts are saying and the fact they are bullish on Boeing (and Airbus for that matte) carries a lot of weight in my mind. The future might not be all sunshine and uinicorn farts but it is bright!

      Happy Skies 🙂

  27. McNerney stating Boeing will develop a 737 successor for EIS 2030 makes Airbus executives smile.

    • If that is so it would imply that they do not intend to combine the 737/757 I suppose. Do you know if he mentioned anything in terms of timescale for the MOM?

      • 2030 has been the Boeing NSA timeline for some time. A MoM could change it.

        • Thanks keesje. I know we more or less share the same vision on a combo 737/757, but do you think that is what Boeing would want to do, or do you believe they will do them separately as two distinct designs that would complement each other?

          Personally I don’t know what they want to do or what they can afford, but I do know that I would want to fuse the 757 concept with the 737 to create an aircraft with up to four variants of the same fuselage: two in the 737 category and two in the 757 category. And with one set of wings for each pair. In other words four models with two wings. And I would make the fuselage an inch or two larger than the A320 to bring it to the C Series standard. The first wing would have a continental range and the larger one would have an intercontinental range. They would share the same cockpit and systems. I would start with the smaller wing and its two variants. Later on, but in sequence, I would do the bigger wing with its two variants. It’s an ambitious project like Boeing has traditionally undertaken over the course of its long history.

          But there is one big obstacle in the way: the 777X. Which makes me think that the whole thing might just be a smokescreen, no matter what they say.

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