By Bryan Corliss
Feb. 7, 2023, © Leeham News – Less than a week after Boeing CEO Dave Calhoun stood in the company’s Everett factory and vowed to “maintain this leadership culture forever,” a panel of top aerospace industry analysts blasted Boeing’s corporate culture and criticized Calhoun’s leadership, saying he lacks vision, industry knowledge – even charisma.
“No new aircraft until 2035,” said AeroDynamic Advisory Managing Director Kevin Michaels. “What kind of vision is that?”
Having Calhoun at the helm of Boeing at this juncture is “the worst-case scenario,” said Michaels’ partner at AeroDynamic, Richard Aboulafia. “(Calhoun) is somebody not only not from this industry, but someone who maintains a willful ignorance of it.”
The challenges Boeing faces mending fences with all the groups it has disappointed or alienated in the past 20 years – customers, suppliers, regulators and workers – are immense and it may be more than one person can handle, said Bank of America Managing Director Ron Epstein, who also was on the panel.
“It’s a hard, hard, hard job right now, to be the president of the Boeing Co.,” Epstein said.
The panel, which met at the Boeing Future of Flight museum at Paine Field – just across the runway from the Everett factory and flightline – had met to discuss the results of Aboulafia’s most-recent study of aerospace industry competitiveness.
The report – commissioned by, SPEEA and IAM 751, the two main unions for Puget Sound aerospace workers – was released just before the kick-off of the Pacific Northwest Aerospace Alliance’s annual conference.
The study found that, based on roughly 100 quantitative measures, Washington state continues to be the best U.S. state for aerospace companies to do business in. Michaels noted, however, that Texas and Alabama had made noticeable gains in the past two years.
But under questioning from Pulitzer Prize-winning journalist Dominic Gates from The Seattle Times, the conversation turned to the panel’s thoughts about Boeing’s future.
The panelists were critical of Calhoun’s investor-day announcement that Boeing would wait a decade for new technology before bringing a new aircraft to market.
“There’s clearly a market for a new airplane,” said Epstein.
Michaels agreed. Boeing has all the new technology today it needs to put out a new jet that’s 8% to 10% better than the competition, he said. Such a plane would “sell like hotcakes in this environment.”
But instead of pursuing what would be a very successful airplane program, Calhoun is holding back waiting for some sort of market-disrupting new technology that will cut fuel burn by some 20%, Aboulafia said.
But that’s just not how aerospace works, he said. “Disruption doesn’t happen in this industry. It doesn’t happen. It never happens.”
Michaels said that historically, Boeing was the market leader because it listened closely to what customers wanted, delivered that to airlines and then provided outstanding customer support after the sale.
Calhoun’s decision not to pursue a new aircraft ignores that history, he said .”I hope to hell that this is a feint and that they have a Machiavellian plan.”
Boeing already has fallen behind Airbus in the all-important single-aisle market, where Airbus has a 60/40 advantage, Epostein noted. “When you look out 10 years down the road, if nothing new happens, you’re in a market situation of 70/30 in the single aisle.”
The panelists also said Boeing’s decision to delay a new airplane program will have wide ramifications across the company and the entire industry.
For Boeing, a decision to wait until the mid 2030s on a new airplane program means that it will have gone 30 years without developing a new clean-sheet aircraft. By the time it gets around to doing it, no one at Boeing will remember how it’s done, several panelists said.
“If you wait 30 years between programs, it just doesn’t work,” Michaels said.
The same issue will affect suppliers, particularly among the engine manufacturers, he continued. “It affects your whole ecosystem.”
Gates noted that Spanish tooling company MTorres has sold its Everett headquarters and manufacturing plant, after Boeing’s announcement there would be no new airplanes.
“If you’re not developing a new product, you’re atrophying the design talent,” said panelist Martha Neubauer, a former Boeing engineer who is now an associate with AeroDynamic.
Boeing is “already struggling with losing that strong talent base,” Neubauer continued. While Boeing management seems to think that the company is a premier employer, more and more younger engineers are looking at it as a good first job to have on one’s resume, before they go on to careers at more-interesting companies, she said.
“There seems to be a disconnect between what could keep people at Boeing and what management thinks that is,” Neubauer said.
Large numbers of Boeing engineers have gone to Northrop Grumman, for example, to work on the B-21 program, the panelists said. Others are finding exciting work at Seattle-area companies like Blue Origin or Eviation.
“There’s a whole slew of interesting companies doing interesting stuff,” Epstein said. “(Engineers) have options.”
For decades, CEOs at many companies have treated labor as an input cost to be controlled, Aboulafia noted. That has changed in a post-pandemic world where entire industries are being challenged by labor shortages.
“These are different times,” Aboulafia said. “Talent needs to be cultivated. It needs to be attracted.”
Boeing leadership seems to have a “misunderstanding of culture,” Epstein added. “A misunderstanding of how to motivate people. Culture matters a lot.”
Boeing has “been at war with its suppliers for the past decade,” Michaels said. Boeing’s “Partnership for Success” initiative – which Michaels derisively called “partnership for poverty” – was self-defeating.
Boeing may be strapped for cash now, but its Tier 1 suppliers are large enough and strong enough that they could become true risk-sharing partners in a new airplane program, he said. “Boeing needs a rapprochement with its suppliers.”
Further down the supply chain, things are dire, Michaels added.
Tier 2 and Tier 3 suppliers have been devastated by a change in Boeing payment policy: Instead of paying on invoices in 30 days, Boeing now is holding onto the checks for 90 to 120 days – which drains the small companies of their working capital.
At the same time, inflation has driven their costs up, Federal Reserve moves to fight inflation have driven their borrowing costs up – and Boeing is coming to them with plans to increase production, which means major investments in new people and equipment.
But when they go to their banks for loans, they can’t get terms, Michaels said.
“There is a major crisis going on in aerostructures,” he said. “These folks are being bled dry. … They’re being asked to ramp up and they don’t have the capital to do it.”
A significant part of Boeing’s problems, said Epstein, comes down to the fact that the company’s leaders are primarily focused on quarter-to-quarter results that please Wall Street.
Michaels agreed: “Investors are Priority 1A, 1B and 1C.”
And when a CEO’s compensation is tied to how well that company keeps “24-year-old hedge fund managers” happy, “that might not be aligned with the long-term interests of the company,” Epstein said.
New product strategy will be less important for Boeing than the soft skills of its senior leadership, the panelists said.
Being CEO at Boeing “requires vision,” said Michaels.
The CEO also needs to be a leader who can unite people to get behind that vision, Epstein said. “You need that charismatic person to lead the company.”
Boeing today has the talent and brand name to resume its historic place as an aviation industry leader, Aboulafia said. But, he added, “this all looks very perishable.”
“The truth is that the next near or two, it’s absolutely crucial, and it all comes down to leadership,” Aboulafia said. “Culture matters. Culture and manufacturing execution.”