Guest Column: Boeing’s Calhoun: Fantastic 9-month CEO or disastrous multi-year CEO?

  • Jan. 12, 2020: David Calhoun assumes his position as president and CEO of The Boeing Co. tomorrow. Richard Aboulafia of The Teal Group has some thoughts about this move.

By Richard Aboulafia

Richard Aboulafia

Vice President of Analysis

The Teal Group

Guest Column

December 2019

Dear Fellow C-Suite Watchers,

Person of the year awards go to people who did something noteworthy in the past year. Instead, why not appoint a person in advance, for the year ahead? That’s more exciting, since that person has yet to do the something for which he or she is being recognized. Incoming Boeing CEO Dave Calhoun is the perfect recipient of this, for the choice he will make. In 2020, he will choose either to be a fantastic nine-month CEO, or he will stay on, becoming a potentially disastrous multi-year CEO. This is a pivotal decision for Boeing, and for the industry.

Calhoun is replacing Dennis Muilenburg because the latter CEO’s year has been disastrous. The company’s communications with Congress, the FAA, international regulators, airline and lessor customers, suppliers, the victims’ families, and pretty much the entire outside world were a master class in bad crisis management. This month’s 737MAX line shutdown, with no guidance at all provided to suppliers, was the final swirl in a downward spiral. The company’s legal department chief, another key player in Boeing’s MAX strategy, has also departed.

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To what level can Boeing’s remaining cash cow, the 787, pay the company bills?

By Bjorn Fehrm

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Introduction

January 9, 2020, © Leeham News: What a difference a decade made. In January 2010, the Boeing 787 Dreamliner had just made its much delayed first flight and its crisis was at its deepest. The aircraft would soon be more than three years late and its costs had more than doubled. One questioned if it would ever be a profitable program and how deep this money pit would drag Boeing?

Today, 10 years later, the 787 is Boeing Commercial Airplane’s sole cash cow, with a 737 MAX which can’t be delivered, the 777 in difficult migration to 777X and the 767 freighters just hanging in there profitability-wise.

But how profitable is the 787, eight years after its first delivery and coming from very red numbers? We look behind Boeing’s accounting rules to find how much of the company bills can be paid by Dreamliner profits when other programs can’t contribute.

Summary:
  • Boeing uses US Program Accounting rules that allow production cost swings to be shuffled between the beginning and the end of an aircraft program.
  • This presents nice quarterly profits in the program’s early days when there are actual losses but it comes around making mature aircraft programs less profitable than programs using international accounting rules where profits are calculated for each delivered aircraft (Unit based accounting).
  • We go behind the Boeing quarterly figures to analyze how profitable the Dreamliner is over the next years, now when it needs to shoulder the cash cow mission for a wounded company.

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Areas of investigation for Ukraine Airlines crash

By Scott Hamilton

Commentary

Jan. 8, 2020, © Leeham News: Some news reports of the Ukraine Airlines crash yesterday in Tehran linking the event to the Boeing 737 MAX crisis are irresponsible.

Ukraine Airlines Boeing 737-800. Source: Wikipedia.

The Ukraine airplane is a 737-800, a highly reliable aircraft with thousands in service around the world.

Drawing any conclusions about the crash at this stage and under the unique circumstances of open, armed conflict in the region is also irresponsible.

None of the news reports LNA has seen so far indicates possible radio communication from the pilot. The flight and voice recorders apparently have been recovered, but no information has been released of what information these contain. It’s unlikely any information has been downloaded at this point.

Here’s what investigators routinely consider in a crash investigation:

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Exclusive: Boeing, internally, sees production halt at least 60 days

By Scott Hamilton

Jan. 7, 2020, © Leeham News: Boeing internally sees production suspension of the 737 MAX of at least 60 days, LNA has learned.

The last inventory MAX fuselages entered final assembly this week and will roll out of the factory shortly.

Then, production is suspended. Boeing publicly has not said how long the suspension will last and it’s unclear how much information has been passed down the supply chain. Without knowing when the FAA will recertify the MAX, Boeing can’t truly gauge when production will resume.

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Pontifications: Airbus almost certain to be hurt by MAX crisis

By Scott Hamilton

Jan. 6, 2020, © Leeham News: This may be the year that Airbus is hit with the negative consequences of the Boeing 737 MAX crisis.

Most observers see Airbus benefitting with greater A320 family sales while the MAX remains grounded.

In LNA’s 2020 Outlook last week, we pointed out that the long-running trade war between the US and European Union could be coming to a head this year. Airbus and the EU are waiting for the World Trade Organization’s authorization to impose tariffs on US products. This decision is expected in May or June. Boeing is expected to be the first target. The Trump Administration last year imposed a 10% tariff on Airbus aircraft.

The MAX crisis could ratchet up tariffs on Airbus aircraft.

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2020 Outlook for Airbus, Boeing, et al

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Introduction

By the  Leeham News team.

Jan. 2, 2020, © Leeham News: This will be a pivotal year for Boeing.

It will be a year of challenges for Airbus.

Embraer Commercial Aviation should disappear.

Mitsubishi Heavy Industries faces final decisions for the SpaceJet.

Overhanging international trade is the US presidential election.

These are just some of the headlines to look for in 2020.

Leeham News and Analysis provides its annual outlook as the new year, and the new decade, begins.

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Boeing MAX crisis dominated 2019 Top stories

By Scott Hamilton

Dec. 30, 2019, © Leeham News: Boeing and the 737 MAX dominated the Top 10 Stories on Leeham News in 2019.

This should surprise no one.

The year-end late-breaking news that Boeing CEO Dennis Muilenburg had been fired by the Board of Directors should be in the Top 10 Stories of 2019.

But coming as it did on Dec. 23, the start of Christmas week, it failed to make it into LNA’s Top 10 list.

Readership, obviously, falls off dramatically over the Christmas holidays. The fall-off continues between Christmas and New Year’s evidenced by LNA’s own decision to take a holiday (except for breaking news).

The Ethiopian Airlines crash on March 10 grabbed three of the Top 10 stories and shared, with Lion Air 610 (the Oct. 29, 2018, crash) a fourth story.

Boeing photo.

Boeing’s pickle with the 737 NG pickle fork cracking was of the Top 10 stories.

An historical review that Boeing didn’t want to re-engine the 737, preferring instead a new airplane in 2011 when what became the MAX was launched, was in the Top 10.

An April 2018 story about a potential Blended Wing Body airplane from Boeing hit the Top 10 after an enthusiast site linked it to its forum.

Other MAX MCAS stories were in the Top 10. Finally, anticipated announcements by Mitsubishi for the Paris Air Show was the only non-Boeing story to be in the Top 10 reads for the year.

Airbus didn’t hit the Top 10 but did have a #11 story concerning a pitch-up issue on the A321.

The Boeing stories propelled record readership on LNA in 2019.

Here is the rundown.

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Analysis: Boeing’s priority after recertifying, delivering MAX: remake the Board

  • Editor’s Note: Just last night I wrote this piece for publication on Jan. 6 as Pontifications. The news today of Dennis Muilenburg’s ouster causes acceleration.

By Scott Hamilton

Jan. 6, 2020, Dec. 23, 2019, © Leeham News: Boeing’s first priority this year is to get the 737 MAX recertified, returned to service, production restarted and begin the long path on the road to normalcy.

The second priority is to remake the leadership and governance.

The third, which may slip to 2021, is to launch a new airplane program to replace the MAX 9 and MAX 10.

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Analysis: Calhoun’s insider status raises question: is he the one to pull Boeing out of its dive?

Analysis

By Scott Hamilton

Dec. 23, 2019, © Leeham News: The Boeing Board of Directors has fired Dennis Muilenburg.

Dennis Muilenburg. Source: Boeing photo.

Board chairman David Calhoun was named president and CEO, effective next month. The delay is required while Calhoun resigns from other business commitments.

Boeing CFO Greg Smith was named interim CEO. Board member Lawrence Kellner was named non-executive chairman.

Calhoun has been on the board 10 years. The roots of Boeing’s current crisis includes decisions made by the Board. Is Calhoun, an insider, the right person to pull Boeing out of its dive?

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Breaking News: Muilenburg out, Calhoun becomes president and CEO, Kellner named chairman

Dec. 23, 2019: Boeing press release:

(Leeham News analysis to come.)

New Leadership to Bring Renewed Commitment to Transparency and Better Communication With Regulators and Customers in Safely Returning the 737 MAX to Service

CHICAGO, Dec. 23, 2019 /PRNewswire/ — Boeing [NYSE: BA] announced today that its Board of Directors has named current Chairman, David L. Calhoun, as Chief Executive Officer and President, effective January 13, 2020. Mr. Calhoun will remain a member of the Board. In addition, Board member Lawrence W. Kellner will become non-executive Chairman of the Board effective immediately.

David Calhoun is named president and CEO of Boeing. Source: CNBC photo.

The Company also announced that Dennis A. Muilenburg has resigned from his positions as Chief Executive Officer and Board director effective immediately. Boeing Chief Financial Officer Greg Smith will serve as interim CEO during the brief transition period, while Mr. Calhoun exits his non-Boeing commitments.

The Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders.

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