mobanmarketBoeing Co. stripped Chief Executive Officer Dennis Muilenburg of his role as chairman, leaving him little margin for error in his final push to resolve the crisis engulfing the company’s 737 Max jetliner.
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Separating the CEO and chairman roles will let Muilenburg focus on getting the grounded jet back in the air, Boeing said in a statement on Friday. While the board expressed its continued support for Muilenburg, it pledged “active oversight” of his performance, a sign of the pressure he’s under to surmount regulatory hurdles and soothe the safety concerns of customers, pilots and passengers.
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Lead director David Calhoun, a senior executive at Blackstone Group Inc., will take over as non-executive chairman. Calhoun, 62, a former boss of General Electric Co.’s aviation division, stands out on the board for his deep aerospace experience and has been mentioned in years past as a contender for Boeing’s CEO job.
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“It provides stability and continuity but also introduces a new approach to leadership,” said Richard Aboulafia, an aerospace analyst at Teal Group. “It’s not a huge move in itself, but it creates the potential for a much bigger move.”
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Muilenburg, 55, is under increasing scrutiny as the global flying ban on the Max nears the seven-month mark, with little clarity on when Boeing’s best-selling jet will return to service. The planemaker’s reputation and finances have been battered since two Max crashes killed 346 people and prompted a worldwide grounding.
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The shares were little changed after the close of regular trading in New York, having advanced 1.1% to $374.92 in the Friday session. Boeing slumped after the flying ban began in March, but the stock has climbed 17% since mid-August as investors bet that the Max would soon return to service. That’s the biggest gain on the Dow Jones Industrial Average over that period.
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‘Full Confidence’
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The board will soon add a director who will serve on a new safety panel, Calhoun said in the statement. The Aerospace Safety Committee is part of a board-ordered safety push.
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“The board has full confidence in Dennis as CEO,” he said.
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Muilenburg, 55, said he was “fully supportive” of the change.
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“Our entire team is laser-focused on returning the 737 Max safely to service and delivering on the full breadth of our company’s commitments,” he said in the statement. He took the reins as CEO in July 2015 and added the chairmanship in March 2016.
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Governance activists
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Corporate-governance activists had already been clamoring to separate the chairman and CEO positions.
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Boeing opposed a proposal to divide the roles at the annual meeting earlier this year, saying directors should be able to select their leadership structure rather than be bound by an “inflexible policy.” Investors rejected the measure but it won 27% support, up from 20% the year before, including abstentions and non-votes.
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Shareholder activist John Chevedden filed a proposal October 9 to raise the matter again at Boeing’s 2020 annual meeting. Directors would have the discretion to phase in an independent chairman, “although it would be better to have an immediate transition,” the measure said.
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The Max’s return continues to slip amid scrutiny from sometimes fractious regulators. Until recent weeks, Boeing had insisted the plane would be cleared early in the fourth quarter. But the Max’s three U.S. operators – Southwest Airlines Co., United Airlines Holdings Inc. and American Airlines Group Inc. – have taken the single-aisle jet out of their flight schedules until January.
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A longer delay would jeopardize Muilenburg’s position as CEO, said Aboulafia.
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“If they’re on course for re-certification in the fourth quarter as they maintain, then he could hang on,” he said. “If it slips much beyond that, then his job is definitely at risk.”
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Boeing Lifer
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An aerospace engineer by training and Boeing lifer, the CEO has served as the company’s public face throughout the Max crisis. That’s made him a target of critics who contend that Boeing was too slow to fully explain the role its flight-control software played in the crashes.
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Muilenburg will have two critical chances to shape perceptions about his handling of the crisis this month: When third-quarter results are released on Oct. 23 and when he testifies before Congress a week later.
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Directors already should have insights into the financial results, which analysts anticipate to be dented by unexpectedly low deliveries of the 787 Dreamliner and other aircraft.
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Boeing’s tally of 63 deliveries, down from 190 shipments a year earlier, was 12 jetliners less than predicted by Cowen & Co. analyst Cai von Rumohr.
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The shortfall probably pared $900 million from third-quarter revenue and 25 cents to 30 cents a share from estimated earnings, von Rumohr said in an Oct. 8 report. That probably resulted in a cash outflow of $1.7 billion to $2 billion for the quarter, he said.
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‘Undue Pressures’
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Boeing announced the decision to split the CEO and chairman jobs on the same day that a review panel of global aviation experts delivered a scathing assessment of missteps by the company and the US Federal Aviation Administration in the development and certification of the Max.
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The Chicago-based manufacturer exerted “undue pressures” on some of its own employees who had FAA authority to approve design changes, according to a 69-page summary of the panel’s findings.
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Regulators assessing the aircraft sometimes didn’t follow their own rules, used out-of-date procedures and lacked the resources and expertise to fully vet the design changes implicated in two fatal crashes, the Joint Authorities Technical Review found.
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The findings are ratcheting up the pressure on Muilenburg as he seeks to guide Boeing out of one of the biggest crises in the modern jet era.
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When asked in an interview last week if he was the right person to lead Boeing out of the deepening turmoil, Muilenburg responded: “This is not about me, right? It’s about our company and what we do for our customers.” He then said, “I will serve in this role with everything that I have as long as the board wants me serving in this role.”
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