Boeing’s incoming CEO has more than a 737 to fix

(Bloomberg): Boeing Co.’s incoming boss David Calhoun faces a daunting task when he takes over as CEO next year: rescuing the 737 Max while mending the company’s fractured relationship with US regulators. But that’s just the beginning of the hurdles awaiting him.

Calhoun, who takes the reins January 13, will be leading a once-proud company whose reputation for engineering prowess is now in tatters. On top of the grounding of its best-selling plane after two deadly crashes, Boeing has suffered production stumbles with its KC-46 tanker, delays to its 777X jetliner and an embarrassing mishap that caused its new space capsule to miss a rendezvous with the International Space Station over the weekend.

Then there are growing signs that jetliner sales are losing their lift after an unprecedented 15-year boom. And the aircraft demand that’s left?

Airbus SE’s sales successes at the top and bottom of the narrow-body market are likely to squeeze Max orders even after the global flying ban is lifted.

“At the outset, Dave Calhoun has one job: manage the Max crisis in all its operational, financial, regulatory, and reputational dimensions,” Seth Seifman, an analyst at JPMorgan Chase & Co., said in a note. “In addition to saving the Max, Calhoun will likely play a key role in product development and this starts with getting the 777X across the finish line but will extend to what new aircraft Boeing should develop.”

Unanimous decision

Directors voted unanimously to install Calhoun, who had served as chairman since October. He replaces Dennis Muilenburg, who resigned from the post after months of growing pressure from investors and a chorus of calls for his ouster from the US Congress and leading business publications. (Earlier this month, Muilenburg drew a rare public rebuke from the Federal Aviation Administration, which is overseeing the Max’s return.)

“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,” Boeing’s board said.

Regain lost glories

Calhoun will face the daunting task of extricating Boeing from one of the bleakest chapters in its 103-year history. The company told its suppliers to suspend parts shipments for a month starting in mid-January, a move that will ripple through a vast supply chain. Boeing said last week it would pause production of the Max indefinitely as about 400 new planes pile up in storage.

The new CEO will serve as a “stabilizer” as Boeing works itself out of the Max crisis, said Richard Aboulafia, aerospace analyst with Teal Group. “There’s no doubt with Congress and regulators this is a lot better, and in the short run that matters a lot,” Aboulafia said.

No easy options

But as Airbus gains ground with its A321neo plane and other popular models, Boeing also faces daunting product-development decisions - starting with when to replace the Max and whether to go forward with a midsized jet to counter the A321neo. Those calls will be difficult for a newcomer to Boeing’s executive ranks with no engineering background, Aboulafia said.

“As a long-term leader, GE plus private equity would appear to be not the right background given their needs right now,” he said of Calhoun.

Given his age, just a few years shy of Boeing’s typical retirement age for executives, one of the Calhoun’s most important tasks will be finding a successor.

“He is likely to have a relatively short tour of duty at Boeing,” Robert Stallard, an analyst at Vertical Research Partners, said. Calhoun’s priorities will “getting the 737 Max back into service without further aggravation, and starting the process of finding a new CEO and senior management team that can potentially get Boeing back on track.”