Can Boeing’s Management Be Salvaged?

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The recent high-profile near-disaster involving an Alaska Airlines Boeing 737-9 Max is just another small step in Boeing’s downward spiral, and it is far from clear what will arrest it.

The safety concerns and manufacturing errors plaguing the company’s jetliner unit are just part of the problem. The production ramp-up has been a series of disappointments that will only worsen as regulators and customers scrutinize manufacturing and inspection processes.

The company is also quickly losing market share. CEO Dave Calhoun’s November 2022 announcement that there would be no new Boeing jetliner this decade had a predictable result: a record 1,300 Airbus A321neo orders in 2023. Boeing will be very lucky to retain 40% of the market by decade’s end. Given relentless cost-cutting and the demographics of the engineering workforce, it will be quite difficult for the company to create a new jetliner in the 2030s.

The situation may be worse on the defense side. Billions of dollars have been lost due to poor execution and ill-advised fixed-price contracts—over $2 billion in 2022 alone. While an E-7 procurement program may help, these losses will not stop anytime soon. Worse, it is unlikely that the Pentagon will trust Boeing with the next-generation platforms—NGAD (Next Generation Air Dominance Programme) and F/A-XX—being decided in the next few years.

For years, Boeing management was accused of focusing on money rather than products, performance or people. Between 2014 and 2018, it gave away $53 billion in dividends and buybacks. But that shareholder focus no longer works. Boeing is the only large-cap aerospace company in the world with a flat share price throughout the remarkable demand surge the industry has seen over the last three years.

As 2023 ended, the company’s strategy department was abolished. Unit strategy functions were also reduced. The company no longer wants a plan for company-wide new technology development, new product development or, most crucial, restoring the links between the people who design and build aircraft and the people who manage the company. There are also no plans to promote technical people to senior management positions. Stephanie Pope’s recent appointment as chief operating officer means another finance person has been made Calhoun’s heir apparent.

The future, if it can be called that, is simply to run the company for cash—deliver legacy jets, try to make existing defense programs profitable, and resume converting cash flow into shareholder returns. Management may also try to sell off parts of the company—or perhaps all of it. The implications of this for the U.S. aerospace industry, defense industrial base and even the broader economy are potentially enormous.

What can change the company’s path? Strangely, there have been no indications that either activist investors or the company’s own board will act. Airlines and lessors are angry and getting angrier, but given long waiting times at Airbus, Boeing management likely feels that it will not see any wholesale customer defections. The most airlines could do is encourage Embraer to enter the larger jet market, but that would take at least a decade.

That leaves the U.S. government. But in general, the U.S. does not do industrial policy. In fact, the U.S. is the only large country to let its de facto flag carrier (Pan Am) go out of business. NASA can provide some limited cash for design concepts such as the X-66, but that is not the same as creating a new product to compete with Airbus, let alone transform a dysfunctional company culture. There will be additional regulatory oversight from the FAA, but the agency is also underresourced.

It would be one thing if Boeing needed a government cash injection or a loan guarantee, as with the automakers in 2008 or Lockheed in 1971. This is different—Boeing simply wants to give away its money (when it starts making it again). There is no known U.S. mechanism to stop that.

As for potential Pentagon influence, industrial base concerns are not a criterion for source selection. Again, the services do not want to take a chance on poor execution. A new C-X strategic transport program might help Boeing, but others could bid, too. One thing the Pentagon can be expected to do is encourage new large aircraft competitors. That explains the Air Force’s $235 million prototype contract for JetZero and its partners, awarded in August. That is just a tiny fraction of what is needed to create a new aircraft, however, and this is an industry with some of the highest barriers to entry.

Thus, we may be witnessing the slow (but perhaps accelerating) demise of what was once the world’s greatest aerospace company, with few if any identifiable roadblocks to an act of self-immolation.

Contributing columnist Richard Aboulafia is managing director at Aerodynamic Advisory. He is based in Washington. https://richardaboulafia.com/monthly-newsletter

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