Ongoing safety problems

Boeing CEO Dave Calhoun to step down in wake of ongoing safety problems

By Chris Isidore

Boeing CEO Dave Calhoun said Monday he intends to leave the beleaguered company by the end of the year in a major shakeup of the company’s leadership. Boeing’s chairman and the head of the commercial airplane unit are also leaving.

Boeing’s chairman, Larry Kellner, will not stand for re-election as a board director. The board has elected former Qualcomm CEO Steve Mollenkopf to succeed him.

The company also announced that Stan Deal, CEO of Boeing Commercial Airplanes, is retiring. Stephanie Pope, Boeing’s chief operating officer since January, is taking his place effective immediately.

Boeing has been buffeted by more than five years of problems with its airplanes, including two fatal crashes of the 737 Max in 2018 and 2019 that killed 346 people, and most recently a door plug that blew out of the side of an Alaska Airlines 737 Max in January, leaving a gaping hole in the side of the plane. The problems have led to multiple groundings for safety issues and more than $31 billion in cumulative losses.

In a letter to Boeing employees Monday, Calhoun called the Alaska Airlines incident “a watershed moment for Boeing.”

“The eyes of the world are on us,” he said in announcing his departure plans. “We are going to fix what isn’t working, and we are going to get our company back on the track towards recovery and stability.”

The decision to leave was “100%” his choice, Calhoun said in an interview on CNBC Monday morning.

But Calhoun has become the focus of many who are critical of the way Boeing has been run in recent decades and the string of safety and quality issues.

“He’s the very best CEO that Airbus has ever had,” said Richard Aboulafia, managing director at AeroDynamic Advisory and a leading aerospace analyst, recently referring to the advantages gained by Boeing’s main rival during his tenure running Boeing.

His departure also comes in the face of widespread criticism of the company by CEOs of many of the world’s major airlines Boeing depends upon to buy its planes. CEOs of numerous airlines had asked to speak directly to the Boeing board last week, which Calhoun tried to characterize Monday as a normal process, even if it’s rare for customers to speak directly to directors.

As to why Calhoun decided to stay on through the end of the year rather than leave immediately, he told CNBC: “We have another mountain to climb. Let’s not avoid what happened with Alaska Air. Let’s not avoid the call for action. Let’s not avoid the changes that we need to make in our factories.”

“We will get through that,” he said. “I’ve committed myself to the board to do exactly that.”

Airlines’ problems with Boeing

The airlines are upset both by the quality of the planes they are getting from Boeing, and the fact that Boeing won’t be able to deliver the planes they were counting on this year, as passenger demand continues to surge to record levels.

Michael O’Leary, CEO of Ryanair, Europe’s largest airline and one that flies only Boeing 737 planes, told CNN last week that whenever it takes deliveries of Boeing jets “we spend 48 hours going through the plane checking it for errors, omissions or anything else.”

And O’Leary said while it hasn’t found anything major in those checks, it regularly finds minor problems such as tools under floorboards and missing seat handles, that “shows, I think, a lack of attention to detail quality issues in Boeing.”

Monday Ryanair issued a statement saying, “We welcome these much-needed management changes in Seattle.”

United Airlines, which flies Boeing jets for more than 80% of its mainline fleet, has expressed disappointment in quality issues at Boeing and a delay in its scheduled deliveries.

The airline is a primary customer for a stretched version of the Boeing 737 Max, known as the Max 10, but Boeing’s inability to get the plane certified to carry passengers is also causing headaches.

Scott Kirby, CEO of United, described the Alaska Air incident as the “straw that broke the camel’s back” for its plans to get the Max 10 this year, as planned, and it is now looking at possibly buying jets from Boeing rival Airbus to take the place of the Max 10s it has ordered.

But it is difficult for airlines to shift to Airbus, which has a long backlog of jets it has already committed to build for its existing customer base. Any Boeing customer shifting to Airbus could find itself waiting until 2030 or beyond to get its planes delivered.

And operating two types of aircraft of the same class is costly, since pilots are certified to fly specific aircraft, and most cannot shift back and forth between an Airbus and a Boeing without training. And the airline needs to keep a supply of expensive spare parts on hand for every type of aircraft it operates.

Alaska Air CEO Ben Minicucci estimated recently it cost his airline $75 million to $100 million a year to operate both Airbus and Boeing single-aisle jets after it merged with Virgin America, and which is why it got rid of its Airbus jets after the merger was complete. And Alaska is a smaller national airline, only America’s fifth largest. Larger airlines face even greater costs from splitting fleets between manufacturers.

Facing numerous safety probes

The Boeing 737 Max 9 was grounded for three weeks after the Alaska Air incident as airlines completed inspections of their own planes’ door plugs. Minicucci disclosed that many of his planes were discovered to have loose bolts, although he did not mention missing bolts.

An audit of Boeing procedures by the Federal Aviation Administration in the wake of the Alaska Air incident found numerous “non-compliance issues.” The agency gave the company 90 days to come up with a plan to fix its safety and quality issues.

But the probes at Boeing aren’t limited to the FAA audit. A preliminary investigation of the Alaska Air incident found that the plane left the Boeing factory in October without the four bolts needed to keep the door plug in place. While the NTSB has not identified who is at fault for the missing bolts, NTSB Chair Jennifer Homendy criticized Boeing for not providing the agency with the documentation for who handled the installation of the door plug.

Calhoun told investors in January after the incident that “we caused the problem, and we understand that. Whatever conclusions are reached, Boeing is accountable for what happened.”

And Boeing is also facing an investigation by the Justice Department, which could open it up to criminal liability, and upend a controversial deferred prosecution agreement the company reached in January 2021 to settle charges it defrauded the FAA during the original certification process for the 737 Max last decade. It was days away from having that probation-like period end when the Alaska Air incident happened.

The company has also had problems not related to the Max during Calhoun’s time in charge at Boeing, including a couple of halts in deliveries of the 787 Dreamliners, one of its main widebody jets, due to quality issues with that plane.

Finance, not engineering background

Calhoun, 66, a longtime board member at Boeing, became chairman of the company in late 2019, when the board stripped his predecessor Dennis Muilenburg of that title. He was tapped as CEO after Muilenburg was ousted in December of that year, starting in the job in January 2020.

Boeing was once known for safety and engineering. But critics say an emphasis on profits changed that

Boeing was once known as a company that put engineering excellence ahead of financial performance, and produced planes that were the gold standard in the industry. Critics of the company say that focus has changed in the last 25 years, citing the 1997 merger with competitor McDonell Douglas for the shift in focus on saving money.

Calhoun is one of the executives since that time with no engineering background, having served as senior managing director and head of portfolio operations at investing firm The Blackstone Group, as well as CEO of Nielsen after 26 years at General Electric.

Calhoun’s tenure began about halfway through a 20-month grounding of the 737 Max due to a design flaw that was determined to have caused the two crashes; and just before the Covid pandemic broke out globally, causing a near halt in air travel and massive losses for the airlines Boeing depends upon to buy its planes.

Asked about what he would like to see in his successor, Calhoun told CNBC Monday that “I want somebody who knows how to handle a big, long, long-cycle business like ours. It’s not just the production of the airplane. It’s the development of the next airplane. It will be a $50 billion investment. I would like somebody who clearly has the experience inside our industry.”

Shares of Boeing, which have lost more than 27% of their value since the start of the year, were 4% higher at the market open Monday, but they soon lost most of that gain and were up only 1% in afternoon trading.