Boeing’s Darkest Year: A Look Back, and an Uncertain Path Forward
This article first appeared in Industry Week.
On Muilenburg’s firing:
DN: I think that the timing of his departure probably could have been accelerated. You look at the series of programmatic mishaps that Boeing has endured over the last five or six years, and the 737 Max is really the last of four or five that you can put your finger on where the company just hasn’t performed up to its own historical standards.
On the path forward for incoming CEO David Calhoun:
DN: He will likely continue along the same path that Mr. [James] McNerney [Boeing CEO from 2005 to 2015] and Mr. Muilenburg pursued. So l don’t’ see a big change in the way Boeing’s conducting themselves or the way they operate their business.
On stronger candidates to lead Boeing:
DN: Boeing has a reputational issue now, both with the regulatory agencies around the world and with the flying public and with the airlines. So they need someone that knows operations, knows how the industry works but also someone that is credible to the workforce, the regulatory agencies and the customer base. I think that there are a couple people that are currently working in aerospace. [Former Ford CEO and former Boeing president of commercial airplanes] Alan Mulally is a name that comes to mind. He got passed over for the job and I think if he were available or interested he would be a prime candidate. He’s demonstrated he knows the industry and he can run the business.
Or maybe someone like Kelly Ortberg, the president of Collins Aerospace. He was chairman, president and CEO of Rockwell Collins before they were acquired by UTC. He’s another professional that has just an outstanding reputation in the industry.
On Muilenberg’s biggest misstep:
DN: I think if you trace the Max program back, the initial decision made inside of Boeing was whether or not you design a new aircraft and bring it to market, or you try and upgrade the 737. That was a long discussion inside of Boeing and it was followed in the media pretty closely. Upgrading the existing 737, that presented some really practical engineering problems for how to do it. The engines on the Max are much larger, high-thrust engines. Just getting them under the wing and maintaining ground clearance was a very practical issue. I think Boeing chose to upgrade the engine to the Max because they did not want to undertake the expense and the risk of engineering an all-new airplane. And that decision at the outset I really think set the program up for these kinds of issues that they’re dealing with now.
On quality problems reported at Boeing’s Charleston, South Carolina and Renton, Washington, plants:
DN: My knowledge of Charleston is it’s exclusively 787. Which 787 is a predominately carbon fiber aircraft and the processes are new. So I would expect there to be some learning going on there. But I didn’t really hear anything about manufacturing that alarmed me as someone that’s worked in the supply chain. I think you expect there to be problems. Not so much problems that contributed to safety, but things that are just unexpected that the company has to deal with.
On the best path forward for Boeing suppliers:
DN: I think a lot of middle-market companies started their contingency planning for this kind of event early, trying to get their balance sheet in order, which means controlling working capital, inventory, getting their banking relationships and their credit facilities ready for the shock of the shutdown. They’re going to have to figure out to cover their debts with significantly lower revenues, with the 737 shutdown. If you’re a company that derives 60% of your revenues from Boeing and half of it just goes away because the 737 gets shut down, that’s going to make for some very, very difficult cash flow months.
So if I were a middle-market supplier, that’s what I would be focusing on right now. How do I position myself to survive? To be able to meet my fixed charges, to be able to pay my lenders, to be able to pay my employees and still operate a business. They’re in survival mode.
No matter how swiftly they move to diversify and bring in new business, there’s going to be a period of time when the revenue and the cash flow isn’t there, and that’s really the difficult time they need to prepare for. And when it comes back into production, it creates even more working capital demands on the company.
On the best-case scenario for Boeing:
DN: They get the aircraft recertified and back in the air in the second quarter, 2020. You’re probably looking at a three- to four-year period, where they ramp production back up to 52 a month where they were.
On the impact of Boeing shutdown on the US economy:
DN: Boeing dollar-wise, is the largest exporter in the country. I don’t know if a lot of the public realizes how many hundreds of thousands of people work in the supply chain for Boeing in this country. It is an enormous industry and you think about how shutting plants down or furloughing employees as the supply base grapples with the problem, how that’s going to affect working people in this country, it is a very big deal, and not just at the publicly traded company level but certainly for companies much smaller than that. If you look at all the big aerospace clusters in the country—Los Angeles; Seattle; Wichita, Kansas; St. Louis; Long Island; Charleston; Connecticut; Dallas-Fort Worth—there is exposure across the country, not just Seattle.