Boeing is addressing its “good guys” culture, but the company still has a long way to go before it gets its production and finances right. (2024)

To CEO Dave Calhoun’s credit, in the weeks since, he has focused on the three crucial areas we suggested are Boeing’s key priorities: governance and culture challenges, supply chain and production failures, and restoring trust mutual with regulators, customers. and the flying public.

This week’s announcement of a leadership shakeup within Boeing’s management ranks represents more encouraging early progress. Boeing deserves credit for these promising first steps, but it still suffers from glaring vulnerabilities. Passengers – and shareholders like us – may want to fasten their seat belts because, despite some initial victories, there are possibly worse turbulence on the horizon and much more difficult challenges still ahead.

Governance and culture: revolutionizing the good ol’ boys network

Since the Boeing MAX planes were first grounded in 2019, a large majority of Boeing’s board of directors has already changed, with the formation of a new Board Safety Committee made up almost entirely of new members, as well as the creation of a new Chief of Aerospace Security. Officer position.

However, as we previously warned, despite the excellent credentials of the company’s board of directors and senior officials, the security mandate was not filtering through the ranks.

Perhaps it was no coincidence that Stan Deal, head of the division in question, Boeing Commercial Airplanes (BCA), relieved the general manager of the problem-plagued 737 MAX factory just days after the head of the Federal Aviation Administration (FAA) Mike Whitaker visited that same factory, in Renton, Washington.

But what is truly impressive is the rise of several female leaders to senior operational ranks. In a memo to staff, Deal announced Katie Ringgold as the new general manager of the Renton plant and named Elizabeth Lund to the new position of senior vice president of BCA Quality. Deal himself, of course, reports to newly appointed COO Stephanie Pope, who is rumored to be a leading internal candidate to succeed Calhoun.

If ever there was a complacent nice guy culture, there’s no better way to turn things around from top to bottom. The successful tenures of pioneering women leaders in aerospace and aviation, such as Northrop Grumman’s Kathy Warden, General Dynamics’ Phoebe Novakovic, and Lockheed Martin’s Marillyn Hewson, are proof that merit always trumps machismo.

Supply chain and production: making the best of a terrible situation

So far, Boeing deserves credit for getting the 737 MAX 9 back into the air following FAA instructions, implementing “quality recalls” at each factory so that frontline employees could fully focus on improving safety processes, appointing an outside expert advisor for an independent review of Boeing’s safety processes (although that expert, a Navy admiral, does not have much aviation experience) and opening Boeing factories to all airline customers for inspection, oversight and greater transparency.

Boeing has also been working more closely with key suppliers to fix its broken supply chain, especially long-troubled Spirit AeroSystems, which makes virtually all of the Boeing MAX fuselages. Under new CEO Pat Shanahan, Wichita, Kansas-based Spirit appears to be improving, as it has identified weaknesses in labor-intensive work in the front and rear sections of the plane and has committed to automating more routine assembly tasks (i.e. drilling holes, door plugs, etc.) so engineers can focus on higher value tasks and safety control.

It’s about making the best of a terrible situation. There is no operational reason for Boeing to outsource much of its supply chain other than pure financial engineering, and it flies in the face of Boeing’s history before the McDonnell Douglas merger. Under founder William Boeing, the company originally brought together historic aviation brands Pratt & Whitney, United Technologies and Boeing, all under the same corporate umbrella in the 1920s. And although Boeing sold Spirit to a private equity firm in 2005 for $1,200 million dollars, Spirit’s market capitalization today represents less than 3% of Boeing’s market capitalization.

Boeing’s main production challenge is how to revitalize its engineering workforce, something that may take years to resolve. The pandemic caused an exodus of experienced engineering talent that has yet to be fully replaced. According to Bank of America aerospace analyst Ronald Epstein, before COVID-19, more than half of Boeing MAX factory employees had more than 6 years of experience. That percentage has now dropped to less than 25% of the workforce, according to membership lists from IAM/International Association of Machinists and Aerospace Workers District 751/Washington State.

Restore Trust with Regulators: FAA Timeline Doesn’t Align with Boeing’s Financial Timeline

Although Calhoun has avoided angering regulators so far, several key regulatory hurdles are on the horizon as Calhoun and FAA Administrator Mike Whitaker prepare to meet next week.

First, the FAA is wrapping up its official six-week audit of production lines in the coming days and is expected to release its reports and conclusions shortly thereafter.

Second, and related to this, the FAA does not appear to be close to providing the long-delayed MAX 7 or MAX 10 certifications. While Boeing is pleased to have taken off its 180 grounded MAX 9s again, the financial impact is overshadowed by the fact that Boeing has an order book of over 1,000 MAX 7s and MAX 10s, equivalent to ~100 billion dollars in future sales, which is delayed until the FAA finally provides certification.

Boeing is rightly prioritizing safety above all else, even if that means pushing back financial and production timelines. However, with only 27 aircraft delivered in January, down from 38 in December, and with Boeing rapidly reducing its inventory and the FAA prohibiting any production increases, the company will begin to feel the financial strain and will likely fall short of its cash for 2024/2025. Flow targets and management comments on the outlook become more bearish each week.

Boeing is taking the right steps so far, but it’s not out of the turbulence yet, and impending storm clouds threaten to prolong this bumpy stretch.

Jeffrey Sonnenfeld is the Lester Crown Professor of Management Practice and senior associate dean at the Yale School of Management. He was named “Management Professor of the Year” by Poets & Quants magazine.

Steven Tian is director of research at the Yale Chief Executive Leadership Institute and former quantitative investment analyst at the Rockefeller Family Office.

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