New Boeing CEO tasked with fixing rifts he and the board helped cultivate

Before the sun came up over Boeing’s commercial operations in Seattle on Monday morning, the aerospace giant’s headquarters in Chicago announced it was shifting leadership. Boeing chief executive Dennis Muilenburg was abruptly fired and those who have long blessed and directed its strategy will take new roles. Chief financial officer Greg Smith will serve as interim CEO until Jan. 13, at which point chairman of the board, David Calhoun, lead director since 2018 and a former General Electric executive, will take over the role as the company’s top executive. Larry Kellner, another long-time board member and former CEO of Continental Airlines, becomes Boeing’s non-executive chairman.

Muilenburg’s departure comes after an extended string of crises that left its most important commercial, defense and space products all in limbo and its stakeholder relationships in tatters. It all added up: Twin crashes of the 737 Max aircraft in 2018 and 2019 and the jet’s subsequent grounding, delays to its flagship 777X, stalled regulatory approval of its joint venture with Embraer, design problems that compromised KC-46 tanker deliveries and, most recently, a procedural error that caused Boeing’s CST-100 Starliner to miss its planned orbit to rendezvous and dock with the International Space Station.

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With that as its battlefield, the move to oust Muilenburg is principally designed “to restore confidence in the company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders,” the Boeing said in a statement. But while Boeing’s immediate focus is on “a renewed commitment to full transparency, including effective and proactive communication with the [Federal Aviation Administration], other global regulators and its customers” it is its own fractured structure that will demand its immediate attention, according to senior officials across its customers, suppliers, regulators and labor groups.

Boeing’s corporate headquarters in Chicago and its commercial headquarters in Seattle are perhaps known best for their rift, rather than their unity, on the biggest decisions facing their company — including, but not limited to, a New Mid-Market Airplane, say customers and company executives.

The divergence for Boeing, and its 1997 merger partner, McDonnell Douglas before it, is not new. In dissecting the company after the 1979 grounding of the DC-10, John Newhouse in the Sporty Game in 1982 wrote, “It is commonplace within the aircraft industry that St. Louis and Long Beach are far apart, too far for reliably good communication, let alone harmony, between headquarters and a subsidiary which remains committed to building airliners.” He was referring to the midwestern corporate headquarters of McDonnell Douglas and the California home of Douglas Aircraft Company, its civil airplane division.

Related: The DC-10, 737 Max and the struggle to polish a tarnished airplane

It remains true for Boeing forty years later. The abrupt dismissal of commercial airplanes CEO Kevin McAllister in October — who had been on the front line of customer relations with the 737 Max grounded — was seen by customers and suppliers as a move to insulate Muilenburg, who was more-visibly under siege. McAllister’s firing also exacerbated the rift with the apparent enthusiasm of Chicago to place the blame on Seattle for what had befallen the company and its relationships with airlines, lessors and regulators.

Earlier in December, this rift came to a head. Boeing in Chicago had largely resisted accepting that deliveries and recertification of the 737 Max wouldn’t come in 2020, according to both regulatory and customer officials. On Nov. 11, Boeing had issued its “Progress Report” signaling its year-end expectation to resume deliveries in parallel with the ungrounding order. That badly rankled the FAA and other regulators under the perceived pressure to expedite the process.

Related: FAA pushes back on ‘pressure’ to return Boeing 737 Max to service

The result was a rhetorical shove from the FAA on Nov. 15 that was finally and firmly delivered in person a month later during a meeting between Muilenburg, Boeing’s newly-elevated commercial airplanes CEO, Stan Deal, and FAA Administrator Steve Dickson. One regulatory official said that repeatedly during the fall months much of what Seattle knew full well about the sluggish pace of re-developing the 737 Max’s flight control software and training hadn’t made its way to Chicago. Either unwilling to communicate the bad news or Chicago’s unwillingness to listen, the official said, the FAA had to be the force that ensured the message between Seattle and Chicago was delivered.

Related: Pilot procedure confusion adds new complication to Boeing 737 Max return 

When Boeing fails to communicate within its own four walls, leaked information gushes out through unapproved channels. It happened repeatedly during the 787 Dreamliner development and it has been happening continuously in the turbulent wake of the twin 737 Max crashes that killed 346 people.

Muilenburg’s tenure at the close of 2019 was far shorter than the generational shift Boeing had intended to bring in 2015, when he was just 51. Muilenburg had risen on a tide of projects that had largely failed, but his ascent to the top spot had been swift. Muilenburg had been initially insulated from the 787 development and 737 Max decision, while he was busy running Boeing’s defense and space business.

In the end, it was the 737 Max that would finish Muilenburg’s career at Boeing, first as Chairman and now as CEO today. A day prior to his dismissal, twin articles in both the New York Times and the Wall Street Journal had eviscerated his handling of the crisis. That followed an editorial days earlier in The Economist calling for his ouster. The wave had grown too strong.

But will this fix what needs fixing? The change in top leadership elevates those who have long been a part of the company’s top decision-making. Calhoun has been a director since 2009 and a close ally of former Boeing CEO Jim McNerney, also a former GE executive. That leadership style now returns to the top of Boeing. And along with Kellner (a director since 2011), the new company chairman, have consistently blessed its long-term strategy.

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Every axis of Boeing’s stakeholder universe, save for one, has had to bear the brunt of the 737 Max grounding. First airlines and regulators, and soon its labor force and its suppliers. Yet, from the point of Muilenburg’s appointment in July 2015, Boeing’s stock is up around 140%, but has fallen less than 7% since the crash of Lion Air 610 last October. Last week, even as its supplier stakeholders are now set to brace for the financial impact of the coming Renton shutdown, the company’s board simultaneously approved its quarterly dividend. Muilenburg, no longer a board member since he lost his chairmanship in October, wasn’t a part of that decision to satisfy shareholders even as it prepared stakeholders for even more sacrifices.

Boeing directors rarely, if ever, speak on the record about the company. And both Calhoun and Kellner, representing the board, went to the Washington Post in May to do damage control for the company’s corporate structure. Boeing is far larger than just the leadership of a single person and its role in the global economy and U.S. political system is unrivaled. The directors, who have historically taken a passive role in company decisions, first ousted McAllister and now Muilenburg today. The board now runs Boeing. As it repeatedly fires executives who fail to fix its external relationships, it will have to first look deeper at itself and its own priorities. Its actions so far show that it’s not clear if it’s capable of doing so.

Write to Jon Ostrower at jon@theaircurrent.com