Boeing's new CEO takes control with company's integrity in doubt

Chicago

THE opening gambits by Boeing Co's new boss show the risks Dave Calhoun is willing to take to reset the deeply troubled planemaker.

Mr Calhoun, who officially took charge on Monday, pushed to release humiliating internal messages last week even though they may darken public perception for years to come - with Boeing's own employees suggesting rot in a once-vaunted safety culture and mocking designers and regulators on the ill-fated 737 Max. He was also heavily involved in the decision to drop Boeing's long-held opposition to simulator training for Max pilots, said people close to the company.

Those steps are just the start as Mr Calhoun settles into a 36th-floor suite at Boeing's Chicago headquarters, entrusted with turning around a company that has been widely censured for its arrogance, failure to take responsibility after two crashes killed 346 people, and unrealistic estimates of when the Max would be cleared to fly again.

The bungling cost former CEO Dennis Muilenburg his job, and the bad news is far from over: Boeing is expected to reveal one of the largest writedowns in its history this month along with fourth-quarter results.

The accounting charge is likely to be in the US$6 billion range, said Cowen & Co analyst Cai von Rumohr, as Boeing balloons its reserve to compensate airlines to US$12 billion. That's another risk for investors, who have taken a hit from the crisis while dodging a full-fledged meltdown.

The shares have tumbled 22 per cent since the second Max crash prompted a worldwide flying ban in March. That was the biggest drop on the Dow Jones Industrial Average.

Mr Calhoun, a former General Electric Co executive who became a senior leader at Blackstone Group Inc, is far from an outsider at Boeing. He has served on the aerospace titan's board for a decade, and he took over from Mr Muilenburg as chairman in October. That means he is identified with the moves that have left the company's standing with consumers, lawmakers and regulators in shambles.

Boeing's reversal on simulator training was approved by the Calhoun-led board at its meeting in December, said people familiar with the deliberations, who asked not to be identified because the discussions were private.

When directors asked Mr Calhoun to take charge, they vowed to make Boeing more transparent. With his support, interim CEO Greg Smith followed through last week by releasing a new batch of internal messages that a key lawmaker in the US Congress called "incredibly damning".

In one exchange, a company pilot said the Max was "designed by clowns, who in turn are supervised by monkeys". In other messages, employees bragged of their ability to hoodwink regulators.

Mr Calhoun has already begun reaching out to the US Federal Aviation Administration, which delivered a rare public rebuke of Mr Muilenburg shortly before he was ousted in December. His top priority as CEO will be to look inward to the company's issues and cultural rifts and to spend meaningful time in its Seattle manufacturing hub, said a person close to the board.

Revamping Boeing's culture is especially critical for Mr Calhoun and Larry Kellner, the former Continental Airlines chief who replaced him as Boeing chairman, given the lapses that have come to light from blue-ribbon panels poring over the Max's development.

"It seems like there's been an absolute breakdown," said Bloomberg Intelligence analyst George Ferguson. "They're going to have to find a way to ditch the arrogance. It's hurt their relations with the FAA, customers and suppliers."

The crisis has also left Boeing at risk of losing ground to Airbus SE in the global aerospace duopoly. Mr Calhoun is convinced there is a way to simplify strategy and planning for Boeing's numbingly complex operations, said the person familiar with the matter.

Then there's the challenge of revitalising a demoralised workforce. Mr Muilenburg, an engineer and Boeing lifer, had pledged to reorganise the company's engineering corps and create buffers to insulate workers from undue pressure from business managers. That task now falls to Mr Calhoun, an accountant by training.

Some former colleagues at GE, where Mr Calhoun spent 26 years, consider him close in personality to Jack Welch, said Rick Kennedy, author of GE Aviation: 100 Years of Reimagining Flight.

"He will make hard decisions at Boeing and he won't hide behind them," said Mr Kennedy, a retired spokesman who worked closely with Mr Calhoun for four years at GE's aviation division. That extends to personnel decisions. "It won't be a cozy world," Mr Kennedy said.

Mr Calhoun's task is daunting. It could take months before the Max is back in service, and more than a year after that for the company to nurse its suppliers back to health and return the 737 to pre-crash production levels.

For 62-year-old Mr Calhoun, turning the manufacturer around would be the pinnacle of a four-decade career. What's not known is how long he intends to stay at Boeing, where executives traditionally leave at age 65. BLOOMBERG