Boeing needs a stronger vision to bounce back from crisis

Dave Calhoun became chief executive of Boeing at its very lowest ebb two years ago. His mission was to restore confidence in the company after revelations that Boeing had misled regulators to speed up certification of the flawed 737 Max jet, with deadly consequences. Today, it may take the departure of Calhoun himself, or some of his senior management, to achieve that goal.

In recent weeks the heads of Ryanair, Emirates Airlines, leasing companies Avolon and Air Lease Corporation have all openly called for a change in the company’s performance, its culture, strategy or even leadership. Michael O’Leary of Ryanair this week said Calhoun was “running out of time”. 

The comments follow a dire first-quarter results announcement last month, in which Boeing unveiled a number of new changes and delays because most of its civil aircraft and defence programmes are not going to plan. 

Now it wants to shift its headquarters from Chicago to Arlington, Virginia, home to the Pentagon, hobnobbing distance from Washington DC, and a more convenient location for some on the executive team who remain based on the east coast. 

For some commercial aircraft customers there may only be one conclusion to be drawn from the decision to move even further away from Seattle, where the company’s traditional aerospace expertise lies. Boeing management would rather shelter under the wing of government than get to grips with the tougher challenges of execution on its key programmes. 

This is surely not management’s intention. But such signals do matter. Boeing certainly doesn’t need a bigger presence in Washington. Last year it ranked as one of the top 20 corporate spenders on lobbying services, according to the Open Secrets website.

The decision is raising questions over just how much has changed in the two years since Calhoun took over. 

One of his first pledges was to invest in the engineering capabilities that are crucial to programme execution. It was an acknowledgment that engineering skills had been hollowed out by years of cost-cutting, outsourcing and an excessive focus on short term gains that drove Boeing shares to a seven-fold rise between 2010 and 2019.

In the past year, the company has spent roughly three times its budget for pay rises outside the usual annual increases, amounting to $22mn, according to the engineering union magazine, Spotlite, while the company has said some 3,500 new engineers were hired in 2021. But continuing problems suggest that more needs to be done.

An obvious way to demonstrate that commitment to engineering — and to commercial customers — would be to locate top management in Seattle. It could be argued that leadership’s distance from the commercial operation was partly to blame for the problems that led to the Max disaster. Engineers no longer had the opportunity to voice their concerns to top management in person.

Boeing says it is “confident about the future, because of the hard and important work we’ve done”. It said this included enhancing safety and quality systems and strengthening engineering. “The effect of these fundamental changes will be measured in years,” it said. “Some have even created challenges for us in the short term. But they are the right steps to take.” 

But Boeing’s longer-term vision still remains unclear. Richard Aboulafia, consultant with AeroDynamic Advisory, points out that Boeing has significantly underspent on commercial research and development over the past five years compared to its rival Airbus.

This has to change if the company is to make up lost ground. Boeing has promised that R&D will grow by double digits this year. But even greater ambition is required. The only way it will catch up on Airbus’ lead is to ditch the short-termism of previous management and invest in a new aircraft that offers greater benefits than those of its rival.

To do that, Boeing may need to launch an huge fundraising. With debt at $45bn, versus Airbus’ net cash, the US company is not in a position to invest the $10bn that would be required for a new jet.

The company insists a rights issue is not on the cards. But some analysts estimate Boeing could require $20bn or more to manage its current challenges and take on Airbus with a new aircraft. That would rank among the largest equity fund raisings in history. Investors are unlikely to foot the bill without extracting a price. If the much promised improvement in execution does not materialise soon, there is a risk that Calhoun and/or his top management may be the ones to pay.

peggy.hollinger@ft.com