Boeing’s Epic Bad Year Ends With Space Dud, CEO in Jeopardy
(Bloomberg) -- The launch of the first Boeing Co. Starliner started promisingly enough, with CEO Dennis Muilenburg on hand to cheer as a rocket blasted the capsule into the pre-dawn Florida sky to pioneer a new era in space flight.
But as the unmanned spacecraft entered orbit, it was embarrassingly off course for a planned rendezvous with the International Space Station. While the Starliner made a successful landing in New Mexico on Sunday, its overall failure to reach the orbiting lab capped an atrocious year for Boeing and its embattled chief executive officer.
The Starliner’s mishap delivered the latest blow to Boeing’s century-old legacy of engineering prowess, adding to the pressure on the board as 2019 draws to a close. The flop came days after Muilenburg’s handling of the 737 Max disasters drew fire from three leading business publications, with the Wall Street Journal and Economist going so far as calling for his ouster. The Max was grounded in March after two of the planes crashed, killing 346 people.
“They’ve got an image problem from a technical execution standpoint,” Richard Aboulafia, aerospace analyst with Teal Group, said of Boeing. While it may be a stretch to equate the Starliner’s orbital flub with the flawed software system tied to the Max crashes, Aboulafia sees a common link in Boeing’s campaign to move union jobs out of Seattle earlier this decade “when engineers were treated as a disposable commodity.”
The space capsule and the Max are part of a string of recent product shortcomings, from debris embedded in KC-46 refueling tankers to delays that have pushed the first flight of the 777X to early 2020.
Shareholders are starting to feel some of the sting. Boeing has advanced 1.7% this year, a fraction of the 29% gain posted by the S&P 500 Index. That’s Boeing’s worst underperformance compared with U.S. stocks since 2001.
Despite the tumult, directors of the Chicago-based company are sticking with Muilenburg. Through a spokesman, Boeing Chairman Dave Calhoun said he stood by comments he made reiterating the board’s support in a Nov. 5 interview with CNBC.
“He has our confidence,” Calhoun said at the time.
While the company under siege, board directors are concerned that replacing Muilenburg now would add to the turmoil and distraction, said people familiar with their thinking. Calhoun, a former General Electric Co. vice chairman, favors keeping leaders on through difficult times and making decisions after the worst was past, said one of the people, who asked not to be named because the deliberations are private.
“We have never seen a change of command amidst a prolonged crisis as helpful unless there are demonstrated questions about the character and competence of the leader,” said Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale’s School of Management.
Muilenburg was blasted in the recent editorials in the Journal, Economist and Financial Times for his management of the deepening Max crisis. They faulted the renowned planemaker for being slow to address the initial 2018 crash and not fully transparent in explaining how it overlooked software flaws linked to the disasters.
The Economist described Boeing’s response as “an ugly mixture of remorse, evasion and swagger, as it has gambled that it can get the Max and its business, rapidly back in the air.”
The scathing editorials came days after Steve Dickson, who heads the U.S. Federal Aviation Administration, signaled that the agency wouldn’t be hurried through the final steps before clearing the jet for flight. He chided Muilenburg for pressuring regulators and urged him instead to focus on the “quality and timeliness” of Boeing data submitted to the FAA in that process.
Some analysts don’t expect governments to clear the Max until deep in the second quarter given the hurdles remaining for Boeing. Patrick Ky, the top European aviation regulator, sounded a more positive note this week when he told the Financial Times that he expects the plane to be certified by February.
But full recovery for Boeing could take until 2022 or later. With the manufacturer and its largest supplier, Spirit AeroSystems Holdings Inc., suspending Max production indefinitely, the restart -- whenever it comes -- will be gradual.
Airbus SE, meanwhile, is looking into increasing output to widen its lead in the crucial market for single-aisle jets, where its A321neo already dominates sales. The European planemaker will push its largest single-aisle jet “as much as possible” as it adds additional manufacturing capacity, said Aboulafia, the Teal Group analyst.
United Airlines Holdings Inc., American Airlines Group Inc. and JetBlue Airways Corp. are among the prominent U.S. buyers that have placed orders for an A321 version with the range to cruise over the Atlantic Ocean. A competing Boeing offering is in limbo.
“The market likes that product,” Aboulafia said of the Airbus jet. “Normally that wouldn’t be a problem for Boeing. But it is now.”
©2019 Bloomberg L.P.