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Calhoun gives Boeing a fresh face, but not that fresh

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Via Financial Times

It is almost 15 years since David Calhoun was first considered for the role of Boeing’s chief executive officer. He was running General Electric’s biggest division at the time, an infrastructure unit with sales of $47bn, and was up against another veteran of the Jack Welch-era in which GE’s status as a model for the rest of US industry was rarely questioned. 

Boeing’s board picked that other candidate, Jim McNerney, for its top job in 2005 and Mr Calhoun left GE the following year to run VNU, the media and data group later renamed Nielsen by its private equity owners. But Boeing kept in touch, appointing him to its board in 2009. 

A decade later, in the midst of the biggest crisis in the US manufacturer’s 103-year history, the board decided that Mr Calhoun’s time had come. The man he will replace as CEO, Dennis Muilenburg, was not invited to participate in the Sunday evening call which sealed his fate. 

Several analysts attributed Mr Muilenburg’s fumbled response when two of its 737 Max jets crashed within a few months of each other to the fact that the life-long Boeing employee was, first and foremost, an engineer. He may have had an expert understanding of its aircraft, they argued, but he was uncomfortable in the public spotlight which suddenly shone on him. 

Mr Muilenburg waited for months before he met relatives of any of the 346 people who died on Lion Air flight 610 or Ethiopian Airlines flight 302. When summoned to Washington, his testimony satisfied neither passengers nor politicians, and he was rebuked by the Federal Aviation Administration earlier this month for overly optimistic statements about when the Max might fly again. 

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Mandatory Credit: Photo by MICHAEL REYNOLDS/EPA-EFE/Shutterstock (10459619s) President and CEO of Boeing Dennis Muilenburg (R) and Vice President and Chief Engineer of Boeing Commmercial Airplanes John Hamilton (L) sit in front of people holding pictures of their loved ones who died in Boeing crashes, to testify before the US Senate Committee on Commerce, Science and Transportation hearing on 'Aviation Safety and the Future of Boeing's 737 MAX', on Capitol Hill in Washington, DC, USA, 29 October 2019. Boeing 737 MAX aircraft remain grounded following two crashes, Ethiopian Airlines flight 302 and Lion Air flight 610, that killed 346 people. US Senate Committee on Commerce, Science and Transportation hearing on Aviation Safety and the Future of Boeing's 737 MAX, Washington, USA - 29 Oct 2019
Dennis Muilenburg, right, and John Hamilton, chief engineer of Boeing’s commercial aircraft division, at the Senate commerce committee hearing, in front of people holding pictures of their loved ones who died in Boeing crashes © Michael Reynolds/EPA/Shutterstock

Mr Calhoun is not an engineer: he studied accounting at Virginia Tech and began his career in GE’s corporate audit team. But one industry veteran who knows him said this would not be a disadvantage, saying: “He is a great choice. He isn’t an engineer but he knows how to manage them and this isn’t a technical problem any more. It’s about winning over the authorities . . . then the airlines, then the travelling public.” 

“He is better dealing with the outside world [than Mr Muilenburg] and that is needed right now,” echoed Richard Aboulafia, vice-president of Teal Group, the aerospace consultancy. 

Mr Calhoun’s first task would be to reassure regulators that Boeing would not try to undercut them, Mr Aboulafia said, but he would also have to avoid airlines, suppliers and investors feeling blindsided. 

“They have to make sure everything becomes much more transparent and there is not this endless leakage of information,” he said, adding that this would be difficult for a company with an inward-looking culture which has not faced a crisis of this magnitude before.

Despite Mr Calhoun’s financial background, analysts are also looking to him to restore its leadership’s focus on product development rather than financial targets. Since Mr McNerney’s period in charge, critics have accused Boeing of favouring shareholder returns over the investments that could have led it to develop a new aircraft from scratch rather than updating a decades-old 737 design to build the Max. 

“For years the company has been run almost primarily for extracting cash for investors without an eye on sustainability and engineering,” Mr Aboulafia argued.

Mr Calhoun’s reputation was forged at GE at a time when it was riding high. More than two decades ago, Chief Executive magazine had dubbed him part of a team of “stars that make Jack shine” and Mr Welch described him in his 2001 memoir as “bright, fun, quick, an avid sportsman and a strong relationship builder”. 

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The keen golfer and skier deftly managed the downturn in GE’s aero engines business after the 2001 terrorist attacks on New York and Washington. Jeff Immelt, Mr Welch’s successor, promoted him to run a 120,000-person operation, and by 2006 headhunters were telling Fortune magazine that he was “the complete package” and top of their list of CEO candidates.

He was lured away from GE that year by the chance to run Nielsen, where he was credited with turning the company round, paving the way for a successful return to the market in 2011. After leaving Nielsen in 2016 he took a senior position at Blackstone, one of the world’s largest private equity firms, and a board position at Caterpillar. 

None of those roles has put Mr Calhoun in a spotlight akin to the one that has shone on Mr Muilenburg since the crashes, but his job at Boeing has become more public as its crisis has deepened. 

At no point has he spoken of a rift with Boeing’s departing CEO, however. In May, in an interview with the FT, he defended Mr Muilenburg as “a young growing leader that we all have a lot of confidence in”, saying it would serve no purpose to “swipe” away his chairmanship. 

Boeing did take away Mr Muilenburg’s chairmanship, however, five months later, giving Mr Calhoun that title and more power over the chief executive. Even then he said the board had “full confidence in Dennis as CEO” and argued that the move was a division of labour that would allow Mr Muilenburg to focus on running the business while the board provided oversight.

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Mr Calhoun has played a central role in trying to strengthen the safety culture at Boeing, adding retired admiral John Richardson to its board and forming an aerospace safety committee that can give the board candid feedback and more visibility into critical parts of any future aircraft’s design specifications. 

“He will steady the ship and give investors faith,” one industry executive concluded on Monday. Analysts also welcomed the elevation of Lawrence Kellner, a former Continental Airlines CEO, to replace Mr Calhoun in the chairman role. 

After so long on its board, however, some analysts question whether Mr Calhoun can bring substantive change. “It’s very doubtful that we could expect things to improve just like that,” said one veteran aerospace analyst who asked to remain anonymous. “We are going to have a fresh face. Whether we have a completely fresh approach remains to be seen.”

At a company with a retirement age of 65, the 62-year-old Mr Calhoun also faces questions about how long he will serve as CEO. 

According to Rob Stallard, aerospace analyst at Vertical Partners, “he is likely to have a relatively short tour of duty at Boeing, with his priorities being getting the 737 Max back into service without further aggravation, and starting the process of finding a new CEO and senior management team that can potentially get Boeing back on track.”

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