How Boeing's leadership was 'fired' by its own customers

Dave Calhoun, CEO of Boeing, speaks on stage during the delivery of the final 747 jet at their plant in Everett, Washington, US January 31, 2023. REUTERS/David Ryder

A revolt by US airline bosses helped topple Boeing's top leadership including CEO Dave Calhoun this week, capping weeks of pressure after the freakish Jan. 5 blowout of a door plug on an Alaska Airlines 737 MAX 9 passenger jet, people familiar with the discussions said.

With the company's major US customers agitating for a boardroom meeting without Calhoun, Boeing's board pre-empted their demands with a major upheaval.

Now, after the shakeup that took out the CEO, chairman and head of Boeing's commercial airplanes business, airlines face prolonged uncertainty over jet supplies and are calling for deeper changes - starting with picking a manufacturing heavyweight as CEO.

"It wouldn't surprise me that people said, 'What exactly is the Boeing strategy to change this, not put a Band-Aid on it,'” former Air Canada CEO Calin Rovinescu told Reuters.

"There’s a point at which you cannot pretend that everything is fine. And I think this has been the call to action that you probably heard from the airline community.”

Boeing said it had nothing to add to comments from Calhoun, who told employees on Monday that he had been considering stepping down as CEO for some time. He added that the company would "fix what isn't working, and we are going to get our company back on the track towards recovery and stability."

The Jan. 5 incident plunged Boeing into a new crisis five years after the second of two fatal crashes grounded the MAX.

Regulators began curbing Boeing's already lagging production. Airlines strained to adapt their schedules to the ongoing delays that meant fewer planes available for delivery.

Boeing struggled to convince customers it would be able to overcome the heavy scrutiny, particularly following safety board reports that focused on weaknesses in the production chain.

The catalyzing moment was last week, when CEOs of major US MAX customers Southwest LUV.N, United UAL.O, Alaska and American demanded to meet the board to express frustration at a lack of progress, sources said. Boeing Chairman Larry Kellner offered to set up bilateral meetings instead.

But over the weekend, Boeing's board pre-empted that action - agreeing to staggered departures of Calhoun, Kellner and planemaking CEO Stan Deal, whose post went to chief operating officer Stephanie Pope. A senior industry source described the shakeup as Boeing management being "fired by its customers."

Insiders noted it was the broadest top-level clear-out since CEO Phil Condit resigned days after the company's finance director was fired in a defense-contract scandal in 2003.

"The US carriers were determined to force regime change," said a source familiar with the discussions.

'OFF THE STAGE'

Some said Calhoun, who claimed the move was his decision, jumped before he was pushed, agreeing to leave by year-end.

But pressure from the industry and regulators had been growing for weeks, and boiled over when more loose bolts were found in late January.

United CEO Scott Kirby announced it would no longer wait for the delayed MAX 10, Boeing's best hope of countering Airbus' hot-selling A321neo in the busiest part of the market.

"The Max 9 grounding is probably the straw that broke the camel's back for us," Kirby told CNBC.

Kirby promptly flew to France to start talks with AirbusAIR.PA, with Boeing's rival hoping to win a 200-plane deal.

Alaska Airlines CEO Ben Minicucci, who is said to have played a particularly active role in pressuring Boeing, told NBC: "It makes me angry. Boeing is better than this."

Such conversations more typically take place in private.

Industry unity had cracked after the MAX groundings that followed crashes in 2018 and 2019 led to lawsuits over delays.

But the intensity of this month's intervention astonished boardroom observers and demonstrated the fragile confidence in Boeing's once-sure grip on safety and reliability issues.

"The dynamic between supplier and customer in the case of Boeing has gone beyond extremes anyone has seen," said independent aviation adviser Dick Forsberg, who helped found one of the largest aircraft leasing firms, Dublin-based Avolon.

Another person familiar with the talks said major US airlines - apart from Delta, which publicly stayed out of the fray - had resolved to get Boeing leaders "off the stage."

The plan gathered speed at an Airlines for America meeting this month, sources told Reuters, confirming a report on the coordinated airline action by The Air Current.

During the meeting, the CEOs met privately with US National Transportation Safety Board chair Jennifer Homendy. After she departed, the CEOs including Kirby said it was time to seek a meeting with the Boeing board, the sources said.

CARRIER COUP

While airline bosses went public, the powerful leasing firms who own half the world fleet waded in more discreetly.

At an annual Dublin summit in January, lessors publicly backed Calhoun but delegates were critical in private and predicted it would be weeks before Calhoun was ousted.

A notable exception was budget airline Ryanair RYA.I CEO Michael O'Leary, who defended Calhoun while taking aim at the Boeing division in Seattle where the 737 is built.

Crisis experts acknowledge that under Calhoun, Boeing abandoned the unpopular, legalistic tone it adopted after earlier MAX crashes, publicly admitting to mistakes. That said, he repeatedly insisted that the current management would usher through the "profound changes" demanded by US regulators.

As the dust settles, experts say the carrier coup will be studied for years.

"The commercial aviation base rebelled. I can’t think of when that’s ever happened," said Jeffrey Sonnenfeld, Lester Crown Professor in management practice at Yale School of Management.

"It’s career-ending if all of your customers said they don’t have confidence in you, and wanted to go to your superiors," he said, adding such collective action was rare in any industry.

Boeing is not alone in facing post-pandemic disruption. Airbus is delaying deliveries due to missing parts and insiders say the volume of quality reports is above target. Engine firm Pratt & Whitney RTX.N has had a slew of publicised problems.

But airlines say the slump in morale and high turnover in Boeing factories since the pandemic have cast a pall over the production and planning process that will take years to fix.

Airlines insist planes are safe after the earlier MAX crashes led to cockpit changes and a worldwide increase in oversight.

But with some passengers now researching plane models before buying tickets, airlines say more needs to be done to reassure the public.

"What is needed here is indeed someone who has a strong engineering background, who has the patience, the interest, and the disposition to get into the details of what goes on on the manufacturing floor," Rovinescu said of the next Boeing CEO.