Fresh Documents Are Calhoun’s First Challenge at Boeing

Boeing waited to let go of CEO Dennis Muilenberg before turning over fresh documents related to its grounded 737 MAX 8 to US lawmakers!

New Boeing 737 MAX documents

On Monday, Boeing submitted fresh documents to the House Transportation Infrastructure Committee. According to a Reuters source, the document painted a very disturbing picture of Boeing’s systems and processes that led to the 737 MAX 8 crisis. The documents were submitted on the same day that Muilenberg resigned as the company’s CEO. The company’s press release said, “The Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders.”

While the new documents aren’t public yet, they mirror the release of the 2016 conversation between two Boeing test pilots. On October 18, a transcript of a 2016 conversation between a chief technical pilot for 737 MAX 8 planes and his colleague became public. During the discussion, they talked about the 737 MAX 8’s problems. The pilot said, “I basically lied to the regulators (unknowingly).”

Déjà vu

Boeing keeps having déjà vu. The Ethiopian Airlines crash in March led to the worldwide grounding of 737 MAX 8s. The Lion Air crash in Indonesia occurred due to nearly identical circumstances.

Muilenberg’s departure is a retake of what happened in October. Muilenberg was removed as the chairman of Boeing’s board in October. David Calhoun replaced him as the chairman. Now, Calhoun will replace Muilenberg as the CEO.

Another instance of déjà vu could be hidden in the new 737 MAX 8 documents. Mark Forkner, who appeared in the leaked 2016 conversation, might also be featured in the new documents.

The new company

Regarding the new documents, the company said, “Boeing proactively brought these communications to the FAA and Congress as part of our commitment to transparency with our regulators and the oversight committees……. these communications does not reflect the company we are and need to be.”

We think that it’s an attempt to distance the company under Calhoun from Muilenberg’s era. Overall, 2019 was bad for Muilenberg. The Ethiopian Airlines flight crashed in March. In October, the release of the transcript between two test pilots added to the troubles. The company’s relationship with the FAA, which traditionally offloaded some of the oversight responsibilities to the company, went downhill. Muilenberg was also grilled by lawmakers in October. Last week, the stock got successive downgrades by Moody’s and S&P. The latest bad news was Starliner’s failure to reach the international space station as intended. Boeing’s new management will want to distance itself from Muilenberg. However, Boeing’s troubles might not fade by holding Muilenberg accountable for everything.

Will Boeing mend ties with regulators and customers?

Calhoun will become Boeing’s CEO on January 13. He will have a lot of things waiting for him when he gets back from vacation.

Over the past nine months, Boeing’s reputation has been tarnished among regulators, airlines, pilots, and passengers. The FAA, which had an amicable relationship with Boeing in the past, is disappointed with the lack of transparency regarding 737 MAX issues. The FAA even dashed hopes of Boeing 737 MAX 8’s return in 2019. Regulators worldwide have differences regarding the recertification of the grounded aircraft. Calhoun’s first priority will be to rebuild trust among global regulators and ensure the 737 MAX’s smooth return.

Airlines are Boeing’s revenue sources. However, delays in the 737 MAX’s return impacted airlines’ relationship with Boeing. Together, American Airlines (AAL), United Airlines (UAL), and Southwest (LUV) have 72 of the grounded planes in their fleet. So far, these three airlines have canceled over 50,000 flights combined. They have also changed the schedule of MAX’s return multiple times. Some of the airlines might deflect to Airbus. Recently, United Airlines ordered 50 Airbus A321XLRs in a jolt to Boeing. Calhoun needs to work with them to bridge the trust gap. Also, pilots aren’t happy with Boeing. Southwest Airlines Pilot Association sued Boeing for loss of income and breach of trust. Some passengers have also lost faith in 737 MAX 8s.

Will Calhoun balance product focus?

For the past nine months, most of Boeing’s attention and resources have been diverted to getting the 737 MAX 8 back. As a result, the company didn’t focus on other programs. Boeing hasn’t made a decision on the 797. With customers like United and India’s SpiceJet losing patience and going with Airbus, Boeing needs to make a decision quickly. On the wide-body side, 787 demand has dropped. The 777X still hasn’t had its first flight.

Once the 737 MAX is back, Boeing also needs to make production decisions. Right now, there are about 400 737 MAX 8 planes sitting in Boeing’s inventory. Based on analysts’ estimates, Boeing will spend most of 2020 focusing on delivering the planes to customers even if the 737 MAX is recertified by the first quarter. Calhoun will have to navigate not putting too much working capital in the 737 MAX 8 inventory without making part vendors worry.

Overall, 2020 is a pivotal year for Boeing. We’ll have to see how Calhoun navigates through some of the toughest product, regulation, and corporate culture challenges. He doesn’t have much time to make it happen.