Aboulafia calls for “regime change now” at Boeing

By Scott Hamilton

Feb. 6, 2024, © Leeham News: With hundreds of new 737 MAXes facing delays due to the Federal Aviation Administration’s freeze on production rates, how much compensation will Boeing to airlines and lessors?

It’s a question that’s unanswered at this time. And much depends on whether the delays are “excusable” or “inexcusable” in Boeing’s contracts.

Excusable delays are things outside of Boeing’s control, such as Acts of God, War, pandemics, etc. Inexcusable delays are things within Boeing’s control. However, there could be legal maneuvering as to just what this means. Is grounding by the Federal Aviation Administration—something outside Boeing’s control—an excusable or inexcusable delay if the grounding is caused by something within Boeing’s control?

Are problems within Boeing’s supply chain outside of its control but which delays deliveries by Boeing excusable or inexcusable delays? Contract language (which LNA has not seen) may address this.

Lawyers will argue over the contract’s meaning. But what is undisputed is that Boeing faces yet another mess with its long-troubled 737 MAX line.

Over the weekend, Reuters reported that once again supplier Spirit AeroSystems found mis-drilled holes in 737 fuselages. Boeing confirmed the Reuters report and issued a long statement from Stan Deal, the CEO of Boeing Commercial Airplanes, that 50 undelivered 737s may be affected. Deliveries will be delayed on these aircraft while inspections and repairs, if needed, are conducted. Deal’s message is at the end of this article.

At the Jan. 24-25 Aviation Week suppliers conference outside Los Angeles, consultant Richard Aboulafia called for “regime change” in Boeing’s leadership.

Regime change now at Boeing

Aboulafia is a vociferous critic of Boeing CEO David Calhoun and has long called for his replacement. Asked by Aviation Week’s Joe Anselmo to comment on the 737-9 MAX door plug quality escape and the three week grounding by the FAA, Aboulafia was typically acerbic.

“I can only give you a brief answer in six hours. So, I’ll try to manage my time here. But, you know, hashtag regime change now, right?” he said. “I mean, come on, this only ends one way. The fundamental problem here is that you have the guys at the top who are not talking to the people who are actually engaged in the core of this, which sounds like a minor managerial flaw. But it’s really catastrophic when you get right down to it because you don’t understand what the actual resources are that are needed to get the job done.”

Aboulafia noted that this is the basic challenge for any CEO or manager. Aboulafia said that he shouldn’t say there’s no hope. “They can start doing that tomorrow, but after all these years, they’re not.

“Why hasn’t that happened? Because this is the only this is the only aerospace company in the universe that has not done anything with share prices for the past three years. Usually, the Board of Directors notices these sorts of things. What is happening with the Board, I think, is the big unanswered question going on here. But if the Board doesn’t act, I can’t think of anything that changes here.”

Aboulafia said Boeing can just go on with a fairly steady share price, “marching from crisis to crisis, public disaster to public disaster, gradually getting back to something like pre-cash flow in the next few years. They can rip up the company and profit that way. But the way things are going now, the answer is I don’t see how this ends.”

Sooner than later

Michael Bruno, also of Aviation Week, predicted Calhoun will leave sooner than later.

“I can’t predict when Mr. Calhoun will leave his job. I do absolutely think it’s probably sooner rather than later, after the most recent incident. But the question about what comes next, who comes next, and what are the changes that happen. I’m almost certain, although I don’t know what will happen, I’m almost certain it’s going to be big,” he said.

“Boeing’s going to be very different in probably four or five certain years by the end of this decade than it looks now, and it will be because the next leadership comes in and executes some kind of renewal plan. And that to me is amazing, because I think as recently as last summer, we really didn’t think that was a reality. But I think it is now.”

Ron Epstein, the aerospace analyst for Bank of America, is another constant critic of Boeing’s current leadership and strategic direction. Epstein offered a graphic analogy of Boeing’s latest MAX crisis to finding cockroaches.

“You just don’t find one. You find more. When they started inspecting the Dash-9s, they started finding thousands of them in this place.” Toning the analogy down a bit, Epstein continued, “I was joking with a client of mine the other day, who happened to be 40 years old. He said, now I’m going to go to the doctor for one thing and finding something else. And that’s kind of what’s going on.

“It’s all about culture,” Epstein said. “Culture is driven by all kinds of things. It’s top-down, but it’s also about your development and what you’re doing.”

Change the culture

Epstein said Boeing still has good engineers, “but if you rewind the clock, it was an amazing engineering culture. Years ago, I worked at McDonnell Douglas.  The aero  engineering and The Boeing Co. in Seattle were high-tier.

“You get the sense now that that’s probably not the case. And to change this, you have to change a culture that changed over maybe 15, or 20 years. It’s not going to change very much.”

Epstein said all of the stakeholders should probably command some sort of leadership change. “And when I say that, it’s not just shareholders. It’s shareholders, regulators, and employees. Everybody gets impacted by this because it’s such an important employer for the U.S. It’s a huge piece of our national security infrastructure. There’s a lot at play here, and a lot at risk.”

Related