AAL American Airlines Group Inc

By Andrew Tangel and Doug Cameron 

Boeing Co. ousted Chief Executive Dennis Muilenburg as the company struggles with an extended crisis caused by two fatal crashes of its 737 MAX jetliner and friction with regulators over returning the grounded planes to service.

The aerospace giant said David Calhoun, a longtime Boeing director with deep ties to the aviation and private-equity industries, will become CEO next month. He was named Boeing's chairman in October in a boardroom shake-up.

Mr. Calhoun, 62 years old, is stepping down as a senior executive at private-equity giant Blackstone Group Inc. An experienced corporate fixer, he is also a former top executive at airplane engine-maker General Electric Co.

Mr. Calhoun and Boeing finance chief Greg Smith, who will serve as interim CEO, face the same challenges as Mr. Muilenburg: winning back the confidence of government officials, suppliers, airlines and the traveling public. Mr. Calhoun spent much of Monday phoning some of those constituents, including lawmakers, a Boeing spokesman said.

In a call with one U.S. airline CEO, Mr. Calhoun struck a tone of partnership and signaled Boeing would be taking a different tack, said a person familiar with the call. Airlines have lost money as they have been forced to adjust schedules that were dependent on a MAX fleet that should have numbered about 800 jets by now, only for all to be grounded.

Regulators had criticized Mr. Muilenburg's efforts to reassure customers and the financial community that government approval of a fix for the MAX was coming soon -- optimism that repeatedly proved misplaced. The new leadership team made it clear in public statements Monday that they won't get ahead of regulators in predicting the return to service of the 737 MAX after its grounding in March following twin crashes that claimed 346 lives.

Boeing's board decided to oust Mr. Muilenburg during a conference call late Sunday following discussions over the weekend, according to a Boeing official and a person close to the board. Their decision culminated a series of setbacks for the plane maker that led to its recent decision to halt production of the 737 MAX -- its best-selling plane -- starting next year, according to the person close to the board.

Directors were also dissatisfied at times with delays by management in providing them updates, this person said. "There were some surprises along the way," this person added, without providing specifics.

The malfunction of Boeing's Starliner space capsule during its maiden flight on Friday, which left it unable to dock with the international space station, added to setbacks at the Chicago-based company. Mr. Muilenburg tweeted his congratulations to the Starliner team before the problem was disclosed on Friday.

The company has lost around $50 billion in market value since the MAX crisis began, with the stock off 24% from its level prior to the second crash in March. Boeing shares rose about 2.5% in Monday trading, recently at $337.26.

The MAX's return to service won't happen until regulators approve fixes to a flight-control system implicated in the two crashes. And board members have been particularly concerned about increasing friction with the Federal Aviation Administration, which ultimately holds the key, the person familiar with the board said, calling the tension a "very significant and negative development."

With the leadership change, Boeing's board wanted to signal it would improve communication, particularly with regulators and customers, the person said.

An engineer by training, Mr. Muilenburg appeared to often rely heavily on data and legal advice rather than diplomacy in formulating his response to the escalating crisis, and his approach sometimes exacerbated friction with customers and regulators. His relationship with FAA leaders deteriorated to the point that about two weeks ago agency chief Steve Dickson publicly called out the company's failures to provide complete and timely data supporting proposed MAX software fixes.

After Boeing's announcement Monday, the FAA reiterated that it has set no timetable for when the MAX would be allowed to resume carrying passengers. It also said that it expects Boeing to focus on "the quality and timeliness of data submittals for FAA review, as well as being transparent with its relationship with the FAA."

Mr. Calhoun, who is set to become CEO on Jan. 13, has been a Boeing director since 2009. He spent 26 years at GE, including running its aircraft engine business.

At Blackstone, he has confronted other major corporate crises. He is credited with turning around the fortunes of Nielsen Holdings PLC after being put in charge of the market research and measurement company. He later became chairman of Caterpillar Inc.'s board weeks after federal agents raided the heavy machinery maker's Illinois headquarters. Both he and Mr. Muilenburg are on Caterpillar's board.

Directors and executives who have worked with Mr. Calhoun say his experience will help Boeing overcome its problems. Inside boardrooms, his personality looms large, and he became increasingly assertive inside Boeing's boardroom as problems mounted this year, his colleagues have said.

Mr. Smith, who has spent most of his career at Boeing except for a stint running investor relations at Raytheon Co, is well respected by the investment community. As Boeing's finance chief, he expanded his role in recent years to reduce risk on the company's balance sheet and focus on a raft of efficiency measures, He also has led efforts to realign production and negotiate customer compensation following the MAX grounding.

On Monday, Mr. Smith pledged to help "chart a new direction for Boeing," in a note to staff viewed by The Wall Street Journal.

He isn't joining the company's board, more than half of whose members were directors when the decision was made in 2011 to proceed with the 737 MAX rather than counter rival Airbus SE with an all-new airplane. The board's makeup has prompted criticism from some investors and analysts that Boeing needs to reset its internal culture.

Larry Kellner, a veteran airline executive who has been on the Boeing board since 2011, will take over from Mr. Calhoun as chairman.

Mr. Muilenburg's defense of Boeing's development of the MAX after the second crash in March made him a target of criticism, though he subsequently apologized to victims' families on multiple occasions and acknowledged Boeing made mistakes.

Michael Stumo, who lost a daughter in the Ethiopian crash, called Mr. Muilenburg's departure "a good first step," but also said several board members should resign.

Mr. Muilenburg became CEO in July 2015. Before the MAX grounding, Boeing shares had more than tripled on his watch as the company boosted jetliner production and returned a bigger portion of profits to shareholders through stock buybacks and higher dividends.

Mr. Muilenburg is eligible to a $39 million payout, including $6.6 million in cash as well as bonuses and stock awards, based on share price of $322.50, according to regulatory filings.

Boeing's new leadership will have its hands full. The company is suspending production of the MAX in 2020 amid uncertainty over the aircraft's future, which will pressure Boeing's finances, suppliers and the U.S. economy.

The crisis has disadvantaged Boeing in its competition with Airbus to supply carriers in a fast-growing air travel market. The two plane makers have a backlog of more than 13,000 jet orders, representing seven years of production. Boeing had planned to build more than 900 aircraft this year, including almost 600 MAX jets.

The company, which has about 5,000 MAX orders in hand, estimates the MAX crisis will cost it $10 billion in added costs and customer compensation, a figure analysts expect to at least double.

The FAA isn't expected to approve the MAX software fixes, as well as related changes to pilot training, before February, according to people familiar with the matter.

Dennis Tajer, a spokesman for the union that represents pilots at American Airlines Group Inc., said pilots are seeking "actions that are desperately needed in rebuilding trust in Boeing."

The FAA's own pilots may pose hurdles to the return of the MAX. Some of them contend tests so far suggest airline crews need simulator drills to prepare for certain emergencies involving the flight-control system, according to people familiar with the details. A final decision will likely take weeks, and involve various other pilots inside and outside the agency.

--Andy Pasztor and Alison Sider contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

December 23, 2019 15:38 ET (20:38 GMT)

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