By Andrew Tangel
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 8, 2020).
When Boeing Co.'s board of directors convened at company
headquarters in mid-December, they faced a once-unthinkable
decision. Should the plane maker suspend production of the troubled
737 MAX jetliner?
Chief Executive Officer Dennis Muilenburg had been assuring
directors for months that regulators would soon clear the grounded
jet to fly again, but his predictions hadn't panned out.
The board decided that day to suspend production, and one week
later, it ousted Mr. Muilenburg.
It wasn't just because Mr. Muilenburg's forecasts had proven
unreliable. Board members concluded that he had become part of the
problem by mismanaging Boeing's relationship with the Federal
Aviation Administration, the one agency the company had to win over
to emerge from its nearly yearlong crisis, people familiar with the
matter said.
His departure followed a disastrous week that included a botched
spacecraft launch, but replacing him had been under consideration
for weeks as board members heard from frustrated officials at
airlines losing hundreds of millions of dollars from their parked
MAX fleets, these people said.
Despite the mounting problems, Boeing's board stuck by Mr.
Muilenburg nearly all of last year, even expressing full confidence
in him as CEO while taking away his chairmanship in the fall. They
believed they had the right leader to fix the MAX -- until they
abruptly reversed course two months later.
Many aviation industry officials had expected Boeing's board to
keep Mr. Muilenburg in place at least until the FAA approved the
MAX to fly again. But the timetable kept slipping. For months, Mr.
Muilenburg's projections appeared to preserve the board's support.
Eventually, though, the board grew alarmed that the job wasn't
getting done -- and that he had upset the FAA in the process.
Director Larry Kellner, the former Continental Airlines CEO who
became Boeing chairman in the shake-up, was one of the first to
lose confidence in Mr. Muilenburg, according to the people familiar
with the matter. Mr. Kellner had been hearing from airline
officials frustrated about the prolonged grounding, giving him a
direct view of the damage being done.
Plans accelerated once Steve Dickson, the FAA chief, rebuked the
CEO on Dec. 12 and said that same week the MAX wouldn't return to
service until the new year, according to the people familiar with
the matter. While Mr. Muilenburg viewed the meeting with Mr.
Dickson as constructive, the board's dimmer assessment further
undermined the optimism the CEO had projected and his credibility,
a person close to the board said.
On Dec. 22, directors held a 90-minute conference call without
him, according to the person close to the board. After they
finished, Mr. Kellner and fellow board member Dave Calhoun called
Mr. Muilenburg and told him he was out. Mr. Calhoun, who once ran
General Electric Co.'s airplane-engine business, is expected to
start as the new CEO next Monday.
Mr. Muilenburg hadn't been aware he had lost the board's
confidence until that phone call, people familiar with the matter
said. He resigned, effective immediately.
"His greatest strength was his optimism, and his greatest
weakness was his optimism," said a friend who has spoken to him
recently.
In an interview days before his ouster, Mr. Muilenburg defended
his estimates for returning the MAX to service and stressed
regulators ultimately would determine the timeline. After his
departure, Boeing said its board decided a leadership change was
necessary to restore confidence as the company works to repair
relationships with regulators and customers.
Mr. Calhoun had become more engaged in managing the company
after the board stripped Mr. Muilenburg of his chairmanship on Oct.
11 and gave it to Mr. Calhoun. Mr. Calhoun, a private-equity
executive who had been an executive at GE for years, was viewed as
the board member with the most relevant aviation and manufacturing
experience.
Board members discussed with Mr. Muilenburg the possible
scenario of replacing him as CEO, one of the people familiar with
the matter said.
The most surprising aspect of the October announcement, said
consultant Kevin Hiatt, a former safety chief at JetBlue Airways
Corp., is that Mr. Muilenburg "could have been completely released"
but wasn't.
The airline's effort to get the MAX back into the air hadn't
been going well. The jet had been grounded for half a year.
Projections for regulatory approvals to resume flying had slipped
and slipped again. American Airlines Group Inc. said it would pull
the MAX from its flight schedules until January, the latest in a
string of disruptive schedule changes for airlines.
Top officials at the European Union Aviation Safety Agency, the
FAA's counterpart, started saying they would need more time to
complete their own review of fixes to the MAX flight-control system
implicated in the crashes in Indonesia and Ethiopia -- almost
certainly pushing the jetliner's return to 2020.
Mr. Muilenburg's projection that the MAX would return to service
early in the fourth quarter of 2019 slid. Boeing conceded that an
FAA order to end the grounding might not come until November or
even December.
Then came a barrage of bad headlines in October. A Boeing
engineer's whisteblower complaint alleged the company prioritized
profit over safety. A former senior MAX pilot's chat messages
suggested the pilot had unintentionally lied to regulators. Then
came Mr. Muilenburg's late October testimony on Capitol Hill,
during which lawmakers pressed him on why he hadn't quit or offered
to give up his pay given the 346-victim death toll from the dual
crashes. "I am accountable," he said.
Mr. Calhoun backed the embattled CEO during a Nov. 5 television
interview on CNBC. He said Mr. Muilenburg had called him to offer
to give up much of his compensation, which the board accepted. He
praised the CEO's work to add safeguards to the MAX, saying Mr.
Muilenburg "has set us up for a return to service."
The chairman declined to speculate in the interview how long Mr.
Muilenburg might last as CEO, saying he had the board's confidence
to date. "If he can get us from here to the endpoint -- and the
endpoint being a MAX that's flying in service and accepted by the
flying public and begins to restore our brand -- I might argue,
he's just about the most qualified executive in the world to be
running a company like Boeing," he said.
Soon after, hopes for winning FAA approval in 2019 dimmed
significantly. It became apparent that tests to determine how to
train pilots on the updated MAX would take more time than expected
and would include a public comment period before regulators
approved new training.
In early November, Boeing said it expected the FAA certification
in December with training approvals to follow in January. Allowing
Boeing to deliver aircraft before the agency approved related pilot
training would relieve pressure on the manufacturer, which was
running out of places to park its roughly 400 finished
aircraft.
Mr. Dickson, the FAA chief, insisted his agency was in charge of
the timeline, telling his staff to take as much time as needed to
make sure the MAX is safe. "I am committed to backing you all up on
this," Mr. Dickson wrote in a Nov. 14 internal memo.
On Dec. 11, Mr. Dickson said in a television interview the MAX
wouldn't return to service in 2019, and the next day, he summoned
Mr. Muilenburg to his Washington, D.C., office to chide the CEO for
the perceived pressure. His unusual rebuke became public after the
FAA sent written updates to lawmakers.
Mr. Dickson told Mr. Muilenburg that Boeing should focus on the
"quality and timeliness of data submittals for FAA review," and he
took issue with what he saw as the company's unrealistic schedule
for returning the MAX to service, according to the updates to
lawmakers.
For Boeing's directors, the difficulties with FAA were a
significant setback, the person close to the board said. Boeing
couldn't move forward on anything without the FAA's certification,
which was essential to resume MAX deliveries, allow airlines to pay
Boeing for the planes and ease the manufacturer's cash crunch.
With the FAA certification now seeming unlikely before February,
Mr. Muilenburg told the board during a regularly scheduled Dec.
15-16 meeting that Boeing had little choice but to pause MAX
production.
"It was a tough decision, but it's not one where we arrive at
that decision overnight," Mr. Muilenburg said in an interview on
Dec. 17, shortly after the board decided to halt production.
The suspension's duration -- and Boeing's financial, production
and overall business planning -- depend on when regulators will
allow the aircraft back in the skies.
Board members initially believed that removing Mr. Muilenburg
before Boeing could lay the groundwork for the production halt
would be potentially destabilizing for the company, the person
close to the board said.
Later that week, United Airlines Holdings Inc., a major U.S. MAX
buyer, announced it would extend the aircraft's removal from its
schedule through early June. The grounding was dragging on much
longer than industry officials had envisioned.
Early on Sunday, Dec. 22, a Boeing spokesman told the Journal
that Mr. Calhoun stood by his earlier endorsement of the CEO.
Privately, though, Messers. Kellner and Calhoun had been speaking
to fellow board members in the days before that weekend, leading to
a unanimous decision to remove Mr. Muilenburg before the MAX
returned to service.
"Dennis was surprised," Mr. Muilenburg's friend said. "They're
always with you until they're not."
--Andy Pasztor and Alison Sider contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
January 08, 2020 02:47 ET (07:47 GMT)
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