A wave of karma appears to be sweeping through America.
Last week, unfairly maligned Houston ENT doc Mary Talley Bowden forced the FDA to implicitly admit it deceived the public with a critical pandemic message. This week federal judge Charles Breyer ripped faux “free speech absolutist” Elon Musk a new body part for filing a deplorable lawsuit that was “unabashedly” about “punishing” a critic of Musk’s X social media site. Breyer ruled the partisan critic, admittedly one of dubious credibility, was “unquestionably” protected by America’s constitutional free speech guarantees.
Having been censored multiple times for my unpopular views, I champion the rights of others to express views I don’t like, providing they aren’t advocating violence or illicit activities.
The icing on the karma cake was Boeing CEO Dave Calhoun announcing he’s stepping down in wake of all the corporate doodoo for which he bears much responsibility. I know I’m speaking for legions of current and former Boeing employees bellowing: Good riddance, Dave!
I’ve been railing about Calhoun for quite some time, even before the mishap where an Alaska Airlines Boeing 737 MAX lost part of its fuselage at 16,000 ft. and was forced to make an emergency landing. Calhoun’s fate should have been sealed by this Wall Street Journal story last September detailing how he and other top Boeing managers were dispersed around the country and spent little time at company headquarters in Arlington, VA. For those who don’t have a WSJ subscription, here’s a link to my follow up commentary, which highlights the Journal’s findings.
As reported by the Journal, Calhoun prefers not to fly on the airplanes Boeing builds and instead relies on private jets to hopscotch across the country from his two homes, one a sprawling waterfront house on New Hampshire’s Lake Sunapee, the other in a gated South Carolina resort community. The Journal documented that Calhoun made more than 400 trips to or from airports near his luxury abodes in the past three years.
It’s a safe bet that unlike Elon Musk, Calhoun didn’t spend any time sleeping under a factory desk to help troubleshoot Boeing’s production problems as Musk did when Tesla was experiencing manufacturing hiccups.
In any case, it’s certain Calhoun wouldn’t have much to contribute even if he spent time on the factory floor. The guy is an accountant — a frickin accountant! – overseeing a company that was once a symbol of American engineering and manufacturing might and is now a symbol of America’s decline.
Calhoun deserves much blame for Boeing’s deterioration.
Calhoun hails from the private equity world and he served on Boeing’s board with several other accountants for about a decade before his director colleagues deemed him an appropriate choice to salvage Boeing’s reputation after two of its MAX planes crashed because of the ruthless cost cutting the board mandated over the years.
The media romanticizes private equity types and is in awe of the billions they accumulate from all their wheeling and dealing. If you are of reasonable intelligence, and I cut out the portions of your brain that regulate morals, ethics, and empathy, you, too, could make billions looting American corporations and lining your pockets.
Private equity-like maneuvers figure prominently into Boeing’s decline.
In 2005, Boeing sold some commercial aircraft manufacturing plants to Canadian private equity firm Onex Corp, allowing the company to pocket about $900 million in cash and cleansing its balance sheet of some $300 million in liabilities. The technical PE lingo for this sort of transaction is “financial engineering” but I prefer to call it hocus pocus accounting legerdemain. Of course, Boeing insisted that its motivation for the divestiture was to make even better airplanes.
“This agreement fully supports our strategy to focus Boeing on large-scale systems integration, which is where we are most competitive and can add the most value to our airplanes and services,” said then Boeing commercial airplanes chief Alan Mulally, who went on to become CEO of Ford Motor Co.
Despite having not an iota of aerospace experience, Onex pocketed nearly $1 billion from its Boeing acquisition over a nine-year period. In 2014, it spun off the operations of what it named Spirit AeroSystems Holdings into a public company and divested its holdings in the business.
Boeing is reportedly negotiating to buy back Spirit AeroSystems, again using the argument it will allow the company to make better airplanes.
“We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders,” Boeing said in a statement.
Wichita-based Spirit AeroSystems manufactured the fuselage of the Alaska Airlines airliner that lost a plug covering an exit door, causing a gaping hole in the aircraft. According to an investigation by an industry trade called The Air Current, the exit door plug was securely fastened when the fuselage was shipped to Boeing’s Washington plant for final assembly, but the plug had to be opened so an outsourcing company Spirit AeroSystems hired could gain access to repair improperly installed rivets.
Yes, an outsourcing company was responsible for fixing the shoddy manufacturing of Boeing’s outsourced supplier. Unfortunately, after the rivets were repaired the exit door plug wasn’t properly secured and fastened, resulting in what Calhoun admitted was a “quality escape.”
Spirit AeroSystems, which prides itself on its diversity, was plagued with a rash of manufacturing problems. For several years, Boeing essentially had Spirit on double secret probation because of pervasive quality issues, with the threat that if Spirit didn’t clean up its act, it would lose its Boeing business. Never mind that Boeing didn’t have an alternative supplier readily available, so its threats were hollow.
Details of Spirit’s manufacturing issues were outlined in a securities class action lawsuit filed last May and amended late last year, which I’ve previously written about. The lawsuit alleges that Spirit laid off and retired a disproportionate number of experienced engineers and mechanics. It also alleges that mechanics were required to work 70 hours weeks and that safety auditors were pressured to file false reports.
There also were well known allegations of shoddy workmanship at Boeing’s South Carolina plant where the company’s Dreamliner aircraft is manufactured. The New York Times in 2019 reported that workers had filed nearly a dozen whistleblower claims and safety complaints with federal regulators, describing issues like defective manufacturing, debris left on planes and pressure to not report violations. Other employees sued Boeing, saying they were retaliated against for flagging manufacturing mistakes.
Despite all the quality control warnings well documented in the class action lawsuit and the New York Times, Boeing’s board did nothing, and the FAA did nothing, possibly because it knew virtually nothing. The FAA relied on Boeing’s “honor” to manage the agency’s certification inspections.
Calhoun has already received some $60 million in cash and stock options for his first three years on the job, and his BFF Boeing directors possibly will reward him with a lucrative severance package to cushion his disgrace. Dennis Muilenberg, Calhoun’s CEO predecessor who joined Boeing as an intern, was forced to forfeit $14.2 million in stock after he was made the fall person for the problems responsible for the 737 MAX crashes that killed 346 people.
Muilenberg at least had the educational bona fides to oversee Boeing, having earned an undergraduate degree in aerospace engineering and a master’s in aeronautics and astronautics. Underscoring Calhoun’s arrogance, after he was named CEO, he publicly trashed Muilenberg, despite defending his predecessor when serving as Boeing’s chairman.
In an interview with the New York Times, Calhoun criticized Muilenburg for boosting production rates to a level that compromised plane safety. “Boards are invested in their CEOs until they’re not,” Calhoun said. “We had a backup plan. I am the backup plan.”
It’s my belief the Muilenberg put profits ahead of safety because of pressure from board members like Calhoun. In any case, Boeing experienced further deterioration under Calhoun’s watch.
One doesn’t need a Harvard Business degree to appreciate that the cancer that’s plagued Boeing for years has metastasized and spread throughout the corporation’s lymph nodes. It would take an even competent CEO years to identify and understand the extent of Boeing’s problems, let alone fix them. What’s certain is that Boeing’s entire management under Calhoun must be put under careful review.
Calhoun in recent weeks has been talking up a storm about how safety is Boeing’s primary concern and focus. Yet the company recently named Uma Amuluru, a former top lawyer in the Obama White House and currently chief counsel at Boeing’s defense and space division, as head of HR. The Seattle Times reported that when Amuluru previously served as Boeing’s top ethics officer, an internal whistleblower raised engineering safety issues and was confronted with a room full of lawyers quizzing him about his allegations, rather than fellow engineers focused on the technical details.
The unidentified whistleblower said he did not suffer retaliation but his efforts to shed light on the problem went nowhere and his career stalled. Amuluru doesn’t strike me as an appropriate choice to foster the culture of accountability Boeing so desperately needs.
In another example that Boeing under Calhoun isn’t serious about fostering a culture of transparency, after it was recently reported that whistleblower John Barnett was found dead in a hotel parking lot supposedly after blowing his brains out, Boeing had the audacity to issue a statement saying, “We are saddened by Mr. Barnett’s passing, and our thoughts are with his family and friends.”
If Boeing’s thoughts were truly with Barnett’s family and friends, the company would have settled the lawsuit Barnett pursued for seven years alleging Boeing retaliated against him for calling out safety issues. That would have signaled to remaining Boeing employees with integrity that they would no longer be punished for sounding the alarm about “quality escapes.”
For the record, Barnett’s lawyers, family, and friends don’t believe he committed suicide. Veteran Fortune writer Shawn Tully wrote a moving profile of Barnett and his case against Boeing.
Although it was once thought impossible, Europe’s Airbus has eclipsed Boeing as the premier manufacturer of commercial planes, particularly in the narrow body category that now comprises three-quarters of the global aircraft market. Airbus has the financial wherewithal to further clobber Boeing. Bloomberg reported that Airbus spends 44% more on R&D than Boeing and has a cash surplus of $15.5 billion, while Boeing has more than $38 billion in net debt.
In yet another sign of the cluelessness of Calhoun’s management team, Boeing CFO Brian West, who works out of an office in Connecticut five minutes from his home where a Wall Street Journal reporter found him on a midsummer morning parading around in shorts, a polo shirt, and slip-on shoes, told a recent investor conference that Boeing was still committed to generating its promised $10 billion long term (free cash flow) target.
“That’s not the right mentality right now,” said Brooke Sutherland, author of Bloomberg’s Industrial Strength Newsletter.
Saving Boeing, assuming it can be saved, will be a formidable task, but it’s going to require some government oversight and funding to pull it off. In addition to being America’s biggest exporter, Boeing manufactures military aircraft critical to America’s national security. The U.S. government has great powers when it comes to national security under the Defense Production Act, which gives the president significant emergency authority to control domestic industries.
The first step is to appoint an independent safety oversight board with a mandate to identify all of Boeing’s deeply embedded safety problems and empowered to order the necessary fixes. A fitting person to oversee the panel would be Jennifer Homendy, chair of the National Transportation Safety Board, who increasingly impresses me as a no-nonsense public servant unwavering in her commitment to ensure a safe transportation system and go up against powerful corporate interests. Homendy sounded the alarm about the dangers of GM’s and Ford’s electric trucks and SUVs.
Calhoun should be fired for cause immediately, particularly since he’s postured that he simply was looking to retire. A possible interim replacement could be Patrick Shanahan, who worked at Boeing for three decades before being named CEO of Spirit AeroSystems last fall and inherited, rather than caused, the company’s problems. While I instinctively would argue for a CEO with no previous Boeing ties, Richard Aboulafia, managing director of the consultancy AeroDynamic Advisory, told Barron’s that Shanahan would be a “brilliant choice.” Aboulafia has been at the forefront calling for Calhoun’s removal, so he has a lot of credibility.
Shanahan has a master’s degree in mechanical engineering and an MBA from MIT. The Biden Administration might be reluctant to name Shanahan because he served as Deputy Defense Secretary in the Trump Administration.
Boeing’s future CEO must be one focused on growing the company long term, rather than catering to the capricious short-term whims of Wall Street. The company likely will need some U.S. taxpayer funding, but no monies should be advanced until the company has a solid safety footing and a competent and responsible management and board. It goes without saying that Boeing’s days of squandering R&D funds on generous dividends and costly stock buybacks are over.
Boeing is a company too important to fail. Americans should be alarmed that a company once a symbol of U.S. engineering and manufacturing prowess was allowed to decline so precipitously because of Wall Street myopia and CEO greed.
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A shout out to John Oliver and his writers for their insightful analysis of Boeing’s problems, a segment that made me laugh about a situation that isn’t funny. A brilliant piece of journalism and deft use of comedy to explain a complicated business story. Worth watching!