Ousting Boeing’s chief executive officer was just one of the steps the beleaguered American manufacturer had to take as it continues to deal with the fallout of the 737 Max aircraft crisis, analysts said.
But industry observers say it could be years before the company starts to significantly recover financially.
“I think it’s a good first step,” said Paul Argenti, a professor at the Tuck School of Business at Dartmouth College in New Hampshire. “I think it is a very long term process … to try to dig its way out of its hole.”
On Monday, Boeing’s board of directors forced out chief executive officer Dennis Muilenburg, saying they needed to restore confidence in the company as it works to repair relationships with regulators and stakeholders following two deadly crashes.
“They should have gotten rid of the CEO when it was really clear that management was not as adept at dealing with the crisis as they should have been,” Argenti said.
737 Max grounded in March
The company has announced that in January it will suspend production of the 737 Max, which was grounded worldwide back in March after the second of two crashes that killed a combined total of 346 people.
Investigators said that in both crashes a faulty sensor caused the aircraft’s MCAS system to push the nose of the plane down and pilots were unable to regain control.
Some have criticized Muilenburg’s leadership after the disasters, blaming Boeing for allowing the 737 Max to stay in service after the first crash.
“Getting rid of [the CEO] is a good way of saying, ‘OK, we get it. We need to have new leadership and move in a different direction,'” Argenti said.
“But you’re looking at five to 10 years of misery. Maybe in a couple of years things will start to look better, but it’s really five years before financially you start to get back.”
Boeing faces financial pressures as it continues to produce 737 Max jets at a rate of 42 per month and purchase parts from suppliers at up to 52 units per month, even though deliveries are frozen until regulators approve the aircraft to fly commercially again.
Last Friday, more problems hit the company as Boeing’s new Starliner space capsule went off course on a planned trip to the International Space Station, heading into the wrong orbit due to a timing error.
Meanwhile, the firm’s stock price has fallen more than 20 per cent over the past nine months, erasing billions in market capitalization; orders for planes are down; and for its third quarter, Boeing reported a 53 per cent drop in quarterly profit.
Changing the CEO following crises is certainly a way to signal to shareholders, stakeholders and customers that the company is taking the issues seriously, said Tim Hubbard, an assistant professor of management and organization at the Mendoza College of Business at the University of Notre Dame.
Studies show that chief executive officers typically account for about 20 per cent of the variance in a firm’s performance, he said.
Changing the culture of a corporation can take approximately five years or so, and removing the CEO is one of those “big events in which the company can actually change the trajectory in a faster way,” Hubbard said.
But if too many Boeing employees are set in their ways, specifically regarding safety and innovation, “then it’s going to be a long time until they’re able to actually turn things around,” he said.
Finding new CEO challenging
While board chair David Calhoun will take over as CEO on Jan. 13. finding a permanent replacement will be challenging, Argenti said.
“Someone who could really pull this company out from under is going to be an extraordinary human being.”
Ian Lee, an associate professor at the Sprott School of Business at Carleton University, said Boeing needs to recruit a “really, really strong CEO who is going to transform the culture at the top.”
He said the new CEO will likely purge many senior managers.
“Large numbers of people will be fired ultimately,” Lee said. “But it will be part of the regeneration and transformation process. And it will transform the corporate culture.“
‘They have to survive’
Still, all these changes, including bringing in new aircraft safeguards, will cost the company billions of dollars, Lee said.
“They will be looking at every aspect of their processes that led to the premature release of that plane and the software to the market,” he said. “I do believe I’m talking years from now, because this is going to be a very slow process.”
However, both Lee and Argenti said despite its problems, Boeing’s future is secure.
“It’s a necessary organization,” Argenti said.
“If it were a retail store, there’s another one that could pop up. But this is a company that the barriers to entry of creating another Boeing are virtually impossible,” he said. “They have to survive.”