Boeing Loses Patience With Muilenburg, But Calhoun May Be No More Than A Short-Term Fix As CEO

Amid mounting criticism over CEO Dennis Muilenburg’s handling of the 737 MAX crisis, Boeing on Monday said that he would be replaced by chairman and longtime board member David Calhoun.

While Calhoun may do a better public relations job than Muilenburg, some observers questioned whether he represents a real change in direction for the embattled company.

CFO Greg Smith will serve as interim CEO until Jan. 13 while Calhoun exits non-Boeing commitments.

“The Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders,” the company said in a statement.

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The move comes nine months after global aviation safety regulators grounded the 737 MAX, Boeing’s best-selling plane, after the second of two deadly crashes. Muilenburg has been faulted for a leaden public response to the crisis, angering the families of the deceased, lawmakers and members of the public with his reluctance to acknowledge that faults with the plane’s flight control system were responsible for the crashes, which killed 346.

Under Muilenburg’s leadership, Boeing repeatedly promised airlines and investors that it was near winning approval for fixes for the flight control system and other changes that would allow the plane to return to service.

Two weeks ago, Muilenburg was upbraided by FAA Administrator Stephen Dickson, who summoned Boeing’s CEO to a meeting in Washington to address concerns that the company was attempting to publicly pressure the agency to move more quickly.

Last week, Boeing announced it would halt 737 production in January, with roughly 400 planes in storage that it had produced since March that it has been unable to deliver to customers.

Calhoun is well-respected, having spent 26 years as an executive at Jack Welch-era General Electric, including a stint running the aircraft engines unit, and he helped guide Caterpillar through a delicate time recently as chairman of the board when the heavy machinery maker was under investigation by the IRS over its accounting and facing troubles in China.

A much more comfortable speaker, Calhoun should be a more effective face for the company than Muilenburg with Congress and the public, and help improve its strained relationship with airlines and the FAA.

While that might be a solution for Boeing’s short-term problems, Richard Aboulafia, an aerospace analyst with Teal Group, cautions that Calhoun’s recent experience doesn’t lend confidence that he has the skills Boeing needs long-term. Calhoun has spent the past five years in private equity as a managing director at Blackstone Group, and before that eight years as head of the market research firm Nielsen. “[It] is perhaps the wrong toolkit for an engineering company that needs to restore its capabilities and reputation,” he says.

Given that Calhoun has been on Boeing’s board since 2009, it’s questionable whether he can offer a fresh approach, analyst Ronald Epstein of Bank of America/Merrill Lynch wrote in a client note. “We wonder if appointing from within, especially an insider that has been with the company for 10 years, signals more of the same from Boeing vs. an outside appointee who may have offered more of a change of pace and culture.”

Calhoun, who was appointed chairman in October when the title was stripped from Muilenburg, will be replaced as chairman by Lawrence Kellner, a board member since 2011 who was CEO of Continental Airlines from 2004 through 2009.

Boeing has a mandatory retirement age of 65 and Calhoun is 62. While the board could be amenable to giving Calhoun an extension, CFO Smith may be in position to take the job eventually, says Jeffrey Sonnenfeld, a professor at the Yale School of Management. “This gives him runway to be an appropriate successor.”

Boeing shares rose 2.9% to close at $337.55 on Monday on the New York Stock Exchange.

It’s an abrupt end for Muilenburg, who spent his entire 34-year career at Boeing, starting as an intern and rising to run the defense division before he was tapped to become CEO in 2015.

Until this spring, Boeing seemed to be going from strength to strength on Muilenburg’s watch, riding a boom in aircraft orders amid a historic expansion in air travel. Like his predecessors Jim McNerney and Harry Stonecipher, Muilenburg rewarded shareholders handsomely, devoting roughly 95% of operating cash flow to the company’s steadily rising dividend and share buybacks. Boeing shares climbed fourfold from February 2016 to a peak of $446 at the beginning of March, compared with a 63% rise for the Dow industrials over the same period.

However, critics have charged that the focus on financials has served to erode the primacy that engineering concerns used to have at the company.

The seeds of the 737 MAX crisis were sown well before Muilenburg was involved with the commercial airplanes division, with the decision in 2011 by Boeing to develop an updated version of the aging 737 with larger, more efficient engines rather than build an all-new single-aisle plane. Those larger engines changed how the 737 handled, prompting Boeing to develop software called the maneuvering characteristics augmentation system (MCAS) to automatically push the plane’s nose down in certain situations. MCAS’ design flaws are believed to be primary causes of the two deadly crashes in Indonesia and Ethiopia.

However, Boeing’s response to the crisis has been seen as squarely Muilenburg’s responsibility. He came under fire for public statements that were seen as scripted, lawyerly and lacking in empathy for the families of the deceased. Airlines and regulators have accused Boeing of being slow to share information, including the fact that the company knew in 2017 that an alert wasn’t working on most MAX aircraft that was intended to warn of a disagreement between the plane’s angle of attack sensors, which played a key role in the crashes.

It’s indicative of a corporate identity that under Muilenburg’s leadership “has been less than humble,” analyst Robert Stallard of Vertical Research wrote in a client note Monday, pointing also to the decision to raise production of the 787 Dreamliner to 14 planes a month, which has been walked back, and a strategy that seemed to assume that the historic boom-bust pattern of the aerospace sector is a thing of the past.

Muilenburg was widely seen as on his way out, with the ideal scenario being that he would depart sometime after the 737 MAX had returned to service. But with commentators increasingly calling for Muilenburg’s head last week following the announcement that the company would idle 737 production, the company suffered a stinging embarrassment Friday when a test launch of its Starliner space capsule went awry. Because a timer was set incorrectly, it was unable to reach an orbit to rendezvous as planned with the International Space Station.

The union representing Boeing engineers welcomed the leadership transition, saying in a statement that under Muilenburg, the company’s reputation for quality had “been unquestionably tarnished.”

Michael Stumo, who has become a prominent critic of Boeing since his daughter Samya Stumo’s death in the Ethiopia crash, said, “Mr. Muilenburg’s resignation is a good first step toward restoring Boeing to a company that focuses on safety and innovation.” He called for “underperforming or underqualified” board members to resign as well.

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CNBC’s Phil LeBeau reports that Boeing’s board removed CEO Dennis Muilenburg as chairman so he can focus on running the company after the 737 Max crisis.

 

 

Airplane Deicing: The How & Why

If you’ve traveled by air in wintry weather, you’ve probably looked out your window before takeoff and seen vehicles circling the plane, spraying deicing fluid on the wings. Passengers often ask me why it’s so important to make sure the aircraft is free of snow and ice accumulation.

Not just removing, but also preventing a build-up of snow and ice on the wings and tail of an airplane is crucial for a safe take-off. A plane’s wings and rear tail component are engineered with a very specific shape in order to provide proper lift for flight. Snow and ice on these areas in essence changes their shape and disrupts the airflow across the surface, hindering the ability to create lift.

Whenever snow, ice, or even frost has accumulated on the aircraft, the pilots call on the airport deicing facility to have it removed. Deicing fluid, a mixture of a chemical called glycol and water, is generally heated and sprayed under pressure to remove ice and snow on the aircraft.

While it removes ice and snow, deicing fluid has a limited ability to prevent further ice from forming. If winter precipitation is falling, such as snow, freezing rain or sleet, further action needs to be taken to prevent ice from forming again on the aircraft before takeoff.

In these cases, anti-icing fluid is applied after the deicing process is complete. This fluid is of a higher concentration of glycol than deicing fluid. It has a freezing point well below 32 degrees Fahrenheit or zero Celsius and therefore is able to prevent the precipitation that falls into it from freezing on the plane’s surface.

Anti-icing fluid also has an additive that thickens it more than deicing fluid to help it adhere to aircraft surfaces as it speeds down the runway during takeoff.

Pilots temporarily disable the aircraft’s ventilation system during the deicing/anti-icing process to prevent fluid fumes from entering the cabin. Although the fumes are considered nontoxic for inhalation, we try to keep the odor out of the cabin regardless. Sometimes the scent, similar to maple syrup, does find its way into the aircraft cabin.

As the anti-icing fluids lose their effectiveness in flight, the aircraft is still equipped with systems that prevent frozen precipitation from building on the wings, tail and various sensors around the airplane. These systems are not only important in the winter months, but also in the summer months, because at higher altitudes, the temperature is well below freezing year-round.

Typically aircraft systems prevent ice buildup in one of two ways. On most jet aircraft, hot air from the engines is routed through piping in the wings, tail and engine openings to heat their surfaces and prevent icing.

Preventing ice formation in the engine openings is important, as ice here could dislodge and cause damage as it’s ingested into the engine. This occurrence would be similar to throwing a rock into a running washing machine — clearly not a good idea.

On propeller driven aircraft, balloon-like devices attached to the wings and tail are inflated and deflated with air from the engines, breaking up any ice accumulation.

We can’t promise your trip to the airport will be ice-free, but there won’t be any icy buildup on the plane getting you to your holiday destination.

By Daniel E. Fahl

Source: Airplane deicing: The how and why

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A snowstorm left snow piled on top of this Norwegian 737-800 bound for Copenhagen, Denmark from Oslo, Norway. The video features pushback, taxi, de-ice, and takeoff. It’s certainly not something you see everyday. Enjoy! Please LIKE & SUBSCRIBE to support my channel!

Boeing May Have To Cut 737 MAX Production Again

With the timeline for ending the grounding of the 737 MAX pushed further out, the potential that Boeing will reduce the production rate of its flagship plane has risen, analysts say.

The company is beginning to show the financial strain of the crisis, announcing Thursday that it would take a $4.9 billion charge in its second-quarter earnings to cover compensation to buyers of the plane, who have been forced to wait for delivery as Boeing works with aviation safety regulators to fix the problems that led to two deadly crashes that killed 346 people.

In April, Boeing dropped 737 output from 52 planes a month to 42, but that production still comes at a considerable cost that isn’t being matched by incoming revenue. Boeing typically only collects 1% to 5% of the purchase price of the plane as a down payment, with the final 50% due on delivery and the balance coming in payments as the delivery date approaches. Boeing also said Thursday that the smaller production runs had raised production costs for the program by $1.7 billion. Meanwhile, undelivered planes are stacking up in temporary storage, presenting Boeing with logistical and maintenance headaches.

“I’d be very surprised if there weren’t another rate cut ahead,” says Richard Aboulafia, an aerospace analyst with the Teal Group. “Probably down to 36 or so.”

Boeing kept the 737 production line fully staffed after its April rate cut, but furloughs would be a possibility this time, he says.

There may be signs of a pending slowdown already in the supply chain. Chris Olin of Longbow Research said in a note Thursday that small aerospace parts suppliers his firm canvasses reported a sharp drop in orders in July. That’s “seen by some high-level executives as a leading indicator for additional [737] production cuts” in the second half, Olin wrote.

General Electric and France’s Safran, which produce the plane’s LEAP-1B engine through a joint venture, could decide to lower LEAP production independently for 2020, Olin says. He downgraded his rating of the shares of the specialty metals producers Arconic and Allegheny Technologies to neutral over uncertainty in demand ahead.

Kevin Michaels, managing director of AeroDynamic Advisory, sees a “30% to 40%” chance of a rate cut if the 737 MAX’s return to service slips to December or January. “It would be modest because it needs to keep the supply chain warm,” says Michaels. “Perhaps something like 36.”

Boeing has given no indication that a slowdown is in the offing. In the announcement of its $4.9 billion charge, the company said it was planning to gradually raise production from 42 planes a month to 57 in 2020.

In May, it was thought that Boeing was on track to receive approval from the U.S. Federal Aviation Administration to end the grounding of the 737 MAX by late June, but the timeline has slipped amid an exhaustive review of the safety of the plane that has turned up new areas of concern. Late last month, FAA test pilots discovered a data processing problem in the plane’s flight control computer that could occur in the event of a microprocessor failure, which Boeing is hoping to address through a software modification.

Boeing said Thursday it’s assuming that it will receive regulatory approval by early in the fourth quarter for its fixes for that issue and the MCAS flight control program implicated in the two crashes. Speculation had risen earlier in the month that return to service could be delayed to early 2020.

Over the past week, American Airlines, United and Southwest scrubbed the 737 MAX from their schedules through early November.

Airbus could be poised to benefit if Boeing reduces 737 production again, Olin believes. That would open up production capacity in the supply chain that could help Airbus ramp up production of the competing A320neo to 70 a month.

The 737 MAX is the linchpin of Boeing’s commercial aircraft business, with a backlog of 4,547 orders. With the order book dwindling for the 737 NG, it can’t sustain the 737 line on that alone. Boeing only delivered 24 in the second quarter, and it lists just 49 outstanding orders for the 737-800 and 737-800A, and five for business jet versions.

Boeing shares rose 4.5% to close the week at $377.36, with investors apparently happy that the company provided concrete numbers on the extent of the financial damage from the MAX crisis. Boeing shares have fallen 11% since the crash of Ethiopian Airlines Flight 302 on March 10, but the stock is still up 16.5% on the year.

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Source: Boeing May Have To Cut 737 MAX Production Again

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