Muilenburg started as Boeing intern; now he’s CEO

Jim McNerney, the outsider who wrenchingly transformed Boeing into a bicoastal manufacturer while extracting major concessions from union members and state officials, will step down July 1 after a decade as CEO and hand the reins to Dennis Muilenburg, a 30-year company man who started as an engineering intern.

Muilenburg, 51, has been Boeing’s president, chief operating officer and vice chairman since 2013. That promotion, after four years as head of Boeing’s defense division in St. Louis, had made him the clear favorite to replace McNerney.

He “is quite respected in the industry and the investor community, although he’s not really familiar with the commercial side” of Boeing’s business, said aerospace analyst Richard Aboulafia of the Teal Group.

Despite working “almost exclusively on the defense side,” Muilenburg represents “a step in the right direction” because he comes from an engineering background, said Aboulafia.

McNerney, 65, will continue as Boeing’s chairman and will remain a company employee until February to ensure a smooth transition and to “continue advocating on issues important to Boeing’s U.S. and global customers, partners and stakeholders, including ongoing Washington, D.C., engagement,” the company said.

The largest union at Boeing, the Machinists, issued a brief statement that underscored the bitterness of its relationship with McNerney.

“CEOs come and CEOs go,” began the two-sentence note from District 751 President Jon Holden. It continued, “We welcome Boeing’s announcement that Dennis Muilenburg is taking over as CEO, and encourage him to invest in the workforce and recognize the value of each and every employee at the Boeing Co.”

Bill Dugovich, communications director for the Society of Professional Engineering Employees in Aerospace (SPEEA), said, “We haven’t met with Mr. Muilenburg … we’ll just have to wait and see.”

Muilenburg earned a bachelor’s degree in aerospace engineering from Iowa State University and a master’s in aeronautics and astronautics from the University of Washington, according to Boeing.

The defense business where he made his mark has shrunk in recent years as federal military spending was reined in, although it’s considered “a pretty well-run unit,” said Aboulafia.

It was Muilenburg’s “leadership characteristics” that apparently made him the candidate to succeed McNerney, said analyst Adam Pilarski of Avitas.

By becoming CEO of Boeing in his early 50s, “he has quite a few years to transform it in the ways he thinks are best,” Pilarski said.

It’s not clear what changes Muilenburg might pursue in Boeing’s leadership ranks, product lineup or labor practices. Because he’s played a low-key role as chief operating officer, said industry analyst Scott Hamilton of Leeham.net, little about his outlook on key issues has emerged.

“He really is an enigma to me and to the unions,” Hamilton said.

But some of the challenges ahead are clear.

Boeing still has as much as $30 billion in deferred production costs on the 787 Dreamliner, a hole that is projected to continue deepening until next year.

“Eventually you have to start producing planes at a profit, and that’s a big, big challenge,” said Pilarski.

There is also danger in the massive ramp-up of aircraft production planned by both Boeing and Airbus to meet the unprecedented orders they’ve piled up — nearly 12,000 between them even before this month’s Paris Air Show. Boeing has announced it will raise 737 production to 52 per month by 2018, while Airbus aims for 50 single-aisle planes a month by 2017.

“I’m one of the people who believes we may have a bubble, so he (Muilenburg) better start thinking what if it’s a bubble and you have to go down in production rather than up,” said Pilarski.

He added that even a Boeing CEO who shared that concern would “have to pretend” he’s planning to ramp up production or risk losing future orders to Airbus.

Hamilton said Muilenburg will also face important decisions on whether to continue production of the slow-selling 747 jumbo jet, and how to proceed on a “middle-of-the-market” jet that, beginning in 2025, might replace the discontinued 757 as a plane intermediate in size between the 737 single-aisle family and the 787.

On the defense side, said Aboulafia, the company’s future in combat aircraft will be decided by an upcoming Pentagon contract award for a major new stealth bomber. If a Boeing-Lockheed Martin partnership loses to Northrop Grumman, Boeing’s only option for staying in that business may be to buy the winner, he said.

McNerney legacy

Almost a year ago, McNerney told investment analysts he didn’t plan to retire upon turning 65 the following month because “the heart will still be beating, the employees will still be cowering.” That remark quickly drew outrage from Boeing employees, and McNerney apologized for it within days, calling it an inept joke.

McNerney, who will be 66 in August, was a disciple of longtime General Electric chief Jack Welch before leaving to run 3M. He is widely regarded as a financial disciplinarian who, despite running GE’s engine division, had less grounding in the airplane business than most of his Boeing predecessors.

At Boeing, he proved polarizing but stayed unscathed through the troubled rollout of the 787, and Tuesday’s announcement comes during a year when Boeing’s stock is at all-time highs.

He inherited the scheme of building major chunks of the 787 at outsourced plants in South Carolina. But, when those factories proved unreliable, he took control of them and turned the operation into a full-fledged second production site for Boeing’s most advanced twin-aisle jet.

The same playbook was used when it came time to choose a site for the company’s newest airliner, the 777X. Under McNerney’s guidance, Boeing threatened to take the plane elsewhere unless Machinists agreed to end the company’s pension contributions and the Legislature extended aerospace tax breaks for two more decades.

After sealing those deals and putting the 777X plants in Everett, Boeing surprised labor and government officials by revealing that several thousand engineering jobs would be moved to new sites in other states.

Aboulafia said McNerney’s handling of the unions risked losing valuable skills and crucial collaboration at a time when Boeing really needed them — “kind of a worst-case scenario from a labor-management perspective.”

“I can only think that any change will be for the better on that front, so that’s good news,” he said.

Pilarski said that when it comes to CEOs, “Obviously everyone wants Wall Street and investors to be happy.” But speaking of Muilenburg, he continued, “I don’t think his priority will be as strongly aligned with them as Jim’s is.”

Pay package

Muilenburg will receive a base salary of $1.6 million and target bonus of $2.7 million a year in his new post, Boeing said in a regulatory filing. In addition, he’ll get 18,709 restricted shares that vest in three years and are worth nearly $2.7 million at Boeing’s current stock price of $144.

As president and chief operating officer, Muilenburg had been earning $1.1 million annually and in 2014 received total compensation of nearly $7.3 million, Boeing reported in March.

The company said McNerney will be paid at an annual rate of $1.5 million until his retirement in February.

Boeing reported in March that McNerney’s total compensation for 2014 was nearly $29 million.

Boeing said Ray Conner, the president and CEO of its commercial-airplanes unit based in Seattle, will continue as vice chairman, a title he had shared with Muilenburg.