Boeing Names Muilenburg COO to Line Up Cost-Cutting No. 2

Dennis Muilenburg, whose promotion yesterday put him in line to be Boeing Co. (BA)’s next chief executive officer, spent the last four years drafting strategy on the fly as U.S. budget cuts squeezed the $33 billion defense and space unit he headed.

Even as the constraints forced the 49-year-old to slash projects and jobs, he managed to win a lucrative contract for the U.S. Air Force’s aerial refueling tankers. He also found foreign customers for transport planes and fighter jets the Pentagon was no longer buying.

The deal-making was good training for Muilenburg, who starting Dec. 31 will work alongside CEO Jim McNerney to run the world’s largest planemaker. As president, chief operating officer and heir apparent, he’ll play a stepped-up role as Boeing upgrades its most profitable planes while seeking to avoid the pitfalls that marred the introduction of the 787.

“He’s got a well-earned reputation for being able to efficiently and profitably build aircraft at all stages of their lives and with wildly fluctuating market conditions,” said Richard Aboulafia, aerospace analyst with Teal Group, a Fairfax, Virginia-based consultant.

A 28-year Boeing veteran, Muilenburg could move into the top job by 2016, said Howard Rubel, an aerospace analyst with Jefferies LLC in New York.

Muilenburg managed Boeing’s defense and space unit through the era of Pentagon cost-cutting, shrinking operations to match falling revenue. The unit accounted for 36 percent of the Chicago-based company’s third-quarter sales, down from 49 percent for all of 2010. Commercial aircraft brought in 63 percent of the quarterly revenue.

‘Scary Competitive’

Muilenburg is known for being “scary competitive,” and tries to clock 100 miles a week on his bicycle, said Loren Thompson, a defense analyst and Boeing consultant who’s known Muilenburg since 2009. At work, Thompson said, he fuels himself with a steady supply of Diet Mountain Dew.

“If you meet him you will see how he got to the top at a young age,” Thompson said. “He’s always friendly, always courteous, but the intensity of his personality is a little unsettling.”

Muilenburg steps into the global operations role as Boeing faces major decisions on where to make the 777X, its first jet for the 2020s, and the future of a St. Louis production line that builds its F/A-18 Super Hornet and EA-18 Growler jets.

Fighter Snub

Boeing plans to decide by March whether to invest millions to continue production of the F/A-18, a call complicated by Brazil’s snub of the jet yesterday for Saab AB (SAABB) fighter, said Rubel, who rates Boeing a buy.

Over the next decade, Boeing will transition to new versions of its two most profitable planes, the 737 and the 777, while launching the third, and largest, 787 Dreamliner, a craft that still hasn’t broken even.

The company can’t afford to repeat the production stumbles that put the 787 more than three years behind schedule, and it probably won’t be able to count on a defense-contracting resurgence to provide a cushion, said George Ferguson, an aerospace analyst with Bloomberg Industries.

Aboulafia said Muilenburg “has a track record of keeping things profitable through thick and thin.”

Repairing Damage

Muilenburg helped provide a steady hand at the defense unit as it repaired damage to its Pentagon relations from a 2003 purchasing scandal that resulted in a jail terms for two company officials, Aboulafia said. Muilenburg helped shift focus from systems integration to Boeing’s manufacturing roots after the Pentagon canceled the $159 billion Future Combat Systems program that envisioned manned and unmanned fighting vehicles joined by a wireless network.

He also implemented a program called “market-based affordability,” which trimmed $3 billion from the division’s costs, said John Dern, a Boeing spokesman.

Boeing also promoted Ray Conner, 58, who heads its commercial aircraft business, to the role of vice chairman, giving him a greater say in companywide matters. Conner has led the airplane unit since June 2012 and will continue to be based in Seattle to oversee that business, the company said.

“Today’s promotions signal to us that Muilenburg is the anointed heir apparent -- though it could be a couple of years before he actually gets promoted to the top slot,” Robert Stallard, an analyst at RBC Capital Markets, said in a note to clients. “We think the major succession issue at Boeing is who will take Jim McNerney’s place whenever he retires, though we don’t think a departure is imminent.”

In his new role, he’s expected to work closely with Conner to share resources and learn the commercial aircraft business, said Rubel.

Succession Plan

Muilenburg will move to the Chicago headquarters from St. Louis. The promotions are part of Boeing’s efforts to create an orderly succession plan, Dern said.

“Jim McNerney has promised the board that he will have a range of viable options when it comes time for his retirement,” Dern said.

Although Boeing’s practice is for executives to retire at age 65, McNerney told reporters at the Paris Air Show in June he was considering staying longer.

“There are rules that are easily waived,” McNerney said. “I love my job. I’m having a good time.”

Boeing fell 0.5 percent to $134.80 at 11:27 a.m. in New York. The shares gained 80 percent this year through yesterday, as the Standard & Poor’s 500 Index rose 27 percent.

Boeing also named Christopher M. Chadwick executive vice president, president and CEO of Boeing Defense, Space & Security, replacing Muilenburg. Chadwick will remain based in St. Louis, where he’s now president of Boeing Military Aircraft.

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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