Can A New Crew Buoy Boeing?

Investors like the shuffle, but the problems are still serious

The management shakeup announced on Sept. 1 by Boeing Co. brings in a fresh team--but won't cure the company's ills overnight. After Boeing put new executives in charge of its major business units, including the troubled commercial-airplane group, its stock climbed nearly 7% on the news, to 33 1/16. But "no matter what you think of the new team, they face exactly the same problems," says Joseph F. Campbell Jr., an analyst at Lehman Brothers Inc.

The world's No.1 aerospace company has been beset by bad news for the past year. Cost overruns and production snafus contributed to a $178 million loss in 1997--the company's first in 50 years. And the economic crisis in Asia, a region responsible for one-third of Boeing's business, is slowing aircraft orders. Analysts don't expect a significant earnings recovery until 2000.

"IMPRESSED." On Aug. 30, Boeing's top brass struck back. CEO Philip M. Condit decided to push Ronald B. Woodard, 55, head of the commercial group, out of his job and shuffled managers across Boeing. Only a few months ago, Condit had vowed not to make Woodard a scapegoat. But unexpected cost overruns at the company's Wichita airplane plant were the final straw, say sources. The board approved the plan on Aug. 31. "It's about time," says Bill Whitlow, an investment manager for Safeco Northwest Fund, which holds 2 million Boeing shares.

The new president for commercial aircraft is Alan R. Mulally, 53, Condit's right-hand man in the development of the successful 777 aircraft and most recently head of Boeing's profitable defense and space unit. While Woodard was known as a master salesman with a sometimes imperious manner, Mulally is a gregarious manager with deep roots in engineering and production. The day after his promotion, he called Bill Johnson, district leader of the machinists union, to reassure him about the future. "I was impressed," Johnson says.

CHAOTIC SYSTEMS. Such goodwill could help him fix Boeing's nagging manufacturing problems. Even as the company aims to increase output to a record 51 planes per month by the first quarter of 1999, it has to cut millions from the cost of each plane to boost earnings. Net margins this year are expected to be a paltry 1.7%, projects analyst Peter Aseritis of Credit Suisse First Boston. He expects them to double, to 3.4%, next year, but that's still far below the 10% Wall Street thinks Boeing should command. Numbers like that have helped drive Boeing stock down 44% from its historic high of 60 1/2 in July, 1997.

A tougher challenge will be improving Boeing's chaotic information systems. The company's internal controls are so fouled up, say analysts, that Boeing has repeatedly misguided them about expected earnings. For now, that problem falls on Chief Operating Officer Harry C. Stonecipher, who is acting as chief financial officer until a replacement is found for Boyd E. Givan, who retired as CFO on Sept. 1.

The new team needs to build a track record. And Condit--whose job is probably on the line, according to analysts--"has bought himself another year," says a senior exec for a U.S. airline. If Mulally does well, he could save Condit--and some day even succeed him.

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