Pulling Boeing Out Of A Tailspin
The sad saga of Boeing Co. (BA ) goes much deeper than current Pentagon scandals over stolen documents and allegations of improper conduct. Before he was forced to resign by the board of directors, Chairman Philip M. Condit presided over a long series of mistakes, manipulations, and controversies in manufacturing, accounting, acquisitions, and strategy that went unchallenged and unchecked by Boeing's board of directors. A national treasure, once No. 1 in commercial aviation, Boeing has become a risk-averse company stumbling to compete in the marketplace and dependent on political connections and chicanery to get government contracts. Boeing needs a strong board and a rejuvenated corporate culture based on innovation and competitiveness, not crony capitalism.
Boeing's troubles began when Condit used opaque accounting methods to conceal a $2.6 billion cost overrun from shareholders for months while his merger with McDonnell Douglas Corp. went through (BW -- May 20, 2002). Condit's move into space went awry when he overpaid for Hughes Space & Communications Co. and Jeppesen Sanderson Inc. That led to a $1.3 billion write-down.
Condit's expansion in defense, though wise strategically, proved problematic as well. In July, the Pentagon punished Boeing for possessing stolen documents from Lockheed Martin Corp. (LMT ) after it won rocket-launching contracts. Then CFO Michael M. Sears was ousted over allegations of improper conduct surrounding a deal for 100 refueling planes. The $18 billion contract is on hold.
Perhaps the most grievous damage done by Condit has been to Boeing's culture. A company that pioneered commercial jets can't compete against Airbus' more efficient planes. Condit didn't think Airbus would build its huge, double-decked, 555-seat A380. When it did, he couldn't commit to a response. Innovative new jets, such as the Sonic Cruiser were proposed, but nothing happened. Boeing is still debating whether to build the 7e7 jet, an efficient, 200-seat point-to-point aircraft.
Harry C. Stonecipher is replacing Condit. The 67-year-old, known for his operations acumen and bluntness, may be the right interim CEO, but he comes with baggage. He was CEO of McDonnell Douglas when it failed in commercial aviation and became mired in a lawsuit with the Pentagon. He joined Boeing after it merged with McDonnell Douglas and was president and chief operating officer under Condit. Stonecipher thus shares responsibility for Boeing's stock falling 6.5% under Condit, even as the Standard & Poor's 500-stock index rose 61.8%. What Boeing really needs is an outside chief executive that can take it back to first principles. It should start searching immediately.