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Boeing needs "drastic cultural overhaul," analyst says

Boeing will once again reset its leadership in the wake of safety issues.

Why it matters: The company "is in need of drastic cultural overhaul," Ron Epstein, senior aerospace and defense analyst at BofA Securities, writes in a note today.


Catch up quick: CEO Dave Calhoun will exit at year-end. The head of the company's commercial airplanes unit, Stan Deal, is out immediately. And board chair Larry Kellner will not seek re-election.

  • The company's shares reacted positively today, closing up 1.4%.

The big picture: The changes are the culmination of mounting frustrations with the U.S. plane manufacturer from regulators, customers and the public, which were reignited after a door plug blew out during an Alaska Airlines flight earlier in the year.

  • Boeing's "priorities have been on production and not on safety and quality," FAA administrator Mike Whitaker told NBC News last week after he recently visited a Boeing factory floor.
  • In response, Calhoun told CNBC this morning that the company has to "get that in way more balance, without a doubt."

Flashback: The roots of Boeing's crisis dates back to the company's merger with McDonnell Douglas Corp. in 1997, FTC chair Lina Khan and United Airlines CEO Scott Kirby have noted, per Bloomberg.

  • The acquisition, lampooned by John Oliver on his show, not only led to the current duopoly in airplane manufacturing, but also ushered in a culture that focused on the bottom line over engineering.
Data: Yahoo Finance; Chart: Axios Visuals

What they're saying: "Why now? I've entered my fifth year. At the end of this year, I'll be close to 68-years-old," Calhoun told CNBC this morning. "And that's what this is about. It's me giving them notice that at the end of this year I plan to retire."

The intrigue: It's been "striking the degree to which Boeing has been reluctant to talk about this as a deep-rooted cultural problem," Brooke Sutherland, author of Bloomberg's Industrial Strength newsletter, noted.

  • The company's CFO recently said at an investor conference that "they're still not backing off that $10 billion long term [free cash flow] target. And I don't think that's the right mentality now," she added.

What we're watching: Boeing has three months to produce a plan to avoid manufacturing missteps, per an FAA mandate.

  • But it's unclear how the company will be held accountable to its commitments, Sutherland writes.
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