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Despite Record Orders, Boeing’s McNerney Could Be Ejected

Dow LeaderboardThe story of James McNerney’s hitch as captain of Boeing (NYSE:BA), the $65 billion Chicago-based aerospace and defense giant, is a tale of two Boeings. In the five years McNerney has been at the controls, the 95-year-old company has experienced the best of times. Consider the record-setting recent aircraft orders from Southwest (NYSE:LUV) and Dubai-based Emirates Airlines and Indonesia’s Lion Air as well as a contract win on the U.S. Air Force’s KC-46A tanker and an order on Thursday for 27 new 767-300 Freighters from FedEx (NYSE:FDX) worth more than $4 billion.

It doesn’t hurt McNerney’s reputation that Boeing on Monday announced a 5% dividend increase — the company’s first since 2008. And the stock has recovered 26% of its value and currently is trading in the $70 range.

But McNerney’s Boeing has flown through the worst of times, too — including massive, reputation-bruising delays on the 787 Dreamliner and super-jumbo 747-8 aircraft, which combined with the specter of defense cuts cost BA’s stock 30% of its value between May and August. And the delays are continuing.

After Boeing delivered its first 787 to All Nippon Airways in September — 40 months behind schedule — investors thought Boeing had put all the delivery snafus behind it. But storm clouds are gathering: The Japanese carrier said on Thursday production delays have held up delivery of the airline’s third 787 and while it expects that jet to be delivered next month, the delay is costly. A spokeswoman said the delay will disrupt ANA’s planned launch of the 787 on international routes. ANA added that it now has no firm delivery schedule for the additional 10 planes it had expected to receive by March.

Boeing also got a PR black eye in September when it was forced to cancel a celebration with Luxembourg-based Cargolux for delivery of the 747-8 Freighter. Delivery of the first 747-8 Intercontinental, which was in Europe this week in advance of EU flight certification, also has been delayed from this month to the first quarter of next year.

Although Boeing did win a 200-plane order from American Airlines parent AMR (NYSE:AMR), the previously all-Boeing customer bought 260 aircraft from rival Airbus’ parent EADS, too. Fumbles like these are why some investors are running out of patience with Boeing — and why McNerney may be running out of time.

McNerney came aboard in mid-2005, as Boeing was reeling from a pair of scandals. CEO Phil Condit resigned — and CFO Mike Sears was fired — over a 2003 Pentagon corruption case concerning the Air Force’s KC-767 tanker-leasing contract. Then Condit’s successor, Harry Stonecipher, resigned over a romantic relationship with a subordinate.

The logical successor to Stonecipher would have been then-Boeing Commercial Airplanes chief Alan Mulally, who since then has been responsible for the Phoenix-like rise of Ford (NYSE:F). But reportedly a “deep divide” grew between Mulally and Stonecipher, who had come out of retirement to provide a steady hand on Boeing’s rudder after the corruption scandal. Before Stonecipher’s affair forced his own resignation, he told author John Newhouse that he’d considered firing Mulally and had received the Boeing board’s permission to do so.

Enter McNerney, an outsider who had been CEO of 3M (NYSE:MMM) and GE’s (NYSE:GE) Aircraft Engines unit. While he was welcomed as a healthy change after the scandals, his flight logs reveal a leader often seemingly out of his depth.

The 787 suffered three years of delays, including a strategic misstep in outsourcing too much of the plane’s components. Labor relations have also been contentious, including a two-month Machinists’ union strike that wreaked havoc with production. The political fracas over Boeing’s new 787 plant in South Carolina, which raised the ire of unions and prompted the National Labor Relations Board to sue the company for illegal retaliation against its unions, also happened on McNerney’s watch.

In aircraft manufacturing, “The devil is in the details.” McNerney’s detractors have questioned his ability to execute those details effectively, and some wonder whether it’s time for a change. In August, DailyFinance labeled McNerney as one of nine CEOs that “need to be fired,” citing late delivery of its most important products, the loss of sales to rival Airbus and stock that has underperformed the S&P 500 for the past five years.

In the wake of the headwinds that have buffeted Boeing on McNearney’s watch, there’s talk that his replacement should be Ford’s turnaround architect, Alan Mulally. It would be Mulally’s dream job — he designed most of Boeing’s current fleet, is still a huge plane junkie (he was on hand for the Dreamliner’s first test flight) — and there’s even a website dedicated to his return.

Still, don’t ground McNerney just yet. The unions have inked a labor deal with Boeing, and the NLRB has dropped its suit. And Boeing is still selling planes. Witness the latest deal with FedEx.

But the company is still looking outside for inspiration. With the retirement of CFO Mike Bell this week, Boeing has brought on Raytheon’s (NYSE:RTN) investor relations VP, Greg Smith. If Mulally’s rooters have their way, perhaps Boeing’s next outside hire will be the biggest insider of them all.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Article printed from InvestorPlace Media, https://investorplace.com/2011/12/boeing-mcnerney-ceo-succession-mulally/.

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