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The replacement of Boeing Chief Executive Dennis Muilenburg is the right decision, coming after the aerospace company’s botched handling of the disasters involving its 737 Max aircraft, analysts said Monday.
Vertical Research Partners’ analyst Robert Stallard said the Chicago-based company BA, +2.91% has made the right call, even if Muilenburg is not personally to blame for the two crashes that killed 346 people and caused the fleet to be grounded.
“He is responsible for what Boeing has said and done in reaction to the two tragic fatal accidents,” Stallard wrote in a note to clients on Monday. “ This response has arguably come from a corporate identity that under his leadership has been less than humble.”
Muilenburg, whom Stallard described as a “Boeing lifer and raging ball of confidence and energy,” helped the stock price double in 2017 amid strong cash-flow generation, he wrote. “Boeing reigned supreme, exerting its influence on suppliers, customers, politicians, investors and (least of all) sell side analysts,” said the note.
See also: China threatens to reduce Boeing orders, but analyst says options are limited
However, the executive was also behind recent decisions such as raising the 787 production rate to 14 per month and underbidding on fixed-price development contracts in the company’s defense business, said the analyst.
See also: Boeing faces a 46% drop in quarterly profit
“We don’t think it is controversial to suggest that Boeing’s Max response has been a failure — and as a result we think it is wholly appropriate for the Board to replace Muilenburg as the CEO of the company,” said the note.
Ronn Torossian, crisis expert and chief executive of the public-relations agency 5WPR, said Boeing needs to act swiftly to regain the confidence of travelers and the broader aviation industry. “Boeing needs to commit to efforts to rebuild consumer trust, as well as customer trust abroad,” Torossian wrote in emailed comments.
With Airbus making strides in the international market, Boeing can’t afford to foster doubt among either consumers or the public market, he said.
Boeing named its chairman, David Calhoun, as CEO effective Jan. 13. Chief Financial Officer Greg Smith was named to fill the role on an interim basis. Boeing said its new leadership will bring “renewed commitment to transparency and better commitment with regulators and customers in safely returning the 737 Max to service.”
The news comes after Muilenburg reportedly clashed with the Federal Aviation Administration by pressuring officials to allow the fleet to return to service. The company needs to fix an automated software system known as MCAS, which was found to have played a role in both of the fatal crashes. The worldwide fleet has been grounded since March, creating challenges for Boeing’s airline customers, which have been forced to change schedules and cut flights.
Last week, Boeing said it would halt Max production in January.
For more, see: Boeing’s 737 Max production halt drags suppliers down, fans fears of downturn
Read: Boeing’s Starliner capsule returns to Earth after aborted mission to space station
Vertical’s Stallard said Calhoun, who was highly regarded in his role as head of infrastructure at General Electric Co. GE, +0.77% , leaving that company in 2006, is unlikely to remain at the helm of Boeing for long. Calhoun is 62 and has had a lengthy career in U.S. business, he wrote.
“We agree with equity investors that have sent the stock up about 3% today that his appointment is good news, but not revolutionary,” the analyst wrote. “Whilst Boeing’s fortunes are currently low, it remains one part of a dominant aero [original equipment manufacturer] duopoly, and we recommend Buying the dip here for the long term.”
Boeing shares have gained 4% in 2019, while the iShares U.S. Aerospace & Defense ETF ITA, +1.29% has risen 31%.
The Dow Jones Industrial Average DJIA, +0.39% , which counts Boeing a member, has gained 22% and the S&P 500 SPX, +0.13% has ascended by 28%.
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