Boeing: Management Shakeup May Foster More Change—No Simple Task

Key Morningstar Metrics for Boeing

• Fair Value Estimate: $219.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

We greet news of the management shakeup at Boeing with resigned exhaustion. While the changes do not alter our $219 fair value estimate, new leadership will likely increase the probability that the firm can dig itself out of its mess and deliver high-quality planes on schedule again.

We see the resignation of CEO David Calhoun, effective at the end of 2024, and the immediate retirement of Stan Deal, who headed Boeing’s now-beleaguered commercial airplanes unit since 2019, as ultimately necessary to clear a path forward. For key stakeholders—including customers, investors, directors, and likely the machinists’ union—they became too closely associated with the successive manufacturing flaws seen in the 737 MAX and 787 lineups since 2019 for their leadership to survive.

Whoever replaces Deal as head of the commercial business has a tough road ahead. Until January 2024, Stephanie Pope ran Boeing’s aircraft services business, which consistently printed double-digit profit margins while other units faltered. However, delivering consistent profits is not the skillset most immediately needed at the top of Boeing. The new head will have to work with the many teams that build the planes, the regulators and customers who verify that the company follows its prescribed safety and quality procedures, and eventually Boeing’s many suppliers to reliably ramp up production to flawlessly deliver hundreds of back-ordered jets.

When Pope was named COO in January, many interpreted this as commensurate to being named the CEO heir apparent. While such a promotion may still be in the cards, in our view, Pope has some nine months to instill meaningful behavioral changes in the commercial aircraft unit that eluded her predecessors for nearly five years.