Search for Successor Continues at Boeing
As Harry Stonecipher presides over his first board meeting today as chief executive at Boeing Co., the talk on Wall Street and in aviation circles is already about who will replace him.
Stonecipher, the 67-year-old former Boeing president and CEO at McDonnell Douglas Corp., was called out of retirement two weeks ago to take the helm of the world’s largest aerospace company.
Facing stiff competition from archrival Airbus, the Boeing board today is expected to approve the marketing of a new 250-seat passenger jet, the 7E7, to airlines. Most analysts believe Boeing has no choice but to build the 7E7 in hopes of regaining the company’s once-dominant role in making commercial aircraft.
But the board meeting has been overshadowed by speculation over how long Stonecipher will stay on.
The succession issue began immediately after the Dec. 1 surprise resignation by Boeing Chairman and CEO Philip M. Condit, after nearly a year of turmoil that has included separate allegations of ethical misconduct and corporate espionage involving two major Pentagon contracts.
Stonecipher has adamantly insisted he is not an “interim” chief executive, saying he plans to stay as long as his health and the board permit.
Still, many analysts don’t expect him to stay more than two or three years. That would be enough time for Stonecipher to rebuild the company’s reputation with its top customer, the U.S. government, and for Boeing’s board to wade through potential successors, analysts said.
“I think [Stonecipher] would be in a pretty poor position negotiating with the government if he weren’t very clearly going to be staying for a while,” said Paul H. Nisbet, senior aerospace analyst for JSA Research Inc., an investment research firm for institutional investors.
He added, however, that Stonecipher “will get a lot of groundwork done in the first six months ... but [he] will probably stay around a year or two afterward.”
Boeing’s board has “no idea today” who will succeed Stonecipher or even how long he will run things, according to a source familiar with the board’s deliberations.
That is in sharp contrast to just two years ago, when Chicago-based Boeing had at least four possible candidates to replace Condit as CEO. Condit elevated James F. Albaugh, Gerald Daniels and Alan R. Mulally to “chief executive” status of different Boeing units and named Mike Sears as the company’s chief financial officer.
But last month Boeing fired Sears, 56, for ethical misconduct after he allegedly talked to a Pentagon official about a Boeing job while the company was negotiating with the official on a bid for a $20-billion deal for 100 aerial refueling tankers. The Pentagon official, Darleen Druyun, who Boeing hired late last year, was also fired.
Daniels, 57, ran Boeing’s military aircraft and missile business. But he retired after his operation was combined with Albaugh’s space and communications business when the Sept. 11 terrorist attacks prompted Boeing to focus more on its defense operations.
Albaugh, 53, who heads the Integrated Defense Systems unit, appeared to be a leading CEO contender until the ethics scandals broke out this year in businesses that he oversees. Meanwhile, sales prospects for the commercial satellite and rocket business -- another Albaugh unit -- also plummeted. Boeing took a surprise $1-billion pretax charge against earnings last summer to write down the value of its commercial space business.
Mulally, 58, who heads Boeing’s commercial aircraft business, is one of the few executives who hasn’t been sullied by scandals. But he has struggled to keep the business afloat amid one of the industry’s worst slumps in decades.
Stonecipher praised Mulally for keeping the business profitable, but that has come from slashing more than 40,000 jobs in the last two years. Moreover, for the first time this year, Europe’s Airbus is expected to overtake Boeing as the top seller of commercial aircraft.
With many parts of Boeing struggling, some board members reportedly looked outside for a CEO when Condit offered to resign. Sources said Boeing approached James McNerney Jr, a board member and chairman of the consumer products maker 3M Co. to become Boeing’s CEO.
McNerney, 53, previously ran General Electric Co.’s jet engine business, the same position Stonecipher held before heading McDonnell Douglas. But last week, McNerney squashed speculation that he would change jobs, saying he was happy at 3M.
Depending on when Stonecipher steps down, McNerney could still remain at the top of the board’s list of successors, sources said. They also didn’t rule out Albaugh, noting how Condit “took the bullet” for Albaugh when scandals and problems with the space business emerged.
A board source said Albaugh’s prospects did not diminish as much as outsiders believe because both scandals -- one involving the tanker and the other a rocket contract -- happened before several reorganizations placed those businesses under Albaugh’s purview.
“It depends on the timing,” said Richard Phillips, vice president of the aerospace group for investment bank Houlihan Lokey Howard & Zukin.
“If Stonecipher is only there for a year, it’s not going to be Albaugh,” Phillips said. “It will likely be an outsider like McNerney, or possibly Mulally. If it’s two or three years out and the defense business has no more scandals, Albaugh will get it.”
In two years Albaugh will be 55, while Mulally will be 61, and he might be seen as too old to run Boeing for the long term.
Albaugh was in London last week to speak to British officials about a separate air tanker deal. He seemed to indicate there would be no changes coming for a couple of years. In an interview with British reporters, Albaugh predicted it could take up to two years for Boeing to put the scandals behind it.
“We are doing everything we can to win back our reputation but it’s going to take awhile,” Albaugh said.
Then there is still the chance that Stonecipher, who remains healthy and energetic as ever, could stay a lot longer, into his 70s. If so, that could mean a complete reshuffling of the management succession candidates.
“All bets are off then,” said Richard Aboulafia, an aviation analyst for aerospace research firm the Teal Group.
