Boeing Officially Names McNerney as New CEO

Boeing Co. turned to an outsider Thursday to repair its reputation after a series of high-profile ethics scandals, naming 3M Chairman W. James McNerney Jr. as its new chief executive.

McNerney, 55, is the third CEO at the world’s largest aerospace company since December 2003, when Philip M. Condit resigned during a defense contracting scandal that ultimately sent two Boeing executives to jail. Harry C. Stonecipher came out of retirement to be CEO, but he was forced to resign in March after it was revealed that he was having an extramarital affair with a female Boeing executive.

McNerney is highly regarded in the aerospace industry. During the 18 years he spent at General Electric Co., he turned its ailing jet engine unit into the world’s largest maker of airliner power plants and ran the aircraft leasing unit. He took the top post at consumer products maker 3M in 2001 after being passed over to succeed Jack Welch, GE’s longtime chief executive. McNerney joined Boeing’s board in 2001.

McNerney said in the spring that he wasn’t interested in the Boeing job, the second time he had rebuffed an offer from the company. He said, however, that he had had a “change of heart.”

Wall Street cheered the appointment. Shares of Boeing surged $4.33 to a four-year high of $66. “He brings a lot of skill sets that will be good for Boeing,” said Cai von Rumohr, senior aerospace analyst for SG Cowen.

By tapping McNerney, who also will be chairman and president, Boeing hopes to put a close to a tumultuous period in which it faced two Pentagon procurement scandals and Europe’s Airbus surpassed it as the world’s largest maker of passenger jets.

“Jim has a strong reputation for integrity and ethical business standards,” said Boeing Chairman Lewis Platt, who led the executive search. McNerney has “all of the criteria the board established” for a CEO, including experience in aerospace and manufacturing and in dealing with Washington, Platt said.

In hiring McNerney, Boeing risks losing the executives who run its two core businesses, each of which produces more revenue than 3M. Alan Mulally, head of the commercial aircraft unit, and James Albaugh, president of defense operations, were considered the leading inside candidates to replace Stonecipher. Boeing’s defense business, with a payroll of 35,000, is Southern California’s largest private employer.

McNerney said Thursday that he expected both executives to stay: “They both were smiling through their disappointment, but they indicated an enthusiastic desire to remain a part of the team.”

The hiring of McNerney may have diminished the possibility of Mulally or Albaugh leaving if the other had gotten the top job, analyst Von Rumohr said.

Despite the turmoil in the executive suite, McNerney takes over a company that has been flourishing. Its defense business is enjoying the recent run-up in military spending and its 787 jetliner, now under development, has stolen momentum from Airbus. Boeing, which touts the 787 as the world’s most fuel-efficient airliner, has orders for 266 planes. It is expected to enter service in 2008.

McNerney said Boeing already had “pretty sharply defined and competitive strategies in place.” He said he would probably focus on “fine-tuning” operations.

For Boeing, McNerney represents a sharp contrast to the staid, lifelong Boeing engineers who have held the top post.

Raised in the Midwest, he went on to study English and history at Yale University, then got an MBA at Harvard. Unlike his mentor, GE’s Welch, who was known to berate employees in front of others, McNerney is described as a low-key, personable executive who rarely raises his voice.

After graduating from Harvard, McNerney worked for consumer products giant Procter & Gamble as a brand manager for fabric softeners such as Downy and Bounce, before a short stint as a management consultant with McKinsey & Co.

In 1982, he joined GE where he quickly rose through the ranks.

McNerney transplanted GE’s management style to 3M and slashed spending. He eliminated more than 5,000 jobs and overhauled manufacturing plants to reduce defects. During his tenure, 3M’s profit doubled from $1.5 billion in 2001 to $3 billion last year.

Boeing is hoping for similar business acumen to drive a company that is clearly on an upswing. Boeing may soon be facing Airbus’ parent company in a new competition to build aerial refueling tankers for the Air Force. The Pentagon canceled a Boeing tanker contract last year after a former Air Force civilian official, later hired by Boeing, admitted to favoring the company.

McNerney said he expected to spend some time in Washington to help the company climb out of a “bit of a hole.”

He is on familiar terms with at least one key figure. McNerney was a pitcher on a Yale baseball team that included a second baseman named George W. Bush.