Boeing Up in the Air in Search for Chief Executive

Three months later, Boeing Co. is still looking for a permanent chief executive.

After ousting 68-year-old CEO Harry C. Stonecipher for having an extramarital affair, what was supposed to be a speedy search has turned into a protracted process that could last an additional six months, analysts and executive search experts said.

“We’re not setting any artificial deadlines for naming a new CEO,” Lewis Platt, Boeing’s nonexecutive chairman, said last month. “We’re addressing the matter purposefully and without haste.”

The world’s largest aerospace company, with more than $52 billion in annual revenue and 159,000 employees, has been searching for a CEO since Stonecipher admitted to having an affair with a female Boeing executive. Stonecipher, who had been married for 50 years, left the company in March; soon after, the female executive also resigned.

Platt said the board of directors was now working off a short list of candidates that Stonecipher helped compile before his departure. Two insiders, Platt said, remain top contenders: Alan R. Mulally, who runs Boeing’s commercial aircraft manufacturing business, and James F. Albaugh, head of the defense unit.

In addition, there are several outside contenders, Platt said. That has led to a swirl of speculation that has included virtually every chief executive of a major aerospace company.

Barring an obvious outside front-runner, though, most of the attention focuses on Albaugh and Mulally.

Albaugh, 55, who works in St. Louis, runs Boeing’s largest business unit with $30 billion in annual revenue and 80,000 employees. The unit, Integrated Defense Systems, is also Southern California’s largest employer with about 35,000 people.

In 2002, Boeing put everything involving its defense business in Albaugh’s hands, including its military aircraft, missiles, space and communications operations. Since then, he has led a surge in Pentagon contract wins. Boeing’s defense backlog has more than doubled to $84 billion from about $38 billion in 2002. And two years ago for the first time in its history, revenue from Boeing’s defense business surpassed sales from its venerable commercial aircraft business.

But Albaugh’s luster waned a bit amid the Pentagon ethics scandals that have rocked Boeing in the last couple of years. Although the scandals occurred before Boeing combined those divisions under Albaugh, the public perception has been damaging, analysts said.

A Washington native, Albaugh grew up around engineers and scientists. His father was a noted chemist who worked on the Manhattan Project, which developed the atom bomb. Albaugh, a 6-foot-4 former college basketball forward with a master’s degree in civil engineering from Columbia University, has worked for Boeing and its predecessor companies for 30 years.

His chief internal rival is Mulally, 59, a 36-year Boeing employee who has spent most of his time working at the commercial aircraft business in Seattle. In 1998 he became head of the commercial airplane unit, which last year booked $22 billion in revenue.

Mulally’s star rose after leading the development of the twin-aisle 777, one of Boeing’s most successful aircraft. His chances of becoming CEO have also been helped by a surge in orders for Boeing’s new 787, slated to fly in 2008. The mid-size jet is touted by Boeing as the world’s most fuel-efficient passenger jet, capable of saving airlines 20% a year in fuel costs.

During Mulally’s tenure, though, archrival Airbus surpassed Boeing in 2003 as the world’s largest aircraft maker, a stunning reversal of fortune.

Mulally’s age may also hurt his chances. Platt has said that an ideal candidate would be someone who could lead the company for a decade before retiring at Boeing’s mandatory age of 65.

A Kansas native with a master’s degree in aeronautical and astronautical engineering from the University of Kansas, Mulally is a pilot who has spent his entire career at Boeing. He was hired as an aeronautical engineer for a supersonic jetliner, which Boeing scuttled in 1971 before it got off the ground.

Meanwhile, speculation about two rumored candidates has been complicated by statements that they don’t want the Boeing CEO job: David L. Calhoun, who runs General Electric Co.’s aircraft engine business; and W. James McNerney Jr., 3M Co.’s chief executive, who also sits on Boeing’s board.

“Over half of the people that eventually take a job begin by saying absolutely not,” said Stephen Mader, vice chairman of executive recruitment firm Christian & Timbers. In McNerney’s case, Mader believes, the executive may tell Boeing’s board, “run the search ... and if you think I’m the best guy, then let’s talk.”

Moreover, Boeing executives say there is no compelling reason to rush the hiring process since the company has been operating well under interim Chief Executive James Bell, its chief financial officer.

Boeing shares recently hit a four-year high. They rose 28 cents Friday to $64.66.

Although Bell has said he doesn’t want the top job, in recent weeks some investors and company employees have been privately rooting for Bell, and have told Platt that Bell should be a candidate.

Executive search firm Spencer Stuart is evaluating all the Boeing CEO candidates, as well as conducting background checks. This investigation is considered crucial since Boeing has been stung by an ethics scandal involving some of its top executives. In April, Boeing’s former chief financial officer, Michael Sears, began serving four months in federal prison for illegally offering a job to a Pentagon official who oversaw a $23-billion deal to purchase aerial refueling tankers from Boeing.

The ideal candidate doesn’t have to have aerospace experience, Platt said, but would need manufacturing experience. The company is also looking for someone who has experience and is “comfortable” with Washington politicians and the Pentagon.

Boeing’s directors are also not likely to pick someone who runs a company that generates far less revenue, Platt has said. That would seem to eliminate Clay Jones, chief executive of Rockwell Collins Inc., an avionics and electronics company with annual sales of $3 billion. Some outsiders have named Jones as a possible Boeing candidate.

Boeing directors have kept the list of outside contenders close to their vests. But another candidate mentioned by analysts is David M. Cote, chairman and chief executive of Honeywell International Inc. Honeywell, a technology and manufacturing company, makes a variety of products, including such diverse items as smoke alarms and rocket guidance systems.

With nearly $26 billion in revenue, Honeywell is similar in size to the business units run by Boeing’s inside candidates, Mulally and Albaugh. Cote joined Honeywell in 2002 after running TRW Inc., an automotive parts and aerospace company acquired by Northrop Grumman Corp. in 2003. Prior to TRW, he ran the appliances unit for General Electric Co.

At 52, Cote is also younger than Mulally or Albaugh.

Some analysts believe that Boeing may also have another reason to draw out the search. Given all the ethics scandals, the Boeing board is feeling increasing pressure to pick an outsider to run the company.

But some directors are privately advocating picking from within. Ultimately, they could argue that an extensive search didn’t produce a better outside candidate, thus opening the way to promote an insider, said Richard Aboulafia, an aerospace analyst for Teal Group.