To The Moon

$Boeing(BA)$ finally hit stage one in its (hopefully) eventual recovery. CEO Dave Calhoun is (eventually) out, the board is getting new leadership, and the head of commercial is being replaced immediately.

Why now?

At any time during Calhoun’s entire four-year tenure, Boeing would have been justified in canning him. Which is to say, he should have never gotten the job in the first place. But there is nothing particularly bad that is new right now. Two weeks ago, when Boeing was a lightning rod after the Alaska Air door incident, an announcement would have made more sense. On the defense side Boeing was hit with a pretty lousy budget framework, but that is hardly enough to do in the CEO.

So why now? I think part of it has to do with the upcoming Boeing labor chaos that is bubbling in the background. The contract is up in September 2024. Regardless of the state of the company at the time, it was going to be bruising and ugly negotiations. But with everything going on it is a pending nightmare. Union leadership is not high on Calhoun, and he was an obvious target in the talks.

Calhoun is still officially in place until year’s end (or they find someone else), but the announcement should be somewhat liberating for him as he talks not just to union leaders but customers and regulators as well. He is no longer walking into meetings with the Sword of Damocles hanging over his head. He can argue with more confidence that whatever it is he wants to do is for the good of Boeing without worrying about whether the people across from him secretly believe he is doing it because it is best for him. That’s a huge advantage during some of the tough conversations he has to have up ahead.

Calhoun’s top job from now until he is gone is to give his successor as much clear runway as possible. By announcing himself as a lame duck, he has a better ability to do that.

Who is the successor?

Does Boeing already know?

Indulge me here…

Boeing is currently in talks to swallow its most important supplier (and former subsidiary) $Spirit AeroSystems(SPR)$ . Spirit, itself a long-troubled soul, is currently run by Patrick Shanahan. He’s new on the job, having only arrived last September. Can’t imagine he’s keen on a short tenure.

Shanahan has an interesting resume. He was the top purchasing official for the Pentagon (and for a while served as Acting Secretary of Defense). But before then, he had 31 years at Boeing spread around a number of different roles, both commercial and defense. He was a big part of the Dreamliner team back in the day.

Importantly, he is also an engineer by training. He has an engineering degree from U of Washington of all places, right in Boeing Commercial’s back yard.

Ideally, Boeing needs a fresh start. But it is such a unique animal there is an argument for bringing in someone with familiarity about how it works. Shanahan has credibility with Wall Street, ties to Washington, and should have an easier time talking to workers than a bean counter. Oh, and as I mentioned Boeing has a regulatory shotgun at its back leading it to the altar with Spirit, so he’ll likely be in-house soon. Timelines can be hard to predict, but likely around the time Calhoun said he expects to be leaving.

Things are rarely that easy. There could be other candidates. Mine, fwiw, would have been Bill Brown had he not just earlier this month agreed to take charge of another clusterf—-, 3M. Brown is also an engineer by training and did an amazing job at Harris. I don’t believe he has Boeing on his resume, but he did do a decade at United Technologies. $General Electric Co(GE)$ ’s Larry Culp has also been discussed, but he’s got his hands full.

Shanahan feels like the safe choice.

For investors, it is important to remember this is only step one of a very long process. Boeing still have nearly 5x more debt than it did pre-crisis. It’s most important cash cow, the 737 line, is running at barely 50% of where they had hoped it would be. Regulators have put the handbrakes on growth. Defense remains a mess.

With any luck, we’ll look back on this announcement as the point where a corner was turned. The start of the resurrection of a once-great industrial titan. But there is still a lot of work to be done from here.

This is one to watch from the sidelines.

https://twitter.com/TravisHoium/status/1772629046091817310