Boeing (BA) stock is under pressure after a plane door plug blew off during a flight and the company's earnings report scheduled for Thursday. Former CEO of Medtronic, due north Author Bill George joins Yahoo Finance Live to discuss the company's woes and its outlook for 2024.
“Companies here are in crisis, but America can't afford to let them be in crisis,” George argued, suggesting there was an urgent need to rebuild the company. George listed five ways Boeing can get back on track, including increasing its focus on quality, scrutinizing its supply chain and relocating its headquarters to Seattle.
George doesn't seem hopeful about implementing improvement strategies quickly, noting, “They're fixing things one thing at a time.” George is clear about CEO Dave Calhoun's abilities: [Calhoun] They act like short-term CEOs. ”
George believes the company's culture has moved from a “high-quality aviation design culture” to a “short-term, finance-based culture,” and believes the right person for the CEO role should be an aviation expert. I think so.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by Ike Ntekim
video transcript
Julie Hyman: Well, one stock that isn't green this year is Boeing. Unsurprisingly, the company has faced an accident with a door panel falling on a jet that blew it mid-air, and its stock price has plummeted since the beginning of the year. And the company is gearing up for Wednesday's earnings.
But our next guest says Boeing's problems go back 20 years. To learn more about Boeing's culture and leadership, we welcome Bill George, former Medtronic CEO and author of True North, Emerging Leader Edition. Nice to meet you, Bill. Looking at this situation at Boeing, you recently wrote about the leadership all the way up to his current CEO, Dave Calhoun. Can you briefly summarize where the problem started? How would he solve it?
Bill George: You know, we've had five CEOs over the past 25 years who have followed short-term strategies. Starting with Phil Condit, he bought out McDonnell Douglas in exchange for his stock, which got him into a lot of trouble. And more importantly, we moved our headquarters from Seattle. And CEOs were born one after another.
And if you look at the stock price over the past five years, it's down 44%. It would cost investors about $100 billion. In short, these CEOs have distanced themselves from the essence of Boeing. Over the past five years, they paid 121% of their dividends and share buybacks and repurchased 121% of their profits. Of course, they have been losing money for the past three years.
There are companies here that are struggling, and America can't afford to let them suffer. This is an American symbol that must be restored. So I think they need to get back to their long-term focus.
Now I have five ideas on how to make it happen. First, the entire quality system needs to be restored. If I were Dave Calhoun, he would shut down the entire factory for a week and have everyone focus on quality. They have to do more than just give first aid, they have to fix the plug in this door. No, you need to fix the entire system.
Second, the entire supply chain will have to be redone. They continue to outsource things to unreliable suppliers like Spirit Aero. And you can't even keep the bolt on plane. And that's ridiculous. Third, a new single-aisle aircraft must be designed.
Their flagship aircraft, the 737, is worn out and designed 60 years ago. Think about how much technology has changed in 60 years. But they are not updated. They just keep changing things little by little. And they cause more problems as they go along. And frankly, if I were them, I should move the headquarters back to Seattle, and Dave Calhoun himself back there as well.
And finally, you need to take a hard look at your balance sheet. They bought back a lot of stock, so their stockholders' equity is negative. They have $54 billion in short-term and long-term debt. And they are in trouble. And it needs to get its balance sheet back on track to generate cash flow, something it hasn't done in a long time.
Josh Lipton: So, Bill, you laid out a strategy here for what Dave Calhoun and his team need to do. Bill, is there any evidence that Calhoun and Boeing executives intend to take these steps that you are suggesting?
Bill George: It's not far. Well, he said he was going to fix the quality. But you see, they're fixing it one thing at a time. They haven't fixed their quality system. But that's not the case, he said, and this is his fifth year in the position. And he said, “There will be no new aircraft for this decade.”
So why not? A new single-aisle plane was brought in by former head of civil aviation Alan Mulally, but it was canceled after he left and went to Ford Motor Company, where he pivoted. They're not moving forward with it. they need to do that. That will take seven or eight years. But they just need to deal with it now.
Like United Airlines, they are on the brink of losing long-time customers. United Airlines' CEO is in Toulouse this week to discuss the possibility of producing more with Airbus. American Southwest, very loyal Americans. They are now threatening to leave us if we don't take action. And in fact, one of them said that this is the straw that breaks the camel's back. Therefore, they must restore their status as America's major aviation supplier.
Julie Hyman: Bill, is Dave Calhoun the right guy?
Bill George: Well, so far it has seemed like he is, but he hasn't demonstrated it. He's – he's not – he used to run GE's jet engine business. But he needs to seriously address long-term issues. He's acting like a short-term CEO. And it doesn't work. They're not going to cut it. Sure, he has to do the short-term, but he needs to develop a long-term strategy, and he hasn't been able to do that yet.
So I'm waiting to see, will he come forward on Wednesday? I'm not optimistic. But it will be an important time for him to face investors. It's not just about door plugs. There's a lot more to it than that.
Julie Hyman: Yes, definitely so. Bill, as you said, he's a GE graduate. And a lot of the other leaders you mentioned, he was a GE veteran. Will this be another blow to GE's former reputation as a factory for quality executives?
Bill George: no doubt. Harry Stonecipher, the former CEO who started a lot of this problem, said this publicly – 20 years ago, he said, we're not going to act like an engineering company anymore. We're going to run this like a business. What an insult to the people who have generated tens of billions of dollars in profits.
But when he said that, the entire culture turned into a short-term, finance-based culture instead of a quality aviation design culture. And that was the key. And they passed Alan Mulally and brought him back – brought back Stonecipher. Frankly, Mullally should have done the job. That would have changed everything.
So I think Mike Calhoun needs to surround himself with someone. I think you need to bring in a COO if you can, or just become a chairman and bring in a CEO who is a top expert in the aviation industry.
Josh Lipton: And Bill, I'll get you out of here on this one. If you're a viewer watching this right now, you may have invested capital in Boeing, but Bill, the damage to Boeing's business and the reputation it's taken, and the order book for several quarters and years. How concerned do you think we should be about the potential impact of First?
Bill George: If you had invested — if you had invested $1,000 in Boeing five years ago, it would have been worth three times as much as if you had invested — in the S&P 500. Well, I think we need to be very concerned about the long-term issues, not just the short-term. So while it provides a short-term solution, it doesn't solve the fundamental problem of a culture moving away from design, quality, and safety. And they have to get back to it. That's the best. And if they don't do that, they have no future.
But America needs them. So we can't just sit back and say, oh, Boeing is going to go the same way as GE. That can't happen. We need Boeing to have a great company. And I think that's essential. So I haven't given up on them at all. But I feel we need to get back to the basics of how we run our business.
Julie Hyman: Bill George, I always really appreciate your insights on Yahoo Finance. Thank you very much for your participation.
Bill George: Thank you for calling me. I'm very happy to be back with you.
Julie Hyman: be careful.
