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Boeing hires new CEO

Lex Hall with AAP  |  24 Dec 2019Text size  Decrease  Increase  |  
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Morningstar has maintained its fair value estimate for Boeing, saying the axing of the airline’s chief executive Dennis Muilenburg has no effect on cash flow assumptions.

Muilenburg was fired overnight following a year of intense scrutiny and industrial setbacks set off by twin fatal crashes of Boeing's 737 MAX jetliner.

Chairman David Calhoun will take over as CEO and president effective 13 January, the company said on Monday, adding that a change in leadership was necessary to restore confidence in the company.

Morningstar has left its US$349 fair value estimate for Boeing (BA) intact, saying that the change in leadership does not affect its free cash flow assumptions for the wide-moat carrier.

The management shake-up comes as the world's largest plane-maker struggles to win regulatory approvals for its grounded best-selling jetliner while trying to regain trust with passengers and airline customers.

“As this change in leadership does not affect our free cash flow assumptions, we are maintaining our $349 fair value estimate,” said Morningstar analyst Burkett Huey.

“While it could be argued that because Calhoun has been with Boeing for the entirety of the MAX’s history, he may be too close to the ensuing crisis, we think that his clear understanding of the aviation industry is the paramount qualification for this job.

"We do not anticipate a material departure from Boeing's shareholder-friendly policies, which we believe are in line with the company’s stated aspiration of being "best in aerospace and [an] enduring global industrial champion.

The company's shares rose nearly 4 per cent in early trading.

The 737 MAX grounding was the biggest crisis of Muilenburg's 34-year tenure at Boeing, where he started as an intern in 1985, rising through the company's defence and services ranks to the top job in 2015.

The company said this month it would stop production of the jets in January.

A senior industry source called the wording of Boeing's statement "brutal".

Another said the decision was inevitable after spiralling pressures from the 737 production halt to a public slap-down from the FAA, topped off by an embarrassing space launch snafu on Friday.

Speculation that Muilenburg would be fired had been circulating in the industry for months, intensifying in October when the board stripped him of his chairman title.

A Boeing official said the board deliberated over the weekend and they made the decision to fire Muilenburg in a phone call on Sunday.

Calhoun has been on the Boeing board since 2009 and has led GE Aviation as well as Nielsen, a market research firm.

Huey said the obvious challenge Calhoun would need to face is the continued grounding of the 737 MAX.

“In the press release, Boeing stressed a renewed commitment to full transparency regarding the matter. Our hope is that this commitment manifests itself in a detailed communication of the progress that has been made on the 737 MAX’s pathway to return to service.

“While the milestones that Boeing must complete have been disclosed, we would appreciate a specific analysis of the progress toward achieving the remaining milestones and of the work being done with regulators to ensure passenger safety.

“Muilenburg has also resigned from the board of directors. As regulatory matters remain critical to Boeing’s story, we think that a former member of an aviation regulatory agency would be a great choice for the board’s open position on the aerospace safety committee.”

. Lex Hall is content editor with Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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