The market reacted positively to the news that Boeing (BA 3.25%) CEO David Calhoun will step down at the end of 2024. But what does it mean for investors? Here's a look at what to expect from the company in the future.
Boeing's big changes
In addition to Calhoun's announcement, the Boeing board has elected former Qualcomm CEO Steve Mollenkopf as independent board chair from the outgoing Larry Kellner. Mollenkopf will "lead the board's process of selecting Boeing's next CEO." Furthermore, Boeing Commercial Airplanes CEO Stan Deal was replaced by Boeing's commercial operating officer Stephanie Pope with immediate effect.
Given that Pope was formerly the head of Boeing's best-performing segment, Boeing Global Services, it's fair to argue she's been appointed based on a track record of success. Investors have reason to believe Boeing's board will ensure the right person is in the top job, not least because it's full of heavyweight figures in the industry.
For example, David Joyce is the former CEO of GE Aviation, the best-run company in the large-cap aerospace sector. Akhil Johri has a successful 30-year tenure at United Technologies (the company that would become RTX), including a stint as CFO from 2015 to 2019. David Gitlin is the current CEO of Carrier Global, having had stints as president of UTC Aerospace Systems and Collins Aerospace Systems.
For reference, General Electric and RTX (a company created out of the United Technologies breakup) are the most critical engine suppliers in the industry. Indeed, Calhoun is a former GE executive, as is Calhoun's predecessor, James McNerney.
Will a new CEO make a difference?
General Electric shareholders will likely answer "yes" to this question following Larry Culp's highly successful tenure as CEO. He successfully turned the company around, even as its most important business, GE Aerospace, faced the carnage wrought on the commercial aerospace industry by the lockdowns. Indeed, Culp's dedicated focus on execution, lean manufacturing, and quality control is precisely what Boeing needs.
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Culp's focus on detail while giving wide-ranging guidance contrasts markedly with former GE CEO Jeff Immelt's big-picture leadership and adherence to meeting every quarterly number. It also contrasts nicely with Culp's predecessor, John Flannery's unsuccessful stint as GE CEO, which he began by promptly missing guidance.
Culp learned the lessons of Immelt and Flannery's tenures, and he began his tenure by giving wide-ranging guidance to focus investors' perceptions on the long term. At the same time, he set about relentlessly improving execution at GE.
Calhoun's tenure at Boeing
But here's the thing: Calhoun tried to do the same thing. Appointed as CEO in 2020, Calhoun navigated the pandemic's impact on aviation and set wide-ranging guidance for investors to follow in November 2022. The guidance calls for a gradual ramp-up in production at Boeing Commercial Airplanes and a profit improvement at Boeing Defense, Space & Security, leading to $10 billion in free cash flow (FCF) within the 2025 to 2026 time frame.
It's such wide-ranging guidance that Boeing still believes it's on track to meet it, despite the production quality issues on the 737 and the need to slow production to iron them out. Moreover, it contained the kind of debt reduction commitment the market needs to hear.
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Proper strategy, wrong execution
The strategy was right, but the execution was not. Boeing's quality control issues have persisted, and along with other leading defense companies, Boeing has suffered ongoing margin pressure on fixed-price programs won in less inflationary times. As such, Boeing's new CEO doesn't need to change the strategy or a fundamental guidance reset beyond pushing the $10 billion FCF target to later in 2026 -- something Wall Street already expects anyway.
Boeing needs an execution-focused CEO rather than a big-picture CEO looking to make substantive strategic changes.
Potential Boeing CEOs
All of this is pure speculation on my behalf, but for obvious reasons, Culp would be the ideal candidate, but it's hard to see how he would leave GE Aerospace just as it begins trading as a stand-alone company. Gitlin is another possibility, but he's undergoing substantive strategic changes at Carrier. Former Rolls-Royce CEO Warren East is already in his 60s, as is RTX's outgoing CEO Greg Hayes.
Another potential candidate is Spirit AeroSystems CEO Pat Shanahan,a 31 year Boeing veteran and a former Deputy Secretary of Defense under President Donald Trump.
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Former Honeywell CEO (currently chairman) Darius Adamczyk is in his late 50s and has a track record of excellent execution at the key Boeing supplier. Adamczyk is sometimes criticized for his lack of mergers & acquisitions at Honeywell, but that's not what Boeing needs now anyway.
A heavyweight appointment like Adamczyk, with a track record of beating guidance, would restore confidence in Boeing's prospects, not least with airlines, and highlight the value case for the stock. Let's put it this way: Hitting $10 billion in FCF in 2026 and valuing Boeing at 20 times FCF would put it at $326 in 2026 and implies a 19% annual return until it gets there. The strategy and market positioning are good, but Boeing needs whoever the new CEO is, to execute.
