Boeing Stock: Preparing For A New CEO (NYSE:BA)

Boeing (NYSE:BA) has announced some changes in its executive ranks, and while nothing can be said with certainty, there are chances that this the kickoff of a reshape and promotion plan that should yield Boeing’s new CEO. Why this could ultimately be a precursor towards a succession plan for Dave Calhoun is what I will discuss in this report.

Boeing leadership shuffle

Boeing named Ted Colbert (age 49) as the new CEO of Boeing Defense, Space & Security. He joins Boeing Defense, Space & Security after previously having served as the CEO of Boeing Global Services since 2019. Before that Colbert played an important role in growing Boeing’s analytics programs as the company’s Chief Information Officer. So, you could say that he played an important role in making Boeing’s data driven services more prominent. With a dual engineering degree in Industrial and Systems Engineering and Interdisciplinary Science, he is not an aerospace engineer so that is interesting.

At Boeing Defense, Space & Security, I do not expect him to make revolutionary changes but his experience with Defense services could make him a suitable leader for Boeing’s Defense arm. While his experience with data and data analytics programs might be of value to the Defense arm, I don’t expect any radical changes in how data is utilized in all phases of defense system programs.

Probably more interesting is that Colbert is replacing Leanne Caret (age 55) who is retiring from Boeing after 34 years. She became CEO of Boeing Defense, Space & Security in 2016 after previously having led the services organization before it became a separate segment of the company. In some sense, Colbert is walking the same path as Caret did from services to lead the defense arm.

Leanne Caret’s time at Boeing Defense, Space & Security can best be described as one with ups and downs. She took over the role from Chris Chadwick after Boeing had lost the bid for the $80 billion next generation stealth bomber program, so it was definitely not an easy time. Under her lead Boeing won contracts for the MQ-25 Stingray refueling drone, the T-7 next generation trainer and the F-15EX was launched. However for the replacement of Boeing’s Minuteman III, a program valued $85 billion, Boeing once again lost the bidding from Northrop Grumman (NOC) and Caret inherited the troubled KC-46A program. Under her lead, Boeing had not been able to convince that it has the design and manufacturing issues plaguing the tanker under control and the Starliner program also went off track. Having followed Boeing for years, what was striking is that while there were big challenges for Boeing’s defense arm as well as big opportunities, Caret remained mostly on the background.

With the spot of CEO of Global Services being vacated, Boeing appointed Stephanie Pope as CEO of Global Services. She was previous Vice President and CFO of Boeing Commercial Airplanes where she was appointed in December 2020. Before that she was Vice President and CFO of Boeing Global Services. So, it makes sense to appoint Pope as the new leader of the services segment.

So, what we are seeing is quite an interesting shuffle. We have Caret, a manager, with a long history at Boeing but a mixed track record heading towards the exit while a “data guy” is becoming the new CEO of BDS and someone with an accounting background is going to head the services unit. Since the Boeing 737 MAX, there has been an aversion against managers and bean counters taking over at Boeing and what we are seeing in the most recent leadership update is that one manager is heading to the exit and a bean counter is promoted. All in all, it is not a bad thing but not what investors would like to see. At the same time, we are also seeing that leadership is rejuvenating and becoming more diverse.

Path to becoming CEO of Boeing

It could be that with the leadership update, Boeing is preparing Colbert to become the next CEO of Boeing or at least be high on the list of possible candidates to replace Dave Calhoun. Dave Calhoun, now 64, became CEO of Boeing after Dennis Muilenburg was sent off in response to the Boeing 737 MAX crisis. At age 64, Calhoun has limited shelf life as a Boeing CEO, and in order to allow him to remain CEO for the coming years, the retirement age for his position has been increased to 70 years. That way, Boeing does not need to start looking for a new CEO while the company is facing the financial aftermath of the Boeing 737 MAX crisis, the aftermath of the pandemic and challenges on key programs.

However, in 5 years from now Boeing needs to have that successor ready and with that in mind it makes sense to promote Colbert to CEO of BDS now. In 5 years from now, Colbert will have gained experience as the leader of the defense arm and will be 55 years old potentially giving him 10-15 years to serve as Boeing’s CEO. That also explains why Caret is not in the picture to become CEO. Even when we don’t consider her limited visibility as the CEO of BDS, Caret is already 55 years old and if Caret were to be promoted to CEO of Boeing, it would be a short tenure especially since Calhoun currently has no intentions to withdraw as CEO.

It is not the case that every CEO of BDS becomes the next Boeing leader, but the position of CEO of the defense arm provides a nice path towards becoming the next CEO of Boeing.

Dennis Muilenburg became CEO of Boeing after having served as the CEO of Boeing Defense, Space & Security and heading the Global Services unit when it was still part of BDS. Muilenburg became CEO of Boeing Integrated Defense Systems which later became Boeing Defense, Space & Security at age 45 in 2009. Four years later, Muilenburg became President and Chief Operating Officer of Boeing. Muilenburg would become CEO of Boeing in July 2015, almost 6 years after becoming CEO of BDS.

Keeping in mind the 6-year gap from appointment at BDS to appointment as CEO of Boeing, it seems that Colbert is pretty well aligned to be on the shortlist of becoming Boeing’s next CEO who will start his tenure in maximum 5 years from now. The only difference is that he would be 4 years older than Muilenburg at the time he becomes CEO of BDS. Given the potential 5 year extension to the compulsory retirement age for the CEO of Boeing, those four years should not be of significance and there even is the chance that if Calhoun departs earlier Colbert will make his way to the CEO spot earlier as well.

While it indeed does seem that Colbert is being prepared to become CEO of Boeing, it should also be take into account that a new CEO can be attracted from outside and Boeing is definitely not betting on one horse. While Dennis Muilenburg became CEO of Boeing in 2015, Patrick Shanahan was also on the fast-track route to potentially becoming the next CEO of Boeing.

Conclusion

The leadership shuffle announced at Boeing is one that rejuvenates the leadership ranks and makes it more diverse. In terms of strategy or business approach, no major pivots are expected from the leadership update. However, it is very likely that with the appointment of Colbert as CEO of BDS, we are also seeing the first face on the list of potential candidates to eventually succeed David Calhoun as the CEO of Boeing which I consider to be a much-needed leadership change. With the leadership update, Boeing has started the process that could make Colbert Boeing’s next CEO.