Boeing overhauls could impact St. Louis defense business
Boeing's St. Louis-based defense programs are in a separate unit from the embattled commercial airplane business. But the one isn't entirely insulated from the other. Boeing's commercial airplane business has been under pressure since January after a panel blew off a new Alaska Airlines 737 Max, causing bolts to be removed after repair work at the Boeing factory. The company's financial health is closely tied to the 737 passenger jet. Boeing's defense business, which includes the St. Louis-made T-7 trainer and MQ-25 refueling drone, was heavily dependent on the 737. The Federal Aviation Administration has increased its scrutiny of the company, including putting a limit on production of 737s. The head of Boeing Commercial Airplanes, Stan Deal, will be succeeded by Boeing’s chief operating officer, Stephanie Pope. Steve Mollenkopf, former Qualcomm CEO, will lead the CEO selection process. Boeing stock jumped on the announcement but closed 1.4% over the Friday closing price.
Published : 2 months ago by Annika Merrilees, annika merrilees in Business Travel
But the one isn’t entirely insulated from the other, and the widespread commercial shakeup at Boeing, announced Monday, may indeed have an impact on the defense unit, experts said.
“I see no evidence of quality-control issues on the defense side,” said Loren Thompson, a longtime defense analyst. “However, the financial health of the defense business was closely tied to revenues generated by the 737.”
Bold bets on the defense side — like the St. Louis-made T-7 trainer and MQ-25 refueling drone — were made on the assumption that the company could expect continued, strong cash flow from the 737 passenger jet, Thompson said.
Bryan Clark, a senior fellow at the Hudson Institute, said the commercial and defense units are “fairly well separated,” and it’s unclear whether the company has actually shifted many dollars from one to the other. But, he added, investors did generally feel better about the company because of the revenues coming in on the commercial side.
Jeff Windau, industrials analyst with Edward Jones, said quality changes made in the commercial business — like, for instance, stepped-up scrutiny of suppliers — will likely also be considered for the defense business.
The St. Louis region is home to Boeing’s second-largest workforce after Washington state. The local operations are mostly focused on military aircraft including the F-18 and F-15 fighter jets, the T-7A trainer plane and the MQ-25 drone. The company also makes munitions at a plant in St. Charles.
Boeing’s commercial airplane business has been under intense pressure since early January, when a panel blew off a brand-new Alaska Airlines 737 Max. Investigators say bolts that help keep the panel in place were missing after repair work at the Boeing factory.
The Federal Aviation Administration has stepped up its scrutiny of the company, including putting a limit on production of 737s. An FAA audit of Boeing’s 737 factory near Seattle gave the company failing grades on nearly three dozen aspects of production.
The head of Boeing Commercial Airplanes, Stan Deal, retired Monday. He will be succeeded by Boeing’s chief operating officer, Stephanie Pope. Board Chair Larry Kellner will not stand for reelection at the company’s annual shareholder meeting. Steve Mollenkopf, the former Qualcomm CEO who has served on Boeing’s board since 2020, will succeed him and lead the CEO selection process.
“Calhoun’s job is going to have a very steep learning curve for anyone who replaces him,” Thompson said. “That curve would unfold over years if it was an outsider to the industry. ... Even within the industry, Calhoun has very few peers.”
Calhoun was a Boeing director when he became CEO in January 2020, replacing Dennis Muilenburg, who was fired in the 2019 aftermath of the 737 Max crashes. Muilenburg has since become board chair of an advanced manufacturing project in St. Louis’ Vandeventer neighborhood and founded a firm that invests in early-stage aerospace companies.
Still, real change will be a lengthy process. Wall Street, he noted, appeared to view the news in the same way: Boeing stock jumped Monday morning on the announcement, but closed just 1.4% over the Friday closing price.
Topics: Aviation, Airlines