Boeing overhaul could impact St. Louis defense business

Boeing’s commercial operations have attracted intense public and regulatory attention in recent months. Additionally, the company’s defense program, which employs approximately 15,800 people in the region, is a separate business unit.

But one is not completely isolated from the other, and Boeing’s broad commercial overhaul announced Monday could actually impact defense forces, experts said.

“We don’t see any evidence that there’s a quality control problem on the defense side,” said Lauren Thompson, a longtime defense analyst. “However, the financial health of the defense business was closely tied to the revenue generated by the 737.”

Thompson said bold defense bets such as the St. Louis-built T-7 trainer jet and the MQ-25 refueling drone were based on the assumption that the company could expect continued strong cash flow from the 737 jetliner. said it was done.

Brian Clark, a senior fellow at the Hudson Institute, said the commercial and defense divisions are “pretty tightly separated” and it’s unclear whether the company actually moved significant amounts of money from one to the other. . However, he added that investors are generally positive about the company because of its commercial returns.

Jeff Windau, an industry analyst at Edward Jones & Co., said quality changes made in the commercial business, such as increased scrutiny of suppliers, are likely to be considered in the defense business as well.

“Generally speaking, there’s going to be a lot of scrutiny on overall quality. And that’s going to apply across the business,” Windau said.

Boeing declined to comment beyond the press release announcing the management change.

The St. Louis region is the second-largest location for Boeing employees after Washington state. Operations there primarily focus on military aircraft, including F-18 and F-15 fighter jets, T-7A trainer aircraft, and MQ-25 drones. The company also manufactures munitions at its plant in St. Charles.

Boeing’s commercial aircraft business has been under intense pressure since a panel on a brand new Alaska Airlines 737 Max blew off in early January. Investigators say the bolts that hold the panel in place were missing after repair work at a Boeing factory.

The U.S. Federal Aviation Administration is increasing its oversight of the company, including placing limits on production of the 737 aircraft. An FAA audit of the Boeing 737 factory near Seattle gave the company failing grades in nearly 30 aspects of its production.

Bloomberg reported last week that the company is considering selling part of its defense business.

Stan Deal, head of Boeing’s commercial aircraft division, resigned on Monday. He will be succeeded by Stephanie Pope, Boeing’s chief operating officer. Larry Kellner, Chairman of the Board, will not stand for re-election at the Company’s annual meeting of stockholders. Former Qualcomm CEO Steve Mollenkopf, who has served on Boeing’s board since 2020, will succeed him and lead the CEO selection process.

Thompson, the defense analyst, said Calhoun’s departure at the end of the year could signal the company plans to look outside for a successor.

“Calhoun’s job is going to be a very steep learning curve for whoever replaces him,” Thompson said. “If you’re an outsider to the industry, that curve will become clearer over the years. … There are very few people in the industry who can match Calhoun.”

Calhoun was a Boeing board member when he became CEO in January 2020, replacing Dennis Muilenburg, who was fired in the wake of the 2019 737 Max crash. Mr. Muilenburg went on to become chairman of the board of advanced manufacturing projects in St. Louis’ Vandeventer neighborhood and founded a company that invests in early-stage aerospace companies.

Windau said the management moves announced Monday are a sign that the company wants to truly improve the culture and quality of Boeing’s commercial operations.

Still, real change will be a long process. He noted that Wall Street likely saw the news the same way, with Boeing shares surging Monday morning following the announcement, but closing just 1.4% above Friday’s close.

“Switching some of the management elements won’t solve the problem overnight,” says Windau.

The Associated Press contributed to this report.