After two days of brutal, back-to-back grilling in Washington that, among other things, focused on the size of CEO Dennis Muilenburg’s compensation, the Boeing boss told the board of directors he would not be taking a bonus this year. But, then, neither are Boeing’s other managers.
According to a report in The Seattle Times, Boeing told its employees in an internal memo, “With only one quarter left in the year, the grounding since March of the 737 MAX and the associated financial effects have severely impacted the company’s performance by limiting the ability to deliver planes and collect on customer contracts. The company does not see a path to achieving an incentive payout for 2019.” Last year, Boeing employees in Washington state collectively took home almost $429 million in incentives, nearly $7000 per employee.
Muilenburg’s compensation was a hot topic on the day he testified before the U.S. House of Representatives’ Committee on Transportation & Infrastructure last week. Last year, Muilenburg was paid $23.4 million and earned $13.1 million in incentives. Several of the committee members questioned Muilenburg about his compensation and wondered why he hadn’t agreed to forfeit his salary after the two crashes the resulted in 346 deaths and the grounding of the 737 MAX. Several committee members also suggested Muilenburg should step down.
In response, Boeing Chairman Dave Calhoun told CNBC that Muilenburg will not lose his job. “From the vantage point of our board, Dennis has done everything right. Remember, Dennis didn’t create this problem. From the beginning, he knew that MCAS could and should have been done better and he has led a program to rewrite MCAS to alleviate all of those conditions that ultimately beset two unfortunate crews and the families and victims.”
The grounding has cost Boeing $9.2 billion, according to reports, and has depressed the planemaker’s stock value. It closed Tuesday at $358 per share, down from a high of $440 at the end of February. It’s likely that’s just the beginning of Boeing’s financial woes in the wake of the MAX accidents, with multiple lawsuits pending and givebacks expected with several carriers whose schedules have been disrupted from the grounding.
FAA Administrator Steve Dickson, in an op-ed appearing in USA Today, said, “The FAA is fully committed to address all of the recommendations raised by investigators, including those that pertain to when, whether or how the 737 Max will return to service. As we have said repeatedly, the aircraft will fly only after we determine it is safe.” That timeline is still in flux, though most airlines are predicting that the MAX will be cleared sometime in very late 2019.
As Boeing and the FAA continue to work toward returning the MAX to service, The Wall Street Journal is reporting that the major U.S. airlines with MAX fleets will undertake a lengthy process to reintroduce the airlines to service, including “hundreds of readiness flights” by Southwest Airlines to ensure that the parked MAXes are squawk free before passengers get aboard.
In other MAX news, Irish low-cost carrier Ryanair is sounding alarm bells ahead of its 2020 travel season, claiming that a late delivery of its MAX aircraft, now expected in March or April 2020, could seriously impact its capacity in next year’s high season. “We have now reduced our expectation of 30 Max aircraft being delivered to us in advance of peak summer 2020 down to 20 aircraft and there is a real risk of none,” Ryanair CEO Michael O’Leary told The Guardian. “We have already reduced our passenger growth forecast … we may have to cut that again but, frankly, there is no point in keeping on changing the number until we get more certainty.”
We are out of control with CEO salaries and their lawyer contracts. CEO salaries have grown 940% since 1978. They don’t add value. Most of them raise money for stockholders by breaking up a company, reducing headcount, and making it more volatile in tough markets. I worked at Motorola for 28 years and we had 2 CEOs come though there raking in millions while the company crumbled to a small fraction of what it was. You think this guy at Boing cares about losing one year’s salary when after this fiasco is over??? He is simply going to make that money up by measuring performance based on the prior year. His bonus will make up for more than he lost in the prior year and he will be ahead. Somehow, I dont think the employees will get the same “contract”.
I saw that Ryanair started to rename its 737 MAX 8, 8200 in anticipation of travelers refusing to fly on it.
I find it odd that the board defends the good work Muilenburg did when so many questions haven’t been answered. Sometimes it sounds as if this company is going down kicking and screaming. I’m afraid we might have a bailout on the horizon, at the very least, heavy subsidies. The global implications are intense when we tax European made Airbus planes. Meanwhile look at the biggest automotive and aircraft markets in China consolidating their lead. The fit still hasn’t fully hit the shan (obscure Airplane movie revenge).
Revenge? I meant to type reference… silly Swiftkey anticipation!
The story reports “Boeing Chairman Dave Calhoun told CNBC that Muilenburg will not lose his job. “From the vantage point of our board, Dennis has done everything right. Remember, Dennis didn’t create this problem.”
Wikipedia says: “December 2013, Muilenburg became the president of Boeing. Muilenburg became CEO in July 2015. March 2016, Muilenburg became the chairman of the board of directors of Boeing. The Max was certified in 2017.”
A senior safety engineer in a December 2015 email: “Are we vulnerable to single AOA sensor sensor failures with the MCAS implementation or is there some checking that occurs?”
The idea of accountability at the Top has become such a joke. They want the title, money, prestige and all the trapping of of the job and when the crap hits the spinny thing, “Oh, it’s not my fault”, “Before my time”.
The facts tell a different story. They knew the were cutting corners and making choices to press ahead because of competitive pressures. The Max represented huge profit potential for Boeing, Muilenburg knew the score and was willing to roll the dice. They swept the hard choices under the rug, hoping it would work out. Then after the first Max goes down, they know the bad choice has not worked out, yet still denied the problem. Even after the second Max went down, Boeing would have pressed ahead. Until the rest of the world said enough.
“From the vantage point of our board, Dennis has done everything right. Remember, Dennis didn’t create this problem.” Give me a break. We can only hope accountability lands directly in Dennis’s lap when the Justice Dept. get to the criminal phase of this process. The whole thing makes me want to vomit!
The title of the article should have read “No Bonus, Keeps Job for Now”. Just because the board of directors did not fire him does not mean the stockholders will be so forgiving. By the time the next annual stockholders meeting rolls around in the spring, the true cost of the whole mess will have come in to sharper focus. The lawsuits for loss of revenue from the airlines are just beginning and the lost revenue from lost sales or cancellation of orders will be known as well. The estimate of 9 billion in economic impact is probably way too low. Plus, the lost bonuses for rank and file union members will make the union unhappy, especially if contract negotiations are looming.
Dennis got the company into this mess with his profit above all else philosophy. Cost cutting and accelerated production schedules sit at the core of this sad tale. But, institutional investors are an unforgiving lot, and the specter of a public stockholders’ revolt at the annual meeting may make the board rethink their stance – especially since the mess may spread to their job security as well. Muilenburg won’t step down, because if they have to fire him, he gets to collect his golden parachute, which is probably mega millions. Boeing will survive, because they are truly too big to fail. All those government contracts guarantee that. But, a federal bailout is probably not out of the question. As Robert M. says, the whole thing makes my stomach churn.
“From the vantage point of our board, Dennis has done everything right. Remember, Dennis didn’t create this problem.”
Indeed, he did not create the problem. However, when he was questioned by engineering regarding a single source for MCAS activation, he not only allowed it to stay, he has the responsibility for taking MCAS beyond the initial design parameters extending it to a point that the airplane can no longer be controlled if the right set of circumstances occur…which has occurred twice…with 346 people gone as a result.
The key Boeing’s position including his employment confirmation and continuation is the board’s statement ““From the vantage point of our board, Dennis has done everything right.” This does not mean Muilenburg has done everything right as far as passenger, crew, and public safety, he has done everything right as per board instructions, collaboration, and intents.
As long as he continues to do likewise, does not suddenly become independent/rogue, suggests any whistle-blowing ideas, staying on the path well laid out by board, guided by damage-control lawyers, he will remain CEO and get a sizable reward for being the public “whipping boy” who handles the Boeing dirty laundry.
If Muilenburg feels any kind of criminal indictment, he will switch camps and become a protected witness for the government prosecutors. Boeing knows that very well. So, as long as he continues to play by Boeing’s game-plan he has a healthy financial future…even if he eventually goes away to “spend more time with the family” after MAX gets back into the air.
Boeing’s board, which includes Muilenburg, knew what they were doing when they calculated the risks vs profit, knew there was a significant single failure point, but moved forward anyways. Because they had a 4,000 aircraft backlog, the profit vs financial risk was so juicy, convincing themselves to not only keep MCAS concealed , they permitted additional MCAS “enhancements” which exceeded original designed parameters…doing so without FAA approval.
They knew the certification freedom they had within current FAA regulations. And they, including Muilenburg, so took advantage of them, they had the haughtiness to conceal MCAS from the customer, the flight crews, and maintenance. As far as I am concerned, Boeing’s discussion in the back rooms with the lawyers present included…if MCAS goes south, the finger-pointing goes to maintenance, lack of stick and rudder pilot skills, cheap foreign operators, and lack of FAA oversight. If a smoking hole results from this MCAS action, then and only then, Boeing’s board could add the rhetoric that their ultimate concern is their employees and public safety, it was a software issue that surprised us all, gee, we didn’t anticipate this, we are so sorry about your loss, I thought we told you, etc. Boeing’s board is only sorry they got caught.
By their fruits we shall know them. And their fruit stinks and getting worse by the day.
Wow.
I was not aware that Boeing’s board of directors participates in critical design reviews.
Besides yourself, who knows about this?
If I can recommend an informative podcast. https://www.flightradar24.com/blog/avtalk-episode-69-a-special-737-max-update/
It was recorded just before Muilenburg testified to Congress, so dated in that regard, but the guest “The Air Current” editor-in-chief Jon Ostrower, breaks down the Joint Authorities Technical Review and the final report from Indonesian investigators on Lion Air flight 610.
He also points out an economic reality for the global Airline/Airliner supply and demand. Airbus production capacity is committed through 2025. These airlines that chose Boeing need all these Max aircraft. The ones that are grounded, the batch that have been completed waiting for the grounding to lift, plus all the aircraft not yet completed and the ones ordered not yet started. Baring a significant global slowdown.
Yars…Do you really think the changes to MCAS increasing speed and stab throws came from the engineering department, incorporated into production, bypassing the FAA certification on the changes, with MCAS purposefully concealed from initial customers, crews, and maintenance without the board’s knowledge? If that is true, Boeing is more rogue than any of us have anticipated with several out of control departments making independent design and certification decisions whenever and where-ever they wish.
I, like you, am speculating how a company the size and scope of Boeing allowed this to happen. After reviewing the congressional testimony, and all the information I have seen, my conclusion is the Board was complicit and highly motivated to go down the path they chose. No, I did not have access to these discussions. However, even with some internal warnings Boeing went forward with those changes which confirms much higher level approvals to accomplish. If my conclusions are too dogmatic for you, I understand. Frankly, I hope I am wrong. Unfortunately, I don’t think I am.
Jim:
Corporate Boards sometimes create cultures. More often, they merely tolerate them. It’s pretty clear (to me) that the culture in Boeing’s engineering corps tolerated incompetence. Less clear is whether a cost-focused culture of the company at large ENCOURAGES incompetence – much less, directs it.
IMWO, this does not absolve Boeing’s Board of their responsibility to discover and correct any matter of flawed culture(s) within the company.
“Corporate Boards sometimes create cultures. More often, they merely tolerate them.” Very true. I’m not sure I would accuse their engineers of incompetence, just guilty of poor judgement and lousy internal communications. The Board encouraged a culture of “just get the planes certified and out the door. We’ll fix any problems along the way.” They were (still are) so focused on maximizing profits that they really did not want to know of any problems unless they threatened the production schedule. In a major corporation, the Board lives in an ivory tower and rarely ever digs into the fine details of what happens on the shop floor. As long as the product is moving and profits are rolling in, they really don’t care about the rest. That encourages mid-level managers to deal with problems and not rock the boat. I suspect the BOD will throw several managers under the bus and blame it all on them to deflect their own culpability. It will be interesting to see if Congress subpoenas any of the managers to testify as to what the Board actually knew.
At the annual meeting, all the directors will have to stand for reelection. If an activist investor or two with a large number of shares threatens a big public fight, Muilenburg may well be forced to step down so the rest of the board keeps their cushy jobs. After all, Boeing will have to write down all the costs associated with this mess, and that drops directly to the share price and loss of dividends. They have also tarnished Boeing’s reputation, which effects future income. Big investors can get pretty grumpy when that happens.
“I’m not sure I would accuse their engineers of incompetence, just guilty of poor judgement and lousy internal communications.”
The MCAS was designed and manufactured as a “lather, rinse; repeat” product, with authority to command full nose-down trim. Under what circumstances is full nose-down trim REQUIRED? Coding 101: no requirement; no authority.
As I opined: incompetence.