Another Reason To Fire Boeing’s CEO

April 25, 2011 by Douglas A. McIntyre

W. James McNerney, Jr., Boeing’s (NYSE: BA) Chairman and CEO, has hung onto his job since July 2005. The company’s flagship Dreamliner has been delayed at least a half a dozen times over that period and may finally be delivered to customers later this year. Many Boeing customers, who counted on the fuel-efficient airplane to replace aged fleets, are understandably angry at the planemaker. The replacement process is even more necessary as fuel prices rise.

The final release of the Dreamliner should have ended the troubled firm’s long struggle to turn itself around.  But McNerney now faces two more disasters. The National Labor Relations Board will try to force the airplane manufacturer to move many production jobs for the Dreamliner from South Carolina back to Washington state. The Washington facility is unionized while the one in South Carolina is not. The move would force Boeing to spend more to build the planes and would partially close a plant which cost Boeing several hundred million dollars to build.

The labor issue is not the only new one McNerney faces. The Wall Street Journal reports that Boeing manufacturing problems may have caused weaknesses in the fuselages of 737s. One of the planes, in service for Southwest Air (NYSE: LUV), had a hole torn in it during a recent flight. The global fleet of the aircraft are currently under inspection. The paper reports, “the federal probe increasingly is focused on some type of assembly-line lapse—a rare occurrence in modern aircraft production— that would explain an incident that stunned the airline industry and worried travelers.”

The potential 737 assembly line problem is probably 15 years old, but no subsequent tests by Boeing caught the problem. Airlines may have legal recourse to force Boeing to for the absorb the costs of repairing the planes and to reimburse them for the time they are out of service.

It has not taken many mistakes to cost CEOs their jobs. That includes the head of PG&E Peter Darbee and Donald Blankenship of Massey. Boards may be taking their fiduciary responsibilities more seriously, or they may have developed greater concern if the stock prices of their firms have not grown as the market had stepped sharply higher. Boeing’s share price is off 10% over the last five years. The DJIA is higher by 10% over the same period. And, Boeing’s stock value is likely to be pressured by the new labor and 737 problems.

There are a number of reasons to let McNerney go and nearly none to keep him.

Douglas A. McIntyre