Boeing (NYSE: BA) is in a bad state right now. Between doors falling off airplanes, spacecraft getting stranded at space stations — and now, a strike by 33,000 machinists at the company’s core commercial aircraft business — the last thing Boeing needed was drama at the company’s defense division, which (in theory at least) is supposed to provide ballast to the business when things go awry on the commercial side.
Yet, drama is exactly what Boeing is getting.
So long, CEO
Last month, Boeing reported a revenue miss, a $2.33 per share loss, and $4.3 billion in quarterly cash burn in its second-quarter financial release. No sooner had that news come out, moreover, than Boeing dropped its next bombshell: Announcing that CEO Dave Calhoun would retire, to be replaced by former Rockwell Collins exec Robert K. “Kelly” Ortberg.
However, this was only the first management shoe to drop. Last week, in a memo circulated to Boeing staff, the new CEO announced that Boeing is also losing its head of Boeing Defense. Ted Colbert, who’s been with Boeing for 15 years, is stepping down from running the division. He will be replaced by his chief operating officer Steve Parker, who will run BDS on an interim basis.
Curiously, Boeing seems to be trying to play down the move. On the company’s various press release pages, the only news out since Sept. 20 — the day The Wall Street Journal reported on Colbert’s departure — is an announcement of the first flight of a new British E-7 Wedgetail AWACS plane (built, coincidentally, by Boeing Defense).
Nevertheless, the Journal‘s reporting seems solid. On a website run by the Securities and Exchange Commission, at least, Boeing did file a one-line update confirming that Colbert has “ceased to serve as an elected officer of The Boeing Company and as President and Chief Executive Officer of Boeing Defense, Space & Security.”
What this means for Boeing investors
This isn’t great news for investors.
On the one hand, the man primarily responsible for growing Boeing’s defense and space businesses — but who’s actually overseen stagnation at the division for the last five years — is no longer in charge. Since 2019, revenues at the BDS unit have barely budged (actually, they sank 4.5% through last year), while operating earnings flipped from a $2.6 billion profit to a $1.8 billion loss (according to data from S&P Global Market Intelligence).
So in theory, removing Colbert from leadership should be good news for Boeing investors. However, Boeing choosing Colbert’s No. 2 to take over at defense and space — even if only temporarily — doesn’t necessarily inspire confidence that things will now change for the better.
It’s going to take more than waving a wand, or changing an office nameplate, to reverse years of Boeing decisions to bid low to win unprofitable defense contracts. And Boeing’s space business may have even more serious problems. If you recall, it was only a few months ago that NASA’s Office of Inspector General blasted Boeing for trying to build reliable spaceships when it suffers from “a lack of a sufficient number of trained and experienced aerospace workers.”
Forgive the bluntness, but these are the kinds of problems that Boeing will need years to fix.
What Boeing investors can expect next
There is one quick fix that Boeing could implement: It could sell its defense and space business, so that all of the above becomes somebody else’s problem in a single stroke. But while some industry experts have suggested this is what Boeing will do, I’m no longer so sure.
If Boeing had, for example, fired Colbert and then immediately replaced him with an exec with a mergers and acquisitions background — someone who might be relied upon to shepherd a division like BDS through a spinoff or sale — that would make sense. But firing Colbert without having a permanent replacement handpicked and ready to take over? That doesn’t sound to me like a sale is in the offing.
At this point, investors probably have to just cross their fingers and hope Boeing takes its time finding the right turnaround specialist — not an M&A specialist — to take the reins at BDS. Even once Boeing does find the right executive, investors need to be prepared to wait a while for the turnaround to take hold.
Boeing didn’t get into its present dilemma in a day. It’s going to take time — years, most likely — to repair the damage that’s been done.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Boeing’s Going, and Its Defense Boss Is Already Gone was originally published by The Motley Fool
