Boeing (NYSE:BA) is currently in a poor condition. Between doors falling off planes, spacecraft stranding on space stations — and now a strike by 33,000 engineers at the company’s commercial aircraft operations — the last thing Boeing needed was drama at the company’s defense division, which (in theory at least) ) should give the company ballast if things go wrong on a commercial level.
Yet drama is exactly what Boeing gets.
Goodbye, CEO
Last month, Boeing reported a drop in revenue, a loss of $2.33 per share and cash burn of $4.3 billion per quarter in its second-quarter financial release. Moreover, once that news broke, Boeing dropped its next bombshell: announcing that CEO Dave Calhoun would retire and be replaced by former Rockwell Collins CEO Robert K. “Kelly” Ortberg.
However, this was only the First management shoe to drop. Last week, the new CEO announced in a memo distributed to Boeing employees that Boeing is also losing its head of Boeing Defense. Ted Colbert, who has worked at Boeing for fifteen years, is resigning as leader of the division. He will be replaced by his Chief Operating Officer Steve Parker, who will lead BDS on an interim basis.
Strangely enough, Boeing seems to be downplaying this move. The company’s various press release pages contain the only news since September 20: that 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 aircraft (coincidentally built by Boeing Defense).
Nevertheless, the Magazine‘s reporting seems solid. On a Securities and Exchange Commission website, Boeing filed at least a one-line update confirming that Colbert “is no longer serving 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 is not great news for investors.
On the one hand, the man primarily responsible for growing Boeing’s defense and aerospace businesses — but who has effectively overseen the division’s stagnation for the past five years — is no longer in charge. Since 2019, revenues at the BDS unit have barely risen (in fact, they were down 4.5% through last year), while operating profits fell from $2.6 billion gain to $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 in defense and aerospace — even temporarily — doesn’t necessarily inspire confidence that things will now change for the better.
It will take more than waving a wand or changing an office nameplate to reverse Boeing’s years of decisions to bid low to win unprofitable defense contracts. And Boeing’s aerospace business may have even more serious problems. You’ll recall that it was just a few months ago that NASA’s Office of Inspector General blasted Boeing for trying to build reliable spaceships while the company faces “a lack of adequately trained and experienced aerospace workers.”
Forgive the bluntness, but these kinds of problems will take Boeing years to solve.
What Boeing investors can expect next
There’s one quick fix that Boeing could implement: It could sell off its defense and aerospace businesses, making all of the above suddenly someone else’s problem. But while some industry experts have suggested that’s exactly what Boeing is doing shall do, I’m not so sure anymore.
For example, if Boeing had fired Colbert and then immediately replaced him with an executive with a background in mergers and acquisitions—someone who could be expected to guide a division like BDS through a spinoff or sale—it would make sense. But firing Colbert without selecting a permanent replacement ready to take over? That doesn’t seem to me like a sale is in the offing.
At this point, investors should probably just cross their fingers and hope that Boeing takes the time to find the right turnaround specialist – not an M&A specialist – to take the reins at BDS. Even Boeing once do To find the right driver, investors must be willing to wait a while for the turnaround to materialize.
Boeing did not find itself in its current dilemma overnight. It will take time – most likely years – to repair the damage 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
