Friday, February 22, 2013

Chief of Embattled Boeing Steers Clear of the Spotlight

CHICAGO — The cutting-edge jetliners Boeing Co. had bet its future on sat grounded, unsettling images of passengers on escape chutes splashed across TV, when Chief Executive Jim McNerney sent handwritten apologies to the chairmen of the airlines whose 787 Dreamliner batteries went up in smoke.

Around the same time last month, he discreetly persuaded the CEOs of General Motors and General Electric to lend Boeing their best electrical experts, and quietly met with the head of the Federal Aviation Administration.

With his storied company facing the biggest crisis of his eight-year tenure, Mr. McNerney is wagering that it is better to disappear behind the scenes to try to fix the problem than to be out front reassuring the public.

"I'm the one who has to stand up with absolute confidence when Boeing proposes a solution to enable this technology for the world," he said during an exclusive interview in his Chicago office. "And the only way I know how is to dive in deeply with the people doing the scientific and technical work."

The company is expected to submit a proposal to the FAA on Friday seeking approval for fixes that Boeing hopes will return the planes to the skies, and plans to meet with Japanese air-safety authorities next week. The proposal sets an ambitious timetable calling for passenger flights to resume as early as mid-March.

The stakes couldn't be higher.

"This airplane is our near- and medium-term future, and ultimately speaks to our reputation and our brand," Mr. McNerney said during one of two interviews in which he detailed what he and his senior executives have been doing since the crisis erupted. His desk was covered with detailed drawings of Dreamliner systems, which he turned facedown.

Boeing continues to build five 787s per month, even though it can't deliver or get fully paid for any of the planes—which list for about $200 million—until the Dreamliner is recertified to fly. In a meeting Wednesday at the Everett, Wash., assembly plant, Mr. McNerney told his senior executives: "We'll have a lot of 787s stacking up around here if we don't get this done sooner rather than later."

At the same time, Boeing's airline customers, who have been forced to cancel hundreds of flights, are increasing the pressure on the chief executive to detail plans to bring their Dreamliners back into service.

The lithium-ion-battery meltdowns have been a public-relations debacle for the company. Two 787s started smoking, and passengers on one of them escaped on emergency slides after landing in Japan. Airline-safety officials in the U.S. and Japan displayed burned-up lithium-ion batteries and regulators world-wide grounded the entire fleet. It was the FAA's first jetliner grounding since 1979.

Mr. McNerney has taken some flak for not doing more to inform investors and the public what he has been doing to solve the problem. "He's not been front and center when there's a lot of fear that this battery problem could be more than a minor glitch," said aviation consultant Richard Aboulafia, vice president of Teal Group. "When you launch only one new jet a decade, you need someone in the public eye taking personal control, rather than raising more questions about how long until the 787 planes will fly."

Boeing's board has been supportive of its CEO's approach. "Jim is doing exactly what he should be doing," said lead director Kenneth Duberstein. "He is out front right now with the constituencies that matter—the customers, the regulators, the employees and the suppliers."

Mr. McNerney, who is 63 years old, came to Boeing in 2005 after running 3M Co. He was raised in a family of five children, and his father was CEO of Blue Cross/Blue Shield. Mr. McNerney had been a varsity pitcher at Yale University and fraternity brother of former President George W. Bush. After earning a Harvard M.B.A., he worked in marketing at Procter & Gamble and management consulting at McKinsey & Co., then moved up the ranks at General Electric, where he ran several divisions, including one that built airplane engines. After losing the horse race to succeed Jack Welch as GE's chief executive, he moved to 3M and became a Boeing director.

When Boeing brought him in as chief executive, it was reeling from corruption probes, the loss of defense contracts, weakness in its commercial-jet business and the resignation of two consecutive CEOs. The defense business represented half of Boeing's revenue. To build the airliner business, Mr. McNerney pushed the development of the 787 Dreamliner. It was designed to be a game-changing passenger jet—more fuel-efficient than competitors, with a lightweight frame made of composite materials and an electrical system using powerful lithium-ion batteries.

Orders poured in, and last year Boeing surpassed Europe's Airbus as the leading aircraft manufacturer in the world by number of planes ordered and delivered—the first time it held the top spot in a decade.

The Dreamliner was plagued with delays, which Boeing chalked up to design changes and production outsourcing. Nevertheless, Mr. McNerney presided over a DreamTour last spring, including a black-tie gala at Reagan National Airport in Washington. By early January, 50 planes had been delivered.

"I was beginning to feel better," Mr. McNerney recalled. "And then—bang."

On Jan. 7, Mr. McNerney was told to turn on the television in his office. He saw a Dreamliner owned by Japan Airlines at the gate at Boston's Logan Airport. Smoke was coming out of the cargo area and firefighters were rushing to the empty plane. He got on the phone with Ray Conner, his commercial-airplane head, and chief technology officer John Tracy. They suspected "foreign object debris" or the 787's electrical panels, which had experienced two in-flight incidents in December.

The National Transportation Safety Board sent investigators. When Boeing's engineers were allowed aboard the next day, they saw firsthand that the fire was limited to the lithium-ion-battery unit.

Mr. McNerney said he was surprised: "We had tested the hell out of" the battery, he said.

Mr. McNerney spearheaded the company's probe, but other executives spoke publicly. The Dreamliner's chief engineer, Mike Sinnett, held conference calls with analysts, investors and the media. Mr. Conner attended a news conference with Transportation Secretary Ray LaHood and FAA chief Michael Huerta announcing a joint review of the 787 systems by the agency and Boeing. Mr. McNerney issued a statement pledging company support and cooperation, adding that Boeing stands "100% behind the integrity of the 787."

Over the next week, Mr. McNerney and his team reviewed the prior battery testing. The batteries, each with eight cells, had shown no problems over 2.2 million cell-hours of operation, both on the ground and during 50,000 flight hours. The team devised a plan to assess the electrical system. Mr. McNerney set up a private meeting to brief the FAA chief. Separately, Mr. McNerney spoke to board members and customers.

On Jan. 15, Mr. McNerney got home at 6:30 p.m., set out some fish he planned to bake and changed into workout clothes. Suddenly, his cellphone started vibrating with a string of messages: "Another battery fire." "Smell in cockpit." "Smoke in electric bay." "Plane diverted in Japan."

He called Mr. Conner and told him: "The battery problem isn't a one-off anymore."

The fish stayed uncooked as he worked the phones and watched news reports of All Nippon Airways passengers descending slides after an emergency landing in western Japan.

The following day, Mr. McNerney slipped into Mr. Huerta's FAA office, unnoticed by journalists. The meeting swiftly turned grim as it became clear the FAA likely would halt all 787 flights.

In Chicago the next day, Mr. Tracy, the chief technology officer, told Mr. McNerney that "nothing that happened posed a risk to the plane or the passengers," according to both men.

Mr. McNerney banged his hands on his desk. "Do you understand the meaning of what we're dealing with here?" he recalled saying. The issue isn't just "electrochemistry in a battery…It's about the safety and confidence in our planes and our brand. And it can't happen again."

Mr. McNerney called his counterparts at GE, GM and other companies to ask for help from their top battery and electrical experts. "I wanted to make sure the world's technical experts were focused on this problem with us, because ultimately the credibility of our solution will depend not only on us," but would need their "imprimatur," he said recently.

He recalled telling one of his daughters he couldn't attend her horse show because "this is a tough problem for Dad right now." An avid ice-hockey player, he skipped his team's trip to Minneapolis for the annual pond-hockey national championship.

On Jan. 25, he traveled to Washington for the annual formal dinner of the Alfalfa Club, a group of political and business leaders. Mr. McNerney, head of the Business Roundtable, a group of top CEOs, told various attendees that Boeing was working hard to solve the problem.

He faced investors and analysts on a Jan. 30 conference call to discuss fourth-quarter financial results. He told them the operating performance was strong and that Boeing was moving to increase 787 production to 10 per month, from five, and to develop two more Dreamliner versions. He deflected questions about the potential fallout of the battery problems, saying: "I can't predict the outcome, and I'm not going to. We're in the middle of an investigation."

Some listeners weren't satisfied. "Investors weren't looking for him to reveal the details of investigation, but were certainly looking for a discussion of the what-if's," said Carter Leake, aerospace analyst for BB&T Capital Markets. "Investors were left twisting in the wind without any visibility to the timing or cost of the ultimate fix."

A Boeing spokesman said that its guidance assumed no impact from the 787 groundings and that it would update investors "as necessary." Boeing's share price has held fairly steady through the crisis, closing Thursday at $76.01 in New York Stock Exchange trading.

As the crisis dragged into its third week, Mr. McNerney flew to Seattle to check on progress at Boeing's commercial-aircraft unit. At his hotel suite on Feb. 4, he recalled, he grilled his team for three hours, pressing for "high analytical probabilities" on the likely cause and for "multiple layers of protection" for the plane.

The next morning, he visited the nearby Everett production facility, where two Dreamliner war rooms, called "Root Cause/Corrective Action" and "Return to Flight," had been set up. In one room there was a "fault tree" of possible triggers for the battery failures. Of the 88 initial branches, fewer than six branches were circled in red, orange or yellow as likely causes. He studied a graph showing temperature compared with voltage. "Why aren't you more focused here?" he asked.

The war rooms also focused on potential equipment modifications, such as on battery inputs and containers. Mr. McNerney asked about laboratory testing, then proceeded to the plant floor, where he squeezed his 6'2" frame into the small electric bay of one 787 to see how a redesigned battery unit would fit.

Before leaving the plant, he pulled aside Messrs. Conner and Tracy and said, "Good progress, but turn up your game. You understand that, right?"

Two weeks ago, Boeing began officially notifying customers about delays on Dreamliner deliveries.

This week, Mr. McNerney is facing the possibility that investigators may never find the root cause of the battery meltdowns. But he said the team has grown confident it has identified "all probable causes."

On Wednesday, Mr. McNerney reviewed the final details of the modified battery and new safeguards Boeing plans to propose to the FAA on Friday. It is seeking permission to conduct test flights to validate the changes, which could eventually lead to the resumption of regular flights.

Airlines forced to cancel flights and postpone the opening of new routes are growing impatient. The parent company of United Airlines, for example, said Thursday it is keeping its 787s from nearly all flight schedules through June 5, but remains hopeful it can start a new Denver-Tokyo service with the jet in May.

Mr. McNerney just approved plans to have Boeing repair crews ready to be dispatched around the world to install modified batteries and make other changes—as soon as the FAA gives the word.

No comments:

Post a Comment