Dave Calhoun, Chairman of Boeing
Adam Jeffery | CNBC
Boeing’s new CEO Dave Calhoun had a challenging first day running the company — a debt downgrade warning and outcries from lawmakers over his potential bonus.
The decade-long Boeing board member took the reins on Monday, tasked with cleaning up the company’s image, internal culture, relationship with regulators and airlines, as well as Boeing’s finances after two fatal crashes of its best-selling plane, the Boeing 737 Max.
Calhoun, a veteran of General Electric aviation and Blackstone Group, will receive a $7 million bonus if he gets regulators to clear the Max to fly again, among other performance targets, the company said. That drew the ire of some lawmakers who have criticized the company for sacrificing safety to make airplanes a better sell — and rewarding executives for it.
“This payment represents a clear financial incentive for Mr. Calhoun to pressure regulators into ungrounding the 737 Max, as well as rush the investigations and reforms needed to guarantee public safety,” Democratic Sens. Edward Markey of Massachusetts, Richard Blumenthal of Connecticut and Tammy Baldwin of Wisconsin wrote to Boeing’s board on Monday. “We believe that this bonus would be unconscionable in the face of two tragic plane crashes and proof that Boeing has not learned its lesson.”
Boeing is scrambling to win regulatory approval of the planes, but Calhoun has taken a more conciliatory approach with the Federal Aviation Administration after former CEO Dennis Muilenburg made overly optimistic statements about when the jets will be approved frayed the relationship between the two and contributed to Muilenburg’s firing last month.
The planes are Boeing’s best seller and the worldwide grounding, now in its 11th month, has cost airlines more than $1 billion in revenue and Boeing more than $7 billion. Those costs are likely to rise as airlines continue to push back the Max’s return date on their schedules. On Tuesday, American joined United in pulling the planes from its schedules until early June.
Boeing defended Calhoun’s potential bonus, saying it “is based on the fact that the safe return to service of the 737 MAX is our top priority.” It will also take several years to fully vest, meaning he won’t be able to take it with him unless he stays at the company.
“This includes following the lead of our regulators and working with them to ensure they’re satisfied completely with the airplane and our work,” the company said in a statement. “The Board and CEO are in full agreement that the safe return to service of the 737 MAX must be done with full regulatory oversight.”
Hours after the statement, Moody’s Investor Services said it is putting Boeing’s debt on a 90-day review for a possible downgrade, less than a month after cutting its credit rating by one-notch, as the crisis wears on longer than expected. The lower the credit rating, the more expensive it is for a company to raise money from investors in the debt market.
“Recent developments suggest a more costly and protracted recovery for Boeing to restore confidence with its various market constituents, and an ensuing period of heightened operational and financial risk, even if certification of the MAX comes relatively near-term, as expected,” wrote Jonathan Root, Moody’s lead Boeing analyst.
Moody’s also downgraded the debt of 737 Max supplier Spirit Aerosystems to junk territory, after the Wichita, Kansas-based company that makes fuselages for the planes said it would cut at least 2,800 jobs.
On Tuesday, Boeing posted more bad news. For the first time in decades, the company’s commercial airplane business lost orders over the course of an entire year, a stark example of just how much the 737 Max crisis has hurt the company.
For all of 2019, Boeing lost orders for 87 commercial airplanes, meaning it had more cancellations than new purchases, the company said Tuesday. The final tally included the cancellation of three orders in December when customers changed plans to buy 787 Dreamliners.
A Boeing spokesman said he wasn’t sure when the company last lost commercial plane orders for the year, but “it definitely has not happened in the last 30 years.”
–CNBC’s Phil LeBeau contributed to this article.