The Two Men Behind the 787
Boeing's Jim McNerney and Alan Mulally, Now at Ford, Pushed for the Dreamliner
Jon Ostrower And Joann S. Lublin
Two prominent U.S. chief executives have big bets riding on the outcome of Boeing Co.
's crisis with its 787 Dreamliner, the first jetliner model grounded by U.S. regulators since 1979. Two U.S. CEO's have a lot riding on the Boeing's 787 Dreamliner, the first plane grounded by U.S. regulators since 1979. WSJ's Jon Ostrower tells us why Boeing CEo Jim McNerney and Ford CEO Alan Mulally have the most at stake. Photo: Getty Images.
The man with the most at stake is Jim McNerney, Boeing's chairman and CEO since July 2005, who presided over the Dreamliner's problem-plagued launch. Sharing paternity for the 787 is Alan Mulally. He oversaw the plane's conception and early development as head of Boeing's commercial airplanes division before departing to become head of Ford Motor Co.
in 2006. Investigators in the U.S. and Japan are probing what caused lithium-ion batteries to burn on two Dreamliners owned by Japanese airlines, triggering the grounding. It's unclear when the 50 787s now in service globally will be able to fly again. A prolonged delay could disrupt plans to accelerate 787 production that are important to the financial future of Boeing, the world's biggest commercial plane maker and the No. 1 U.S. exporter. Mr. McNerney has kept a low public profile since a Jan. 7 battery fire on a parked Japan Airlines Co.
Dreamliner triggered the current crisis. His only public comment has been three brief written statements expressing confidence the plane is safe and promising to work with regulators to find out and address what went wrong. Commercial airplane chief Ray Conner was dispatched to represent Boeing at a Jan. 11 news conference with senior U.S. government officials, and Mr. McNerney has assigned Mr. Conner and other executives to handle much of the contact with airlines, according to a person familiar with the customer conversations. Live Stream Behind the scenes, Mr. McNerney has been actively involved in other ways, according to Tom Downey, Boeing's senior vice president of communications. The CEO has met with FAA chief Michael Huerta, and Mr. McNerney is running daily meetings on the status of the investigations and being updated regularly. He is also conferring with outside technical experts on the electrical issues to supplement the work of hundreds of Boeing experts assigned to the problem, Mr. Downey said. Friends of Mr. McNerney say the low profile is consistent with his style throughout his career, which included a stint heading the aircraft engines unit of General Electric Co.
, where he was the runner-up to Jeff Immelt in the race to succeed Jack Welch as CEO. "He is cool. He is not emotional about things," Mr. Welch said in an interview. But some governance specialists think the Boeing CEO should be more visible. The Dreamliner mess "is a huge hit to the company," says Richard Leblanc, who teaches law, corporate governance and ethics at York University's School of Administrative Studies in Toronto. "For a CEO under fire, firing off a press release is wholly inadequate." Through a spokesman, Mr. McNerney declined to comment. The company says Mr. Conner appeared at the Jan. 11 news conference at the FAA's request because as the head of jetliner production he is Boeing's main liaison to the regulator. Timeline: Dream Diverted
Rewired
Mr. McNerney, who moved to 3M Co.
as CEO after losing out to Mr. Immelt, joined Boeing's board in 2001. Two years later he joined the other directors in unanimously approving plans to proceed with the Dreamliner. The plane represented a big bet on new technology for Boeing: The plane's lightweight frame was to be built using mostly carbon-fiber composites, and it was to have an enhanced electrical system to power more systems and use less fuel than other jets. At the time, Boeing had cut back investment in new products. Mr. Mulally, then head of Boeing's commercial airplanes operation, had to persuade CEO Harry Stonecipher and others to pursue a costly, all new aircraft. Mr. Mulally's previous project, the 777, introduced in 1995, was considered a success but had cost twice as much as originally planned. Mr. Stonecipher and his allies were reluctant to commit to a new jetliner unless the cost fell by billions of dollars. Mr. Mulally was "under terrible financial constraints from Chicago" to cut the price tag of an all-new airplane, says Aaron Gellman, a professor at Northwestern University's Kellogg School of Management who has known Mr. Mulally for decades. ENLARGE
W. James McNerney Jr. Boeing CEO since July 2005
63 years old; born in Providence, R.I., and grew up in the Chicago suburbs Education: B.A., Yale, 1971; M.B.A., Harvard, 1975 Résumé: CEO of 3M (2001-2005), GE executive (1982-2001); current director of Procter & Gamble and IBM 2011 Pay: About $23 million, including bonuses, base salary and incentive compensation Mentor: his father Walter McNerney, former CEO of Blue Cross/Blue Shield Source: the company
During a 2003 board meeting, Mr. Mulally and Dreamliner program chief Mike Bair made a strong pitch to launch the 787 project, recalls a former Boeing director. "Mulally was an optimist" about how much money the new plane could make, but Mr. McNerney and fellow directors were skeptical, the ex-board member says. They nevertheless agreed to go ahead, figuring that "it's a wonderful plane. If we get half of that (projected) return, we would be delighted," according to the former director. In response to the pressure to reduce costs and risks, Boeing spread out the Dreamliner's construction and design over a larger network of global suppliers than in earlier phases, requiring them to share costs and use their own capital for factories and equipment. More Video: 787's Innovations Come With Problems Probe of 787 Fire Continues Science Behind Dreamliner's Batteries Dell CEO Has Dreamliner on Order Japan: No Evidence Boeing Dreamliner Battery Was Overcharged 1/23/13 Large Boeing Buyer Praises Communication 1/22/13 And in summer 2005, it hired Mr. McNerney as CEO, succeeding an interim chief after Mr. Stonecipher, who had resigned suddenly because of an affair with a subordinate. A short while later, Mr. Mulally, who had also been a contender for the CEO job, left. Boeing soon stumbled as a string of supply-chain and design delays pushed back delivery of the Dreamliner by 3½ years. "We are trying to witch-hunt the issues in this program right now," Mr. McNerney told investors in October 2006 as the problems became apparent. The delays strained the company's credibility with customers and investors and hurt the bottom line. Boeing initially set a goal of keeping 787 costs to about $5 billion. Barclays Capital conservatively estimates the program ended up costing around $14 billion, not including the penalties Boeing has had to pay customers for late deliveries. While Mr. McNerney had approved the Dreamliner's heavily outsourced business model as a director, his allies say that much of the 787's initial difficulty was beyond his control. The former Boeing director and other industry officials say that Mr. Mulally was aggressive about fulfilling the timetable for the plane. "The outcome would have been dramatically different if he had stayed," the former board member adds. But the ex-director said that ultimately the commitment to deliver the 787 by 2008 was a mistake that "cost Boeing a lot of money." ENLARGE
Boeing showed off its Dreamliner to President Obama at a Boeing facility in Everett, Wash., last February. Above, CEO Jim McNerney waits to speak
Ford spokesman Jay Cooney said "it would not be appropriate" for Mr. Mulally to "comment on Boeing's business operations." Last week, Mr. Mulally voiced confidence in the 787. "Clearly, I haven't been at Boeing for six years now, but I will assure you that the 787 is going to change the flying experience again, just like every other Boeing airplane," he said at the Detroit auto show. "New airplanes are very hard; the issues that they're having right now in the big scheme of things are relatively small." In 2008, as problems and delays continued to mount for the Dreamliner, Mr. McNerney toured several of Boeing's key suppliers. At one plant, which made part of the fuselage, he asked managers what was keeping their production line from moving. They told him they were waiting on a part that Boeing itself made. Mr. McNerney expressed surprise, according to someone present at the meeting. Mr. McNerney has conceded that Boeing went too far in spreading out the 787's supply chain. "We got a little bit seduced that it would all come together seamlessly and the same design rules would be applied everywhere in the world and corners wouldn't be cut and financial realities wouldn't hit certain folks," Mr. McNerney told an audience at an event in September. To hasten completion of the complicated new aircraft, the CEO aggressively replaced key managers. Mr. Conner is the third head of the commercial airplanes division since Mr. Mulally left. Mr. McNerney also acquired several subcontractors in North Charleston, S.C., setting the company on a major expansion outside of its traditional Seattle commercial base. It's still unclear whether Boeing's supply-chain decisions over the years played a role in the firm's Dreamliner difficulties. Aviation officials in the U.S. and Japan are trying to determine if the two major incidents this month were caused by malfunctions in the lithium-ion batteries or if some other part of the electrical system was at fault. Boeing's investors have held relatively steady in recent weeks, with the share price down just 3% since the crisis began. Still, the stock has been lackluster during Mr. McNerney's tenure, rising about 14% in the 7½ years since he took over, less than half the increase in the Dow Jones Industrial Average, of which Boeing is a component. In late spring 2011, Mr. McNerney told fellow directors that they "ought to be ready" to replace him when he turns 65 in August 2014, the former Boeing director says. Some Boeing watchers thought he might stay beyond that mandatory retirement age. But the CEO role is a "brutal job" requiring considerable stamina, and Mr. McNerney may find it "scary if the (787) fleet is down for several months," the ex-director says. Write to Jon Ostrower at  and Joann S. Lublin at  43