Boeing Commercial Airplanes chief executive Ray Conner is stepping down from that role, replaced immediately by General Electric senior executive Kevin McAllister. In addition, executive Stan Deal steps up to a companywide role as Boeing pushes further into aftermarket services.
For the first time in Boeing’s history, it is going outside the company to find a replacement for the CEO of its Commercial Airplanes division.
In a surprise move, Boeing announced Monday that Ray Conner will step down immediately from that position, and the new boss of some 78,000 Boeing Commercial employees will be senior General Electric executive Kevin McAllister.
“Choosing someone from outside is a bold move, uncharacteristic of Boeing,” said John Luth, chairman and chief executive of Seabury Group, a major consulting firm to the aviation world.
Conner, 61, will stay on as Boeing vice chairman through the end of next year, helping with the transition and completing a 40-year career at Boeing.
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For remaining until then, he’ll get an added bonus worth more than $7 million.
Speaking in a press teleconference from the renovated 737 jet-delivery center at Boeing Field in Seattle on Monday afternoon, company Chairman and Chief Executive Dennis Muilenburg expressed gratitude for Conner’s leadership.
“He led us through a tremendous period of commercial-airplane growth, oversaw the development of several new airplanes and deepened our presence in the Puget Sound community,” Muilenburg said.
However, Conner also oversaw a sharply negative turn in Boeing’s relations with local unions.
McAllister, 53, a graduate of the University of Pittsburgh, with a bachelor’s degree in materials engineering, joins Boeing after 27 years with GE Aviation.
He is well-known among executives in the aviation world as president and chief executive of GE Aviation Services, a $9 billion business that supports the operators of more than 34,000 GE commercial-jet engines.
An additional announcement Monday offers a clue as to why McAllister was chosen.
Muilenburg said Boeing will combine the aftermarket-services units of its commercial-airplane and defense businesses, in a major push to grow its revenue from services such as spare parts, modifications and flight-data analytics.
He said the goal is to triple services revenue from just north of $15 billion today to an “aggressive, high-bar target” of about $50 billion in 10 years time.
Luth said Boeing has repeatedly stated that its “sales and profitability in the future are going to be driven by ancillary business lines.”
“That was a major focus of McAllister in his position at GE Aviation,” said Luth. “Choosing him … provides some clear new leadership in developing those lines of business.”
Conner’s leadership record
When Conner became Commercial Airplanes chief in 2012, he was warmly welcomed by the Puget Sound-area workforce, and by the unions, as a local boy who had climbed from mechanic to airplane-program leader, then head of sales and finally the top job.
His tenure as leader coincided with a historic surge in the commercial-airplane business, with both record sales and record jet production from the local factories.
Though the order cycle has peaked — sales moderated last year and are well down this year — in each of the first three years of Conner’s leadership Boeing sold more than 1,200 airplanes and reached a record 1,432 orders in 2014.
Meanwhile, production climbed steadily to a record 762 jet deliveries last year.
Conner also presided over very significant Boeing investment in this region.
In 2013, Boeing opened a newly designed jet-delivery center in Everett and last year the expanded delivery center at Boeing Field.
It’s currently installing equipment in a new $1 billion advanced-manufacturing center in Everett, where it will build the carbon-fiber composite wings of the forthcoming 777X.
Perhaps the greatest challenge Conner faced as leader was the grounding of the 787 Dreamliner fleet worldwide for 14 weeks at the start of 2013.
He traveled to Japan to apologize and brief key customer airlines while Boeing’s engineers came up with a fix. Ultimately they did so, and Boeing dodged a bullet as the new jet returned to successful service.
Conner’s relations with the local workforce started exceptionally well, yet nose-dived later.
Because he began his career on the 727 jet program in 1977 as a unionized Machinist — he went on strike just months after he was hired — Conner initially enjoyed a big welcome from the unions.
The year before he took over as chief executive, he helped his predecessor Jim Albaugh negotiate a landmark deal with the International Association of Machinists (IAM) that extended their labor contract and ensured the 737 MAX would be built in Renton.
However, the warm glow from that deal died at the end of 2013, when Boeing pushed the IAM into another contract extension and froze the traditional pension of its members as the price of building the 777X in Everett.
Subsequently, Boeing management in Chicago began moving engineering jobs out of the Puget Sound region to other sites around the country, further lowering Conner’s standing with the unions.
Leaders of both the Machinist and the engineering unions declined to comment on his retirement.
In an interview with The Seattle Times last year, Conner acknowledged the deep rancor the 777X negotiations produced.
“Sometimes you have to make these tough decisions in order to make change,” Conner said then. “It was a very tough time. No question about that.”
He expressed hope that time would heal those wounds and pointed to the significant new investments in Renton and Everett as evidence that Boeing intends to stay here for the long term.
In 2015, the Boeing board granted Conner a special award of 50,000 shares “to encourage him to forgo an opportunity to retire in the near future.”
With that award vesting on Dec. 1, 2017, provided he stays at Boeing, it was expected he would retire about then.
Those shares are worth $7.35 million.
Earlier this month, Conner sold shares from a separate stock award, for a gain just short of $1 million. That left him still owning shares valued at about $20 million.
Boeing said Conner “will work in the months ahead on a purposeful hand-off … to ensure continuity of operations and customer support.”
He’ll be based at the local Renton headquarter in Longacres and report to Muilenburg.
The other move Boeing announced Monday will have a significant impact on the more than 20,000 employees who work in its customer-services businesses worldwide, including several thousand engineers locally.
Boeing said it will set up a new business unit called Boeing Global Services, headquartered in Dallas, that will combine the customer-services groups within Boeing’s two main divisions.
It will integrate about 11,000 support personnel in the commercial-airplanes unit with 13,000 more in the defense, space and security unit.
This new unit will be headed by Stan Deal, currently head of Commercial Aviation Services (CAS).
CAS provides the operators of more than 14,000 Boeing commercial jets flying around the world with spare parts, airplane modifications and repairs, maintenance services and flight services, including pilot training, navigational aids, crew scheduling and in-flight systems monitoring.
After airplanes are sold to airlines, they typically fly for more than 20 years, during which there is a constant need for such services.
As the airplane maker, Boeing is well positioned to win this business but has traditionally left much of it to third parties.
It competes with some major suppliers and airline customers such as Lufthansa, and has only about 7 percent of the market, behind GE with 10 percent.
“We have more headroom to grow,” Muilenburg said.
With jet sales now past the peak and expected to fall more sharply in the near future, Boeing is turning its focus to harvesting revenue from the growing in-service airplane fleet.
It’s an ambition the company has long harbored, with limited results. And it remains to be seen how much overlap it can take advantage of in providing services to commercial jets, fighter planes and military helicopters.
Deal, who will work closely with McAllister and defense chief Leanne Caret, led a major restructuring of CAS that since 2013 relocated jobs out of the Puget Sound region.
About 100 pilot-training jobs moved to Florida and more than 1,600 airline engineering-support jobs moved to Southern California.
Boeing declined to break down how many CAS jobs remain here.
On Monday, Muilenburg said the new unit’s Dallas headquarters will be “very thin,” no more than a couple of dozen people, and that “the vast majority of the work performed by Boeing Global Services is expected to remain at existing locations for the foreseeable future.”
He said the new unit will be fully operational in the third quarter of next year.
Trump and China
At the end of Monday’s teleconference, a question raised an issue from the presidential election.
In September, Ray Conner publicly challenged assertions by now President-elect Donald Trump, who had said while campaigning in South Carolina that soon Boeing would “make all their planes in China.”
Conner denied that and defended trade deals with China.
“We need to make the best agreements possible. But to shut our doors to the rest of the world would be a real problem,” Conner said.
Asked Monday if that fracas played any part in Conner stepping aside, Muilenburg demurred. But he took the opportunity to make a point that might have been aimed at mollifying Trump.
“We’re focused on generating U.S. manufacturing jobs,” Muilenburg said. “Ninety percent of the work we do is here in the U.S. Every airplane we sell, that’s U.S. manufacturing jobs.”