Wed, Mar 09, 2005 page12

• Boeing faces dilemma in CEO search

  NEW EXECUTIVE The firm needs to make a fresh start after several scandals, but there are limited people outside the company who are qualified for the job

  • AP
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  With its chief executive's office vacant for the second time in less than two years, Boeing Co faces a tough choice: whether to promote an executive familiar with the company's complex inner workings, or turn to an outsider who is perceived as completely clear of its ethics scandals.

  It's a difficult decision that analysts say could end up pitting experience against image.

  "When you have a situation that's just one scandal after another after another after another, [then] sometimes you have to go outside to bring in someone who is recognized to be a squeaky Mr Clean, to have a complete break with the corporate culture," aero-space analyst Scott Hamilton said.

  But analyst Paul Nisbet with JSA Research said that a push to find someone who cannot possibly be tied to Boeing's ethical lapses could also force the company to pass over internal candidates who are ultimately better for the job.

  "The one possible impact is that in their quest to find a squeaky-clean guy, they may have to take someone who's not as well-qualified," Nisbet said.

  On Monday, Boeing said Harry Stonecipher -- brought back from retirement to help clear Boeing's tainted name -- was forced out after revelations that the married executive violated the company's code of conduct and had an affair with an unnamed female Boeing executive. Stonecipher had replaced Phil Condit, who resigned in December 2003 amid defense contracting scandals that ultimately sent two executives to jail.

  Hurdles ahead

  The difficulties in finding a new leader are compounded because Chicago-based Boeing faces several big business hurdles in the coming months.

  Boeing has said it will decide by mid-year whether to halt production of its 767 airplane. The fate of the production line is in limbo while the Pentagon reconsiders an air refueling tanker contract marred by the scandal that forced Condit out.

  The company also may decide soon whether to sell a new version of its jumbo 747, and is also working feverishly to win orders for its new 787, due to enter service in 2008.

  "The timing of this couldn't have been worse,'' said J.B. Groh, an analyst with DA Davidson in Portland, Oregon.

  Boeing has said it will consider candidates both inside and outside the company, and the company reassured investors that it intends to move quickly.

  Top candidates

  Many analysts believe the top inside candidates include Alan Mulally, who runs Boeing's Seattle-based commercial airplane division, and Jim Albaugh, who heads the company's defense operation.

  Groh said Mulally may have an edge over Albaugh because he has managed to make the commercial airplanes operation much more efficient, while also dealing with a long and fierce downturn in the airplane market. The international airplane market is beginning to improve, but Mulally -- and Boeing -- face tough competition from rival Airbus SAS.

  Albaugh, in turn, may see his chances hurt by lingering concerns about ethics lapses in the defense side of the business. Besides the tanker scandal, Boeing was barred for 20 months from bidding on satellite launch contracts after accusations that it stole information from competitor Lockheed Martin in 1998. The US Air Force lifted that ban on Friday.

  Boeing declined to comment on whether Albaugh or Mulally were in the running.

  Analysts noted it will be especially difficult to find an outside candidate with the multinational manufacturing and operational experience needed to run an operation as complex as Boeing.

  "It's a pretty limited pool of people," Groh said.

  One possible candidate is board member Jim McNerney, who heads St Paul, Minnesota-based 3M Co but has experience in aerospace because he served as head of GE Aircraft Engines.

  3M spokeswoman Jacqueline Berry said that was "speculation."

  "Mr McNerney says he's very happy at 3M and has no plans to leave in the foreseeable future," she said.

  For your information

  * Alan Mulally, who runs Boeing's Seattle-based commercial airplane division. He has been lauded for improving efficiency * Jim Albaugh, who heads the company's defense operation. His candidacy may be marred by some ethical scandals * Jim McNerney, head of St Paul, Minnesota-based 3M Co. His experience in the industry as head of GE Aircraft Engines has drawn attention
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