Bloomberg News

Boeing Says Conner to Replace Albaugh as Commercial Chief

June 27, 2012

Boeing Co. (BA:US) named Ray Conner, a sales chief and former mechanic, to lead its commercial-jet unit as the planemaker pushes output to record levels and revamps some of its top-selling models.

Conner, 57, immediately replaces Jim Albaugh as president of Seattle-based Boeing Commercial Airplanes, the company said yesterday. A new vice president of sales will be announced later, and Albaugh, 62, will help with the transition until he retires Oct. 1 after 37 years of service.

The move puts Conner in charge after he started as a mechanic in 1977 and moved through production, materials and sales jobs. He was a lead architect of November’s labor agreement with Machinists, which is designed to assure almost a decade of labor peace while Boeing speeds up assembly lines to work off an order backlog of 3,953 jets.

“He’s got trust with the workforce, and there’s still a ton of challenges in front of the company,” said Howard Rubel, a Jefferies & Co. analyst in New York. “You can’t ask for a better leader to succeed Mr. Albaugh than who they’ve chosen.”

Conner’s to-do list will include accelerating production of the composite-plastic 787 Dreamliner while ironing out production snags and developing bigger versions of the plane, whose commercial debut was more than three years late.

737 Upgrade

Boeing also is reworking the 737, the world’s most widely flown airliner, to add new engines; studying upgrades to the wide-body 777; and trying to avoid a repeat of the monthlong factory shutdown that followed the last time production was pushed this hard, in the late 1990s, as unfinished jets piled up waiting for parts.

“Ray is exceptionally well-suited to lead BCA through these challenging but exciting times,” Chief Executive Officer Jim McNerney said in a memo to employees.

The timing of Albaugh’s exit surprised analysts such as Stephen Levenson of Stifel Nicolaus & Co. in New York.

It’s still “a good time to step aside and open the door to increased effort on sales where Mr. Conner has most recently focused his attention,” wrote Levenson, who like Rubel rates the shares of Chicago-based Boeing as a buy.

Conner replaced Marlin Dailey as sales chief last year, after AMR Corp.’s American Airlines ended years of ordering only Boeing jets to buy planes from Airbus.

It was Conner’s second stint in that position, sandwiched around leading Boeing’s growing supply chain. Conner also has been in charge of the 777 and 747 programs and worked in sales in Asia and the Americas as well as in Boeing’s materiel unit.

Retirement Age

Albaugh, an engineer, decided to retire ahead of Boeing’s mandatory age of 65 after achieving his three stated goals, said John Dern, a company spokesman. Those were: helping win a $35 billion U.S. Air Force tanker contract; overseeing the delayed commercial debuts of the Dreamliner and 747-8 jumbo jet; and securing the labor accord with Boeing’s biggest union.

The Commercial Airplanes unit accounted for 53 percent of Boeing’s $68.7 billion in 2011 sales (BA:US), with the defense division making up 46 percent. Conner takes over with the stock still down 30 percent from the day before the first 787 postponement, in October 2007, and new rivals from China, Canada and Russia adding to the competitive pressure from Airbus SAS.

Conner has “remarkable experience” to lead the business, Rubel said. “He’s touched so many parts of the organization along the way, he’s been part of the change and he’s been part of the success, and he’s known what’s worked and what’s failed because he’s seen all sides.”

Farnborough Show

He will make his public debut right away, as industry leaders begin gathering next week at the Farnborough air show in England, the year’s most important aerospace event. He will meet customers and suppliers and brief reporters.

Boeing rose 1 percent to $71.64 at 11:56 a.m. in New York, leaving the shares down 2.3 percent for the year. The Standard & Poor’s 500 Index has risen 5.9 percent in 2012, while Airbus parent European Aeronautic Defence & Space Co. has gained 10 percent.

Conner’s promotion and Albaugh’s departure completed a second step in what Robert Stallard, an RBC Capital Markets analyst, called a “generational shift” at Boeing. Chief Financial Officer James Bell, 64, retired earlier this year and was replaced by Greg Smith, 46.

Boeing CEO McNerney turns 63 in August. Below him at the company’s two main businesses are Conner and Dennis Muilenburg, 48, who followed Albaugh at the military unit when the latter shifted to run the commercial division in 2009.

‘Top Slot’

McNerney’s successor “remains to be seen, but Boeing now has two relatively new and capable executives heading each division, and each could be vying for the top slot in due course,” Stallard wrote in a note. He is based in New York and rates (BA:US) Boeing as outperform.

Albaugh mended relationships with engineers that had been strained by outsourcing work on the 787, which was partly to blame for the plane’s delays. He presided over two of the plane’s seven setbacks before the Dreamliner’s first delivery in September, as well as complications that stalled the 747-8 by two years.

His legacy includes Boeing’s 2009 decision to begin producing 787s in South Carolina, the first final-assembly plant outside the Seattle area where the company was founded 96 years ago. Conner was put in charge of that new site, which rankled the company’s Seattle workforce.

Conner was a lead negotiator in November’s surprise contract agreement with the Machinists that helped resolve a U.S. labor complaint that the company had said it expected to take all the way to the Supreme Court. Instead, with Conner’s help, the deal smoothed union-management ties after four strikes since 1989.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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