Boeing's earnings miss and lowered guidance mean time for a CEO change

This morning, Boeing (BA) reported lower-than-expected earnings and slashed its expectations for future earnings. That report makes Morgan Stanley (MS) analyst Heidi Wood's suggestion that investors lighten up on their Boeing holdings, which I posted on Tuesday, look good.

Of course, that advice would have been far more useful if it had come back in September 2007, when the stock peaked at $105 on optimism about the 787 Dreamliner. With the share price now at $50 and dropping, it looks like Boeing's CEO Jim McNerney has gone and "f$%^ed it up" -- just as Wood feared he'd do back when he took the job in 2005. Is it time for prodigal son, Ford Motor (F) CEO -- and former Boeing executive -- Alan Mulally to come home?

Boeing reported a bigger loss than analysts had expected, and sales also fell more than the estimates. MarketWatch reports that its $1.6 billion loss -- $2.23 a share -- was 30 cents a share worse than the $1.93 analysts expected. And Boeing's revenue of $16.7 billion was $500 million too light compared with what analysts had forecast.

The biggest shocker was the huge drop in its guidance for 2009 earnings. Earlier, Boeing had suggested it would earn between $4.70 and $5 a share. But Wall Street expected about half that -- $2.34. Now, not only did Boeing cut its earnings forecast by about 71 percent but its new expectations -- $1.35 to $1.55 -- fall as much as 42 percent below what Wall Street expected.

McNerney took on the CEO post at Boeing in July 2005 because its two previous CEOs had mired themselves in ethical scandals. But it now looks like McNerney is responsible for a different kind of ethical scandal -- making repeated promises to investors that Boeing has not kept.

How so? Its 787 -- which has a $110 billion backlog of 850 aircraft -- has been delayed six times. These delays have cost Boeing billions and contributed to charges of $3.59 a share this quarter alone, according to Dow Jones Newswires. And they appear to have eroded Boeing's credibility on Wall Street. Wood now believes Boeing will delay the Dreamliner's first flight into 2010

It's clear that Boeing isn't doing the right thing when it comes to solving the 787's problems. When it kicked off the program, Boeing decided to outsource 60 percent of the 787's design and production to companies around the world, but it failed to supervise those suppliers adequately. While Boeing claims to have tightened up that supervision, the 787's problems persist.

With today's earnings announcement, Boeing's board can be faulted if it doesn't take steps to protect shareholders from a further deterioration of its credibility on Wall Street. Fortunately, as I posted in August, Mulally is a possible replacement for McNerney. Mullaly has proven his mettle at Ford and could well step into Boeing's CEO slot.

Granted, Mulally isn't in a position to lead Boeing for decades, given that he's 64. But Boeing's board could bring him in and set a retirement age of 70 so Mulally could start solving the 787's problems and then find a successor before retiring.

It's time for Boeing's board to act.

Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.

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