Argus Research’s John Eade says Boeing’s new CEO doesn’t change his attitude on the stock

Boeing’s move to shake up its leadership hasn’t persuaded one analyst, who was among the first to downgrade the stock in the midst of its 737 Max crisis, to turn positive again.

Argus Research analyst John Eade, appearing on “Power Lunch,” told CNBC on Monday that the planemaker has more work to do to prove it can get its popular 737 Max back in operation.

“There’s just so much uncertainty about when this plane is going to fly again,” he said.

Boeing ousted CEO Dennis Muilenburg Monday morning as the company struggles to rebound from two fatal 737 Max crashes that killed more than 340 passengers. David Calhoun, a General Electric veteran, has been tapped to become the new CEO in January.

The Federal Aviation Administration grounded the top-selling airplanes in March following the October 2018 accident in Indonesia and a March 2019 accident in Ethiopia.

Argus, which has been a longtime bull on Boeing, downgraded the stock from buy to hold days after the FAA issued the grounding order. Boeing shares are down nearly 10% since that March 19 call.

“It’s not the backlog, it’s not really the CEO, it’s just what has to be done before the regulators are convinced that they’re willing to lift the grounding, and there’s been very little transparency on that, and I’m hoping we get that more of that from the new CEO,” Eade said Monday.

Management expert Jeff Sonnenfeld, however, thinks Calhoun is the “perfect person” to lead the embattled plane manufacturer.

Appearing on “The Exchange,” the Yale School of Management professor cited Calhoun’s relation to past Boeing CEO James McNerney among his top qualifications for the role. During McNerney’s helm, from 2005 to 2015, Boeing began producing what would become the 737 Max.

“He’s a protege of McNerney, so if you’re looking for the McNerney positive influence, he worked for McNerney when McNerney was back at GE,” Sonnenfeld said of Calhoun, who was tapped to take over Boeing on Jan. 13. “He ran a $60 billion business, 120,000 people in aviation and infrastructure at GE.”

Calhoun’s presence at Caterpillar counts as another plus for Boeing, Sonnenfeld added. He was chairman of the board for the large machinery manufacturer in 2017-2018 and currently serves as presiding director.

“He turned around Caterpillar,” Sonnenfeld said.

Calhoun’s resume also includes senior managing director of Blackstone and CEO of Nielsen.

Sonnenfeld said the shakeup at Boeing is about “more than just Calhoun.” He said he believes the company has the right leadership structure in place, pointing to Larry Kellner, who was named chairman of the board. Kellner is a former CEO of Continental Airlines, which merged with United Airlines in 2012.

″[Kellner] knows what he’s doing as far as contact with the air carriers,” Sonnenfeld said.

Sonnenfeld also praised Chief Finance Officer Greg Smith for being “a lot more than a bean counter” who serves as the “culture carrier that really can speak to the employees and the financial community.”

Boeing shares rose about 2.9% to $337.55 a share on Monday.

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Boeing Stock Is Up Because the CEO Is Out. Why the Gains Won’t Last.

Boeing CEO Dennis Muilenburg has resigned. But it won’t matter for the stock. It’s a backward-looking move, and the stock market looks ahead.

Muilenburg is paying for what Barron’s and much of Wall Street see as a poor response by both the CEO and the company to the safety crisis that led to the grounding of the 737 MAX jet in March. Yet in the short run, management change—a step Boeing described as necessary to restore confidence—can’t fix the stock’s core issues.

All that matters is the MAX.

Shares were up in midday trading Monday, with a gain of about $7, or 2.1%, to $335, however, because nothing happens in a vacuum. Analysts surmise that Muilenburg’s departure signals that the current phase of the MAX drama—the effort to win approval for the plane to carry passengers once more— is near an end.

“This removes one more thorn from the [jet’s] side,” William Blair analyst Nicholas Heymann tells Barron’s. He thinks the plane will re-enter service in the second quarter of 2020 after getting final regulatory approval sometime in the first three months of the year.

The stock continues to trade at the low end of the range it has been stuck in since March, when an Ethiopian Airlines flight crashed after taking off, the second accident involving the new-model plane in less than five months. And there isn’t a stock-price breakout coming.

The Muilenburg departure, after all, doesn’t give any definitive answer about when the plane will be cleared to fly again. It also doesn’t help investors judge what will happen when the MAX returns to service. Will people get back on the plane?

Surveys conducted by brokerage firm UBS indicate the public will feel safe after about six months of flawless MAX operations. And airlines such as American Airlines (AAL) have pre-service demonstration flights planned with employees and airline management to help build confidence. But it will take a while for MAX flights to feel normal again.

In the end, Monday’s resignation reflects the fact that Boeing mismanaged the matter. Things could have turned out very differently if the company had voluntarily grounded the jet after the first MAX crash back in October 2018. But Boeing didn’t. The steady drip of bad news regarding how the MAX design, approval, and oversight processes unfolded was too much for aviation stakeholders to bear.

Of course, management does matter in the long run. Muilenburg’s vision was to make Boeing a bigger powerhouse in the aftermarket parts-and-service business, buying distributor KLX in 2018 for more than $4 billion. That vision is on hold.

Dave Calhoun, who will take over as CEO in January, probably isn’t at Boeing for the long run. Instead, he has likely been brought in to shepherd the MAX back into commercial service. It may be the next CEO who makes the calls that affect Boeing’s long-term future. He or she will have to decide whether to introduce a medium-size aircraft to replace the older 767 design.

“Good for appearances,” Teal Group aerospace consultant Richard Aboulafia told Barron’s. “Muilenburg wasn’t doing a great job communicating with the outside world. Calhoun will do a better job. But his background seems less than ideal for long-term Boeing leadership.”

Calhoun is widely respected. A former General Electric (GE) vice chairman, he ran GE’s aerospace unit from 2000 to 2004. During his tenure, sales increased about 0.6% on average per year, a figure that would have been higher if not for the 2001 recession. Since 2004, GE’s aerospace sales have increased about 7.6% a year, from about $11 billion to $31 billion.

The consistent growth of GE’s aviation business illustrates why Boeing stock has held up through the 737 MAX crisis, returning more than 5%, including dividends, in 2019. There are only two suppliers of large planes, and jets are ordered years in advance. That makes it tough to destroy an aerospace franchise.

Since the accident, Boeing shares are down about 20%, worse than the 12% and 18% respective gains of the Dow Jones Industrial Average and S&P 500 over the same span. The aerospace suppliers Barron’s tracks are up about 20% since the second MAX crash.

The suppliers’ performance illustrates two points. It makes it clear that there is more to aerospace than the MAX, and it shows Wall Street still expects the troubled single-aisle jet to fly again, sooner rather than later.

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