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Originally published November 29, 2014 at 5:17 PM | Page modified December 1, 2014 at 1:18 PM

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Boeing boss Jim McNerney’s turbulent tenure

Boeing Chairman and CEO Jim McNerney, who turned 65 in August, has driven hard to increase productivity and cut costs, reaping record profits. To many employees in Washington state, he’s a distant figure who has stifled the unions and is sending jobs elsewhere.


Seattle Times aerospace reporter

Jim McNerney, Boeing chairman and CEO

Family

• Born 1949; grew up in Ann Arbor, Mich. and Winnetka, Ill., as the oldest son of an eminent hospital administrator and Blue Cross/Blue Shield CEO who helped shape the Medicare and Medicaid programs.

• McNerney has two children from his first marriage and three from his second.

Education

At Yale, he got a degree in American studies and was initiated into his fraternity by George W. Bush.

• At Harvard, he earned an MBA.

Career

1972-3: He worked for an insurance firm in Europe and for pharmaceutical company Searle.

1975: Procter & Gamble: Brand manager for Downy and Bounce fabric softeners.

1978: McKinsey & Company: Management consultant.

1982: GE: Under CEO Jack Welch, over 18 years, he headed various divisions, including the one supplying aircraft engines to Boeing.

2001: When Jeff Immelt was chosen over him to succeed Welch, McNerney left GE to take his first CEO job at 3M. He also joined the Boeing board.

2005: When the Boeing board fired then-CEO Harry Stonecipher over an affair with an employee, McNerney left 3M to replace him.

Source: News archives, Boeing, SEC filings

Boeing under McNerney

2001

• Appointed to the Boeing board.

2005

• Appointed CEO and chairman.
• Machinists strike for one month.
• New 747-8 jumbo jet launched.

2007

• First delays on 787 announced.

2008

• 787 delays continue. Boeing buys out Vought half of 787 mid-fuselage plant in South Carolina.
• Machinists strike for 57 days.
• Global financial crisis hits.

2009

• More delays on 787.
• Boeing buys out remaining supplier interests at S.C. complex, and puts second 787 final assembly line there instead of in Everett.
• First flight of the 787.

2011

• Boeing finally wins Air Force tanker contract.
• First 787 Dreamliner delivered, more than 3 years late.
• Boeing launches 737 MAX and chooses Renton to build it after Machinists deal.

2013

• Battery problems ground 787 fleet for more than three months.
• Boeing says C-17 plant in Long Beach, Calif., will close in 2015.
• McNerney pressures suppliers, vowing a “no-fly” list for those who don’t cut pricing.
• Boeing announces new engineering-design centers outside Washington state.
• More than 3,000 engineering jobs to move out of Puget Sound region.
• Boeing launches 777X and a state-versus-state competition for a site to build it.

2014

• Boeing chooses Everett for 777X after Machinists extend contract and state passes $8.7 billion in tax breaks.
• McNerney says Boeing will make no more “moonshots” in airplane development.
• Boeing says 1,000 more commercial engineering jobs will move to California.
• 2,000 defense jobs to be cut in Puget Sound region.
• Ground broken for 777X wing center in Everett.

Source: Seattle Times archives

Jim McNerney’s wealth

Total compensation last year was $23.3 million; took home $39.2 million by also cashing in stock options.

• Owns Boeing stock and options valued at more than $155 million.

Boeing retirement pension is worth about $3.7 million per year for 15 years, then about $720,000 a year for life.

• Owns a $7.6 million home in Chicago, a $7.2 million home in the Palm Beach Polo and Country Club enclave in Florida, and a $5.2 million home in Montana.

Sources: News archives, Boeing, SEC filings, property records.

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Admirers describe Jim McNerney as a numbers guy whose relentless push for efficiency and lower costs has consistently delivered stellar profits in his decade as Boeing chairman and CEO.

Yet McNerney has alienated engineers and machinists — and even some executives — in the Pacific Northwest with what they see as his coldblooded approach to moving work and forcing union concessions.

All agree on this: He is an iron-willed strategist who redrew the map of Boeing’s manufacturing and engineering sites, gaining tremendous leverage over the company’s pugnacious labor unions.

Just turned 65 with retirement looming by 2016 or sooner, McNerney has polarized opinions.

“McNerney ought to get a gold star,” said Gordon Bethune, a former Boeing vice president who ran the Renton 737 plant and later led Continental Airlines.

“There’s nothing sacrosanct about building airplanes in Washington,” Bethune added, saying McNerney is “making Boeing competitive internationally.”

But Boeing’s local workforce won’t be awarding him any gold stars, said Leon Grunberg, a University of Puget Sound professor of sociology who surveyed more than 3,000 company engineers and machinists for an upcoming book.

“A lot of employees feel top management doesn’t value them, treats them as expendable,” Grunberg said.

McNerney has created an atmosphere of “lowered trust, anger and disgruntlement,” he said, and “pretty much put the final nail in the coffin of the old heritage Boeing.”

No airplane geek

John Feren, a former senior Boeing executive who is now executive vice president at aircraft lessor Aviation Capital Group, said McNerney is a different kind of Boeing leader.

“Some people grew up in Boeing and just loved the smell of jet fuel and were totally enthralled with aviation,” said Feren, a friend of McNerney’s. “Jim came from working for Jack Welch. He had GE training.”

Feren said McNerney’s GE-style focus on financial performance has ensured Boeing has the money to thrive against bitter competition from Airbus.

But some who’ve worked with McNerney found the Harvard MBA’s approach off-putting.

“The sense I always got from him in meetings is that it could have been any business,” said a former Boeing executive, who requested anonymity to maintain a relationship with the company.

“If we’d been making cameras or autos or doing bond trading, it would have all been the same to him,” the executive said. “The net effect is a distancing from the people who come to work there every day, who bring their hearts and souls to it and want to make it more than a job.”

Another former executive who also asked for anonymity said McNerney in person can come across as “a guy’s guy” who is “fun to be around,” making easy small talk about sports.

Yet he maintains a distance.

“I don’t think anyone gets really close to him. He keeps his own counsel,” the executive said. “He doesn’t let emotions get in the way of him making decisions he thinks are best for the corporation.”

“It’s all about the business,” the executive added. “He’s pretty dispassionate.”

McNerney rarely makes himself available for interviews and declined repeated requests by The Seattle Times.

Boeing going strong

McNerney took over Boeing in July 2005 at a low point in its reputation after two major military-procurement scandals.

Six months later, at the company’s annual leadership retreat in Orlando, Fla., McNerney orchestrated a “scared-straight” speech by Boeing’s top lawyer, who laid out in blunt terms the potential consequences of any further breaches of integrity.

That worked, said Feren.

“People were asking lots of questions about the character and the moral compass of Boeing,” he said. “He righted the ship.”

For the 260 or so top executives at the retreat, McNerney also clearly laid out his plan to steer Boeing’s operations according to strict financial metrics.

James Bell, Boeing’s former chief financial officer and president under McNerney, recalled the CEO’s view that while Boeing’s leaders had been “gung-ho” about growing the business through new technology, “They weren’t as focused on how you pay for that. ... We didn’t have real discipline.”

In Orlando, McNerney set out a plan to impose discipline by pushing hard to cut costs and increase productivity across the board.

“Driving costs down in order to drive the margins up, that’s what he hammered on from the day he got to Boeing,” said one of the unnamed former executives.

The ensuing results have been mixed.

From 2007 through 2013, McNerney’s term as chief executive was dominated by the disastrous and expensive troubles of the 787 Dreamliner program — stretching from the initial delivery of the jet more than three years late to the grounding of the Dreamliners worldwide for three months last year due to overheated batteries.

Boeing acquired the South Carolina 787 parts plants not out of any grand McNerney vision, but because its outsourcing partners had failed.

Yet while other executive heads rolled over the 787 debacle, McNerney survived unscathed.

Toby Bright, former head of jet sales at Boeing and now an airplane-leasing executive, said: “All of us scratched our heads during the 787 delays over how he came out of that with no scars.”

Through all the 787 storms, McNerney held to his course.

He expanded the South Carolina site into a full-fledged commercial-jet assembly center and broke Puget Sound’s traditional hold on that central Boeing role.

Even through the 2008 global recession, production of 777s and 737s was unfazed. Jets rolled out efficiently and cash rolled in to Boeing.

Indeed, despite the hostility McNerney’s decisions from Chicago have generated among union members here, Alex Pietsch, who directs Gov. Jay Inslee’s aerospace office, said Boeing is thriving in Washington state.

“Certainly (McNerney’s tenure) has been tumultuous,” said Pietsch. “But we’re in pretty good shape.”

Rising to McNerney’s goal of improved efficiency, the Renton 737 plant has raised its production to 42 jets a month, double what it was when he took over and heading to 52 a month in 2018.

Thanks to the massive boom in the commercial-jet market over the past decade, Washington state has nearly 82,000 Boeing employees today compared to 59,000 when McNerney took over as CEO.

And because defense units at sites such as St. Louis and in Southern California have contracted substantially, Washington state’s share of the total Boeing workforce has grown from 38 percent in mid-2005 to almost half today.

In a speech at Seattle’s Museum of Flight in June, McNerney pointed to Boeing’s heavy current investments to develop the 737 MAX in Renton and the 777X and Air Force tanker in Everett.

These programs “represent the future of the company in this region and ... decades of economic prosperity for ... the state of Washington,” McNerney said.

Lives impacted

Nevertheless, with the move to build planes in South Carolina, the transfer of thousands of engineering jobs out of the region, and management’s gun-to-the-head negotiating tactics with its unions, it’s no surprise McNerney is extremely unpopular among Puget Sound-area employees.

“The workforce busted a gut to push out the 737 and 777 at record rates,” said Issaquah-based aerospace analyst Scott Hamilton of Leeham.net. “Yet when it came to new contracts, McNerney wanted to do nothing but crush them.”

McNerney’s public comment in July that employees “will still be cowering” before him — for which he later apologized, calling it an unsuccessful joke — merely reinforced his unpopularity.

“That cowering remark was the first thing he’s ever done to be helpful to the Machinists. He united us,” said Larry Brown, chief lobbyist in Olympia for the International Association of Machinists (IAM).

In January, the Machinists were forced to accept the freezing of their pensions to secure assembly of the future 777X jet in Washington state.

To the local workers, Boeing management’s ultimatum felt like they were being “threatened and put up against the wall,” said Grunberg.

Jon Holden, the new IAM district president, said the outcome of the 777X negotiations “could have been a win/win.” Instead, “morale is at an all-time low, and not just among IAM members.”

Boeing’s white-collar union, the Society of Professional Engineering Employees in Aerospace (SPEEA), also has suffered repeated blows from a series of work transfers that will cut more than 6,000 local engineering jobs.

John Tracy, Boeing’s Chicago-based chief technology officer and senior vice president in charge of its 55,000 engineers, in an interview defended the transfers as necessary to tap expertise around the company and insisted that McNerney respects engineering.

Still, the cold way those cuts were implemented sent a very different message to local engineers.

Many longtime company workers like to think that the old Boeing — before the 1997 merger with McDonnell Douglas — would have handled things another way.

Yet Frank Shrontz, the last “heritage Boeing” chief executive before the merger, in an interview praised McNerney’s backbone.

“When you take work out of a city that had it in the past and has every expectation of keeping it, you’ll make some enemies,” he said. “But in the circumstances he was faced with, I think (McNerney)’s made some good decisions.”

“I would not have done it differently,” Shrontz added.

Long-term impact on Boeing

Some industry analysts disagree with Shrontz, believing that McNerney’s confrontational approach — which he uses with suppliers as well as employees — may damage Boeing long term.

After the hardball contract extension forced on the Machinists union, aerospace analyst Richard Aboulafia of the Teal Group said that Boeing’s “toxic labor relations” are worse now than any he’s seen in 26 years in the industry.

And he’s concerned about “an erosion of Boeing’s core capabilities” if Puget Sound-area engineers leave the company when it transfers work to new design centers around the country.

“This is an engineering company. That’s been forgotten,” said Aboulafia. “A ruthless focus on cost is not a very good long-term vision for an engineering company.”

One Wall Street analyst, who asked not to be identified to maintain a relationship with Boeing management, also worries McNerney has a “near-term, myopic view.”

Boeing’s recent demands that suppliers cut prices by up to 15 percent or wind up on McNerney’s “no-fly list” could weaken the supply chain long term, he said.

Boeing switched to a new supplier for the 777X landing gear, for example.

That may save money. But the risk is that new partners may not be able to deliver.

Wolfgang Demisch, a veteran Wall Street aerospace analyst who is retired, said Boeing under McNerney has become “a financial enterprise first and an aviation enterprise second.”

Despite having reached the company’s customary retirement age, analysts say, McNerney has privately expressed his wish to remain at the helm until Boeing’s 100th anniversary in 2016.

With the decadelong boom in jet production expected to continue until then, McNerney is flying high.

The accounting costs of the 787 have been pushed way out into the future and, seven years on, the jet appears finally to be over its problems.

Airlines are happy with the 787; South Carolina is rolling out jets; Boeing’s unions are seriously weakened; overall airplane production and cash generation are at all-time highs.

Yet Demisch said whoever replaces McNerney at Boeing — COO Dennis Muilenburg is considered the anointed one — could face a much different aviation market than today’s.

“The cycle has been so very good, I worry that it could be very bad,” said Demisch.

Many analysts project the second half of this decade may be tough for Boeing.

They anticipate Boeing cutting the 777 production rate and possibly terminating the 747 program, while on the defense side closing all the military-airplane-production lines outside Washington state.

Demisch contrasts McNerney’s experience at Boeing with the tenure of former Boeing Commercial Airplanes boss Alan Mulally at Ford.

“Mulally lived through a toe-curling downturn,” said Demisch. “McNerney hasn’t. His successor probably will have to.”

Seattle Times researcher Gene Balk contributed to this story.Dominic Gates: 206-464-2963 or dgates@seattletimes.com



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