By Joanna Plucinska, Valerie Insinna and David Shepardson
WASHINGTON/LONDON (Reuters) -Boeing on Tuesday named a retired U.S. Navy admiral to advise the planemaker's CEO on improving quality control after 737 MAX 9 planes were grounded following the in-flight cabin panel blowout on an Alaska Airlines jet.
Kirkland H. Donald will serve as a special adviser to Boeing (NYSE:BA) CEO Dave Calhoun, Boeing said, as its shares sank nearly 8%. Numerous flights have been canceled since the incident, as 171 jets remain grounded pending inspections.
Boeing's production processes have been under scrutiny since a panel tore off the Alaska Airlines jet while in flight this month, leaving a hole on the side of the plane. The incident rekindled worries about Boeing's jets a few years after a pair of crashes killed nearly 350 people. Investors are also worried about potential delays to aircraft deliveries.
The chair of the National Transportation Safety Board (NTSB) and the Federal Aviation Administration (FAA) safety chief will brief senators on the investigation on Wednesday, sources told Reuters. NTSB Chair Jennifer Homendy and the FAA’s associate administrator for aviation safety David Boulter will meet with Senate Commerce Committee members so they can inquire about the incident and their respective investigative actions and processes, according to an email seen by Reuters.
The FAA grounded 171 MAX 9 planes on Jan. 6 pending approval of inspections and maintenance requirements.
Kirkland Donald will lead a team of outside experts in evaluating quality practices at Boeing Commercial Airplanes and its supply chain and provide recommendations to Calhoun and Boeing's board of directors.
Naming an outside adviser to the quality review is “tremendously important” in order for the findings to have credibility with the public, said Adam Pilarski, senior vice president at consultancy AVITAS, who was previously the chief economist at Douglas Aircraft.
“Boeing lost a lot of credibility on the MAX, and the FAA lost a lot of credibility on the MAX,” he said.
But Richard Aboulafia of AeroDynamic Advisories criticized Boeing's pick of an adviser without a background in aviation.
Ongoing MAX 9 investigations could ratchet up the pressure for management changes among Boeing's top executives, analysts said. Boeing shares are down more than 22% since the new year.
"We would not be surprised to see regulators, investors and customers push for a turnover in the ranks of senior management and the Board of Directors," Bank of America (NYSE:BAC)'s Ron Epstein said in a Tuesday morning note to investors.
Wells Fargo (NYSE:WFC) analysts downgraded the shares on Tuesday, citing the U.S. Federal Aviation Administration's announcement that it will review Boeing's inspections of the MAX 9 planes before allowing planes to fly again.
Pilarski said the drop in share price on Tuesday may reflect the frustration of investors who are thinking, “If I buy this stock, I don't know what we'll find out tomorrow.”
Both Alaska Airlines and United Airlines, the two U.S. carriers that fly the 737 MAX 9, have canceled flights through Wednesday.
CEO TOWN HALL IN WICHITA
Boeing CEO Calhoun will visit Spirit AeroSystems' production facilities in Wichita, Kansas, on Wednesday to speak with employees alongside that company's CEO, Pat Shanahan, Spirit confirmed on Tuesday.
Ryanair (LON:0RYA) Chief Executive Michael O'Leary on Tuesday called for a revamp of Boeing's management, though he said senior leaders should stay at the company.
“We need somebody in Seattle cracking heads, ensuring quality, making sure that aircraft are rolling off the production line on the day they're supposed to roll off the production line,” he told Reuters.
O'Leary, whose airline is one of Boeing's largest customers with hundreds of MAX aircraft on order, told a news conference that Calhoun and Boeing's chief financial officer had his "full confidence and support."
But he later told Reuters that Boeing needed more hands-on management at its production hub in Seattle to improve quality control, saying the head of Boeing Commercial Airplanes, Stan Deal, was mostly a "sales guy."
"When Stan is traveling - and he does a lot of traveling - who is minding the shop in Seattle?" O'Leary said.
Boeing referred to a letter to employees written by Deal on Monday, where he laid out additional steps the company would take to improve quality assurance, including additional 737 inspections at Boeing and Spirit facilities.
The company will also open its facilities to allow airlines to inspect 737s and review quality procedures.
"Since 2019, we have increased the number of Commercial Airplanes quality inspectors by 20% and we plan to make more investments in the Quality function," Deal said.
Spirit's Shanahan said in a letter to employees on Tuesday that the company will also add inspections at its 737 fuselage production line that replicate what airlines will do to return the MAX 9 to service.
A spokesman for Spirit AeroSystems said the letter was intended for Spirit's workforce and declined further comment.