Jim McNerney’s legacy at Boeing: $29 billion in unpaid 787 bills

By DAVID GROVES

(April 21, 2016) — Bloomberg reports that Boeing Co. shares tumbled Wednesday after an analyst downgraded the stock to “underperform” and said the company stood little chance of fully recovering the $32 billion that’s been sunk into developing the 787 Dreamliner jet. Despite the company’s assurances, some analysts believe the 787 will never turn a profit. In fact, Boeing is under investigation by the federal government for possibly cooking the books to make the plane look like it pencils out.

All of this is the proud legacy of former Boeing CEO Jim McNerney.

Diamond Jim was lavishly paid as he led the company down this 787 rabbit hole. In just his final three years before bailing in July 2015, he got $80 million. For his 10 years of service, he also collects a pension worth $4 million per year for the next 15 years.

Sure, the stock performed well while he was there. McNerney slashed costs and boosted profits by, among other things, cutting or eliminating pensions for everybody else. But if you are a Boeing shareholder staring down $29 billion in deferred 787 costs spread out over God-knows-how-many years, it’s Jim McNerney you have to thank.

How do you like him now?

McNerney’s outsourcing-on-steroids strategy for developing the Dreamliner must have looked pretty good on the back of that Chicago country club napkin. It promised to “spread the risk” associated with development costs among suppliers across the globe.

As it turned out, the parts didn’t fit together and, lacking necessary engineering expertise, some suppliers went full Radio Shack with their components. Ultimately, the 787 delays weren’t measured in months, but in years, and the billions in costs mounted.

You’ll recall that part of those costs was the unexpected $1 billion purchase of one the 787’s failed suppliers, Vought Aircraft in North Charleston, S.C.  Like a dork who’d just tripped and fell on his face, McNerney essentially hopped back up on his feet and said, “I meant to do that.” He announced that Boeing would make the 787 program’s already expensive and complicated supply chain even more expensive and complicated by converting Boeing’s newly acquired Charleston plant into a second 787 assembly site. You know, 3,000 miles away from the other assembly plant.

Never mind, of course, that Washington state had just given his company a WTO-complaint-sized multi-billion tax break to build the 787 here. Gentleman Jim just said, “Check the fine print.” That deal was to build some 787s in Washington, not all of them. (Doh! Oh well. Surely, that tax break language would get tightened up next time, right?!)

You see, Sunny Jim actually believes that his proud legacy at Boeing is that his employees cowered before him, even as he screwed them over. He eliminated their pensions, cut their benefits, and tried to weaken their bargaining power by expanding production outside Washington into an anti-union “right-to-work” state.

Some say it was McNerney’s payback for the eight-week Machinists Union strike in 2008. If so, it’s worth noting that the strike was not about wages, it was largely about McNerney’s insistence on weakening the job security language in their contract to enable the 787 debacle and other Boeing outsourcing. The union’s concerns that exporting more jobs to contractors and suppliers was not just bad for Boeing workers, it was bad for the company itself, proved prescient indeed.

If McNerney had listened to Boeing’s front-line workers and abandoned his doomed 787 outsourcing strategy, he could have not only avoided the strike, but also the unprecedented $32 billion in 787 development costs. But no. He was so insistent on converting Boeing from an airplane manufacturer into an airplane final-assembler that he refused to budge, and both of those things happened.

The good news is that Jim McNerney is gone now.

Boeing’s experienced Machinists and Engineers ultimately came to the rescue, solved 787 problems using their unrivaled and irreplaceable aerospace expertise, and largely cleaned up McNerney’s mess. Boeing executives have openly acknowledged that the company went too far in outsourcing the design and production of the 787, and hopefully that’s a lesson they’ll remember moving forward. So now, the company has a truly game-changing long-range composite jet that has sold like hotcakes.

The bad news is the company may never make any money on them.

Thanks for nothing, Jim.

David Groves is Editor of The Stand.