MCNERNEY
General Electric via AP file
James McNerney Jr., currently 3M’s CEO, was named Thursday as Boeing’s chief executive – the third CEO of the Chicago-based aerospace firm since December 2003.
updated 6/30/2005 2:07:18 PM ET 2005-06-30T18:07:18

Boeing Co. on Thursday named 3M Co. Chief Executive W. James McNerney Jr. as its new CEO, turning to an outsider to help the aerospace company recover from recent ethical lapses and lead its high-stakes bid to regain the top spot in commercial airplane sales.

McNerney, 55, will become the third chief executive of the airplane maker since December 2003, when former CEO Phil Condit resigned in the wake of a defense contracting scandal. His successor, Harry Stonecipher, was forced from his post in March after admitting an affair with a female Boeing executive.

Boeing shares jumped on the news, adding $4.35, or 7 percent, to an all-time high of $66.02 in midday trading Thursday on the New York Stock Exchange.

The appointment of McNerney — rumored as the strongest outside candidate to lead the company — bypassed two internal candidates who head Boeing’s largest business units.

Boeing Chairman Lew Platt earlier this month said the head of the commercial division, Alan Mulally, and Jim Albaugh, head of the company’s space and defense business, were on a short list of candidates.

On Thursday, Platt said both Mulally and Albaugh “seem to be committed to staying at the company and supporting Jim.”

McNerney, a Boeing director since 2001, initially was rumored as a leading prospect for Boeing’s top spot after Stonecipher’s departure. But McNerney dampened the speculation in April, saying he was happy at 3M and not a candidate for the Boeing job.

On Thursday, McNerney said he was sincere about initially wanting to remain at 3M when first approached by Boeing but began having second thoughts earlier this month.

“It was a difficult decision, a late change of heart, but as I sit here today I just couldn’t be happier,” McNerney told analysts and reporters on a conference call.

McNerney said Boeing is strong financially and its “strategy is in good shape,” indicating he will focus on executing Boeing’s business plan rather than implementing sweeping changes.

“It’s less big structural or financial or strategic fixes,” McNerney said. “It’s more becoming a part of the team.”

He added that he has known Mulally and Albaugh for years and praised their performance.

“I am enthused about them staying on and I’m delighted to report they’re enthused about working with me,” he said.

James Bell has served as Boeing’s interim president and CEO since Stonecipher’s departure and will remain chief financial officer. Besides the CEO job, McNerney was named board chairman and president

Before joining 3M in 2001, McNerney held several executive posts at General Electric Co., including CEO of GE Aircraft Engines and GE Lighting and as an executive vice president of GE Capital.

Inherited company struggling
McNerney inherits a company performing well financially and gaining momentum in its commercial airplane business but still struggling to smooth over lingering tensions with the Pentagon and Capitol Hill.

Condit resigned in December 2003 as a result of defense contracting scandals that ultimately sent two Boeing executives — ex-Air Force procurement official Darleen Druyun and Chief Financial Officer Mike Sears — to jail.

Despite the recent turmoil, Boeing’s defense sales rose nearly 10 percent annually in 2003 and 2004, its commercial airplane orders are surging and its stock price has doubled in two years.

The Chicago-based company also is locked in a tight competition with Airbus SAS for supremacy in passenger jet sales as the airline industry shows signs of recovering. The battle features Boeing’s planned new fuel-efficient 787 against its rival’s A380 “superjumbo.”

“Clearly one of the major challenges he will face is how you beat out Airbus,” said analyst Paul Nisbet with JSA Research. “And there’s certainly still fence-mending to do on the military side. He seems very qualified to keep their momentum going.”

McNerney said he realizes Boeing has “a little bit of a hole to climb out of in a few places” but stressed he would place a large emphasis on business ethics.   Analyst Cai von Rumohran at SG Cowen Securities said McNerney’s experience heading GE Aircraft Engines brings a valuable customer focus to Boeing.

“Because he knows the customer well, I think he’s going to be setting the right tone coming in to sustain the momentum they’ve recouped recently,” von Rumohran said.

He added that McNerney’s time spent as head of GE Asia-Pacific in the early 1990s will be valuable as Boeing seeks the edge over Airbus in China, Japan, India and other key Asian markets.

The company did not disclose McNerney’s compensation package. But Platt called it a “lateral move” from McNerney’s 3M package, which paid him a salary of $1.62 million and bonus of $3.52 million in 2004, according to Securities and Exchange Commission filings.

“There were no inducements, no big numbers to convince him to move,” Platt said.

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