Aerospace & Defense

Boeing CEO Dennis Muilenburg gets vote of confidence, offers to forgo bonuses amid 737 Max crisis

Key Points
  • "From the vantage point of our board, Dennis has done everything right," Chairman Dave Calhoun tells CNBC.
  • Boeing's CEO has offered to forgo bonuses this year, Calhoun says.
  • CEO Dennis Muilenburg was harshly criticized by lawmakers last week his 2018 compensation.
  • The Boeing 737 Max remains grounded after two fatal crashes.
Boeing chairman says CEO Dennis Muilenberg volunteered to forgo bonuses for 2019
Boeing chairman says CEO Dennis Muilenberg volunteered to forgo bonuses for 2019

Boeing's new chairman gave Dennis Muilenburg a vote of confidence on Tuesday and said the embattled CEO has offered to forgo all bonuses this year as the company grapples with the fallout of two crashes of the 737 Max.

Lawmakers on Capitol Hill last week railed against Muilenburg over his 2018 compensation of $23.4 million, including a $13.1 million incentive bonus, despite the crash of a 737 Max in Indonesia in October 2018, while some lawmakers urged him to resign. Another nearly new 737 Max crashed in Ethiopia less than five months later. Boeing doesn't plan to claw back 2018 compensation from Muilenburg.

A flight-control system known as MCAS that Boeing included on the jets has been implicated in both crashes, which killed all 346 people on the flights. At last week's two hearings, lawmakers slammed the manufacturer for failing to include sufficient backup safety systems when it designed the planes. They also released documents showing Boeing employees had safety concerns about the planes.

Muilenburg told lawmakers last week that the company made mistakes on the 737 Max and repeatedly apologized. Chairman Dave Calhoun echoed those statements Tuesday and said that Boeing made flawed assumptions about how quickly pilots could respond to malfunctions.

Boeing is facing several investigations about the design and certification of the beleaguered plane by regulators, including a Justice Department probe.

"From the vantage point of our board, Dennis has done everything right," Calhoun said in an interview on CNBC. "Remember, Dennis didn't create this problem. From the beginning, he knew that MCAS could and should have been done better and he has led a program to rewrite MCAS to alleviate all of those conditions that ultimately beset two unfortunate crews and the families and victims."

Calhoun also said in the "Squawk Box" interview that Muilenburg called him Saturday morning "with the purpose of suggesting that he not take any compensation for 2019 in the form of bonuses, which of course is most of your compensation."

Muilenburg, a three-decade Boeing employee who became CEO in 2015, could forgo bonuses even longer.

"It came in two fronts: one, no short-, no long-term bonus, and three, no consideration for equity grants, until the Max in its entirety is back in the air and flying safely," Calhoun said, adding that it could take until 2021.

A Boeing spokesman told CNBC last week that there is "no path to the annual incentive plan" this year.

Last week's two days of hearings were tough for Muilenburg, Calhoun said. The night after the first hearing, Muilenburg listened to the victims' families.

"He listened for several hours to every story, every story the victims' families presented to him. Changed him for life," Calhoun said.

Lawmakers on Monday said they were still not satisfied after the hearing. In a letter to their colleagues, Rep. Peter DeFazio, D-Ore., chair of the House Committee on Transportation and Infrastructure and Rep. Richard Larsen, D-Wash., said after the hearings "we have a litany of new questions for both Boeing and the FAA about the failures that led to the tragic and unnecessary deaths of 346 innocent people." The committee is among those investigating Boeing over the plane.

Boeing's board stripped Muilenburg of his chairmanship on Oct. 11 saying it had "full confidence" in him as CEO and that the move would help him better address the 737 Max issues. Regulators grounded the planes worldwide after the second crash in March, forcing Boeing to halt deliveries and slash production of its best-selling aircraft.

Boeing has been scrambling to get regulators to approve its changes to the planes, including more redundancies and a less aggressive MCAS, but so far they haven't signed off. The European Union Aviation Safety Agency on Monday said it will likely give its approval in early 2020.

The manufacturer plans to continue using the 737 Max brand name, Calhoun said.

Some of Boeing's 737 Max customers, including Southwest and American, have complained about hundreds of millions of dollars in lost revenue because of the Max grounding. Calhoun reiterated that the manufacturer plans to have settlements with its customers and said its balance sheet can handle that.

Boeing took a nearly $5 billion after-tax charge in the second quarter to compensate airlines affected by the grounding, which is now approaching its ninth month.

Muilenburg said on the company's second quarter earnings call in July that Boeing could halt production altogether, but Calhoun said Boeing has no plans to reduce the already lowered 737 Max production rate of 42 a month.

Boeing's stock rose just over 2% on Tuesday, and has gained about 11% so far this year, roughly half the percentage gain of the broader market.

READ MORE: Lawmakers call for Boeing CEO to step down, but Wall Street thinks otherwise