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UPDATE 3-Boeing fires CEO Muilenburg to steady spiraling 737 MAX crisis

Ankit Ajmera and Tim Hepher

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Dec 23 (Reuters) - Boeing Co ousted Chief Executive Dennis Muilenburg as the world's biggest planemaker sought to control an escalating crisis that has seen it halt production of its best-selling 737 MAX jetliner following two fatal crashes.

The sacking comes as Boeing struggles to mend strained relations with the regulators it needs to win over to get the grounded 737 back in the air, and seeks to regain trust with passengers and airline customers around the world.

Chairman David Calhoun will take over as CEO and president, effective from Jan. 13, the company said, adding that a change in leadership was necessary to restore confidence.

The company's shares, which have dropped more than 20% over the past nine months, rose nearly 4% in early trading.

The decision capped a week of dramatic setbacks for Boeing, from a decision to halt production of the 737, a public slap-down from the Federal Aviation Administration (FAA), a ratings downgrade and an embarrassing space launch glitch on Friday.

One source close to Boeing said the company needed to turn the corner and regain its stride as it faces what is widely seen as the worst crisis in its more than 100-year history

The 737 MAX has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people within five months.

It has been by far the biggest crisis of Muilenburg's tenure at Boeing, where he started as an intern in 1985, rising through the company's defense and services ranks to the top job in 2015.

Boeing said this month it would stop production of the jets in January, and the crisis also threatens to hit the U.S. economy with House representative Rick Larsen calling the decision "a body blow to its workers and the region's economy."

A senior industry source called the sparse wording of Boeing's statement on the 34-year veteran "brutal."

Speculation that Muilenburg would be fired had been circulating in the industry for months, intensifying in October when the board stripped him of his chairman title - although he had also twice won expressions of confidence from Calhoun.

PHONE CALL

A Boeing official said the board deliberated over the weekend and decided to fire Muilenburg in a phone call on Sunday.

Aerospace analyst Richard Aboulafia of Teal Group said the appointment of Calhoun, who previously served as head of Blackstone Group's private equity portfolio operation, would provide short-term stability, but not the long-term "emphasis on engineering" the company needs.

"Calhoun is respected in the industry," Aboulafia said. "But long-term, does he bring the right tool kit? Private equity leans companies out. That's not Boeing's problem right now."

Board member and former airline boss Lawrence Kellner will become non-executive chairman of the board effective immediately, the company said.

Chief Financial Officer Greg Smith will serve as interim CEO during the brief transition period.

Boeing - which has taken flak from the FAA for appearing to pressure the regulator by predicting when the planes would return to the air - pledged full transparency, including "effective and proactive communication" with regulators.

Analysts at British-based Redburn said the CEO sacking suggested Boeing's relationship with the FAA was "at its nadir and should improve from here."

Muilenburg is a lifelong Boeing engineer who fought a rising tide of public and regulatory scrutiny to try to steady the company during the crisis, but who failed to overcome a stilted public image.

In keeping Muilenburg in the job as long as Boeing has, the company was ignoring elements of the classic crisis communications playbook used by other companies, said Paul Argenti, a professor at Dartmouth's Tuck School of Business.

"You want to bring somebody from the outside to bring fresh perspective to 'save the day,"' Argenti said. "He should have been gone a long time ago. He is part of the problem." (Reporting by Eric Johnson in Seattle, Tim Hepher in Paris, David Shepardson in Washington, Allison Lampert in Montreal and Ankit Ajmera in Bengaluru; Editing by Saumyadeb Chakrabarty and Pravin Char)