What's going on in Wichita? Are they really that out of control? Did Wichita "lose" any exec as a result of all this?
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Wichita doomed Woodard
by Stanley Holmes
Seattle Times aerospace reporter
Some say it was the last straw; others say it's a straw man.
Either way, the discovery of a major accounting problem in
Wichita, Kan., was enough to end Ron Woodard's 4 1/2-year
tenure as president of the Boeing Commercial Airplane Group.
Rumors of a major management shake-up had swirled around
Boeing for months, as the aircraft giant watched profits - and its
stock price - plunge. But some sources within the company say the
catalyst for Chairman Phil Condit's decision to oust Woodard and
other top officials yesterday was the revelation of a massive parts
backlog at Boeing's Wichita airplane plant, a backlog that had
slipped through the accounting system.
Sources said the backlog resulted in a cost overrun of at least $200
million and possibly much more. The parts piling up in Wichita
ranged from raw material such as sheets of aluminum to finished
components such as stringers, which are structural cross beams,
sources said.
The discovery reflected Boeing's ongoing inability to understand
and calculate the real cost of building its airplanes - an admission
Condit and President Harry Stonecipher had recently
acknowledged and vowed to correct.
"We were going through too many of these where we didn't have
the system that tells us everything we need to know," said one
Boeing official. "A large number of the parts were not accounted
for. You just don't know what your costs are."
But others say the problem at Wichita, while serious, was the
excuse Condit was looking for to shake things up and send a
positive signal to investors that Boeing was putting its house in
order.
Wichita is a primary supplier of big parts for Boeing jets, including
fuselage sections for Boeing's new-generation 737, which has been
the source of many of Boeing's production-related problems.
Condit faces tremendous pressure from directors and shareholders
angry about the company's performance. Despite a record boom in
airplane orders and production rates, Boeing reported a $178
million loss last year because of production problems and excessive
costs. Its stock price has dropped nearly $20 a share from its
trading high point in mid-July, costing investors more than $19.4
billion.
Woodard, 55, has been replaced by Alan Mulally, the 53-year-old
chief of Boeing's defense and space group. Woodard has been
offered another job in the company, but it is unclear whether he will
accept it.
Boeing fired two of Woodard's top lieutenants and redefined the
role of a third. Others were assigned to special projects.
Harry Arnold, 48, chief engineer and executive vice president for
the commercial-aircraft division, was fired. He had been unaware
of last week's discovery of the Wichita cost problems, having spent
the week taking his son to college in California.
Dan Heidt, 57, executive vice president for airplane components,
also was fired. He was responsible for the Wichita unit. On
Monday morning, Heidt was discussing Boeing's
lean-manufacturing initiative with a reporter just hours before the
company notified him that he was going to be "retired."
Tom Schick, 57, deputy president and chief of operations for the
commercial-airplane division, survived the management shake-up,
accepting a yet-to-be-defined management position within the
division. Schick was Woodard's right-hand man and the two often
referred to themselves as the "Top Guns."
Boeing employees are trying to sort out one of the biggest
management purges in the company's 82-year-old history.
"My concern is that Woodard's ouster may generate more fear than
generate accountability," said Charles Bofferding, executive
director of the Seattle Professional Engineering Employees
Association, Boeing's second-largest union, which represents
26,000 engineers and technical workers. "I think people should be
held accountable for things that they actually do," he said.
For example, Bofferding said, Woodard was forced to write off
$1.4 billion for the Douglas Products division, which Boeing
inherited from the McDonnell Douglas merger. Woodard should
not have been held accountable for those problems, Bofferding
said.
"I'm disappointed that there wasn't more appreciation given to Ron
for the positive things that he's done for Boeing over his entire
career," he said.
At least one Boeing executive said the Wichita problems were not
as serious as portrayed, and that several senior people were aware
of the overruns.
"It was not that severe," the executive said. "It was covered by
reserves that we had in the company. Certain folks knew about it.
I'm not sure this was any part of the decision-making factor. They
(Condit and Stonecipher) had been holding conversations over the
past few weeks. I think they were reacting to the market."
All Boeing factories normally carry an inventory of parts that are
counted as assets, and they typically carry "contingency" reserves
intended to pay for unexpected costs. Sources say that in Wichita,
the parts inventory being carried day to day was much higher than
senior Boeing officials had expected, making it a liability. The
balance in the reserve accounts also greatly exceeded the amount
that was assumed to be there, meaning it had the same
consequence.
The problem was serious, the executive added, but during better
times no one would have been fired over it.
Woodard, who has worked for Boeing for 32 years, is saying
nothing publicly. But some who know him say he was surprised by
Condit's decision, because he felt his Commercial Airplane Group,
which produces 60 percent of Boeing's revenues, finally was
sorting out its cost and production problems.
Woodard had stretched the company's resources by pushing to
develop the Next Generation 737, the 757-300, the 767-400 and
the 777-300 while increasing production to record rates. He also
began a sweeping overhaul of manufacturing and engineering
operations.
While both were seen as smart long-term moves, both collided
during Boeing's production surge and contributed to its troubles.
Arnold said the commercial-airplane division was turning a corner
after nine months of struggle.
"We went through the night and we are at the dawn," said Arnold,
who now is looking for a new job after 25 years with Boeing.
"Things are improving so fast, it's really heartening to see. But we
had been through the night, a very long night."
He added: "We had a lot of balls in the air, a lot of things to do.
We knew it was high risk, and we did it with our eyes open.
Sometimes you win and sometimes you lose."
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