Boeing CEO Dennis Muilenburg On The Issue With The 737 Max

CNBC transcript: Boeing Chairman & CEO Dennis Muilenburg speaks with CNBC ’s Phil Lebeau today on CNBC’s “The Exchange”

Dennis Muilenburg

Image source: CNBC Video Screenshot

WHEN: TODAY, MONDAY, JUNE 2

WHERE: CNBC’S “THE EXCHANGE”

Following is the unofficial transcript of a CNBC interview with Boeing Chairman & CEO Dennis Muilenburg today on CNBC’s “The Exchange.”  Following is a link to video of the interview on CNBC.com:

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Kelly Evans: welcome back to "The exchange." Boeing shares are under pressure again today. This following news that some of the wing parts of the 737 max  may be defective the stock is down 23% in the last three months as the company deals with the fallout from the  737 max crashes and subsequent grounding of the planes. Let’s talk about all of it with  the chairman and CEO of Boeing Dennis Muilenburg. He’s live in Chicago with our  Phil Lebeau. Phil

Phil Lebeau: thank you, Kelly. Dennis, thanks for being here  today.

Dennis muilenburg: thank you.

Lebeau: let’s start first off with the  latest issue with the 737 and  the wing slats, if you will. These parts within these wings that you’re going to have to inspect. Is this due to your own internal investigation in terms of what happened here? And it brings up the question, are we going to hear more of this in the future not just with the max but 737 overall?

Muilenburg:  well I think first of all, we start off  everything with safety and quality. This is something we discovered  as a supplier quality issue. As soon as we discovered that, we brought to it the surface we’re dealing with that expeditiously we’ve been coordinating with the FAA over the weekend this is a process that’s well  defined and well understood in our engineering discipline and we’re all over it with our customers and we are out in the field with our airline customers as well to coordinate this.

Lebeau: you’ve got the 737 max already grounded so those wing slats they can inspect and repair when needed but with the ng those models are flying right now and that’s sort of this headline risk out there right now. Somebody will hear this, they’ll hear 737 and they’ll say, here we go again. Something else is wrong. Are you worried that it makes  people uneasy about flying the 737?

Muilenburg: well, certainly it’s  something that we regret the impact that it has had to our customers. Any time there’s news on the 737, it is something that goes to the top of the list we’re paying close attention to  it this particular issue of the slat tracks is a well understood one and one that we will work our way through quickly. It’s something we’re going to  stay very coordinated with customers. We know it is important and we want to minimize the  disruption to our customers.

Lebeau: let’s shift to the 737 max. You’re in the process of preparing for certification flight  and then filing your application for  recertification. This is something that we’ve been told or conditioned by various people that, hey, it’s ready. It’s ready it’s ready you’ve already finished the  software is there a delay in filing for this recertification?

Muilenburg: we are following a very disciplined process here everything again starts with safety and quality. We know that lives depend on the work that we are doing so safety is a paramount importance here. We’re working through this in a  very disciplined fashion with the FAA. We have completed the software development work we’re now in the process of  answering questions that the FAA has that include some sessions in our simulators this week. We hope to schedule the  certification flight very soon. Then after that a decision from  the FAA to return to flight.

Lebeau: is the FAA pushing back are they saying to you nope you’re not ready yet?

Muilenburg: the FAA is working closely  with us but also being disciplined and deep  in their analysis. I think it’s a good thing. I think it is good for all of us to be very disciplined in this approach to make sure that we’re doing everything we can to ensure  safety and I’m very confident that when this process is completed and  the max is back up in the air, that it’ll be one of the safest  airplanes ever to fly

Lebeau: all of this brings up the question of whether or not Boeing and the FAA because of  the certification process you  work too closely together. And at the end of the day this is the problem. And that you have people that  who are saying, wait a second. How do you know the information  you’re getting from Boeing is  correct and is accurate? And it has people saying, wait a second are these planes going to be safe when they’re recertified if they a;ready had these problems in the past

Muilenburg: we’re very confident in the  overall process. Over the last 20 years, aviation has been the safest form of  transportation around the world. And the accident rate has been reduced by 95% because of the processes  that the FAA has put in place. The idea we work closely together to tap deep technical expertise while ensuring the independent review process I  think the process is very  effective. That said, we’re learning as we  go through this current  situation. Both the FAA and in my own board committee at Boeing are taking a look at our certification  processes. And if there are any improvements we can make, we’ll  make those

Lebeau: but you’ve seen the stories. It’s been a steady drum beat of  stories that have come out where time and again it appears you  were making changes in a plane too fast without enough people being notified. In many cases your own flight test engineers or flight test pilots were saying  wait a second I didn’t know about the MCAS situation. When you hear those stories you have to understand that the public  looks at this saying wait a second how do we know this isn’t going to happen  again?

Muilenburg: well, we certainly regret the impact this has had. Without question, we’re sorry  for the lives that were lost in  these two accidents. We know it’s impacted the trust  and confidence of the flying public we take that very, very  seriously. I can tell you we’ve taken a deep look at the max development. It was a six-year development  program with more than 1600  flight tests we followed our certification  processes but we always know that we can get better and that’s what we are committed to this is all about safety and the track record of safety in  aviation is as strong as it is because we never stop improving. So we’re learning from these current situations but I want you to know we’re investing everything we can in the safety of these airplanes. We know that today 5 million passengers will fly on Boeing  airplanes today. Their lives depend on it we take that very seriously

Lebeau: but that hasn’t changed with all due respect, that’s  been that way for years. And we know that Boeing has a  culture of saying we want to make sure we’re right. But how do you know this won’t happen again given the fact that it did happen?

Muilenburg: well, couple of things we’re  doing. In this particular case with the improvements we’re making to the max software, we’ve taken a deep look at how we can build additional redundancies into that so-called MCAS software we’ve done more than 280 flight tests with that new software. The certification process around this is being done in depth in a very disciplined way as I mentioned earlier. We’re also working with our  customers to make sure we  understand the impact to them  and working closely with them on return to service planning so  that can be done in a safe and efficient way. And we’re looking at our certification processes hollistically so we  can continue to improve for the  future

Lebeau: dennis, I know kelly has a  question or two for you.

Kelly evans: thank you one of the things the public and even your investors are saying they’re not hearing from you is  contrition are you admitting to any wrong doing or fault

Muilenburg: well, first of all we are very, very sorry for both of these accidents. And as I’ve expressed and will continue to express our deepest  sympathies to the loved ones and the families of those lost, that will never go away and that will weigh on us heavily forever. What that has done is it’s really reinvigorated our continuing emphasis on safety  and quality and integrity. And I can assure you that we’re  learning we’re going to be improving. We know that there are things we can do better. The MCAS software improvements are a clear area where we’re improving. We know we can make improvements on training and education. We’re making those investments we also know that our  communication in some cases was  not as effective or not as complete as it should have been. And there are areas where we can improve transparency and that’s part of how we’ll increase confidence of the flying public and the customers  out there. So we know we have work to do.

Evans: sure. Does improving those systems mean that you did something  wrong.

Muilenburg: well, I think one example that I’ve mentioned before is on the angle of attack disagree alert that was in the news recently we made a mistake on the implementation of that we are fixing that as we go  forward. So we are in approach to how we  do our business, where we’re always  seeking to learn we’re always looking to improve. And we have fallen short in the  past and I’ve admitted that and acknowledged it. And that only makes us more  resolute in the commitment to  safety going forward

Evans: and you’re clear about this now, but for months investors in the public have wanted this  clarity. Were you hamstrung from speaking out by regulators did you personally want to be  able to give people more information? Were you not allowed to give that information

Muilenburg: well, I think part of the challenge we’ve had is the investigation process around aviation accidents is controlled by something called ICAO Annex 13 it’s  important to us that we protect  the integrity of that  investigation process. So we’ve been doing that at the same time we’ve been  trying to share as much  information as we could  throughout the process and that has at times been a balancing act. But frankly we owe information to all of our stake holders in this process we’re doing everything we can to be transparent, provide that information. Again, I know we could do better and we are focused on that going forward.

Evans: are you the right person for  this job

Muilenburg: yes, I think I am and certainly I’m committed to our objectives as a company  around safety and integrity and  quality. I think it’s important that I continue to lead and lead this company in a way that’s  consistent with our values I’ve been at Boeing now for 34 years. I started at the company as an intern I have a great pride in our  company. It’s frankly a privilege to do the kind of work we do around  the world. We know that people’s lives  depend on what we do whether it’s commercial airplane customers and passengers or servicemen and women around the world who use our defense  products we are committed to excellence in the work we do. I’m proud and honored to work  for this company I look forward to continue to lead consistent with our values.

Lebeau: playing off what Kelly was asking you on whether you’re the right person to lead this company. One of the criticisms out there  which I think is a valid one is there’s  not an independent third party that has said -- that you’ve hired and you said you have free reign. You interview any engineer you want to, any test pilot we want to find out exactly what’s happened here. Why not bring in an independent  third party and say find what  you need to find and we will hold those accountable who did wrong here

Muilenburg: in fact, we are doing that in collaboration with our customers as well. As you know, the u.S. Government has initiated some independent reviews. We’re supporting that review process. I’ve also asked my board to  independently set up a committee to – review our processes

Lebeau: will you release those  results including names of those who have done wrong?

Muilenburg: we will release those results and I also want you to know that that committee is bringing in external experts. That is not only an internal view, they will bring in external experts to support the effort and whatever we learn from those committees, we are committed to  implementing those improvements  and we will make those improvements well known.

Lebeau: the president thinks you  should rebrand the max we understand for certification reasons, you can’t just rebrand the plane and name it something else but you know the max name right now  is toxic with travelers. They don’t want to fly it. They’re worried about the safety of it. Why not say we’re not going to call it the max anymore we are going to come up with something else? At a minimum to change the perception that is going to be out there when it comes back  into service

Muilenburg: I think the most important  thing here is to remain committed to safety and getting the airplane  back up flying safely. I frankly don’t think this is a pr process or advertising process this is about safe travel. And we’re investing in making  the max as safe as possible. I think the improvements were making on software, training and education, how we communicate, that’s what’s going to matter. As we get the airplane back up and  flying and flying safely, that will rebuild customer  confidence and we’re going to be working  closely with the airline customers. They understand the flying public very well and we know that we’re going to have tailored work with them to  rebuild that confidence over time this will take time. We know we’ve damaged trust. And we have to earn and reearn that trust of the flying public. We are committed

Lebeau: when are you telling airlines to probably expect to see this plane? August

Muilenburg: we’re working actively on that day-to-day. As I said this week we’re in the simulator with the faa and nasa we hope to schedule the  certification flight shortly after that that will be followed by approvals from the regulators to get the airplane back up and flying I can’t give you a specific  timeline on that, but that is  all work we’re doing daily,  hourly we also have our teams deployed  with our customers helping them  on return to service preparation. So these are all near term activities while I can’t give you a specific timeline, I can tell you it’s a very active day-to-day  engagement we’re going to spend a lot of time with our customers to make  sure they’re confident in the  plane as it comes back up.

Lebeau: are you ever out and hear people talk about the max? Airport travelers. Do you know what they’re saying?

Muilenburg: yeah I’ve heard those comments.

Lebeau: and what’s your reaction when you hear people say, I’m not getting on it?

Muilenburg: well, first of all, we deeply regret the impact. We’re sorry for the lives that were lost. This will always be with us as a company. It weighs heavily on us every  day. When I hear comments from the  traveling public and you might guess I spend a lot of time in airports I’ve heard these comments. They’re tough. They wear on us deeply as a  company. These are customers we care about we know their lives depend on  what we do so our work here will never be done but I can tell you we’re only  more resolute in our commitment  to safety and quality and  integrity as a result.

Lebeau: last question you’re at 42 a month in terms of 737 max production when do you get back up to 52  and can you get to 57 as previously expected by the end of the year?

Muilenburg: the long-term plans have not  change this is all paced by the most  important thing is getting the airplane back up and flying  safely and then we will be helping our customers take the grounded fleet and returning that to service  safely in the interim while we’re running at 42 a month we’re investing in our supply  chain health so it’s ready to go when we are. Stepping back up to 47 and 52 a month is something we plan to do but only when we’re ready and in a very disciplined fashion. Long term

Lebeau: do you get back to 52 by the  end of the year?

Muilenburg: I won’t put a time on it  because it will be paced by a return to service. The most important thing is to focus on safety. When we are ready to ramp back up production wise, we will. The long-term market still says the  world still needs 43,000 new airplanes over the next 20 years and the max is a big part of that.

Lebeau: have you had a single order for the max yet since the  grounding?

Muilenburg:  no.

Lebeau: okay. Dennis Muilenburg, chairman and  CEO of the Boeing corporation  joining us here today.

Evans: and before I let you guys totally go, Dennis, my last  question on this is do you think that 737 max is going to be back up in the skies before the end of the year at this point?

Muilenburg: I do but again I can’t give you the specific timeline on it we are working very closely with the regulators this is day to day activities we are working with the right pace but all of this will be gaged by the investment we are making in safety.  The most important thing here is safety  and we will be back up and flying when we are ready and we will do that jointly with our customers and with the regulators




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver