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Boeing promotes defense chief to chief operating officer

Boeing Defense, Space and Security CEO Dennis Muilenburg is pictured at the Reuters Aerospace and Defense Summit in Washington, in this file photo taken September 3, 2013. REUTERS/Jason Reed/Files

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Boeing Co (BA) on Wednesday promoted Dennis Muilenburg, head of its defense division, to the post of president and chief operating officer, a move that company insiders and analysts said makes him "heir apparent" to Chief Executive Jim McNerney.

Muilenburg, 49, and Ray Conner, the 58-year old head of the Boeing Commercial Airplanes unit, were both named vice chairmen, Boeing said in a statement.

Boeing said Muilenburg would move to Chicago headquarters and share oversight of operations with McNerney. One source familiar with Boeing's planning said the promotion of Muilenburg over Conner made him heir apparent to McNerney, especially given his move to Chicago.

Boeing spokesman John Dern said McNerney, 64, had no plans to retire, but the changes should provide the board with a "range of viable options" when he eventually does retire.

"It's about putting the right leaders in the right places who can drive business performance," Dern said.

Muilenburg has been a vocal proponent of the "One Boeing" strategy, which seeks to better coordinate supply chain and other functions across the commercial and defense units. Boeing said its focus on bringing the parts of its business closer together was paying off in domestic and international markets, and had generated savings across the corporation. (See Reuters Insider video: http://tinyurl.com/okzz97k)

"As Boeing scales up for growth, Muilenburg, as president and COO, will share with McNerney oversight of the company's business operations and focus on specific growth enablers, including important global relationships and development program performance," the company said.

Boeing's plan to expand in Brazil suffered a big setback on Wednesday when Brazil awarded a $4.5 billion fighter jet deal to Sweden's Saab AB. One Brazilian official said news of U.S. spying on Brazilians derailed the chances of Boeing's F/A-18 Super Hornet, which was once favored to win.

Last month, South Korea said it would buy 40 Lockheed Martin Corp (LMT) F-35 fighters instead of Boeing's F-15 jet, the only plane that met the country's price requirements.

Chris Chadwick, 53, who now heads Boeing's military aircraft unit, will succeed Muilenburg at the helm of Boeing's defense division, while Shelley Lavender, who runs Boeing's logistics business, will replace Chadwick as head of the military aircraft business, Boeing said in a statement.

Loren Thompson, chief operating officer of the Lexington Institute think tank, said Muilenburg was the most energetic and athletic executive he had ever met in the defense industry. "He's very focused and intense in a way that few executives are," he said.

Muilenburg told the Reuters Aerospace & Defense Summit in September that he cycles about 120 miles a week to stay in shape.

Thompson said the decision to promote the defense business chief to a top corporate role underscored Boeing's commitment to that side of its business, despite surging commercial orders and an expected drop in U.S. military spending.

"During a period of declining military demand, Muilenburg has managed to maintain the revenues of the company," Thompson said. "He has done more with the business than many people thought was possible when he took over in 2009."

Rob Stallard, aerospace analyst with RBC Capital Markets, said he did not believe McNerney's retirement was imminent.

"Today's promotions signal to us that Muilenburg is the anointed heir apparent, though it could be a couple of years before he actually gets promoted to the top slot," he wrote in a note to investors.

"This creates an interesting dynamic for BCA, in that the head of that division has again been potentially passed over for the CEO spot at Boeing." Alan Mullaly left the company after Boeing hired McNerney, an outsider, to become CEO.

Aerospace analyst Richard Aboulafia said the decision reinforced his impression that Boeing's leadership was more focused on the military side of the company. "This is a company that is majority civil in revenues, but is majority military in management, outlook and disposition," he said.

If Muilenburg succeeded McNerney as Boeing chief executive, it would mark the first time a leader from the defense side has headed the company since 1986, when Boeing was led by Thornton "T" Wilson, who worked on the B-52 bomber and Minuteman ballistic missile programs, stepped down.

The CEOs immediately before McNerney, Harry Stonecipher, Phil Condit and Frank Shrontz, came from the commercial side, although Shrontz had worked at the Pentagon. McNerney came from outside Boeing, previously heading 3M and several General Electric divisions, including aircraft engines and lighting.

During his tenure as defense chief, Muilenburg helped Boeing beat out Europe's Airbus to win an Air Force competition for 179 new refueling tankers. Boeing has also sharply expanded foreign sales, and beat out rivals to hold onto its role as the prime contractor for the ground-based missile defense system.

Conner was named to head Boeing Commercial Airplanes in June 2012, replacing Jim Albaugh, who previously headed the defense division. Muilenburg has run the defense business since September 2009.

Boeing shares closed down 39 cents or 0.3 percent at $135.49 on the New York Stock Exchange. (Additional reporting by Alwyn Scott in Seattle; Editing Alden Bentley, David Gregorio and Bernard Orr)