Guy Leitch
After the Boeing Max crashes, the chatterati were suddenly experts on MCAS. Now everyone is an expert on Boeing’s management problems. I have dug up what I trust are some fresh new insights.
Like Mary Poppins, let’s start at the very beginning. Boeing was founded by William Boeing in 1916, and over the years, it became the paragon of American excellence, building air and space craft as diverse the first stage of the Saturn V rocket, and a long stream of excellent fighters.
The company’s success rests heavily on its reputation for excellence. That reputation for excellence was credited to the company’s engineer-centred open culture. After noticing some shoddy workmanship, William Boeing famously said, that he would “close up shop rather than send out work of this kind.” Boeing had such a great reputation for safety there was a popular saying: “If it ain’t Boeing, I ain’t going.”
In 1967, Boeing introduced the 737, and it has delivered over 11,000 of them. Boeing airliners dominated the market until Airbus overtook them in 2019. So how did they get so far from that culture today? There was a pivotal event.
To take on the growing threat of Airbus, in 1997 Boeing did a reverse takeover of McDonnell Douglas to create the world’s largest aircraft manufacturer.
McDonnell Douglas, who were primarily known for military planes, had a crap reputation for commercial airliners – most notably the DC10, which killed over 1,100 passengers.
After the takeover, McDonnell Douglas gave Boeing management a copy of an Economist magazine cover about the challenges of corporate mergers, which sounds sweet until you see that the cover had a picture of two camels humping. McDonnell Douglas bosses added the caption; “Who’s on top?”
John Oliver’s Last Week Tonight show reveals an even more cringeworthy development, Boeing’s then CEO Phil Condit pushed the big idea of “less family, more team.” The irony of Condit having married his first cousin Jan Condit was seemingly lost on him – but not the market.
The merger is blamed for a profound culture change. A year after the merger, Boeing announced a stock buyback, taking company money that should have gone to making better planes, and using it to inflate the stock price. A huge campaign called Share Value was launched. The idea was that they wanted everybody to work together to increase the stock price.
Even technical meetings revolved around the Boeing stock price. And in retrospect this was not reassuring because no one wants to get on a plane and hear, “This is your captain speaking. We had a few technical problems, but our maintenance crew’s assured us that the stock price is still holding strong. So let’s get these million rivets airborne and all flying in tight formation.”
The share price culture change was solidified by the decision to relocate the corporate headquarters from Seattle — where the planes were actually designed and built — 2,000 miles to Chicago. Management were saying that they don’t want to be bothered by engineers.
The problems with the “stock price-first” approach became apparent during the production of the radically new composite 787 Dreamliner, which Boeing had announced in 2004. Despite the 787’s pioneering of composite construction, Boeing slashed the R&D budget as the company continued with large stock buybacks and dividends.
Boeing also outsourced production to about 50 suppliers, each of whom was responsible for managing its own subcontractors. So the plan was for Boeing to assemble components other people made – for the cheapest price.
Years later, Boeing admitted that had been a fiasco. Executing a supply chain of such complexity proved to be more than some suppliers could handle. Problems were legion. The huge fuselage barrels did not fit together. Fasteners were incorrectly used. There were gaps between components. Airbus tried hard not to laugh.
Phil Conduit had been busted for a dodgy deal, and his successor, Harry Stonecipher, was forced to resign after an affair with a Boeing VP – so he was also keeping it in the family. In echoes of SAA, Boeing got its third CEO in as many years: Jim McNerney, who accelerated the cost-cutting.
Despite all the outsourcing difficulties, in 2007 Boeing rolled out the 787 on time in an elaborate ceremony – except it wasn’t real. A reporter wrote, “… in rolls this beautiful, beautiful aircraft. And then we discovered that the whole thing was made out of plywood and lies!
The plane was supposed to take its first test flight within two months of that launch, but unsurprisingly, that didn’t happen. In fact, the 787 was three years late and $25 billion over budget. And almost immediately, there were big problems. Two 787s had fires on board, within nine days of each other, attributed to a defective Lithium battery, made by a subcontractor that Boeing had never audited.
So the FAA grounded the 787 — the first time it had grounded a whole type since the DC10 in 1979, making it clear that the wrong attitudes had prevailed after the merger. Basically, the wrong camel came out on top.
While the 787 had its problems, Airbus, was unveiling the A320neo, which was a huge sales success. Boeing was caught sleeping, so it scrambled to announce a plane it hadn’t even engineered yet, the 737 Max.
They had to get it into production as fast and as cheaply as possible. Sales for the promised plane were strong up and Boeing made grand predictions about ramping up production to 57 new planes a month. They still have a backlog of no less than 7,000 maxes to deliver.
The catchphrase, “more for less,” became the company’s theme. And still, Boeing’s board signed off on yet more large stock buybacks. From 2014 to 2018, Boeing diverted 92% of its operating cash flow to dividends and share buybacks to benefit investors, far exceeding the money it spent on R&D for new planes.
The Max was rushed through design and production, with tragic consequences. Workers on the production line for the Max described a process that valued speed over quality.
The big question then becomes – where was the FAA? As the regulator of safety standards, why didn’t the FAA catch this before 346 people died?”
The answer is that unbelievably, for fifty years, Boeing was allowed to use FAA designated inspectors – who were employed by Boeing. That’s a somewhat large conflict of interest.
The FAA’s excuse was that it had to rely on Boeing to vouch for the Max’s safety, because they lacked the knowledge and skills to evaluate what was going on. A Boeing employee said a presentation to the regulators was; “like dogs watching TV,” because they didn’t understand what they were seeing.
So Boeing was paying Boeing employees to regulate Boeing. And this self-regulation was increasd from 2005, after Boeing successfully lobbied to reduce government oversight.
Unsurprisingly, now several of these Boeing-employed “representatives of the FAA” have admitted that they faced heavy pressure from managers to limit safety analysis and testing, so the company could meet its schedule and keep costs down. At every point along the production process, the FAA either delegated responsibility to Boeing, or gave them the benefit of the doubt.
So, what now? Well, Boeing’s not going out of business anytime soon. It’s half of the happy A&B duopoly of the two major commercial airliner manufacturers. So we, the passengers, need them to survive – and get better.
Four years after the 737 Max crashes and now the Alaska door plug, plus a plethora of problems with the 787 and 777X the key question is still — can Boeing change?
Well, thanks in part to pressure from the families who lost loved ones in those crashes, congress has passed bipartisan legislation rolling back much of Boeing’s ability to oversee its own work. And it’s encouraging that the FAA is now insisting Boeing come up with a plan to address safety in 90 days — although we’ll see what that brings.
Whistle-blowers have repeatedly said Boeing won’t change until it has new leadership. The toll on whistle-blowers has been huge so much so that John Barnett blew his brains out. Boing has much lost ground to recover so, to show how serious it is CEO, Dave Calhoun and other senior C-suite execs have been shown the door.
Meanwhile every media platform sees Boeing as a free hit. Even the smallest incident gets headlines. Boeing’s incoming management is going to have to go on a major charm offensive to convince the world that their planes are indeed safe.
And they need to come up with two all-new planes – a ‘middle of the market’ to replace the 757 and take on the A321, and a replacement for the 737. But right now the once proud plane maker is too weak to even try fund the massive cost of new designs – especially if they are to be done properly.