Boeing’s brand takes a beating
What caused Boeing’s problems? The merger? The pandemic?
(Credit: FOX News)
Boeing CEO Dave Calhoun knew it was going to be a grilling when he walked into a US Senate hearing room. Family members of some of those killed in the two 737 MAX crashes exclaimed, “shame, shame,” as Calhoun took his seat.
As he started his written statement to the committee, Calhoun stood up and turned around to address the family members. He told them he is sorry. “I apologize for the grief we have caused… we are totally committed, in their memory, to work and focus on safety.”
Boeing paid out $2.5 billion dollars for those two crashes to help avoid prosecution. It promised to fix its safety culture. Then, earlier this year, a door blew out of a nearly new 737 MAX after taking off from Portland, Oregon. That deferred prosecution could now become a court case. The missing door has started this latest round of questions about Boeing’s culture.
The Senate hearing was held by a Homeland Security investigations subcommittee. Not much investigating was done. It was a bipartisan, finger-pointing flogging that Calhoun expected and he did his best to take his licks. Several Senators were working for the cameras rather than the flying public. That was a shame.
Boeing has plenty of problems and needs to be held accountable. But the Senators seemed more interested in bringing up history rather than current problems and how to fix those so we all feel more comfortable getting on a Boeing jetliner.
The Senators could have asked themselves why Congress decided and told the FAA to allow Boeing to do more inspecting and approvals during the certification process of an aircraft. But the ODA (Organization Designation Authority) is wonky and it is rarely fun to point a finger at yourself.
FAA Administrator Michael Whitaker earlier this year calling for a review of the ODA system used in the certification of aircraft. (Credit: CNBC)
I arrived in Seattle as a reporter in 1983. The area was aviation crazy. Videographers I worked with would look up when they heard a jetliner overhead and name the aircraft type. Meet a Boeing worker and they would likely tell you how proud they were of their company, their jetliners, and being part of the Boeing family. Many have said, and a business reporter remarked in 2000, that Boeing was “less a business than an association of engineers devoted to building amazing flying machines.” They were building great jets and were on the cutting edge of aviation.
What happened? It depends on who you ask. There are several factors and theories. One is more than a quarter century in the past. Another explanation happened just a few years ago.
THE MERGER
In the 1990s McDonnell Douglas (MDC) had a problem. The jetliners built by the Long Beach, California company were having a tough time competing with Boeing and Airbus. MDC had a good defense business and that appealed to Boeing. The Seattle company wanted to grow. In August 1997 the merger of the last two US-based airliner manufacturers was announced.
Boeing was taking over MDC. In the end it was the leadership team from MDC that took over Boeing and changed its culture. At the news conference announcing the merger, Boeing’s CEO Phil Condit did most of the talking. But his new president, the former head of MDC, gave a hint of what was to come. Harry Stonecipher told reporters, “we’re gonna build product where we can build it for the highest quality and the lowest price.”
A few months later, Stonecipher was more blunt before the Seattle Rotary about changing Boeing’s engineering culture and improving its financials. “The Boeing Co. is a great company with a tremendous future but it has a record of financial results that has ranged from a little better than average in recent years to absolutely dismal in 1997. That’s something we can and we will fix.”
As a Seattle newspaper reported about Stonecipher, “They used to talk about it as the Boeing family and he right away said it is not a family, it is a business," said Ranae Robinson, a one-time Boeing worker.
Peter Robison reports for Bloomberg and wrote a book about the changes at Boeing. He says he visited for the first time in 1998, after the merger, for “Flying Blind”.
What I found was a place at war with itself. The acquisition of McDonnell Douglas a year earlier had brought hordes of cutthroat managers, trained in the win-at-all-costs ways of defense contracting, into Boeing’s more professorial ranks in the misty Puget Sound. A federal mediator who refereed a strike by Boeing engineers two years later described the merger privately as “hunter killer assassins” meeting Boy Scouts.Two academics wrote for Euronews about the two clashing cultures after the merger.
The tougher, leaner managers of the weaker company elbowed out the more gentlemanly leaders of the bigger company. The result was that Boeing’s idealistic engineers ended up being run by McDonnell Douglas hard-bitten veterans. These were accountants, financial controllers and other managers obsessed with cost savings and used to running things on a shoestring budget. They were also very sensitive to shareholder wealth.United Airlines CEO Scott Kirby told CNN Boeing has a cultural problem which dates back a couple decades. (Credit: CNN)
A few weeks ago the CEO of United Airlines said Boeing’s issues can be traced directly back to the merger and the change of priorities. “I think it goes back to the McDonnell Douglas merger- too focused on the short term financials instead of focusing on the best products in the world, and building them with high quality, and then financials will take care of themselves,” Scott Kirby told CNN.
The Chair of the Federal Trade Commission argues Boeing eliminated its only American competitor, leading to lower research and development spending and the company, “had little incentive to improve their products.” Lena Kahn told the Carnegie Endowment, as she argued for tough anti-trust action, that, “the new post-merger Boeing decimated its workforce, offshored production, and demanded wage concessions.”
FTC Chair Lena Khan explains to an audience earlier this year what she believes are the dangers of supporting a single business industry such as airliner manufacturer Boeing. (Credit: Carnegie Endowment)
Stonecipher, who retired and then returned to be CEO in 2005, was always direct with workers and reporters. He took credit for the changes. “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a great business rather than a great engineering firm”
THE BUSINESS MODEL
I’ve only had the pleasure to watch one aircraft being born. I witnessed the process from the drafting table to test flights and finally to delivery. The Boeing 777 is a wide-body aircraft that would take over some of the routes airlines flew with the 747. While I wasn’t reporting every day on the program, there were plenty of visits to the Everett, Washington factory.
One of my most memorable flights was on the test aircraft. The 777 was filled with equipment and there was access to the cockpit. It was quite an experience. It was all new for me and there was something very new for Boeing.
The company was using suppliers to build large sections of the aircraft. Part of the fuselage came from Japan. Elements of the wings were from Austria. Even rival Airbus supplied some parts. At the time, Boeing said the reason for this change in its business model was to secure future jetliner orders. The theory was that if a country has a stake and jobs involved in the making of a jetliner, it will buy more of those jetliners.
Boeing took this model even further with the development of the 787 and that proved nearly disastrous. Boeing also sold off its plant in Wichita, Kansas that makes the fuselage for the 737. Spirt AeroSystems has been plagued with quality issues and Boeing is now in the process of buying it back 20 years later. (Some of the links in this newsletter are to the work of Jerry Useem of the Atlantic. His most recent piece has another take on this sub-contracting effort by Boeing).
THE PANDEMIC
Aviation was one of the industries hardest hit by the Coronavirus pandemic. Passenger traffic dropped by more than 60%. Airlines started offering early retirement and ordered layoffs to deal with the dramatic drop in business. Soon those airlines were asking to delay delivery of aircraft, with some even canceling orders. Boeing, with the 737 MAX already grounded, did what the airlines did. The first layoffs came in April 2020 with the elimination of 16,000 jobs. That was upped to 19,000 in July. By October the company was saying a total of 30,000 positions would be gone.
By the middle of 2021 the grounding of the MAX had been lifted. New jets that had been parked on tarmacs for 20 months were being delivered and Boeing had a long order sheet it wanted to fill. It was time to hire. In 2022 Boeing added 15,000 workers. Another 10,000 additions were planned for 2023.
Boeing tried to return to business as usual. It didn’t work. The loss of experienced workers showed up on the assembly line. “The post-COVID moment in the aerospace industry has been unbelievably difficult to navigate,” Boeing CEO Dave Calhoun told that Senate committee this week. He outlined how suppliers were short experienced workers, as was Boeing.
In fact, Calhoun says this is where one should look for the cause of Boeing’s quality issues in the factory. “So much of this relates to an untrained workforce. Let me tell you, it’s all about that.” If that is the case, why didn’t Boeing do a better job in training new employees, or reach out to some of the early retirees to return to work?
Boeing CEO Dave Calhoun tells a Senate Homeland Security sub-committee what he believes are the causes of quality and safety issues on the company’s assembly lines. (Credit: FOX News)
The training deficit has gotten Calhoun’s attention. He says the company is spending about $1 billion to get new workers proficient in their roles.
So which of these scenarios led to the cultural and safety changes at Boeing? Probably all of them to some extent.
Dave Calhoun will only be dealing directly with these problems for the next six months. He is stepping down as CEO. Reporting suggests the company is having a bit of trouble finding a replacement. All this while the government is deciding whether to prosecute Boeing for the two MAX crashes. A decision must be made by July 7. As the Department of Justice (DOJ) contemplates prosecution, the families of the MAX crash victims have asked that the DOJ seek a $24 billion fine against Boeing. That is 10 times what the company paid to defer prosecution.
The Boeing story is far from over.
This is one of your best recent articles. It never fails; Corp greed for more profit at any cost. You paint one of the most explicit pictures of what plagues many American companies today. They will virtually destroy a country to squeeze out another investor dividend. The covid factor is also on full display here.
Great story. What’s the statute of limitations on blaming the merger?