Boeing’s Christmas Gift

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I can’t pretend to know that Boeing’s firing of CEO Dennis Muilenburg should have occurred months ago and that this should have been intuitively obvious around the boardroom. From the inside looking out, it may have appeared that booting him sooner would have made a bad situation worse.

But evidently, the housecleaning has begun. What I do know is that profound missteps by both Boeing and the FAA are reverberating far beyond Seattle and Chicago and aerospace companies large and small are suffering for it. We’re hearing almost a constant refrain from companies that cert projects that were either done or well along are now getting additional scrutiny.

The FAA now wants hermetically sealed, corrosion-proof dotted I’s and mil-spec bomb-resistant crossed T’s. Companies are being asked to run that test one more time, or provide some additional data or just wait a little longer, just because. Two weeks ago, FAA chief Steve Dickson evidently told Boeing to cease and desist from promising when the 737 MAX would return to service. The FAA would let them know.

I doubt if anyone has love lost for Boeing, but this was an FAA screw-up, too. And guess who pays for it, along with Boeing? Any of a hundred of small aviation companies who struggle mightily to get projects approved and who barely have the resources to do that at the FAA’s predictable pace. It’s almost as if the agency is saying, “you want regulation, we’ll show you regulation.”

This is generically known as the MAX Effect and no one knows how long it will last but my bet is it will carry on past when the airplane returns to service, whenever that is. The MAX series has been grounded for nine months with some 500 airframes parked and corroding. Just as it’s not possible to know if the board’s decision to cut Muilenburg loose was timely, it’s also difficult to know if the MAX recertification has long since met technical muster and if the project is now in penance mode, gathering calendar days for the sake of political appearances.

Today’s story on Boeing’s own surveys revealing 40 percent of frequent fliers aren’t ready to board a MAX again ignites the counter view from the aviation cognoscenti, the gist of which is we would get on the thing in a minute. The reasoning goes that the MAX is now the safest airliner ever. Careful there. Certification standards are aspirational; actual safety accrues through demonstrated performance and by that metric, the MAX is one of the worst. It may be the most scrutinized airliner, but calling it the safest ahead of the fact invites the same kind of hubris that put the MAX in the bottom of two craters in the first place.

Muilenburg was said to be a darling of Wall Street because under his watch, the stock more than doubled in four years, reaching a high of $440 just before the grounding. Thanks to modern corporate fealty to shareholder value, CEOs live and die by the stock price. Conceding that the market is a casino, share prices are driven by ineffables like investor confidence and faith in the business cycle, but also by driving productivity up and costs down to pump earnings.

You’ve read the same stories about Boeing’s persistent quality problems that I have. But the most shocking of these surfaced earlier this month when the FAA fined Boeing for certifying airplanes with what it knew, alleges the FAA, were substandard slat tracks. In my view, that’s not just an oversight, but a fundamental cultural problem that, in some ways, is worse than the MAX mistakes because it reveals an arrogant disrespect for the certification standards that are the very foundation of aviation safety.  

Does obsession with the stock price provide a fertile field for such aberrational behavior? I can’t imagine it helps.

Boeing has more than 150,000 employees and it will be the daunting task of Boeing’s new CEO, Dave Calhoun, to set the ship straight. I don’t envy him. I wouldn’t know where to begin. But it has to begin somewhere and the board may have given us all a Christmas gift by getting it started.

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19 COMMENTS

  1. Boeing’s stock price peaked at $440. It was around $400 when the second crash and a press pile-on started. It has never fallen below $330. While that is a huge change in the company’s total valuation, it reflects an investor attitude of “So who else are you going to buy your Boeings from?” And is not a big percentage swing.

  2. There’s a pretty good, if not terribly deep, article in The Atlantic called “How Boeing Lost Its Bearings”, you can Google it, I won’t link it and get spam-filtered. It’s a pretty interesting synopsis about how Boeing went from an engineering-first to finance-first company.

    Replacing their CEO with another finance guy is not going to do anything for fixing Boeing’s cultural issues. Your reference to the slat tracks is poignant. You can make the case that the MAX issues stem from communication issues. Knowing installing known damaged parts shows the people at so many links in the chain don’t care about passenger safety. Obviously the loss of life overshadows that in terms of headline writing, but the slat track incident is far more damning in terms of moral culpability. People should be in jail for that.

  3. Calhoun certainly has his work cut out for him. Whether he is successful may depend on his early actions once he is in charge. If his early efforts are directed at convincing investors and the flying public that things are now different and the MAX is a great airplane, I predict more trouble ahead. If his first actions are to visit engineering & manufacturing sites and having meetings with employees – from upper managers to the janitors – to say that quality and safety of their customers is top priority at all levels. And, that sloppy work or decisions like the slat track incident will not be tolerated and will result in immediate consequences, then maybe he has a chance at making a difference. Fix the issues at the shop floor level and the stock price and profitability will take care of themselves. Boeing did not get in this situation overnight and it is going to take some time and a concerted effort to recover.

  4. Paul, your comments on the FAA dragging their feet on even the smallest approval project are spot on. As a personal observation, I have been waiting to purchase one of the new NORSEE autopilots for my airplane for some time now. The autopilot of interest is approved, but the company went back for approval on some software modifications that would allow it to communicate through an Aspen PFD, rather than direct from the GPS source. The FAA has required a whole new set of flight tests and other reviews that have dragged on for almost 9 months now. The builder is frustrated since the software has been ready for months, but still no word on approval. At this rate, the FAA’s “new” approach to safety may start putting smaller vendors out of business and stifling future ideas for better, safer aircraft. In other words, just the opposite of their intent.

    • At Airventure 2019, I went to see and bring a widespread ‘problem’ to Sen Inhofe seeking his help. He did put his people with me but he also told me in person and the audience on the forum stage that the FAA had three pressing issues that would be taking all their manpower time: MCAS, drones and I can’t remember the third. Well … here we are five months later and what he said is holding true. I had an issue I needed guidance with just a few weeks ago so I called my FSDO; it took them a week to have an admin type return my call. I never got to speak with a PAI.

      I was already thinking what Paul said here … that the fallout from all of this was going to have widespread and profound negative impacts on all sorts of aviation entities. Thanks, Boeing. Or is it … Boing?

  5. How long before those grounded aircraft become worthless? The longer it takes, the more it becomes clear Boeing Commercial, will end up swallowing the whole mess. This does not bode well. It means Boeing Commercial and all those affected suppliers probably won’t survive. Public perceptions aside, the operators must be going out of their minds about their futures as well.

    • Through acquisitions and savvy lobbying Boeing and Lockheed-Martin have positioned themselves in the ‘too big to fail’ business space. No matter what happens to the MAX, the taxpayer will insure Boeing is made whole.

      No such guarantee will light the way for Boeing’s suppliers and subcontractors.

      • Spot on and that’s what worries me. We already bailed out banks, carmakers dragging their feet, and soon Boeing? That might be once step too far under this hostile political climate and certainly very, very unpopular.

    • Your point’s well taken.

      And to that point, in 1960 Lockheed suffered a string of full-fatality hull losses with their new L-188 Electra. That didn’t spell the end of the company – or the Electra. Those losses resulted from an unforeseen failure mode which evaded Lockheed’s stringent design and flight test programs. The MAX, like the Electra, will surely return to service at some point.

      What triggered my serial rants on this topic was the fact that Boeing, unlike Lockheed in the 50s, made a corporate decision to build an airliner with a soft spot in its flight envelope to facilitate the company’s business strategy.

  6. What is going to be interesting is how the insurance industry responds to Boeing in particular. Boeing didn’t just have two airplanes crash, just two events. Boeing essentially had they’re corporate culture uncovered whereby profit is the primary focus in front of safety which has been in place and maturing for at least twenty years. The funny thing, or, not so funny thing, Boeing still doesn’t know what their problem is and how entrenched it is as evidenced by their latest corporate PR. but, I’m betting money the insurance industry does.

  7. One post above wonders if replacing one money guy at the top with another will improve anything. The short answer is: NO! Folks from the financial side are really nice folks, dedicated to their work, and success oriented. The sole problem with that batch of assets is the goal they see as success. The “goal” for finance folks is strictly stock price and all that seems to mean. When you are limited in the price structure by competition, for your product then you go for volume. To achieve volume you have to increase the production flow but you need to do so without adding too much workforce. In the end, the expenses are “cut” by scrimping on the quality to get more units out the door. What we see today at Boeing demonstrates the futility of that choice of action. Quality control issues and a really stupid move by management on the MCAS.
    Finance people are good folks, don’t get me wrong, they are always necessary as the word of caution to management. BUT, they should NOT, EVER be in charge of the whole shooting match unless the company is totally one that only deals in money issues. NEVER production of anything that ends up in the consumers hands or, in this case, that the consumer actually gets into.

  8. You can see it just about every day. People who know a business run a successful company. As part of operations, they use bean counters. But what happens when the knowledgeable people are no longer around? Too often, their assistants, the bean counters, for lack of anyone better, float to the top. Too often that is the start of the slide of the business. You want an automobile, get an automobile person who knows how to build cars. You want aircraft. Get an aviation person who knows how to build aircraft. But, too often the stockholders and such are comfortable with bean counters. Does anyone know, is Muilenburg a pilot?

  9. 150,000 workers and they still have to sub-contract software to Indian “contractors” for $10 an hour.
    And get software worth $10 an hour i.e. a little bit of clever work and a whole lot of cut and past code and who cares if it does not not have all the fullstops and slashes closed on every line.
    There is no sense to it other than some bookkeeper’s wet dream.
    The thing is, (writing from France) is that the many 737 Max contractors (landing gear all French made for example) are only just getting their heads above water after the 787 debacle. There, for the sub-contractors, it was not so much the battery grounding which caused pain, as the years and years of delays before the manufacturing got up and running.
    Boeing had been ruthless in demanding new factories and machines, then left them unemployed for two or was it three years, with banks screaming, local authorities asking when promised jobs will come and competitors not chosen by Boeing laughing their heads off.
    With the MAX it is a similar story. At least one sub-contractor after the 787 narrowly avoided going bust and opened its new factory in Morocco. They might survive, but others will not if it carries on much longer.
    I have even heard one aeronautics type saying he would welcome a new trade “war” with the U.S. as it would protect Europe from Boeing…

  10. Calhoun will get MAX re-certified with all the MCAS bandages attached. He cannot start his new job until he divests himself from The Blackstone Group board.

    He is outgoing, personable, and a former 26 year GE veteran employee. He is another financial expert, whose combined previous work experience and various board leadership positions …virtually all of it within the very high, elite levels of financial acquisitions, leverage buyouts, and company restructuring( especially the last 15 years) …making him a very effective communicator/public leadership figurehead/CEO for Boeing between the FAA, media, Congress, insurance industry, Wall Street, and the general public. Once MAX is back in the air with all of the glowing Boeing commercials sure to be shown to assure the public of it’s safety and superior comfort, Calhoun ( Boeing’s Damage Control Gumby #2) will step down with a statement something akin to “wanting to spend more time with the family”.

    Meanwhile, Muilenburg takes home 12 million dollar a year pension, 32 million in performance award dough, 6.6 million in severance pay, and 59 million dollars ( in today’s value) contained within 176,000 shares of Boeing stock. I don’t think he has to worry where his next meal is coming from. He did his job well raising Boeing’s stock prices significantly during his tenure. And he did his job well as Boeing’s Damage Control Gumby #1. I am sure he will not want to jeopardize his separation package with any whistle-blowing.

    Unless Boeing moves it its leadership back to Seattle to co-habituate with its engineering departments as it previously did, I see no signs that Boeing is making an internal cultural shift back toward engineering prowess as its company signature. The headquarter move to Chicago was specifically designed to separate and insulate the executive leadership from engineering. No, in my opinion, the financial horse will be ridden with new vigor. Damn the non-airworthy slat/flap tracks/MCAS torpedoes, full steam ahead!

  11. 1. A few months ago I spoke with a southwest pilot who’d get on the MAX in a heartbeat. States SW pilots are well trained, lots of $ spent there. strongly suggested that may not have been the case with the 2 crash airlines. foreign, cut-rate training, etc. Why isn’t anyone talking about this? No one would think it OK to turn a 16 year old newly minted driver license Male loose in an INDY car on the track, but it seems OK for LION Air et al to do basically that.

    2. Isn’t the KC-46 basically the same airframe as the 767? like the KC135 is basically a 707 with modern engines. Yes I know they made lots of small changes but I doubt it’s a truly completely different (clean-slate) bird. Or do the tweaks the military wants qualify it as a “new” design.

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