Are Boeing’s problems beyond fixable?

A new CEO promises a culture change as the aerospace titan is struggling hard.

See full article...

 

[mannyvelo]

All problems are fixable if you're willing do put in the work. Microsoft was arguably dying before Nadella took over. Apple was dying before Jobs. IBM was dying before Gerstner.

All three of those really refocused on their customers. While that can be a problem (Intel), it's usually a safe bet...especially when you need those customers to have faith while things get better.

Boeing has to ask "who are our customers?" I don't think they know. Customers are not the same as stakeholders.

 

[Shavano]

He's not suddenly coming to his sense after years asleep at the wheel. He just became CEO in August, and it sounds like he had already determined that this basic concept is necessary before he took the position. That's kind of the point of the article. "New guy thinks he can save Boeing with a totally different management mentality than they've had for almost 3 decades."

He may be wrong though. The former management culture has so wrecked the company that bankruptcy may be inevitable. They obviously need to negotiate a contract that's acceptable to the union, but if they're not in a financial position to be able to make good on it, they're not going to, and what's left of the company will be sold off to the likes of Elon Musk and Jeff Bezos.

 

[FishInABarrel]

The article also failed to mention the truly egregious nature of the 737 MAX debacle. Only mentioning in passing the criminal charges and "sensor failure". While the sensor failure was the beginning of the chain during flights they were only a tiny percentage of the series of events that killed all those people.

I was stunned when I read they were using a non-redundant sensor to control the flight computer. I had trouble believing it, "no one is aviation is that stupid," I thought. I worked for Boeing IDF in the early 2000's, and I can't imagine any of my coworkers agreeing to that.

 

[chipmunkofdoom2]

Put me in the "beyond fixable" camp. To be clear, Boeing's problems are absolutely fixable. Hire competent engineers, invest in the employees, and return to quality. But they're not going to do this.

The reason is because quality is only valuable to C-suite executives insofar as it maintains or supports sales. Boeing's reputation has already taken the hit, and they've already lost some sales. Will increasing quality increase sales? Will it increase profit? Will it bring the share price back to where it was? I don't think so.

So what does increasing quality do for Boeing? Nothing. Not immediately anyway. If they hire a bunch of competent engineers and managers and actually take their time with production instead of rushing it, that's going to cost money. But will it increase sales? Will it make them more profitable? Probably not in the short run. Boeing likely needs a long, long period of consistently stellar quality to turn the tide of popular opinion again. So you're asking the hamsters on crack in the C-suite to harm their quarterly bonuses by invest potentially dozens of millions of dollars today for a payoff that may come in several years. Or may never come. I don't see this happening.

The most likely course of action in my mind is that Boeing maintains its current business path. They may continue to lose some sales, and there may be more quality issues, but people unfortunately have an extremely short memory. As long as planes aren't falling out of the sky, the stock price will stabilize eventually, the C-suite will continue to pay themselves obscene salaries, and the world will keep on turning.

 

[chipmunkofdoom2]

Double post, can't figure out how to delete

 

[Veritas super omens]

I was stunned when I read they were using a non-redundant sensor to control the flight computer. I had trouble believing it, "no one is aviation is that stupid," I thought. I worked for Boeing IDF in the early 2000's, and I can't imagine any of my coworkers agreeing to that.

Yes, one of a series of decisions that makes any aviation safety aficianado go WTF?

 

[The Real Blastdoor]

GM's bankruptcy and takeover by the government has worked out pretty well. While the GM that exists today might fall short of the GM we wish existed, it seems a fair bit better than the GM that existed before the government takeover.

So maybe the union needs to drive Boeing to bankruptcy and the federal government needs to take it over in the name of national security. They can restructure the company into a 'New' Boeing, and eventually re-list and re-privatize it. Perhaps the union could be a major shareholder as a way to prevent management from repeating the mistakes of the past.

 

[ctnnr]

There are many more examples of the basket case that is Boeing that show it is culturally rotten to the core. One has to wonder if it s so bad it is not worth saving.

Ortberg seemed to be off to a good start; however he underestimated the toxic relationship of the company with the labor force. Boeing is still trying to put on a squeeze rather than saying, "Yes, we screwed you over. I am here to show you we value you and that Boeing's success is your success. Here is a 40% raise, upgraded retirement plan, and stock in the company. There will be labor representation on the board. Oh, we are setting up an independent hotline to report malfeasance. Let's get back to work, fix this company together, and make good planes again" His actions now are slow, timid, and stingey. Is it him or the board?

Bankruptcy may be the only way to clear out stockholders, board, executives, and tainted middle management.

 

[Therblig]

During COVID there was a trend to eliminate large numbers of workers over age 50. Many of those people voluntarily retired or were pushed into retirement. Other companies laid them off and then never brought them back. To the MBA types this was a good thing -- replace people towards the end of their career earning high salaries and benefits with new, younger workers at lower pay levels. The problem is that those over 50 workers had immense amounts of institutional knowledge in their heads and that knowledge left with them.

Any insights as to if this effect is now catching up with Boeing?

The practice predates COVID by decades. I've always called it "blowing the company's brains out". In every case in which it was my employer, bankruptcy followed soon after.

 

[foofoo22]

Deleted.

 

[ColdWetDog]

I don't think that's feasible. That was almost 30 years ago. Many have retired or died at this point.

Further, Boeing essentially outsourced much of engineering to other countries, notably Russia and India. Ostensibly Boeing employees but completely separate (by design) from the rest of the company. Then there is the not so small problem that Boeing simply outsourced much of its engineering to third parties because management thought that Boeing's job was just to 'assemble' planes.

So they have to go the long and hard way of bootstrapping up - hiring senior engineers from other companies. (Hey, you, senior engineer, want to move somewhere and get involved in a major culture fight that might not work? No?) Then bringing in younger staff and trying to re create a complex, leading edge engineering and manufacturing company. All while continuing to shore up a 70 year plane as the company's major cash infusion.

Goodluckwiththat.

 

[harlequin69]

The piece mentions the urgent need for a new aircraft, it’s difficult to understate the importance of this point. The truth is that a 737 replacement is probably still at least 10 years away and Southwest, their biggest 737 customer, has already flirted with switching once. That’s how the 737 Max debacle got started, it was basically made to order for them. Southwest will have to either switch to the next generation Boeing aircraft or go with the A320 (or its successor) at some point in the next decade. Their decision will be critical to Boeing’s future.

 

[jason8957]

"Condit even moved Boeing’s headquarters from its manufacturing base in Seattle to Chicago in 2001, so the “corporate center” would no longer be “drawn into day-to-day business operations.”"
They deliberately moved upper management so that they would be less in touch with their core business.

I wish I could get a gig running a successful company into the ground for a huge salary and severance. I'd be so good at that.

 

[graylshaped]

The company that virtually created modern commercial aviation has spent the better part of five years in chaos, stemming from fatal crashes, a worldwide grounding, a guilty plea to a criminal charge, a pandemic that halted global air travel, a piece breaking off a plane in mid-flight and now a strike.

This misses the mark, respectfully. The issues listed in this quote are symptoms, not the cause. The cause is a culture that misplaced the priority on quality design and workmanship that builds safe, reliable transportation machines to the extent of moving their headquarters to a location where they would be able to focus on their lobbying efforts instead of being distracted by the chose of building air and space craft.

Your priorities are how you spend your attention, and the attention of leadership has not been on producing quality product.


edit: corrected a sentence

 

[needSomeCoffee]

Boeing has big issues with about $60 billion in debt. Since 2019 Execs have bought back about $60 billion in stock receiving huge (millions) in bonuses for "meeting the numbers" during that time. USA really, really needs to go back to the previous law that made buy backs illegal. Buybacks combined with high levels of stock options as exec pay == near-term mgmt share-price maximizations via BBs leaving workers and LT shareholders in the lurch. Boeing is for sure a future HBR case study on this. Link:

https://ycharts.com/companies/BA/stock_buyback

 

[ColdWetDog]

The piece mentions the urgent need for a new aircraft, it’s difficult to understate the importance of this point. The truth is that a 737 replacement is probably still at least 10 years away and Southwest, their biggest 737 customer, has already flirted with switching once. That’s how the 737 Max debacle got started, it was basically made to order for them. Southwest will have to either switch to the next generation Boeing aircraft or go with the A320 (or its successor) at some point in the next decade. Their decision will be critical to Boeing’s future.

Boeing has been designing the New Middle Aircraft (NMA or 797) for decades. I'm sure that somebody in the company has been looking at those plans and penciling in places where it needs updating. But they need money (which they don't have) and time (which they don't have) and crucially, new engines to keep improving fuel economy and lower cost. At present the engine manufacturers are running double time to keep current fleets flying and breakthrough technologies have been a tough road to hoe. They also appear to be running into physical and material constraints to getting more fuel economy out of the turbofan.

Further, real technologic leaps like hydrogen and / or electric and probably a bit too much for Boeing to use or even consider just yet. They are in a heap of trouble.

One really telling issue is the 777X engine mounts. Something that really should just be bread and butter to a plane manufacturer. The engines on the 777X are more powerful than the original 777 and so mounting them required a redesign. Which they appear to have fundamentally screwed up on. Which has to be extraordinarily embarrassing and is slowing down the roll out of a critically needed plane (it isn't just a 737 party).

 

[graylshaped]

Put me in the "beyond fixable" camp. To be clear, Boeing's problems are absolutely fixable. Hire competent engineers, invest in the employees, and return to quality. But they're not going to do this.

The reason is because quality is only valuable to C-suite executives insofar as it maintains or supports sales. Boeing's reputation has already taken the hit, and they've already lost some sales. Will increasing quality increase sales? Will it increase profit? Will it bring the share price back to where it was? I don't think so.

So what does increasing quality do for Boeing? Nothing. Not immediately anyway. If they hire a bunch of competent engineers and managers and actually take their time with production instead of rushing it, that's going to cost money. But will it increase sales? Will it make them more profitable? Probably not in the short run. Boeing likely needs a long, long period of consistently stellar quality to turn the tide of popular opinion again. So you're asking the hamsters on crack in the C-suite to harm their quarterly bonuses by invest potentially dozens of millions of dollars today for a payoff that may come in several years. Or may never come. I don't see this happening.

The most likely course of action in my mind is that Boeing maintains its current business path. They may continue to lose some sales, and there may be more quality issues, but people unfortunately have an extremely short memory. As long as planes aren't falling out of the sky, the stock price will stabilize eventually, the C-suite will continue to pay themselves obscene salaries, and the world will keep on turning.

The truly sad thing about this is the maxim "quality is free"--that attention to reliability reduces defects and rework, waste of time and material, repairs, litigation (all those issues that have brought this company to its fucking knees) virtually go away if you put emphasis on doing it right and invest in the training and processes to do that--came from the aircraft industry.

 

[Rick C.]

Anytime a question like this comes up, I ask what changed since they were successful?

Two highly documented things in the case of Boeing.

1. They ceded control of the company from engineers to the narrow-minded spreadsheet cowboys.
2. The very same moved management away from production for better lobbying (contract) purposes.

We’re now living in that “the rest is history” moment.

 

[graylshaped]

Boeing has big issues with about $60 billion in debt. Since 2019 Execs have bought back about $60 billion in stock receiving huge (millions) in bonuses for "meeting the numbers" during that time. USA really, really needs to go back to the previous law that made buy backs illegal. Buybacks combined with high levels of stock options as exec pay == near-term mgmt share-price maximizations via BBs leaving workers and LT shareholders in the lurch. Boeing is for sure a future HBR case study on this. Link:

https://ycharts.com/companies/BA/stock_buyback

Buybacks are a useful tool, but like so many of Boeing's decisions over the past several years, were not the best choice for them to make. In truth, getting distracted by buybacks masks the real problem, which is their total liabilities are $161 billion and well in excess of their assets of $138 billion, most of which is in inventory.

And worse, you say "$60 billion" in debt, but that understates the problem. They have $53 billion in long-term debt (probably at favorable rates), $4.4 billion in short-term debt (probably NOT at favorable terms), and on top of that, $58 billion in liabilities for payments received on product they have yet to deliver.

Source: Boeing itself.

 

[spVolt]

"Boeing has 'no business being in Arlington, Virginia,' where the company moved its headquarters in 2022."

Other than Boeing's largest customer is based in Arlington, Virginia. It's maybe not the best choice for headquarters, but it's not "no reason".

At the time the Boeing Corporate HQ was moved to Chicago BCA (Boeing Commercial Aircraft) had approximately 50% of Boeing's manufacturing capacity in the Seattle area. St. Louis (Defense) was 40% and various SoCal sites (Missles & Space, plus the C-17 in Long Beach) about 10%. Wichita is hard to classify since at that time - before the spinoff into Spirit - it is was primarily a captive site to BCA but it was already doing work for McDonnell-Douglas and other manufacturers. Boeing also had the Services division in Virginia and smaller manufacturing facilities around the world.

One of - maybe not the biggest or driving, but a major - factor in the move to Chicago was that the divisions other than BCA were increasingly frustrated with Corporate HQ and Corporate executives' engagement with the Seattle facilites and personnel. With St. Louis in particular being 40% of the manufacturing capacity (and IIRC 55% of Boeing Corporation gross sales) they believed they should receive a proportional share of management time (and probably things like capital funding, IT resources, etc).

BCA headquarters never moved out of Seattle.

 

[O/Siris]

Bank of America analyst Ron Epstein says Boeing is a titan in a crisis largely of its own making, comparing it to the Hydra of Greek mythology: “For every problem that’s come to a head, then [been] severed, more problems sprout up.”

I'm not sure the proper word for my reaction to this. It's not wrong, exactly, but I disagree.

It's all one problem. Nothing has been severed. The head is still here, and I'm not even sure anything's been severed (to continue Mr Eptstein's analogy).

Many of us believe Mr Ortberg's appointment is a step in the right direction, but the fundamental problem is (so far) not addressed: an embedded culture that de-emphasizes engineering and the processes that support engineering. Because (IMO) that culture was deliberately embedded as part of the merger with McDonnell-Douglas, I worry that Mr Ortberg will (and does) lack the support or authority to fix that cultural issue.

Fingers crossed. But hopes are not high at this point.

 

[Oldmanalex]

During COVID there was a trend to eliminate large numbers of workers over age 50. Many of those people voluntarily retired or were pushed into retirement. Other companies laid them off and then never brought them back. To the MBA types this was a good thing -- replace people towards the end of their career earning high salaries and benefits with new, younger workers at lower pay levels. The problem is that those over 50 workers had immense amounts of institutional knowledge in their heads and that knowledge left with them.

Any insights as to if this effect is now catching up with Boeing?

When you put people in charge who know a load of chickenshit theory, and nothing useful, they literally do not have a yard stick by which to measure experience, and the competency that comes with it. There is nothing wrong with young workers, provided that they are properly trained. And that training comes from experienced people acting as mentors, not from some HR-organized bullshit sessions. But if you had no real skill set, which requires some sort of a basis in reality, you could not tell the difference. However, reality can.

When I moved into Pharma, I had the making of the molecules down pretty well, after 13 years of doing it. However, I had no idea why one would make a particular compound, and 40 years on I am still very grateful to the more experienced medicinal chemists, pharmacologists, and toxicologists who spent many hours explaining to me what the larger picture was, and how to chose what to make based on results from initially totally unfamiliar disciplines. As I departed big Pharma about 20 years ago, the ongoing management theory was that all of these expertises were interchangeable, and that a little learning was a good thing, or at least a perfectly adequate, and considerably cheaper, thing. If you wonder why most drugs today are bought in by big Pharma from outside, and no longer discovered in house, it is because of this mendaciously stupid mentality. Aviation is one of the few industries where the development process is as long and complex as pharmaceuticals, so the fact that Boeing got bitten in the ass by the same rabid dog comes as no surprise to me.

 

[wondering22334455]

I have a friend who works with Boeing. Internally every "even slight" statement about boeing is failing is punished.

They've moved people around breaking up groups to "stop dissent". meanwhile the top leadership are secretly giving each other massively valuable "get out clauses" where when they quit/get fired, they will leave with 10s to 100s of millions in "severance bonuses". The problems aren't just the CEO and the very top. It goes all the way through their whole management structure. If you remove the CEO etc, corrupt others will just move into their spots.....

Boeing is also on the verge of total financial collapse. they're having to literally sell off sub-businesses and vehicle stock parts to keep payroll going because so much has been stolen from the company internally. But again anyone in finance/accounting that MIGHT blow the whistle has been moved to other areas.

 

[sd70mac]

"Boeing has 'no business being in Arlington, Virginia,' where the company moved its headquarters in 2022."

Other than Boeing's largest customer is based in Arlington, Virginia. It's maybe not the best choice for headquarters, but it's not "no reason".

Yes. They shouldn’t be headquartered there, but they do need an office there.

 

[JWLong]

I'm sick and tired of corporate America!

 

[khumak50]

Personally I think Boeing's current culture and policies have been locked in by all the bean counters who used to run the company based on the idea that the commercial airplanes they built were a cash cow that no longer needed any further development or investment. It was time to milk that cash cow for all it's worth, squeezing suppliers and workers, cutting corners on quality and safety, etc to notch a few extra bucks in the latest quarterly financials.

Eventually all those corners you cut are coming apart and you no longer have a good product. You also haven't invested in design so you have no new and improved products in the pipeline. So now instead of milking a cash cow you're trying to squeeze blood out of a turnip. The bean counter focus needs to be completely abandoned in favor of an engineering focus. Sounds like the new CEO is an engineer so that's a good first step I guess, but reversing all the damage the bean counters did over the years is not going to happen quickly and is probably going to require the removal of everyone who thinks that way.

I'm not holding my breath. I used to be an investor in Boeing but sold all my stock about 10 years ago when I lost faith in management. I'm not seeing much to like yet.

 

[thefiringzod]

As a former Rockwell Collins engineer I can say Ortberg sold to us UTC and we were immediately lowered in pay, lost our bonus and company would no longer help carry our healthcare if we retired while managers bonus's were doubled.

Fairly certain Kelly allowed this as part of the "deal"

Kelly is a bean counter in engineers clothing. Boeing is probably screwed again.

The UTC takeover was definitely a major turning point for Rockwell Collins and not in a good way. That said, Kelly had been trying to make the company "too big to purchase", e.g. with the ARINC and B/E acquisitions. Unfortunately it wasn't enough and when Greg Hayes came knocking, Kelly couldn't just not take the offer to the board...the board approved and the rest is unfortunate history.

Additionally, the fact that almost immediately after the acquisition Kelly basically disappeared into a "special advisor" role where no one ever saw him and then he left the company exactly 52 weeks later tells me that he definitely saw things differently than Greg.

All that is to say, I still have hope that he does truly have a different mentality and I hope that he can fix Boeing. Now whether the current leadership at RTX can avoid a similar fate...

 

[KingKrayola]

I was stunned when I read they were using a non-redundant sensor to control the flight computer. I had trouble believing it, "no one is aviation is that stupid," I thought. I worked for Boeing IDF in the early 2000's, and I can't imagine any of my coworkers agreeing to that.

To @jonsmirl's point about institutional knowledge, iirc MCAS was a prexisting system on the 737 NG line that was not critical and so did not have redundancies.

Some bright spark decided to use MCAS in a way (edit: ) on the Max series that saved training cost but was more critical to vehicle stability, in that it could create a positive feedback loop and push the nose down hard if the AoA sensor failed, and presumably noone who had designed the original system was there to point out that their assumptions were no longer valid.

'Lawn Dart Mode' would seem to be the product of a poor understanding of assumptions and lack of first principles analysis rather than any proactive decision making.

 

[Sadre]

The fact that Boeing is so huge, and the difficulty of building such a massive chain of operations so dauting, that even Airbus can't simply fill-in for Boeing's production, is a sobering thought. You can feel it in the morale and sentiments of the workers who seem to be striking not so much for fairness but to secure what they can on a ship that no matter what happens, can't fundamentally change and is therefore inherently unreliable.

Where is Tom Wolfe when you need him.

 

[Boskone]

Last week Ortberg said in a speech to investors and employees:



If Ortberg is just now realizing that this very basic concept is necessary for a business to succeed then I see no hope for Boeing finding its way under the current leadership. Even though he is an engineer, he has been infected with the greed, shortsightedness and hubris of his MBA predecessors. He is treading water hoping for change while doing nothing meaningful.

The only fix is a new board and new execs who really do understand and care about building the best planes possible. But that ain't gonna happen. Boeing will continue to flounder because the gov won't let it fail. Airbus will eat their lunch. And possibly China in the future.

Dude, Kelly Ortberg has been with Boeing for months. He's not "just now realizing" anything, he's just now working for the company.

 

[Random John Smith Guy]

Boeing has a management culture problem not a culture problem. Until Ortberg fires every manager between the C-Suite and 3 or 4 layers down, he will never fix the culture problem. He needs to tell Wall Street things will get fixed on Boeing's timeline not the street's. He's also gonna have to make some pretty big decisions to either cancel some major programs or sell off some divisions to stop some of the red ink.

Ultimately I think the desirable outcome is for Boeing to enter a Chapter 11. Hell it could be what Ortberg is planning. That'll give them the room to radically restructure the business in a way that allows for the success of its commercial aviation division, which is clearly a valuable and viable concern, just not the way it was being run.

 

[Random John Smith Guy]

The fact that Boeing is so huge, and the difficulty of building such a massive chain of operations so dauting, that even Airbus can't simply fill-in for Boeing's production, is a sobering thought. You can feel it in the morale and sentiments of the workers who seem to be striking not so much for fairness but to secure what they can on a ship that no matter what happens, can't fundamentally change and is therefore inherently unreliable.

Where is Tom Wolfe when you need him.

By all accounts Airbus is a bit of a shitshow as well, they're lucky that Boeing has fumbled the ball so hard.

 

[ColdWetDog]

To @jonsmirl's point about institutional knowledge, iirc MCAS was a prexisting system on the 737 NG line that was not critical and so did not have redundancies.

Some bright spark decided to use MCAS in a way (edit: ) on the Max series that saved training cost but was more critical to vehicle stability, in that it could create a positive feedback loop and push the nose down hard if the AoA sensor failed, and presumably noone who had designed the original system was there to point out that their assumptions were no longer valid.

'Lawn Dart Mode' would seem to be the product of a poor understanding of assumptions and lack of first principles analysis rather than any proactive decision making.

MCAS wasn't used on the 737NG. It was used on the 737MAX to make it fly like the NG. It was used on the KC-46 but, as you noted, it didn't have the authority to crash the plane. It basically turned off if the pilot moved the controls.

 

[urbanCTO]

Done startups, worked at leading tech companies, and even a gov't. That said, also worked for GE and worked with 3M (McNerny). The insides (corporate layer) are utterly rotten and the whole thing no longer hangs together. There is nothing more corrosive than "financial engineering".

Boeing will be broken up for parts.

 

[Illusive Man]

It is definitely fixable and the folks working for financial/business press trying to angle for splitting off BDS are pushing their own institutional agendas.

 

[KChat]

I’m not remotely in Boeings camp here, but if it was actually cheaper to just accept the new contract, management wouldn’t have let it get to this point.

As an example, paying employees is like 90% of the total expenses for the company I work for. If we demanded a 40% raise, the company would simply go bust. The math simply would not support that kind of raise (also most of us are pretty decently compensated already).

I don’t know what % of costs labor is for Boeing, but they have 160,000 employees. If they average say $50k a year that’s $8 billion in labor costs. Every year. $20 million per day in perpetuity. 40% of that would be $8 million a day (ignore that not all of those employees are machinists). Right now the strike is costing them $50 million each day supposedly, which is more than $8 million increase but ends when the strike ends. And that’s before we talk about the return of pensions over defined contribution retirement plans.

Which is a long way off saying that accepting the union demands is significantly more expensive, and why management is fighting it so hard. They are pissing away billions to avoid paying tens of billions.

All of your numbers are wrong. There are 33K union machinists & aerospace workers. Union touch-labor (IAM) makes up about 5% of the cost of an airplane.

You should really delete your comment, since it is basically bootlicking corporate fanfic with no basis in reality.

 

[mrkite77]

Have you tried giving the CEO more money?

 

[Mardaneus]

Buybacks are a useful tool, but like so many of Boeing's decisions over the past several years, were not the best choice for them to make. In truth, getting distracted by buybacks masks the real problem, which is their total liabilities are $161 billion and well in excess of their assets of $138 billion, most of which is in inventory.

Buybacks were such a 'useful' tool that the SEC banned them except for some very specific use cases. The only thing they were considered good at was market manipulation. Which funnily enough, after the SEC allowed them in 1982, is basically all they have been used for, that is (temporarily) goosing stock prices.