Are Boeing’s problems beyond fixable?

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

See full article...

 

[mikebikeswa]

One thing I've heard Ortberg mention is how Boeing will eschew future programs using fixed-price contracts to avoid risk. What if cost-plus contracts aren't offered? Will Boeing acquiese if there is a competitor will to perform work under a FP-contract?

 

[KChat]

One thing I've heard Ortberg mention is how Boeing will eschew future programs using fixed-price contracts to avoid risk. What if cost-plus contracts aren't offered? Will Boeing acquiese if there is a competitor will to perform work under a FP-contract?

At least when it comes to aircraft/ships/weapons systems/etc... basically every defense contractor has said they won't do fixed-price contracts for anything that's not out of the development phase anymore. They're all awful at estimating costs & have all lost money on them. Boeing has just lost more than most.

 

[harlequin69]

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).

Boeing isn't just a 737 party, but it wouldn't be much of a party without them.

787 and 777 production combined is around 10 per month.

737 production is greater than 1 per day.

Naturally the wide body planes are far more expensive, and anyone outside Boeing who tells they know you what the profit margins are is probably lying, but my sense is that narrow bodies are way more important to Boeing than wide bodies.

 

[spVolt]

One thing I've heard Ortberg mention is how Boeing will eschew future programs using fixed-price contracts to avoid risk. What if cost-plus contracts aren't offered? Will Boeing acquiese if there is a competitor will to perform work under a FP-contract?

What will the DOD and particularly the Air Force do if none of Lockheed, Northrup, or Boeing bid on their next megadollar project with fixed price terms? Airbus Military will be happy to quote them a fixed price bid that with the need to build new facilities and staffs in the US will be 5x what even the beltway bandits charge.

 

[mjbvz]

The Jack Welch school of management does seem extraordinarily good at destroying century old, corporate American institutions. Even most investors come out worse in the long run because he and his disciples leave companies unable to invest in the future. Eventually they can’t even keep up their existing, once highly profitable businesses

Takes some serious MBAing to be handed what was essentially a monopoly position (and a government subsidized one at that!) and still mess it up this badly

 

[Joel622]

Boeing embodies a whole lot of problems with the American system: companies with too-big-to-fail status, campaign finance as legalized bribery, preposterous military expenditures, union-busting and the marginalization of labor, stock price driven slash-and-burn management ideology, the list goes on and on.

 

[graylshaped]

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.

Then that's a governance issue, which is a much, much deeper issue. Addressing misuse of buybacks in isolation is putting a band-aid on an gangrenous toe.

 

[KingKrayola]

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.

Thanks for the correction.

 

[sgoldwater]

Great FT article. Thanks to Ars for picking it up. I was expecting to see some mention of all Boeings' problems in the space sector, but I guess it's just a drop in the bucket, business-wise?

 

[Excvbgi89765]

Time for Lockheed Martin to dip their toe into the commercial airline market again. The L1011 wasn’t such a bad plane

 

[Excvbgi89765]

One thing I've heard Ortberg mention is how Boeing will eschew future programs using fixed-price contracts to avoid risk. What if cost-plus contracts aren't offered? Will Boeing acquiese if there is a competitor will to perform work under a FP-contract?

It’s not just Boeing that has taken that position. Most of the well established defense/aerospace companies have that position. Younger companies don’t have to overcome the existing culture and expectations of shareholders. Private start ups can go into the business with the plan to only go after FFP from the start. I don’t expect to see the big corporations change dramatically in this regard any time soon. More likely, the government will take a second look at how they structure procurement such as the USAF recently did with NGAD.

 

[ColdWetDog]

Boeing isn't just a 737 party, but it wouldn't be much of a party without them.

787 and 777 production combined is around 10 per month.

737 production is greater than 1 per day.

Naturally the wide body planes are far more expensive, and anyone outside Boeing who tells they know you what the profit margins are is probably lying, but my sense is that narrow bodies are way more important to Boeing than wide bodies.

The 737MAX series is an absolutely critical component of Boeing's financial picture. They have attempted to shoehorn that airframe-of-a-certain-age to cover for the lack of a 757 and to some extent a 767 replacement. It has worked for longer than it should have, but they likely have gotten to the end of the line and really need a new narrowbody. I think you are correct that narrowbodies are key to any aircraft manufacturers future hence the need to start actually cutting metal for an NMA.

But my point with the 777X - which Boeing is really looking to fill the still important widebody slot - is that they never should have screwed up with the engine mount. Just speaks to their complete failure as an engineering firm.

 

[iquanyin]

here’s what would end this bs: ban private jets. everyone who flies (on a jet) flies commercial executive attitudes toward safety would change, guaranteed.

 

[markgo]

"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".

They moved there to schmooze with lobbyists and suck up government contracts, not because of any customer. They even said that, explicitly.

 

[Celery Man]

Great FT article. Thanks to Ars for picking it up. I was expecting to see some mention of all Boeings' problems in the space sector, but I guess it's just a drop in the bucket, business-wise?

One thing Boeing apologists have said for years and years is how the commercial aviation and space divisions are so siloed and unrelated they might as well be separate companies, so any talk of one is totally inapplicable to the other. I think the idea of that separation is still baked into a lot of people’s heads, especially those of a publication not known for being contrarian to large corporations.

(That argument was bunk anyway because the problem isn’t the two siloes a mile apart, it’s that both siloes are owned by the same farmer)

 

[ingramm]

One may argue that less commercial travel would be beneficial to the ongoing climate crisis.

Commercial air travel is a major climatic forcing factor. Where are my high speed trains in the USA?

 

[Celery Man]

They moved there to schmooze with lobbyists and suck up government contracts, not because of any customer. They even said that, explicitly.

You’re both right, because the government is their biggest customer.

 

[markgo]

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.

It’s not dollars and cents. They are super close in the last offer. It’s precedent. Boeing doesn’t want to give on defined benefit pensions and other benefits because they are hard to negotiate away once given.

 

[C.M. Allen]

You’re both right, because the government is their biggest customer.

"The heart is the brain's biggest customer. But it's such an imposition having them so far apart, so to address this, we're going to move the heart into skull with the brain."

"Uh...what about the rest of the body?"

"The what?"

 

[markgo]

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.

What lovely retconning. I was here in Seattle, with multiple friends at Boeing at the time. The move was to hurt the unions, delivered along with the threat to offset wing production to SC (a non-union state).

The wanted to end the unions power to hurt Boeing through strikes (like this one). They succeeded, but slaughtered what made Boeing great.

 

[no_great_name]

It’s not dollars and cents. They are super close in the last offer. It’s precedent. Boeing doesn’t want to give on defined benefit pensions and other benefits because they are hard to negotiate away once given.

Those are two sides of the same coin. Ongoing liabilities in the form of pensions is more expensive, just not up front. Companies hate that. We used to have a bank of PTO that we could save up, but it was a large liability on the books so the company forced us into the current system of all PTO having to be used by the end of the fiscal year.

Doesn’t make it right, but if the numbers are really that close then management would have caved already. They aren’t (complete) morons.

 

[perrosdelaguerra]

The only way that Boeing can recover is to recruit and re-hire the engineers who retired or left for other companies in disgust when the McDonald Douglas merger ruined everything. To be successful at that, there will need to be much more than lip service paid to fixing the toxic corporate culture presently in place.

This is a management problem, not an engineering problem.

 

[AusPeter]

The Jack Welch school of management does seem extraordinarily good at destroying century old, corporate American institutions. Even most investors come out worse in the long run because he and his disciples leave companies unable to invest in the future. Eventually they can’t even keep up their existing, once highly profitable businesses

Takes some serious MBAing to be handed what was essentially a monopoly position (and a government subsidized one at that!) and still mess it up this badly

He wasn’t known as Neutron Jack for nothing!

And for those that don’t know the reference, it’s a nod to the Neutron Bomb that would kill people, but leave the buildings standing.

 

[UsafVet]

When I worked for Boeing/Spirit Aerosystems. My job was to install skins. Align it, trim it, drill 10,00 precis holes, within tolerance, clean it. Get QA to sign off. Then seal it, and install 10,000 fasteners a night. A mix of nuts, bolts, blind fasteners, and solid rivets. All withing a tolerance of +/- .0030 of an inch.
They'd done a time study, said it took 8 hours. The 2 guys they studied had been doing that job for 15 years, they didn't even talk to each other, 4 hands, 1 brain. The BEST the other 3 teams could do was 11-12 hours. My teams record was 10.75 but 8's the time. Then they changed procedure, and it took 2-3 hours longer to get the parts every night. They cut QA to 2 people so it now took, 1-2 hours to get QA to sign off. So 14-16 hour shifts became the norm, but 8 hours is the time. 6 days a week. And no matter what, we had to be done.

Power outage? Have to finish so the line can move. Fire drill? Lines' going to move. Heavy rain causes a minor flood in the building which happened a lot during the spring and summer. Lines' going to move. 2 hour meeting about something that doesn't apply to your dept.? Lines' gonna move. Plant shut down because of impassible roads? "You gotta come in Sunday and make that up." No parts? Come in at your normal 1 pm. Clean 4 hours cause they have to pay you 4 hours, then go home. Come back at midnight when we have the parts, work till noon, be back at 1 pm.

We went from 20 complete fuselages a month to 28, to 31, and Boeing wanted 38. 1.2 planes per calendar day, we never hit that. Because rather quickly, quality started to suffer. We and the rest of the people on the floor, were just tired, and we stopped caring cause nothing was every enough for management, and they were going to move that line no matter what.

People that didn't build anything were telling us what we could, and couldn't have to build the planes. We had a supervisor who said "I don't need to know how to build airplanes. I have a MBA." She demanded that we stop production after lunch to clean up, go back to work, finish, and clean up again at end of shift. So we cleaned the area 2 times per day. Another 1/2 hour wasted, but the lines going to move. Only 1 critical tool for 3 lines, cause they cost 10k each, "you can share." "John got hurt, so you're going to have to do his job too." John never came back, and they never replaced him. And always "Too much overtime!!" "We have to dig in!" "We're paying you a lot of money to do this!" "The rate is 38!" "You can be replaced!" "We're using to many consumables!" " We have to be faster!"

99.99% of Boeing's problems come down to pure corporate greed. There was never a point where anyone said "We're making X billions, this is good." Always more cuts, more speed, and more money for the bigwigs. They'd sowed this field, now they're reaping it, and I have no pity for the people at the top who made millions ruining a good company.

 

[perrosdelaguerra]

"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".

Then you open a big sales office there, not HQ.

 

[perrosdelaguerra]

I suspect for a lot of folks that the name Boeing used to mean quality. That doesn't feel to be the case any longer. On a personal note, I sleep a little better on my flights when I see Airbus on the safety card.

I'm okay with older Boeing planes, but "737MAX*" makes me less confident.

 

[Rhysner]

When Kelly Ortberg makes statements about leadership such as:

executives “need to be on the factory floors, in the back shops, and in our engineering labs”

that reads as a big change of heart if you look at his tenure at his previous company.

His Rockwell/Rockwell Collins career location coincided with the headquarters of the company he became CEO/Chairman of (Rockwell Collins). So being co-located with factory, shops and labs was happenstance in that case.

Soon after becoming CEO/Chairman, he sold the company to UTC. As CEO of new/officially combined Collins Aerospace, Ortberg immediately moved the corporate headquarters to...West Palm Beach, FL.

There wasn't factory, shops and labs in the new headquarters site.

About a year later, Ortberg retired. Speculate on why he'd retire so quickly or not--the effect on the company he led is that he moved the HQ for a reason.

But look at where Collins Aerospace HQ is today--It's at Charlotte NC. And that happened immediately after Ortberg's retirement. So whatever purpose or reason to have HQ in FL ended with Ortberg's exit.

 

[KChat]

Invective much? Pointing out that the strike is less expensive isn’t corporate bootlicking. It is observing that water is wet. Like seriously how is this a point of contention?

You expect me to believe that they evaluated the demands and thought “I dunno Bob. These union demands are going to cost us X, but if we let them strike it will cost us X+Y and we’ll get a ton of bad publicity out of it for free.”

No, the union demands are obviously more expensive, which is why there is a fight. Pointing that out is not even taking sides let alone apologetics.

Quit being asinine.

It's not solely about money. This is also about their absolute hatred of the union. It infects every dealing they've had with them, from their decision to move 787 production to a non-union state, to threats to move the 777X production during the contract negotiations that stagnated wages & stripped the pension.

The union demands (setting aside the pension, which will not come back) are to bring wages to where they should have been with regular raises over the last 10 years. It should go without saying that the starting wage of $19/hr. to build a goddamn airplane is asinine.

Your numbers are absolute horseshit that even a cursory google search would disprove. I stand by my statement that you should delete your initial post. It is literally fiction & you should feel bad for spreading such garbage as if it is somehow well-reasoned. It is not.

They thought they could get away with paying less than the work is worth because they don't value their labor force. Now they're in the "find out" portion of the adage.

 

[phred14]

The 737MAX series is an absolutely critical component of Boeing's financial picture. They have attempted to shoehorn that airframe-of-a-certain-age to cover for the lack of a 757 and to some extent a 767 replacement. It has worked for longer than it should have, but they likely have gotten to the end of the line and really need a new narrowbody. I think you are correct that narrowbodies are key to any aircraft manufacturers future hence the need to start actually cutting metal for an NMA.

But my point with the 777X - which Boeing is really looking to fill the still important widebody slot - is that they never should have screwed up with the engine mount. Just speaks to their complete failure as an engineering firm.

Something I don't understand is why Boeing didn't use the 757 as a basis for going forward instead of the 737. At the very least the 757 doesn't have that low runway clearance issue that's baked into the 737. I've asked this question before and the only answer I get is essentially "network effects". In other words, there are more 737s out there so that's what the keep going forward with. I don't get the impression that there was anything inherently wrong with the 757.

 

[Rival Vector Plot]

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.

Exactly those two points. Keep it simple. I’m sure others will post finer details or minutia regarding the situation, but all of that comes from the two basic premises above. Boeing can be great again, if it goes back to prior conditions.

 

[chrisjames]

Hard to believe this is the same company who made the B-17 and B-29.

 

[Rival Vector Plot]

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.

Jesus I hate corporate bootlickers. They're the complicit ground troops screwing up their own futures, fighting for a side that doesn’t give two shits about them. One might even define them as conservatives politically.

 

[chrisjames]

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.

Did you even read the article?

 

[harlequin69]

Something I don't understand is why Boeing didn't use the 757 as a basis for going forward instead of the 737. At the very least the 757 doesn't have that low runway clearance issue that's baked into the 737. I've asked this question before and the only answer I get is essentially "network effects". In other words, there are more 737s out there so that's what the keep going forward with. I don't get the impression that there was anything inherently wrong with the 757.

I’m interested in what @ColdWetDog thinks about this (despite appearances it seems like we are in violent agreement).

Looking at wiki it seems like the 757 started out as a larger aircraft than the 737 although there is plenty of overlap between the capacities of the 737 and 757 variants. Perhaps it’s easier to make a small plane bigger than a big plane smaller?

 

[KChat]

I’ll edit my post (again). It clearly offends you enough to insult me and it was tangential anyway.

We’ve well and truly jumped the shark though if you expect me to believe that a large corporation does anything not solely related to money.

Yes it's about money. Their problems start & end with the "line must go up" management culture that has gutted the company.

They don't want to pay more than they absolutely have to. But upping the pay 40% will not cause them financial harm. It will simply bring things in line with where they should be. And it will make hiring & retaining talent easier. Labor will still be a single-digit % of the airplane's cost.

Their hatred of giving in to any union demands is well-documented & the union is done "cowering." Boeing gambled on keeping wages low. They appear to be losing that bet.

Stay strong, IAM.

 

[Rival Vector Plot]

Hard to believe this is the same company who made the B-17 and B-29.

That was 4/5th of a century ago. Do you expect any form of continuity to survive that long? Material, mission or people?

 

[Malmesbury]

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.

Boeing's management policies to date make Elon Musk seem like a balanced, thoughtful and reasonable CEO with a long term vision for his companies.

Think about that for a minute.