On January 5, 2024, Alaska Airlines Flight 1282, a Boeing 737 MAX 9, took off from Portland. As it was still in its climb a fuselage panel blew off. The panel, a door plug used to seal a hole in the fuselage, is sometimes used to accommodate an emergency exit. It was a hair-raising incident, to say the least. Fortunately, the aircraft was able to make an emergency landing safely and thankfully, by god’s grace, no lives were lost.

Claims and counterclaims are flying around as to who was at fault. Boeing’s 737 Max 9’s fuselage supplier, Spirit Aerosystems, claims Boeing removed the fuselage panel for repair and did not properly reinstall it. Boeing is withholding comments as investigations are still ongoing. As of this writing, the FAA (Federal Aviation Administration) has cleared Alaska Airlines to fly its 737 MAX 9 fleet after inspections were completed and no issues were found.

This incident has brought the spotlight back on Boeing and for, obviously, all the wrong reasons. In October 2018 the Lion Air Flight 610 crashed 13 minutes after takeoff and killed all the 189 passengers on board. Shortly thereafter in March 2019 the Ethiopian Airlines Flight 302 crashed, ending the lives of 157 passengers. It took Boeing a few years to get the 737 MAX recertified and cleared for flight again.

The reputational damage along with the financial damage to Boeing has been immense and the recent Alaska Airlines incident has authorities, industry experts, and the general public asking serious questions about Boeing.

Let’s look at history and decipher what are the possible root causes of the issues plaguing Boeing.

The Beginnings

On a beautiful sunny day in August 1955, Boeing test pilot Alvin ‘Tex’ Johnston was to take the Dash-80, the prototype of the Boeing 707, out for a test flight at a hydroplane race over Lake Washington near Seattle. A large crowd had gathered. Luminaries and top aviation honchos were also present.

Johnston was tasked to do a simple flyover and be done with it. That in itself would have been a huge success for Boeing. But how can one take the swag out of a pilot who used to fly crazy loops in a tri-motor plane over the plains of Kansas? Johnston, instead of doing the simple flyby, put the plane in a double barrel roll. The crowd was stunned. Bill Allen, Boeing’s CEO, thought the jet was out of control and about to crash.

As with crazy stuff, people had differing views. But the consensus was that it was fitting.

As the defense contracts emanating from World War II and the Korean War had dried up, CEO Bill Allen faced a dilemma, “What next for Boeing?” He decided to bet the house - $16 million, a pretty large amount of money those days - on a commercial/transport prototype. The bet was so bold because Boeing had no interested customers and the viability of such an aircraft in the market was unknown.

Slowly, the orders started to trickle in, and in 1957 the Boeing 707 made its maiden flight. It ushered in the modern commercial jet age which we take for granted today.

The Boeing 737

The 737 took its first flight in 1967.

Apart from all the technicalities of getting a safe and reliable aircraft out of the door, some of the design decisions of the 737 were driven by the state of the on-ground infrastructure or the lack of it. Airports were small, there were no fancy gates at the airports, and luggage-loading machinery was still not there. Hence, airlines asked Boeing for a low-to-the-ground aircraft. This would enable easier luggage-loading and easy-to-reach engines, thus reducing operating and maintenance costs.

The 737 was a smashing success. The aircraft was so trusted by the airlines that when upgrades were needed, Boeing just redesigned it and added new features. Apart from the safety and reliability of the original 737, Boeing also offered airlines over 100 possible customizations inside the plane to the airlines. The 737 could be considered one of the greatest feats of engineering in the modern era.

The Boeing Culture

Coming out of World War II, America was a manufacturing powerhouse. More than that, the basic ethos of the nation was to be unpretentious and to “put your head down” and focus on the task at hand. Boeing became a symbol of American national identity and embodied the values of the nation. It was a company where colleagues and managers considered each other as part of their family rather than just a team member.

Engineers ran the company, from top to bottom. Managers were extremely qualified engineers, held patents, and could talk the language of the workers on the floor. Managers were known to go home with grease all over their “pricey” suits and hands. The focus was quality and safety over costs.

Boeing’s vision and ethos was to get the best product out there and the customers will pay for it.

As management and the factory floor were in the same location, issues could be resolved by just walking over and talking rather than having to fill out multitudes of paper forms or phone calls. It was a well-oiled machine.

Even though a shift was happening in the overall American ecosystem of moving from the factory floor to the trading floor, Boeing continued to maintain its decades-old culture well into the 1990s. Chief Financial Officers were known to keep their distance from Wall Street and provided information that was required by law. There was no hobnobbing with Wall Street analysts and banks.

But all that started to change. First slowly in the 1980s and culminating in an event in 1997 that many, including yours truly, believed sowed the seeds of Boeing’s current problems.

A Transformation

The deregulation of the aviation industry in 1978 and rising fuel costs forced aircraft manufacturers like Boeing to rethink their supply chains and manufacturing practices. By the 1980s, Frank Shrontz, then Boeing’s Chairman, realized that the company’s planes cost too much and too long to build.

Shrontz dispatched executives to Japan to learn their manufacturing techniques, and soon enough, Boeing started to adopt a just-in-time inventory system, consolidating its supplier base, and replacing outdated computers and software. It was a large endeavor for a behemoth like Boeing and it took on new urgency in the early 1990s.

Globally, airlines started to lose money and in the early 1990s, they lost $15 billion collectively. This loss was collectively more than what the airlines had made since the beginning of commercial flights. Boeing’s orders dried up, and the company laid off more than 30,000 workers. It was a shock that such a thing would ever happen at Boeing.

The airlines started to recover by 1996 and soon enough, Boeing was flooded with orders as it slashed prices to secure long-term agreements with airlines like American, Continental, and Delta. But the changes Shrontz put into motion were taking longer than expected.

The just-in-time supply chain was still not efficient and in 1997 Boeing was taking drastic measures like dispatching taxis to local suppliers to get desperately needed parts to get planes out of the door. It started to become evident to executives that Boeing’s aggressive plan to increase their monthly output to 43 planes from 18 planes was just a pie-in-the-sky dream.

While all of this was playing out internally, Boeing was in the process of acquiring McDonell Douglas for $16.3 billion. The deal got antitrust clearance in 1997 and was completed in August 1997.

Wall Street was happy, investors were happy as now the commercial jet market had become a duopoly. Boeing and Airbus were going to rule the roost.

But the party didn’t last too long. In October 1997, Boeing announced that it was temporarily halting production of both the 747 and 737 as it was overwhelmed by supply chain issues. It had to take a charge of $1.6 billion and reported its first operating loss in 28 years. Boeing stated that it would cost another $1 billion in 1998 to get the house in order. The stock crashed 8% that day.

McDonnell Douglas

McDonnell Douglas had just 5% of the commercial jet market when Boeing acquired it. Rather than the commercial jet business, Boeing coveted McDonnell Douglas’ military contracts and connections. The acquisition was a victory lap of sorts for Boeing CEO, Phil Condit. It would allow him to diversify Boeing’s revenue streams.

For keen observers and Boeing employees, the deal seemed to disproportionately favor McDonnell Douglas executives. Many were given senior positions. CEO Harry Stonecipher of McDonnell Douglas was made COO and held twice the number of shares compared to Condit who remained CEO of the merged entity. Along with Stonecipher, John McDonnell, the Chairman of McDonnell Douglas, became the two largest individual shareholders.

But there were bigger issues in play. The two companies had vastly different corporate cultures.

McDonnell Douglas was struggling with its commercial jet ventures, like the DC-10 and the MD-11, and it focused on cost reduction and shareholder value. It was known to often sideline critical product excellence and engineering innovation. Colloquially, the approach was known as, “good enough for government”. What that meant was that they did just as much as required to meet government regulations and if problems arose, they would fix them later and charge for it.

Boeing believed that now McDonnell Douglas was out of the way, it would go about executing its plans. But, Stonecipher outsmarted Condit and began to impose his authority. Soon enough, it became a war between the finance guys from McDonell Douglas and the engineers from Boeing. The finance guys won and that was the end of the vaunted Boeing culture.

Soon, the ongoing sarcastic joke within the rank and file of the old Boeing was, “McDonell Douglas bought Boeing with Boeing’s money.”

Stonecipher warned employees in 1998 that they needed to stop behaving like a family and become more like a team. If anybody didn’t agree with that concept is no longer needed. All of a sudden, everything became cut-throat.

The headquarters were moved to Chicago in 2001 to enable executives to be closer to customers and Wall Street. Rather than engineering, the focus was now solely on rewarding shareholders rather than the product. This caused massive disenchantment among the staff and the strong links between the top management and workers were broken.

By 2003, Stonecipher became CEO of Boeing and continued to transform Boeing’s culture. He led the plans to build a new plane; the 787 Dreamliner.

He was eventually pushed out in 2005 after internal investigations revealed that he was having a consensual but extramarital relationship with a fellow Boeing executive. Since then Boeing has not been led by a CEO with an engineering background.

A New Direction

With the 787 Dreamliner Boeing moved away from its time-honored manufacturing practices. Instead of drawing primarily from its traditional pool of engineers, mechanics, and workers in the Puget Sound region, Boeing outsourced almost everything to its suppliers. Earlier Boeing used to control the design and used to verify and certify the suppliers’ deliveries. Now, even the design was outsourced. All that was left for Boeing workers to do was assemble the pieces.

But outsourcing the manufacturing of an aircraft is not the same as say outsourcing textile manufacturing or iPhone manufacturing. Boeing was saddled by problems caused by distractions of language barriers, cultural differences, and bureaucracy.

By outsourcing and relying so heavily on foreign partners for their engineering, Boeing started to devalue their corporate knowledge that historically facilitated the practical application of complicated academic engineering concepts that eventually helped it produce successful aircraft previously. Essentially, the “grease” of corporate knowledge that cuts friction throughout the design and assembly process was lost.

Initially, the plan was to have the first test flight of the Dreamliner in 2007 and the first delivery in May 2008. Due to a shortage of bolts and delays in building the flight control software, the flight tests had to be pushed out.

Finally, on December 15, 2009, the Dreamliner made its first test flight. But then again it had to push out the delivery dates to 2011 due to delays in the availability of Rolls-Royce engines. After three years of delays, the first Dreamliner was finally delivered to All Nippon Airways on September 25, 2011.

737 MAX

While the 787 Dreamliner was being built, Boeing was planning to build a new aircraft from scratch to replace the aging 737. While these discussions about the new aircraft were going on, in 2011 American Airlines announced plans to purchase 460 jets from Airbus. That was the nail in the coffin for the proposed new aircraft as Boeing felt it would take more than a decade to build a new aircraft from scratch.

American Airlines had been a long-term customer and to win them over Boeing decided to re-engineer the aging 737. And thus, the 737 MAX was born.

One of the benefits that Boeing started selling to its customers was that since the 737 MAX was an upgrade, pilots would not require any simulator training, thus saving costs.

The 737 MAX was purported to be a straight-up competition to the Airbus A320-NEO. The 737 MAX was designed for greater range and fuel efficiency but there was a tradeoff. It needed new, larger engines. As we discussed earlier, the 737 was designed to sit low to the ground. Now that was a problem as the bigger engines required more ground clearance.

The solution Boeing came up with was to shift the engine position forward on the wings. This changed the center of gravity of the aircraft and altered the aerodynamics of the aircraft. This caused the tail of the aircraft to be pulled down, pushing the nose up, thus putting the aircraft at the risk of stalling.

To prevent the aircraft from stalling Boeing came up with a software solution. It is known as the MCAS (Maneuvering Characteristics Augmentation System). Not only was the system poorly designed, but it was also outsourced. The implementation was questionable. In any event, the software using a sensor was supposed to keep the aircraft nose stable in flight. The software was designed not to activate when the flaps were down, i.e. during take-off and landing.

But when in flight if the pilot yoked the aircraft upwards, the software would automatically push the nose down. Boeing did provide a kill switch for the MCAS on the center pedestal if the pilot wanted to take full manual control. However, Boeing failed to inform the pilots about MCAS or train them on simulators. This was the primary reason for the two crashes in 2018 and 2019.

Looking back, Boeing should have just gone ahead and built a new aircraft from scratch.

De-Icing Issue

Currently, the 737 MAX 8 and 737 MAX 9 are in service. Boeing was waiting for FAA clearance for the 737 MAX 7 and 737 MAX 10. However, the FAA refused to certify them due to a serious design flaw in the engine’s de-icing system that could be potentially catastrophic.

Unlike the older 737, whose engine inlet was metallic, the engine inlet, known as the nacelle, for the 737 MAX is made from carbon composite. While flying through cold water-saturated air, the carbon composite nacelle is prone to a buildup of ice. Boeing built a de-icing system that blows hot air onto the engine inlet to prevent the buildup of ice. Think of it like the defrostor of your car.

It was discovered that if the de-icing system remained switched on after leaving icy air, it could overheat and damage the composite structure, possibly leading it to break off. FAA stated in a directive that debris from such a breakup could penetrate the fuselage putting passenger’s lives at risk and it could also damage the wings or tail of the aircraft which could result in loss of control of the plane.

Boeing stated the scenario of this happening is extremely improbable. Boeing and FAA reached a compromise to let the 737 MAX 8 and 737 MAX 9 continue to fly based on specific directives given to pilots to turn it off when not in the icy air and to turn it off within five minutes when in dry air.

Boeing had requested a one-time exemption for the 737 MAX 7 and the 737 MAX 10, but due to extreme political pressure, Boeing has now withdrawn its request. This essentially means that the 737 MAX 7 and 737 MAX 10 customers will have to wait longer for deliveries. How long? Only Boeing can answer.

What Next?

Inquiring minds would want to know, “Given everything discussed, would Boeing have been better off retaining its engineering culture?” The answer is unequivocally, yes. Boeing retained the old processes and procedures for the 777. It is still the best-selling widebody aircraft in the world and is flown in over 60 countries. It is known for its reliability, safety, and on-time delivery.

CEO Dave Calhoun has already stated that Boeing will not embark on building a new plane in this decade. With the reputational damage Boeing has suffered and ongoing delays, it would be interesting to see how much market share it can hold on to. And if the military contracts slow down, guess what is going to happen?

Instead of focusing on product, performance, people, and safety, Boeing over the last few decades has focused on returning money to shareholders via massive dividends. It seems that the focus has not changed.

The company has shut down its corporate strategy department. Individual unit strategy functions have also been retrenched. It seems that there is no longer any plan for company-wide new technology development, new product development, or restoring crucial links between designers, engineers, and workers.

There also seems to be no intention to appoint technical people to senior management positions. This is evident from the appointment of Stephanie Pope, another finance person, to the post of Chief Operating Officer.

More will be known today when Boeing releases its quarterly results and holds its analyst call.

Verdict: Dead Money.

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