Boeing and Ukraine's defeat show the same thing: Skills in the West are lost during the de-industrialization, there is no way to go back, attempts to make an island from military industrial complex or some other beloved production are futile

 

"Boeing, a pioneer of the jet age and one of the most strategically crucial companies to American economic success, has lost its way. 

Getting back on track will require a daunting campaign to win back the trust of travelers, airlines, regulators, investors and its own employees.

This year, a fuselage panel blew off one of its jets in midair. Its Starliner space capsule left two astronauts stranded in orbit. Its biggest union halted airplane production, worsening its cash drain. It is poised to plead guilty in a case tied to two fatal accidents, and its credit is flirting with a junk rating.

There are many potential villains here: a culture that put financial engineering before aerospace engineering, an outsourcing strategy that shifted work to lower-cost factories or suppliers, a pursuit of production goals over safety goals.

Whatever the cause, Boeing has reached a point where people are genuinely asking: Could Boeing fail? And what would an endgame look like in such a scenario involving a national icon?

Kelly Ortberg, who took over as Boeing's chief executive barely three months ago, told investors and employees this past week: "The trust in our company has eroded." Boeing declined to comment and referred to Ortberg's comments this week.

"It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again," he said. In a memo to staff, Ortberg said the company must repair a broken culture, shrink itself and improve execution.

To plug its cash drain, Ortberg has moved to slash 17,000 jobs and sell up to $25 billion in shares or debt. Boeing is exploring a sale of its space business. The new CEO has failed, however, to reach a deal with 33,000 machinists who walked out six weeks ago seeking higher pay and benefits. The strike is sapping $1 billion a month from Boeing's thinning reserves.

The plane maker's mounting problems, in many ways, trace back to the 737 MAX, the latest version of its decades-old narrow-body workhorse.

A focus on reducing training costs coincided with design mistakes that led to the fatal crash of Lion Air Flight 610 six years ago this month. Boeing's subsequent failure to admit its mistakes and quickly address the plane's safety problems set the stage for a second crash just a few months later in Ethiopia, squandering decades of trust Boeing had banked with regulators, airlines and the flying public.

After the first 737 MAX crash, on Oct. 29, 2018, in Indonesia, Boeing downplayed problems with a flawed flight-control system and instead pointed to missteps by the airline's pilots and maintenance.

Then-CEO Dennis Muilenburg directed his communications team to remove from a draft press release any mention of work to fix a new cockpit feature that pushed the plane into a fatal nosedive, according to a settlement with securities regulators. The press release declared the MAX was "as safe as any airplane that has ever flown the skies." Boeing and Muilenburg settled the case without admitting or denying wrongdoing.

There is debate inside and outside the company whether Boeing's overemphasis on financial metrics has led to cultural decay. Critics place the beginning of the decline in the 1990s, when Boeing started adopting many of the management practices common at its supplier General Electric, including a focus on short-term profitability.

The merger with rival McDonnell Douglas in 1997 further cemented Boeing's turn away from an engineering-led culture and toward more centralized corporate control. The decision to move its headquarters from its Seattle manufacturing hub to Chicago in 2001 -- and then to Virginia in 2022 -- exemplified this shift.

Extra attention to financial metrics had some positive effects on the aerospace industry, which at the time often didn't spend money on what airlines actually needed. The L-1011 TriStar, for example, was beloved by engineers but came late and had too short a range, effectively taking Lockheed Martin out of the commercial-airliner business in the 1980s.

But amid the culture change at Boeing, some engineers became afraid to raise safety issues with managers, current and former employees say. In the lead-up to the first MAX accident, some of them were worried that the flight-control system known as MCAS might lead to costly simulator training for airlines and make the plane less compelling to buy. Boeing has said it is taking steps to encourage more employees to speak up with their concerns.

Federal prosecutors dredged up an email they argued showed a Boeing employee was under financial pressure to deceive the FAA into not requiring simulator time for pilots who fly the MAX. The email showed the employee was worried he'd be blamed as the one "who cost Boeing tens of millions of dollars!"

Muilenburg appeared worried that regulatory questions after the initial accident might interrupt the company's cash flow. "[W]e need to be careful that the [FAA's interest in pilot manuals] doesn't turn into a compliance item that restricts near-term deliveries," the CEO said in one email that surfaced in shareholder litigation.

When he took over as CEO in 2020, David Calhoun said the company would focus on building trust and getting back to basics. "We're going to do a little less visioning and a little less long-term planning," Calhoun said. "We're just going to get back down to restoring trust with one another, trust with our customers, and trust with our regulator, and we're going to be transparent every step of the way."

More and more quality and execution problems surfaced in its commercial aircraft, defense and space programs. Time and again, Boeing executives emphasized they would focus on safety, engineering and quality. The company hasn't turned an annual profit since 2018.

The Alaska Airlines blowout in January revealed that many of Boeing's problems remained unfixed. Government investigations have revealed that front-line workers still faced production pressure and aircraft with problems continued to move down the line and out the factory.

David Boulter, the FAA's safety chief, said a key to fixing Boeing is to make sure all employees have the opportunity to speak up about problems and be heard -- a type of culture that has fueled safety gains at airlines.

"Certainly, that's where we've seen the most success with the airlines," Boulter said on the sidelines of an industry event in Las Vegas this month. "Those with great safety cultures have great safety records."

The plane maker lost about 20% of its stock-market value following the Ethiopian Airlines accident in March 2019 that led to fleets of 737 MAX jets being grounded. But even this didn't fully reverse a big rally in the previous three months, which had taken the shares to a record high of $446.

In December 2019, when the company was forced to temporarily stop making the aircraft, the stock held its ground. It only tanked early in the Covid-19 pandemic in 2020, when all production stopped and recertification of the MAX was further delayed.

Now, investors have accepted that Boeing's earnings will be much smaller going forward. The shares are worth $155.

The continuing strike has led all three of the major ratings firms to warn that Boeing's debt could be downgraded to the "speculative" category.

Being able to increase production to more than 50 MAXs and 10 Dreamliners a month would generate more than $10 billion a year, Wall Street analysts estimate, but this is proving increasingly elusive. On Wednesday, Chief Financial Officer Brian West told analysts, to their dismay, that Boeing's operations would burn cash in 2025.

As strong as its long-term business case might be, investment-grade companies simply don't hemorrhage cash.

Later in the decade executives will need to start investing heavily in developing a new innovative narrow-body aircraft to replace the MAX. Not doing so would likely mean giving up on head-to-head competition with Airbus.

It has been more than a decade since Boeing started delivering the 787 Dreamliner, its last "clean-sheet" design -- that is, not based on a previous model. But excessive outsourcing riddled that program with issues.

To rekindle a true success story, Boeing must go back to the 1990s, when a team led by longtime company engineer -- and later CEO of Ford Motor -- Alan Mulally, designed the 777 in collaboration with airlines and pioneered new computer-design tools.

Some analysts believe that the best path forward would be to break up the company, following in the steps of GE. Boeing's defense, space and security arm, which makes up 31% of total revenue, could perhaps do without space projects that are no match for Elon Musk's SpaceX. When it comes to the rest, though, advances in aerodynamics, materials science and manufacturing processes are often joined between the defense and the commercial side.

The defense business also gives Boeing access to lucrative Pentagon contracts, reinforcing the impression in Washington that the company is "too big to fail."

With $58 billion in debt, $12.5 billion of it coming due in 2025 and 2026, there are no easy ways out. Boeing appears set to issue roughly $10 billion in new shares, from the total of $25 billion it could tap. Usually, equity investors dread being diluted. This time, many are encouraging executives to max out the cash raising to gain room to maneuver.

It may be that, with time running out to pull up from the nosedive, the interests of manufacturers and bean counters are finally aligned." [1]

It's too late. Among other things, two fatal accidents in the case of Boeing happened for the same reason that caused the failure of Volkswagen - the lack of skills to integrate timely modern computer technology into a modern product.

1. EXCHANGE --- What Went So Wrong With Boeing? --- With trust gone and cash dwindling, questions swirl about potential endgames for a national icon. Tangel, Andrew; Sindreu, Jon.  Wall Street Journal, Eastern edition; New York, N.Y.. 26 Oct 2024: B.1.