Boeing should go

By Erik Dolson

Boeing, maker of airplanes in America, employer of more than 100,000 Americans, major component of America’s economy and hero of America’s past wars, has become cancerous and should be cut out of the body of our capitalism.

For the good of America.

Boeing was once a company of engineers. It employed the best and the brightest who took ideas that were almost science fiction and built them into real, market-dominating airliners.

Like a healthy organ, Boeing did its job wonderfully well with a minimum of attention. Tucked up in the wet Pacific Northwest, Boeing dominated that part of Washington state not owned by Weyerhaeuser: the glacial plain from Boeing Field in the south to Everett in the north, and most of Seattle, long before the gestation of Microsoft and Amazon.

But in the 1980s, Boeing began to change. Focus shifted from building planes to growth. Originally intended to protect profit, growth became an end in itself, as did a focus in management on share price.

The hallmarks of cancer include continuous growth, limitless number of cell divisions, and invasion of tissue and formation of metastases. Boeing began to fit this description.

As with many cancers, there was an environmental component. The 1980s included a seismic shift in the concept of “success” in corporate America, epitomized by the genius of General Electric’s leader, “Neutron” Jack Welch. Neutron bombs kill people but leave buildings. Welch got his nickname by firing employees but keeping businesses, lowering cost and increasing profits.

One of Welch’s tools was “Six Sigma,” a data driven system to improve efficiency. He also had a policy of firing the bottom 10 percent of sales producers every year, regardless of their absolute performance. Stock price became a primary focus. At first Welch’s methods were successful. G.E. value skyrocketed as Welch bought and sold divisions, looking for maximum return.

Welch wanted G.E. to be the largest company in the world. Men who worked for him were sought by other companies hoping for some of the G.E. magic. This was also during a time of overall increase in stock valuations, but Welch’s G.E. and others outperformed indexes such as the S&P 500.

Welch also distributed stock to his management teams, took a good chunk himself. G.E. grew rapidly, gains in stock price became a primary measure of success, and Welch was regarded as a hero of capitalism. (It didn’t always work. Even G.E.’s stock lost half its value after Welch retired, and many of the companies that adopted his ideas did not fare much better.)

But other companies took note, including Boeing, in the 90s under the leadership of Phil Condit. Condit expanded Boeing, bought rivals such as McDonald Douglas, Rockwell Aerospace and Hughes Space & Communications, expanded operations to North Carolina and South Carolina (possibly to get away from the unions in the Pacific Northwest).

Condit doubled the size of the company and eventually moved Boeing headquarters out of its Seattle birthplace to Chicago in 2001. Boeing grew, it was profitable, but the cancer had metastasized. The company was showing early signs of disease as focus shifted away from building the best airplanes in the world to becoming one of the most valuable companies in the world.

Harry Stonecipher succeeded Condit in 2003 after it was disclosed that Boeing had been in discussions to hire an Air Force officer who was in charge of procurement of Boeing planes. One got the sense that values were open to question.

Stonecipher had worked for G.E. under Jack Welch prior to heading up McDonnell Douglas, until Boeing bought that company. At Boeing, Stonecipher was proud of the fact that he was blowing up the engineering culture at Boeing so that it would be run “like a business rather than like a great engineering firm.” (JOE NOCERA, Bloomberg) Stock price rose.

Two years later, Stonecipher was replaced by James McNerney, yet another G.E. man. McNerney had no experience in aviation. But he too was an avid cost cutter, and it was under his watch that the decision was made to “upgrade” the 737 series to a 737 MAX instead of developing a new model.

It’s important to realize that this was gaming the system. A new model would have required a full review by the FAA and other regulatory agencies. More training would be required of pilots, etc. This would slow down approval and make the plane more expensive.

In a hurry, management was more interested in driving down labor cost, outsourcing work to the cheapest subcontractor, reducing staff, and misleading the Federal Aviation Administration. Presentation of the 737 Max plane as “just another 737” was critical to its planned success, and necessary to jack up the stock price. Money saved would be used for stock buybacks, executive compensation, and growth.

Internal communication was fraying, because what employee wanted to bring problems to a manager who was trying to eliminate his/her job?

McNerney was succeeded by Dennis Muilenburg. While Muilenburg was an engineer by training and a long time Boeing employee, at this point the Boeing mindset was squarely focused on profit and share price. No one at the top seemed to be aware of, or willing to consider, what was happening on the shop floors, in the warehouses. In fact, one of the goals of the move to Chicago was to isolate management from day-to-day concerns.

So, 40 years after it began, the cancer finally resulted in catastrophe when 346 people in two Boeing aircraft died when the planes flew into the ground due to flaws in software design, possibly hardware problems, and a lack of pilot training, all of which were the result of Boeing’s focus on profit and cost cutting rather than engineering.

The company’s internal failures were exposed in 2019, but they’ve been obvious to thousands who worked for Boeing for years. Employees were not reluctant to share their opinions that the company had been floundering, but were unheeded. 2019 was simply when the disease at Boeing became known to the world. When Muilenberg told Congress after the two Max crashes that “safety is in our DNA” at Boeing, he was describing a company that had not existed for years, if not decades.

The crisis of the 737 Max is not the only example. Boeing is failing to meet military requirements for new refueling tankers, faces a lukewarm reception for its revolutionary 787 plane that was years late, and recently had an embarrassing failure when its space division shuttle failed to rendezvous with the space station.

Muilenburg was fired a month ago on December 23, 2019, but he was replaced by yet another G.E. alumnus, David Calhoun, who had worked for G.E. for 26 years and also had no background in building airplanes beyond being a director of Boeing during the time when the problems festered.

So, what’s to be done? Many will say that Boeing is too big to fail, that the impact to America and to the communities Boeing supported for generations is simply too great. But there’s another way to look at this.

The social and economic community of America is a very strong organism; diverse, vibrant, and resistant to many ailments. It often demonstrates the success of capitalism, a paradigm of production and distribution that has vastly improved the human condition.

Capitalism also heralds its accomplishments through “creative destruction.” Perhaps an American icon needs to be destroyed by the very forces that led to its dominance. Perhaps Boeing should fail so that American capitalism itself can improve and become healthy.

A healthy body sloughs defective cells so that good cells can flourish. It is when this process stops that cancer spreads and bodies die.

Corporate leaders often stress “consequences” for the less fortunate. Consequences for mismanagement are equally appropriate.

Stockholders should lose their equity. Stockholder risk will sharpen oversight. Only then can there be a return to responsibility.

Boeing should be parted out. Whatever value is reclaimed should protect hundreds of thousands of Boeing workers, pensioners, subcontractors, and customers. Subsidiaries like the military division and the space division should be broken off and sold. Money raised should be used to make reparations.

There has been an impact on subcontractors, and their employees. Communities have been harmed, and this is likely to continue. They should be revitalized.

Businesses have been disrupted. Southwest Airline built its business model around the 737, and purchased new 737 Max planes that will have been grounded for over a year. Southwest and other airlines have been harmed. They should be compensated.

Executives and board members who were complicit in the destruction of Boeing and the loss of lives should be held accountable. Money made off their dereliction of duty, if not outright criminality, should be clawed back and redistributed. It is obscene that Dennis Muilenburg’s separation package is equal to the amount set aside for families of those who died in crashes of the 737 Max.

Attempts to “save” the Boeing of the last century are doomed, because that Boeing hasn’t existed since then, and Boeing of the 21st century is collapsing. For the good of capitalism in America and the communities where it once thrived, Boeing must be excised. Several new companies could take Boeing’s place. This should be expedited and American capitalism set on a path toward a future once promised but forgotten in a maelstrom of corporate greed.

Then an biopsy should be performed, to see if Boeing, Enron, Lehman Brothers, Washington Mutual and Wells Fargo (with some executives finally facing prison) are exceptions or the inevitable result of capitalist energy. Questions need to be asked:

What is the impact on a company when stock options outstrip salary as a portion of total executive compensation? When stock price reflects an emphasis on lowest possible cost, rather than the best possible product? When the take home of top floor executives is based partly on suppressing the livelihood of shop floor workers?

Is a balance possible in capitalism between competing values, or does the system itself require dynamic experimentation, excesses, crashes and disruption that characterize the current situation at Boeing and events like the Great Recession earlier this century? Was that recession caused by anomalous corporate greed in an era of deregulation, or simply the natural outcome of a dynamic, self-regulating capitalist system? Are rules effective, even possible?

What happens when a company begins to focus on its success rather than on what created that success? When does a healthy system grow out of control and become malignant?

Did Boeing eliminate sensor for profit?

By Erik Dolson

Last week it was reported that versions of the MCAS software on planes sold by Boeing to the military were required to have three angle of attack sensors installed. Planes sold by Boeing’s competitor, Airbus, also have three angle of attack sensors. Three sensors are designed to compensate if one should be damaged.

Two civilian Boeing planes that crashed earlier this year, killing 346 people, had only one angle of attack sensor with similar software. It is believed that faulty sensors indicated the planes were approaching a nose up stall, and triggered software that flew the planes into the ground.

Why did Boeing sell planes with only one sensor, when most experts say that “critical systems” need redundancy, and the airplane maker was clearly aware of this issue from their experience with the military?

One possible explanation is that Boeing expected customers to order the planes with the additional sensors as “options.” This strategy, employed often by automobile manufacturers, allows a car, for example, to be advertised at a low price and then be sold at a higher price if options are selected, and the options themselves can be sold at a higher margin.

According to the New York Times, options can add millions of dollars to the price of a plane.

So, a question to be asked is whether Boeing deleted one or two of the angle of attack sensors with the expectation of adding them back to planes at customer request and at a greater profit, or “gaming” the sales process.

If so, a follow-up question is where in the development process of the civilian 737 Maxx was that decision made, who made that decision, and who signed off on it.

Because it is hard to imagine engineers in a company that claims that “safety is our top priority” would have signed off on such an obvious problem.

Boeing may be screwed

By Erik Dolson

Airplane manufacturer Boeing announced earlier this month that a safety committee had been formed on the board of directors after two crashes of the company’s 737 Max aircraft took 346 lives.

A safety committee! On the board! Thank god. Shareholders and passengers alike can fly much relieved.

I’d like to add a couple of other suggestions, distilled after talking to current and former Boeing employees over the last few months.

First, fire CEO and board chair Dennis Mullenburg. These tragedies occurred on his watch, and he lost all credibility while repeating the demonstrably false “safety is our top priority.” The crash of two 737 Max planes due to faulty software, faulty systems, and faulty processes made that claim absurd. Mullenburg is partly reponsible for the aggressive focus on profit that led to these tragedies.

Boeing exists to make a profit. Safety is central to that goal, but not the primary. Ask any employee who answers to a Boeing manager who himself or herself is under intense pressure to reduce costs on a regular basis.

The 737  Max was a bit of a kludge in the first place, an end run around regulations that would have required a completely new certification if Boeing had fielded an entirely new design. Recertification would have been expensive and caused delays, adding even more expense. So, Boeing told regulators and customers essentially that the 737 Max was “the plane you know and love, only better!”

But the company had installed new engines on the plane, and placed them farther forward. The engine pods cause lift when the nose of the plane is pointed up. The new location resulted in forces that pushed the nose up even further. This “divergent condition” can eventually cause a stall, and the airplane to fall out of the air.

Normally, a divergent condition is not allowed in passenger aircraft, which are supposed to return to a stable position if no forces are applied to the pilot’s controls. So Boeing came up with software that pushes the nose down when sensors indicate a stall is imminent.

It appears a sensor malfunctioned in the two planes that crashed. The airplane “thought” it was nearing a stall, and pushed the nose down. Pilots repeatedly tried to pull the nose up, but the planes were stronger and persisted, until they flew into the ground.

The central questions here are why didn’t Boeing catch this problem before people died, and can it be fixed?

I suggest that Boeing didn’t catch the problem because of the “culture” within the company. The end run around certification set the ball in motion. Constant pressure to cut costs and speed up development added momentum. So did the policy of not requiring and then informing airlines that pilots would need more training on the new systems.

These decisions were not the result of “safety is our number one priority.”

Can the planes be fixed? Certainly more sensors can be added (ONE!? Boeing allowed planes out the door with a single critical sensor!? There should have been three!). The software is being modified to give pilots more control.

The FAA in the United States may allow the 737 Max to fly again soon. After all, Boeing has a huge lobbying force in Washington D.C. Money matters.

However, transportation safety agencies in other countries may require that the plane not have a divergent condition at all, and/or that pilots be able to recover the plane from any flight situation with the software completely inoperable. Can the 737 Max do that?

Can the 737 Max recover from a near stall with the current engine design without software assistance? Can Boeing recover if only the FAA certifies the plane and it can’t fly in other countries? Would anyone fly on the plane?

The problems for the 737 Max go deeper than a software glitch, and the troubles at Boeing will not be fixed by adding a safety committee to the board of directors. At some point, the plane and the company may require a more significant change in design.

If not, I suggest that the entire Boeing board of directors and top management be on the plane as it goes through the more extreme flight tests. Then shareholders and passengers alike would be assured that the planes are as safe as they can be.