Boeing: It was an American icon. Today, its reputation has gone to the dogs. On Monday, the company’s shares tumbled following massive tragedy in South Korea. A deadly crash of a 737-800 model claimed 179 lives. Investigations have been launched, one by the South Korean authorities and the other by Boeing itself. The incident came in a series of setbacks for Boeing the past year. The company continues to face labour strife, questions about quality control, mounting debt and supply chain issues. Company’s shares have lost 30 per cent of their value in just one year.
Let’s have a look at the past troubled year for Boeing.
In January, an incident on an Alaska Airlines flight brought back concerns about the safety of Boeing’s 737 Max planes. On the flight, a panel on the aircraft came loose and blew off. This happened five years after two deadly crashes involving the 737 Max, a newer version of the 737-800 model. Those past accidents had already raised questions about Boeing’s safety practices. As a result, the Federal Aviation Administration (FAA) increased its supervision of the company and limited how many planes Boeing could produce. This hurt Boeing financially, and the company has not made a yearly profit since 2018.
In July, Boeing agreed to plead guilty to a serious crime. The charge accused the company of conspiring to mislead the U.S. government about issues linked to the Max crashes. However, this month, a federal judge rejected the proposed deal, creating another legal hurdle for Boeing.
In August, Boeing announced leadership changes. Kelly Ortberg became the new CEO, replacing Dave Calhoun, who had said earlier in the year that he planned to step down.
In September, Boeing faced another major challenge when about 33,000 of its workers went on strike. These employees, who are part of the company’s biggest labor union, stopped working for two months. The strike disrupted operations and cost Boeing a lot of money.
The question is: How did things go so wrong? Research on global innovation and corporate mismanagement points to two major changes in the early 2000s that hurt the company’s future.
- A Problematic Merger
The trouble began in 1997 when Boeing merged with McDonnell Douglas, a company with a strong history in aerospace, including the famous DC-3 plane. However, by the 1990s, McDonnell Douglas was struggling. It couldn’t keep up with rivals like Boeing and Airbus, and its military business had also declined. Unable to develop new products, McDonnell Douglas saw the merger as a way to exit the market.
Although Douglas disappeared as a brand, its managers didn’t leave quietly. Instead, they took control of Boeing’s leadership. What happened there was that more aggressive managers of the acquired company pushed out the original executives of Boeing.
Boeing’s innovation-driven culture was replaced by McDonnell Douglas managers, who focused on cutting costs and increasing shareholder profits. These leaders were accountants and financial experts used to operating on tight budgets, not engineers with big ideas.
- A New Business Model
To reduce costs and risks, Boeing’s new management brought in partners to share the cost of developing and producing new planes. These partners not only invested money but also helped design and build parts of the planes, from smaller components to major sections like wings and fuselages.
This idea wasn’t entirely new. In the 1960s, Boeing had taken big financial risks to develop the B747 jumbo jet. After that, the company refrained from taking similar risks by partnering with Japanese aerospace companies to build parts of its 767 and 777 models.
After the McDonnell Douglas merger, Boeing expanded this approach. It worked with partners from countries like Japan, Italy, South Korea, and the U.S. These partners built many of the plane’s structures, while Boeing focused on assembling the final product and managing the overall system. This allowed Boeing to save money, but it also made the company heavily dependent on its partners for crucial parts of its planes.
To further cut costs, Boeing moved some of its design and development work to cheaper locations, like Moscow. However, Russia’s expertise in building passenger planes wasn’t as advanced as the U.S., and many skilled workers had already left the country. These overseas design centers couldn’t match the capabilities of Boeing’s main facility near Seattle.
When Boeing started making the 787, it introduced composite materials for major parts of the plane’s structure. These materials were lightweight but less durable than traditional metals. Boeing didn’t fully understand how these materials would age or how to properly assemble large plane sections made from them. This caused big problems. Many of Boeing’s global partners struggled with designing and building their assigned parts, forcing Boeing to step in and help. These issues caused long delays in the 787’s production.
Boeing’s engineering team, already spread too thin, couldn’t handle all the challenges. The company underestimated how hard it would be to manage a global network of partners and suppliers. Building a plane requires hundreds of thousands of parts, and coordinating with foreign partners and design centers brought unexpected difficulties.
The last nail in Boeing’s coffin came with the tragedies involving the 737 MAX planes in Indonesia and Ethiopia. These crashes were caused by problems linked to the redesign of the planes to fit a bigger, more fuel-efficient engine. Boeing hastily carried out the redesign because of financial pressures, tight deadlines, and competition from Airbus, whose A320 planes could already handle the new engine.
During the process, flaws in the new control software were overlooked. Some engineers and Boeing pilots who tested the software in simulators raised concerns as early as 2016, but these warnings were ignored. To save costs, Boeing didn’t require extra pilot training for the new system.
An investigation by the Federal Aviation Administration (FAA) revealed that Boeing wasn’t fully honest with FAA inspectors or its airline customers about the risks of the new software and the need for pilot training. After the crashes, the 737 MAX fleet was grounded for two years, costing Boeing nearly $20 billion in victim settlements, fines, delays, and penalties to airlines. Production was halted, and Boeing’s reputation with the FAA and customers were badly damaged.
The company’s culture, shaped by McDonnell Douglas, prioritized cost-cutting over safety in product design and development. Boeing had shifted from being primarily a U.S. aircraft designer and manufacturer to managing a large global network of partners and subcontractors. This change brought greater risks than the company realized, even more than when it developed the 747 decades earlier.
Boeing’s governance problem was serious.
Around three years back, Boeing was fined over $200 million in a lawsuit filed by shareholders. The suit claimed that the company’s board failed to oversee safety properly. Shareholders argued that safety was not regularly discussed in board meetings, and there was no system in place to inform directors of safety concerns.
Boeing’s CEO at the time of the crashes, Dennis Muilenburg, was fired in 2019. He was criticized for not taking safety seriously enough. Investigations showed that Boeing’s board lacked a dedicated safety expert, unlike most other aerospace companies. While there was a safety council, it wasn’t connected to the CEO or the board. Instead, the board was filled with retired government officials, but few had aerospace expertise. Financial priorities often outweighed engineering and safety concerns.
This is how Boeing, once the world’s aviation king, suffered a mega collapse of trust, reputation and financials. The company is in shambles today but some believe it still has time to come back from the crisis. Only time will tell.
