Boeing’s continued problems

It feels like the aviation titan Boeing makes the headlines every day. A United Airlines 737 Max reported that the flight controls jammed as the plane landed in Newark. The FAA flagged issues with de-icing equipment on 737 Max and 787 Dreamliner planes, prompting concerns that the engines could lose thrust. A Latam 787 Dreamliner flight from Australia to New Zealand plunged mid-flight, injuring 50 people, some of whom were thrown out of their seats into the ceiling of the plane. The Justice Department has opened a criminal investigation into the company, and the FAA has expressed extreme frustration with Boeing’s responses to its queries as it investigates the loss of a door plug on an Alaskan Airlines flight that began the company’s run of troubles.

Boeing’s troubles start with the fact that its financial situation is worse than it seems. Boeing is split into multiple divisions, including Defense, Commercial, and Global Services (a division offering aircraft maintenance, modification, and repair, among other services). Boeing has historically relied on Defense to paper over the gaps when Boeing Commercial stumbles. The United States defense budget is likely to remain flat for the foreseeable future as the U.S. government’s fiscal resources are constrained by mounting deficits and high interest rates. Absent a major change in U.S. government priorities, there simply is not room in the defense budget for Boeing to grow enough there to make up for its losses in civil aviation.

And perhaps more concerning is the fact that Boeing does not seem to recognize that the situation is bad and is likely to get worse, even without major government intervention, which is looking more likely by the day. It has a leadership and culture problem. What Boeing needs is engineers, not financiers, to lead it into the future.  Boeing’s problem is that the engineers have essentially been squeezed out of its culture and approach. Its historic commitment to engineering excellence has been abandoned and replaced by a Jack Welch-style obsession with Return on Net Assets.

Boeing announced that they would not develop a new airplane for at least another 10 years. Boeing’s last clean sheet airplane, a new plane designed entirely from scratch, was the 787, which was launched in 2009. The company essentially told an entire generation of Boeing engineers that they would spend their entire career without pushing forward the civil aviation state of the art. What gifted aeronautical engineer, knowing that, would choose to work at Boeing?

Many Boeing executives’ backgrounds have been accountants trained by Jack Welch, the man who turned General Electric from the world’s greatest industrial conglomerate into a hedge fund that happened to own a few factories. It’s Jack Welch-style management, more than anything else, that has put Boeing into its current crisis. Longtime employees often peg the shift in Boeing’s culture to its 1997 merger with rival McDonnell Douglas. Phil Condit and Harry Stonecipher, who ran Boeing in the late 1990s and early 2000s, were admirers of Jack Welch, the General Electric chief executive known for financial engineering and ruthless cost cuts.

With a new CEO in charge, Kelly Ortberg, who took over about three months ago, there is a chance the company can change its path and revitalize the company. The plan is to slash 17,000 jobs, so roughly 10% of the workforce. Boeing is also exploring a sale of its space business. 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 make up 31% of total revenue of $75 billion, could perhaps do without space projects that are no match for Musk’s SpaceX.

When it comes to the rest, advances in aero-dynamics, material 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 and makes it part of the powerful U.S. military-industrial complex. With Boeing in debt of $58 billion, $12.5 billion of it coming due in 2025 and 2026, there is no easy way out. Next year will be crucial for Boeing. They have started the clean-up job such as dismantling its global diversity, equity, and inclusion department. Boeing’s DEI office will be combined with another human resources team focused on talent and employee experience. Boeing also launched a stock offering that could raise up to $24.3 billion as the company must strengthen its finances. More to follow, but it will be a long way back to glory for Boeing.