Flying Blind: The 737 MAX Tragedy and the Fall of Boeing

by Peter Robison

Once ruled by engineers who thumbed their noses at Wall Street, Boeing had reinvented itself into one of the most shareholder-friendly creatures of the market. It celebrated managers for cost cutting, co-opted regulators with heaps of money, and pressured suppliers with Walmart-style tactics.

An employee despairing of foul-ups wrote, “This airplane is designed by clowns, who in turn are supervised by monkeys.”

The acquisition of McDonnell Douglas a year earlier had brought hordes of cutthroat managers, trained in the win-at-all-costs ways of defense contracting, into Boeing’s more professorial ranks in the misty Puget Sound. A federal mediator who refereed a strike by Boeing engineers two years later described the merger privately as “hunter killer assassins” meeting Boy Scouts.

It’s become sadly apparent that at Boeing—as at so many other places—the assassins won. Some of the very people who ran McDonnell Douglas into the ground resurrected the same penny-pinching policies that sank their old company. Borrowing a page from another flawed idol, Jack Welch’s General Electric, they executed what today might be called the standard corporate playbook: anti-union, regulation-light, outsourcing-heavy. But pro-handout, at least when it comes to tax breaks and lucrative government contracts.

Rather than investing in new aircraft, Boeing’s leaders poured more than $30 billion of cash into stock buybacks during the MAX’s development, enriching shareholders and ultimately themselves. Muilenburg made more than $100 million as CEO, and he left with an additional $60 million golden parachute.

What happened at Boeing reflects the same forces that have roiled corporate America since the Reagan revolution ushered in an era of imperial leaders like Welch, obsessively focused on stock market investors. The same year that Boeing bought McDonnell Douglas, the Business Roundtable, a lobbyist for the largest U.S. corporations, did away with any pretense that employees, customers, or communities also had important voices. The group declared that the first duty of any company was to shareholders; everything else would follow, as if by some natural law.

The Boeing chief was well paid, one of a dozen industrial executives in the country who earned more than $1 million in 1978. (Adjusted for inflation, his pay was equivalent to $5 million in 2019—less than a quarter of the average CEO compensation of $21.3 million that year.)

The European consortium approached the market with messianic intent. “We are fighting for our children,” then Airbus chief Bernard Lathiere said in 1975. “If we don’t have a place in high technology in Europe, we should be slaves to the Americans and our children will be slaves. We have to sell…we must fight and fight.”

Buybacks of the sort Stonecipher had instigated were once considered market manipulation. They represent a technique in which a company uses its revenue to acquire its own shares on the open market, then cancels them. With fewer shares outstanding, the ones left are more valuable. Hold a single share in a company that issued one hundred shares and you own a 1 percent stake. If the company buys back half of the existing shares, you now own 2 percent, artificially increasing the value of your share and increasing your dividends, without any additional expenditure on your part.

For decades, the Securities and Exchange Commission limited how often companies could buy back shares, but a Reagan administration rule in 1982—a year after Welch became the chief executive at General Electric—did away with those restrictions. From the point of view of executives and board members at public companies, who are typically rewarded primarily in stock, it offered a virtuous circle: buybacks mean more money for their investors and more for themselves.

But the money isn’t free. When companies buy back shares, they’re forgoing other spending, like investments in their next line of products or pension contributions. McDonnell Douglas ramped up buybacks over the next two...

“McDonnell Douglas has bought Boeing with Boeing’s money,”

It was the start of tangled reporting lines, conflicting priorities, and siloization of a segment of the Boeing workforce that knew perhaps better than any other how well—or how poorly—its far-flung customers actually flew the company’s airplanes. In fact, it was precisely the kind of messy corporate structure that Joe Sutter had discovered at NASA a decade prior in the wake of the Challenger disaster—the sort that, he had declared with so much confidence, would never come to Boeing.

“There’s one thing that made Boeing really great all the way along. They always understood that they were an engineering-driven company, not a financially driven company. If they’re no longer honoring that as their central mission, then over time they’ll just become another company.”

Taking aim at financial metrics like RONA, Hart-Smith said the answer was not merely to dispose of assets. A far better response, he said, “would be to develop and sell new products that could be produced profitably with the same equipment and personnel.” He appended an author’s note that amounted to an epic troll, saying the views were his alone and not those of the management: “Conversely,” he wrote, “the visible policies of the management are not necessarily those that the author would have recommended, had he been asked.”

“Should the military be allowed to strike?” Reagan replied. “Are some laws okay to break and others not?”

Ask Oliver North

McNerney finally had to admit defeat in the outsourcing strategy—bringing work back in-house, buying suppliers, and ultimately spending a staggering $50 billion to finish the job. The costs might have bankrupted another company, but Boeing could rely on generous rules known as “program accounting” that allowed it to average the upfront expenses over the plane’s decades of expected service. The approach still made some on its finance staff nervous; they considered the projections so unrealistic as to violate the rules. “I used to get calls from inside Boeing and it would go, ‘We’re all going to jail,’ ” said Joe Campbell, the Lehman Brothers analyst. “The whole institution broke down in the sense that now they were lying to themselves.” (The SEC later opened a probe into a whistleblower’s complaint, centering on the projections. No action was taken, and Boeing says it properly accounted for the costs.)

Describing how Boeing had stood up to the A320neo threat in his letter to stockholders in February 2012, McNerney sounded, in his emphasis on the bottom line, something like John McDonnell: “With development costs and risks far below an all-new airplane, the 737 MAX will provide customers the capabilities they want, at a price they are willing to pay, on a shorter, more certain timeline. This approach is an all-around winner for Boeing, too. We maintain our qualitative advantage over competitors in the segment, we free up resources to invest in other growth products, and we reduce our business risk for the next decade.”

Later that year, a presentation to the board about the new plane summed up the approach with a catchier tagline: “Stingy with a purpose.”

So it was after one of these meetings that the scene from Forrest Gump came to Reed’s mind, the one where Tom Hanks, playing the dim-witted Gump in boot camp, assembles a rifle in seconds and calls out, “Done!” When the drill sergeant asks Gump why he completed the task so quickly, he answers dully, “You told me to, drill sergeant.” Reed started telling colleagues in a Gump voice what he would say if he was ever hauled in front of Congress to explain why a Boeing plane had been waved briskly through certification: “You told me to, Congressman.”

“People have to die before Boeing will change things,” Ewbank was told by his manager.

By the end of that March, the engineers and test pilots had arrived at a solution. Again—all but unavoidably at this late stage—the answer would be the software. They would expand MCAS to cover low speeds as well as high. It had the benefit, once more, of being cheap. “All changes are minimal / low collateral damage, therefore no additional flight testing,” one memo said. The same day Leverkuhn and Teal approved the plan, Forkner emailed the FAA’s Klein for permission to delete MCAS from the flight manual because it “only operates WAY outside of the normal operating envelope.” Still focused on his mission of minimizing training, he possibly didn’t even know about the software changes. Klein certainly didn’t; she agreed.

Critically, at low speed, this meant that a second sensor necessary to ensure redundancy—the accelerometer measuring g-forces at high speeds—was no longer applicable. The software would now fire on the basis of a single sensor, the angle-of-attack vane. And it would do so at low speeds, which usually meant when a plane was most vulnerable: at takeoff or landing. No one appears to have fully considered the human factors—how a failure in the single sensor would make the plane appear to go haywire at a time when pilots were already busy and dangerously close to the ground.