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

by Peter Robison

The new ethos, Sorscher came to understand, was primarily about extracting gains from stakeholders, not about working together to create new products.

As it sold off plants, Boeing would squeeze its smaller and more vulnerable suppliers for better deals. Pitting cities and states against each other would secure more in tax breaks. Employees would be asked to sacrifice their pensions and benefits. Amassing influence over government would bring defense contracts and more predictable regulation. Keeping all parties off balance and uncertain, with a mysterious Oz thundering behind the curtain in Chicago, was precisely the point.

In 2003, the European plane maker surpassed Boeing for the first time as the largest maker of commercial aircraft in the world, delivering 305 planes to Boeing’s 281. “We’re number two,”

At the time it wasn’t even certain whether Boeing would stay in the commercial airplane business at all, with its center of gravity shifting toward the military. More than half of its $49 billion in sales in 2003 came from selling fighter jets, missiles, and other weapons to governments around the world.

It functioned as a reeducation camp

Thousands of executives took a two-week course there whose highlight was a role-playing game that simulated running a business.

He said he was “a math guy,” not an “airplane freak.”

They told fellow board members that new plane’s development costs had to be no more than 40 percent of what Boeing had spent on its wildly successful predecessor, the 777. What’s more, they wanted assembly costs held to 60 percent of what it took to build each 777. Considering that it had been nearly a decade since the earlier plane’s introduction, this was an aggressively low target. The only way to meet it would be to outsource pieces of the plane, as McDonnell Douglas had done, to its detriment.

After thirty-five thousand layoffs in two years and constant strife over outsourcing, employees came up with a few of their own. Among those circulating in emails: Bottom Liner, Global Snoozer, Plant-closer, Sub-sonic cruiser, and End-of-the-Liner.

a senior technical fellow at Boeing’s Phantom Works unit in Southern California presented it at the leadership center. John Hart-Smith, then sixty, called the paper “Out-Sourced Profits—the Cornerstone of Successful Subcontracting.” In fifteen densely worded pages, he laid out from his own experience at Douglas Aircraft how parceling out construction of the DC-10 had impoverished the company while enriching its suppliers. The basic point was that outsourcing is never simple. Design specifications actually had to be more precise, because any omissions would lead to costly disputes involving lawyers. Making sure the work got done right led to additional overhead costs that no one had counted on. Finally, all those extra costs had the perverse effect of making the company doing the outsourcing look less efficient than the ones it awarded business to—a vicious cycle that only encouraged more of the same destructive behavior.

Druyun ultimately confessed to criminal investigators that she’d systematically favored Boeing in acquisition deals, the company where, it turned out, her daughter and son-in-law also worked—Sears had helped secure their jobs in 2000. Both were fired, and each executive eventually pleaded guilty to conflict of interest charges and served time in prison.

Stonecipher, who had stepped down from the number two role a year previously after reaching mandatory retirement age, came out of retirement to replace him. In the view of Boeing veterans, the McDonnell Douglas takeover of Boeing was now complete.

But the project was hamstrung from the start with the returning chief executive’s rigid demands on the use of capital. An internal analysis projected Boeing would spend only $5.8 billion on its development, less than half of what the 777 had cost. For the first time in its history, even the wing was to be developed by an outside company, Japan’s Mitsubishi Heavy Industries.

Stonecipher had an ever-combative answer for those who claimed he’d taken the cost focus too far. “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm,” he told the Chicago Tribune that year. “It is a great engineering firm, but people invest in a company because they want to make money.”

As Boeing ramped up work on the Dreamliner in 2005, its R&D spending, at 4.8 percent of commercial sales, was...

Stonecipher sold off giant parts-making operations, including a factory in Wichita that Boeing had owned for seventy-five years and employed seventy-two hundred people. It may have improved the RONA numbers, but it made everyone’s jobs harder. Now when they needed a part at the last minute or had an idea for a process improvement, it wasn’t a call with a colleague; it was a negotiation with lawyers, procurement-chain exe...

These days, you go to the board, and they say, ‘Here’s the budget for this airplane, and we’ll be taking this piece of it off the top, and you get what’s left;

He got a sympathetic hearing from fellow salespeople; the exception, he said, was “people who were on a career track to potentially go to the corporate office.” To those in thrall of the metrics, rooms that sat empty most of the time were an enticing target for savings.

This time the board gave him all the incentive he’d need to join Boeing—a pay package worth $52 million that replaced what he was losing at 3M. It was what’s known as a “golden hello,” and controversial because it guarantees pay before any performance.

but to the risk-averse Boeing board, appearances were indeed a factor—as was the perception that McNerney would pursue a more shareholder-friendly, predictable, and less expensive strategy.

Within a year, McNerney began pressing his team to rank-and-yank managers the way he had at GE.

Not long after, in a moment whose symbolism was all-too-painfully evident, the working together banner on the wall outside his office came down.

For people who thought of Mulally as Boeing’s engineering soul, it was hard to watch. “The idealism just went out,” a Mulally lieutenant said. “It was no longer about working together, it was about something else—I guess shareholder value.”

It was the year Fortune magazine first used the term downsizing in reference to people.

“Take a look around you,” Welch told a meeting of GE corporate planners in 1981, “because you won’t be seeing each other anymore.” (All but a dozen of two hundred planning positions were eliminated.)

The people who worked in its factories and labs, in river towns and industrial burgs around the country, thought of themselves as family. Welch was telling investors he wouldn’t flinch from the hard decisions to jettison them, whatever the human or political cost. One in four people on the payroll, 118,000 jobs, were gone within five years.

While GE rarely suffered strikes during his tenure, it wasn’t because he was conciliatory. If any of its businesses had a heavy union membership, they were candidates for an early sale. In a dizzying seven years, GE’s workforce went from 70 percent unionized to 35 percent by 1988.

the implementation of Rule 10b-18 in November 1982 drew little notice in the press but opened the way to a sustained transfer of wealth. The rule gave companies that purchased shares of their own stock in the open market “safe harbor” from charges of manipulation, as long as they didn’t exceed a limit of 25 percent of the daily trading volume. Over the subsequent decades, the University of Massachusetts economist William Lazonick wrote, “stock buybacks have channeled the productivity gains of U.S. business into the hands of the richest households, while the persistent gushers of corporate cash have played a major role in the rise of the financial sector over the once-dominant manufacturing sector.”

From 1981 to 1983, he calculated, buybacks consumed only 4 percent of net income for the largest U.S. companies. By 1996, it was 27 percent; by 2006, 46 percent; and by 2016, 50 percent. Two generations later, in any prosperous American city, the unequal effects are plain—Teslas, luxury high-rises, avocado toast. And tents.

Unprecedented portions went straight back to investors and Welch himself. From 1994 to 2004, GE spent $75 billion, 56 percent of its free cash flow, on stock buybacks and dividends. Welch left with a $417 million severance and still got the company to pay for perks

McNerney cut eight thousand jobs, about 11 percent of the workforce. Many of those laid off were older, higher-paid workers.

“What’s remarkable is how fast a culture can be torn apart,”

a mechanic at a Boeing maintenance plant in San Antonio approached a lawyer on his staff to report that managers had been overbilling the air force on KC-135 tanker planes for years. He had time sheets, work orders, and emails showing they’d billed for phony work.

In the year McNerney took over, Boeing spent $9.2 million on lobbying, with 66 lobbyists. Five years later it spent $18.1 million, with 143, ranking sixth among all American companies.

Mike Bair, the Mulally protégé who led the program, talked up the benefits of outsourcing more work, saying that when Boeing had sent specifications to its electronics supplier for the 777, the document was twenty-five hundred pages long. “There wasn’t a lot left to the imagination,” he said. “We told them exactly what we wanted in excruciating detail,” he said. Distressingly, the equivalent specification document for the Dreamliner was just twenty pages.

“I used to get calls from inside Boeing and it would go, ‘We’re all going to jail,’

Boeing’s machinists—officially, District Lodge 751 of the International Association of Machinists—were practically the last union of manufacturing workers in America with real leverage.

The reason was simple: they could, and did, shut Boeing down.

In 2009, the corporate office stunned workers with the announcement of its first jet assembly plant outside the Seattle area. Boeing was moving some Dreamliner assembly to a facility in South Carolina formerly owned by a supplier that made fuselage parts for the plane. The workers there voted to abandon their own union to secure the purchase. This came after the state of Washington, only six years earlier, had awarded Boeing $3.2 billion in tax breaks for the Dreamliner, then the largest state tax incentive ever granted.

Workers would make fourteen dollars an hour there compared to twenty-eight dollars in the Seattle area.

When Obama’s National Labor Relations Board ruled in 2011 that the move to the nonunion plant was an illegal retaliation against workers for their strikes, the case became a cause célèbre in conservative media.

In the 1960s, Joe Sutter had told the managers who wanted to move his 747 factory for political reasons to stand down—he didn’t want anything to get in the way of his sacred plane. Now, the shift to South Carolina was the fulfillment of what the physicist Stan Sorscher had warned about years earlier, the new overlords in Chicago pitting states and workers against each other to gain advantage for themselves.

Yet Boeing’s incentive structure practically guaranteed it. The compensation of McNerney, Luttig, and other top executives was tied to boosting free cash flow and the net return from assets on hand—the sort of metrics that tend to favor investors over employees and customers. It reflected the shift in priorities at Boeing that had begun under Stonecipher. In 1999, executive compensation had been based on earnings from operations,

Few thought of the 737 as the industry’s Apple iPhone; it was more like the Kyocera DuraForce Pro 2, whose defining characteristic was that it was cheaper.

Boeing—the epitome of American engineering excellence—was going downmarket. It even started selling bare-bones versions, offering as options equipment that Airbus sold as standard.

It reached the point that Airbus estimated a bare-bones A320 had $2.5 million to $3 million more in standard equipment than a 737.

‘Let’s make everything an optional extra, let’s strip the airplane down; we can’t do extra training, we don’t want to make the airplane too expensive, we’re in a price war.’

If the Dreamliner had been delivered as planned in 2008, Boeing would have had the cash and engineering resources to have been well along, in 2010, in the development of a replacement for the 737. That had been its plan as far back as 2002, when Mulally had assigned a team to investigate potential future planes in a project code-named for national parks. “Y1” in the Yellowstone project would have been a new single-aisle aircraft to suppl...

Within a week, Boeing made a counterproposal for a hypothetical 737 outfitted with more powerful engines, a model so new it didn’t yet have a name. The world would come to know it as the 737 MAX 8.

Just like the original 737, the design was quick and dirty.