The 737 MAX Tragedy

 

I’ll start with three stories from my time at McDonnell Douglas and Boeing.

• Sometime in the 1980s, a well-placed colleague explained to me that “this executive at GE” had figured out that his job wasn’t to make things; it was to sell them.  So he off-shored production and vastly increased profits.  My friend also explained to me that our CEO, Sandy McDonnell, had become a fan of this executive and his methods.  I don’t remember the name, but looking back on it, I assume he was talking about Jack Welch.
• One Sunday, early in 1997, a McDonnell Douglas Senior Technical Fellow came into our church late.  He’d stayed in his car to listen to the announcement that Boeing was buying McDonnell Douglas.  He was grinning from ear to ear.  “Maybe they’ll come in and straighten out the screwed up management at this place,” he said.
• At the end of October, 2018, a day or two after Lion Air 610, a nearly new 737 MAX, crashed, news reports said that an improperly maintained angle-of-attack probe was implicated.  My project manager was relieved; the crash would be blamed on the airline, not Boeing. I replied that I wasn’t so sure, because we had somehow delivered a system that was susceptible to a single-point failure.  The crash, I felt, could become a problem for Boeing.

Peter Robison’s Flying Blind: The 737 MAX Tragedy and the Fall of Boeing showed me how these stories are related.  It makes the case that McDonnell Douglas (MDC) management carried Jack Welch’s philosophy of cutting costs and maximizing shareholder value to Boeing, and the result was the destruction of a great engineering company.

But first they destroyed MDC.  The Reagan-era SEC eliminated restrictions on stock buybacks in 1982.  MDC jumped at the chance.  As Robison noted, “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 years; simultaneously, it cut its R&D spending 60 percent.”  From my perspective way down in the ranks, what I saw was a reduction in support staff and company-funded prototyping. 

Over time, the company relied on continuing production of existing aircraft, instead of new products.  The last McDonnell design to win a fighter competition was the F-15 (awarded 1969).  The last Douglas design to win a cargo competition was the C-17 (awarded 1981).  And the last original design Douglas airliner was the DC-10 (first flight 1970).  By 1997, McDonnell Douglas had no future and negotiated a deal with Boeing.

Then Welch's “shareholder value” philosophy infected Boeing. Robison makes the case that, instead of Boeing cleaning up MDC management, MDC destroyed Boeing management.  To make his case he points to the MDC and GE veterans who took top Boeing jobs.  The stock-swap deal made John McDonnell and MDC’s CEO, Harry Stonecipher, Boeing’s largest individual shareholders.  The two other MDC directors, Ken Duberstein and John Biggs, that got Boeing board seats (giving MDC four out of the twelve) put government and financial connections on the board, which had not been Boeing’s practice.

The MDC influence was so great that T Wilson, a legendary former CEO (1969-86), grumbled that “McDonell Douglas bought Boeing with Boeing’s money.”  The saying became popular in Seattle.  (When I first heard it at a company conference, I assumed it was sour grapes.)

In addition, Stonecipher (Boeing CEO, 2003-05) and Jim McNerney (CEO 2005-15) both made their bones as GE executives under Jack Welch.  Although Phil Condit (CEO 1996-2003) and Dennis Muilenburg (CEO 2015-2019) never worked for GE, they also admired Welch and followed his methods. 

MDC also introduced “risk sharing” to Boeing, in which Boeing forced top-tier subcontractors to share development costs.  The approach was such a disaster on the 787 that Boeing ended up having to buy the fuselage subcontractor, Global Aeronautica.

A less obvious part of the story was reducing the power of engineering.  Stories transmit culture, and the old Boeing was rich with stories like this one.  In 1967, a test pilot, Brien Wygle, convinced the program’s manager to fix a 737 thrust reverser issue, “with a redesign costing $22 million (about $200 million today).  I said, ‘I know it’s a big chunk to swallow, but the airplane’s going to be around a while and I really think we ought to do it,’” Wygle recalled—to which his manager replied, “Well, if that’s what you think, we’ll do it.””  Robison goes on to note: “With their matter-of-fact earnestness, it was a scene hard to imagine at a latter-day Boeing, for several reasons: the wide latitude afforded the pilot’s authority; the lack of bureaucracy; and the willingness to break budgets.” 

Under Condit, Stonecipher, McNerney, and Muilenburg, Boeing seemed to forget how to develop airliners.  In the 1980s Boeing had developed the 757 and 767 simultaneously and they both entered service on schedule.  In the early 1990s, it developed the 777 (generally regarded as Boeing’s finest product) and it entered service on time.  In the 2000s, the 787 was two years late and it is estimated (the figures aren’t public) that the development cost ballooned from $6 billion to $10 billion.  A new version of the 777 was supposed to enter service in late 2019; the latest estimate is the first half of 2025. And it’s a derivative!

(I thought these troubles were due to the long intervals between new aircraft developments.  Robison’s indictment of a broken corporate culture is a better explanation.)

Which brings us to the MAX.  Boeing faced a problem.  The venerable 737 was facing stiff competition from Airbus’s A320 series, but Boeing didn’t have the money to develop a clean-sheet design.  Why?  Partly 787 cost overruns, but they paled compared to the “$41.5 billion on stock buybacks from 2015 to 2018—enough capital to develop several all-new aircraft, had they chosen to.”

So, they grafted new technology onto a 1960s design.  In retrospect, the old-technology airframe and systems just couldn’t be pushed that far.  At least not with the limited resources and hollowed-out, powerless engineering workforce Boeing entrusted the job to.  Thanks to my Aero E degree, I could go on at length about the design compromises (including that single point of failure) and missed signals in the development of the MAX, but that’s not the real story.  The real story is one of an engineering company gradually going off the rails, deregulation, regulatory capture, and the failure of a political system to rein in a business ethos of maximizing profits at all costs.

Dan Robison explains all of this and more.  Based on my experience elsewhere in the company, his story rings true.  This book should be required reading for engineers and (especially) managers in technical organizations.  It will go on my bookshelf next to Diane Vaughan’s Challenger Launch Decision.

Finally, anyone having read this book would not be surprised by the following.  787 deliveries are suspended due to manufacturing flaws and the hollowed-out FAA doesn’t trust Boeing’s fix, but doesn’t have the staff to verify it themselves.  The 777X is over five years late.  The last version of the MAX, the 737-10, is in danger of never being certified.  Boeing continues to lose massive sums every quarter.  That the current CEO, Dave Calhoun, is a Welch-trained GE alum, does not inspire confidence.

 

Doubleday, an imprint of Penguin Random House, 2021, 304 pp