How Shareholder Capitalism Crashed a Plane (Two, Actually)

Talking with the author of Flying Blind, a new book about Boeing’s deadly 737 Max.

12/6/2021 1:36:00 PM

.petermrobison's new book 'Flying Blind' traces the crash of two Boeing 737 Max jets to a 1997 merger that replaced the company's engineering-focused culture with one obsessed with delivering “shareholder value” to investors. He spoke with moetkacik

Talking with the author of Flying Blind, a new book about Boeing’s deadly 737 Max.

Peter Robison knew the answers. A Seattle-based investigative journalist for Bloomberg Businessweek, he has been watching the company’s behind-the-scenes decline for two decades. His new book, Flying Blind: The 737 Max Tragedy and the Fall of Boeing, traces the twin crashes directly to a 1997 merger that replaced the company’s engineering-focused culture with one obsessed with delivering “shareholder value” to investors. Rushed aircraft development, inadequate testing, and faulty code may have been the immediate causes of 347 deaths and the destruction of the reputation of America’s last great manufacturer. But before all that, it was a pathological form of capitalism that poisoned Boeing. I highly recommend this book for anyone traveling by Amtrak or Airbus this holiday season.

What made you want to take on this project?I felt like I had to write it because I was the only reporter I knew of who had been a beat reporter covering Boeing at the time of the McDonnell Douglas merger in 1997 and was still involved in covering the Max. And it seemed to me the exact concerns that many engineers at the time had about how the company’s culture was shifting away from engineering and the long-term consequences of treating engineers like “line replaceable units,” in their words, had been proven true. I think some people have this thought: All workplaces have problems; it can’t be true that something from 20 years ago is having direct effects today. But people don’t understand how long these things take to play out, especially with such long-lasting products as commercial airplanes. Changes take a long time to be seen.

Now we’ve come to the point where in six years, two of their brand-new airplanes have been taken out of the sky by the FAA. Their marquee airplane, the 787 Dreamliner, currently has 100 planes on the ground because of manufacturing defects. And from 2000 to 2020, the FAA cited Boeing for 20 safety violations, while Airbus has been cited three times. When I started covering Boeing, any one of those things would have been unheard of. headtopics.com

That’s one reason the journalism on this story has been so rich because I think all the reporters covering it have been animated by the extreme outrage of their sources, who remember the Boeing of Japan Air Lines Flight 123 in 1985.That crash comes up often with the old Boeing heads as the trigger for a lot of productive soul-searching — and the inspiration behind the ultracollaborative culture that produced the 777 program.

It was the biggest single aircraft accident ever: A 747 crashed into a mountain and killed 520 people. And Boeing, within a month, admitted that it was its own fault because seven years earlier, a Boeing mechanic had performed a repair on the jet that was not entirely up to standard. Everyone was shocked. Authorities in Japan had been settling in for long negotiations.

Boeing CEO Philip Condit (left) with chairman of the board Frank Shrontz in 1996. Photo: Joyce Naltchayan/AFP via Getty Images Let’s talk about the original sin that led to the 2018 crashes by unleashing a combination of brain drain and moral rot. It generally gets referred to as “the McDonnell Douglas merger” of 1997, but it could just be dubbed “the ’90s.

Right. For whatever reason, a lot of companies in Seattle had decided that if customers or employees come first, profits will follow. It worked: Costco is famous for paying its employees well because it gets better results if it doesn’t have a lot of turnover. Starbucks is famous for customer service and offering health insurance to part-timers. Amazon is famous for its obsession with customers. And Boeing, at the time, was all about supporting customers in the field. They would have someone meet every landing of every new plane after they were delivered. headtopics.com

At some point — and I feel like I watched it happen — after the McDonnell Douglas merger, there was a decision that shareholders come first, a philosophy most closely associated with GE’s Jack Welch. The CEO of McDonnell Douglas, Harry Stonecipher, was a longtime Jack Welch protégé, and by controlling a vital voting bloc of the board, Stonecipher muscles his way into de facto control of the company.

There’s a lot of national pride tied up in aircraft building, which is considered the premier expression of manufacturing excellence. Stonecipher couldn’t care less about that. Because the way they were trained at GE was they could parachute into any business, whether it was aircraft engines or MRI machines or plastics, and implement the same model. At the same time Stonecipher is doing this at Boeing, his eventual successor, Jim McNerney, is doing it at 3M — and within two years, the guy who invented Post-it notes was saying he didn’t recognize the company anymore. The whole era is just really corrosive.

Of course, the pathology of eternal downsizing eventually kills shareholders too. If you’d put $100,000 into GE shares when Jack Welch was God in 2000, you’d have $20,000 today. Right, the Jack Welch playbook works very well for the period when you’re running down the existing assets and the existing product lines for all the cash they contain. And then of course, there’s nothing left to milk.

We should establish here: In 2013, a series of battery fires caused the FAA to ground the brand-new 787 Dreamliner, which was already three years late and had lost $40 billion. They’re hitting that point where there’s nothing left to milk. And yet over the next five years, they spent $43 billion on buybacks alone, which could have produced many, many new planes. McNerney said, “Well, because Boeing has better products than Airbus, there’s no need to spend the money on innovation.” Eight short years later, you see where that’s left the company. They have a third of the narrow-body market, and Airbus has two-thirds. The commentary from analysts is that Boeing has a tired product line; their cash cow is a plane with a 50-year-old airframe. headtopics.com

But it’s not just Boeing — everyone was doing it.In 2001, there were 16 Jack Welch protégés running publicly traded companies.It’s not surprising that the American company that epitomized the best of manufacturing has been seen to be no longer that because all of manufacturing in the U.S. has been hollowed out over the last 40 years.

In many ways, Flying Blind is the story of what happens when a bunch of greedy plutocrats try to design a plane without nerds. Just about everyone who worked at Boeing seemed to see it coming. During the same months of early 2000 that GE’s valuation was hitting its peak, Boeing engineers were picketing headquarters in what they called a “strike to save the company.” “No Nerds, No Birds” was one of their rallying cries. It became the longest white-collar strike in history, and pretty uniquely, the strikers devoted substantial efforts to making their case to Wall Street analysts and business journalists like you.

But were you with them at the time? I couldn’t remember anyone in the business press dissenting from shareholder-value fundamentalism. I was shocked doing my research recently to read a devastating and detailed takedown of Jack Welch — At Any Cost, published all the way back in 1998 by a reporter named Thomas O’Boyle — that just about foretold all of this.

That was seen as a scabrous take on him. I don’t think it sold well at all. At the time, I wasn’t completely sold on the strikers’ arguments because McDonnell Douglas did bring valuable products to Boeing like military products, which seemed smart after 9/11. And issues of so-called culture can seem squishy.

The engineers’ union had integrity, though, and they continued to keep to the same message. And then over time, the side that had been consistently stating the same message began to look more correct, while on the other side, the people who had been pushing the other message — about how Boeing needed to become more about shareholder value and making money — over and over again, those people left the scene. Phil Condit left in scandal, Harry Stonecipher left in scandal, Jim McNerney left after blowing $50 billion and choosing Dennis Muilenburg to be the CEO. It’s a company in complete disarray. It is really remarkable that a company with such a high reputation has fallen this low.

Boeing CEO Dennis Muilenburg in 2019. Photo: Andrew Harrer/Bloomberg via Getty Images One of my favorite aspects of your book is its focus on the robotic response to the Lion Air crash. Representatives of Warren Buffett’s insurance company appear in the crisis center where grief counselors and a battalion of corporate-intelligence operatives are pressuring grieving families into signing unbelievably broad release forms. The press focuses on Lion Air’s spotty safety reputation even though it hadn’t had a fatal crash in 14 years. Boeing authorizes another enormous share buyback.

I find the behavior of senior management between the two crashes to be bottomlessly cynical because the warning lights were flashing red. They were hearing from pilots within Boeing and outside Boeing that this software can kill people if you don’t tell them about it. Muilenberg went on television taking this narrowly legalistic view that the relevant function is described in the training manual because the term MCAS was in the glossary even though there was no description of the term saying, you know, “There’s this thing on the plane that can move the stabilizer.” None of that was explained to pilots.

That’s why I focused on the Lion Air crisis center, to make it more visual, so people could see how cynical it was, how disrespectful it was to those grieving people, and also just how racist it is. The victims’ lawyer, Sanjeev Singh, made a good point when he said it’s not only racist — it’s also the reason you’re making this mistake. Because you’re shielding your management from even knowing the harm they’re causing if people can be bought off for nothing.

There are so many points where Boeing’s strategy is outlandishly racist. What really blew my mind, though, was the extent to which they leaned into the racism after the second crash, dispatching surrogates like Republican Representative Sam Graves and William Langewiesche to blame “foreign pilots” for the crashes. Reading your book, there’s a vivid sense that Boeing simply felt — in Trump’s Washington and in interacting with the Trump-leaning pilot community — that racism was a convenient or acceptable guise for deflecting attention from the fact that, like the rest of corporate America, they gave zero shits about human life period. At one point in the book, an American pilot opines that Boeing would have a real problem on its hands if one of its self-hijacking planes hurtled into Biscayne Bay. Which conjures the real-life condo collapse in nearby Surfside.

I think at every level, there’s an impunity that came and maybe still comes from Boeing being Boeing — and having 143 lobbyists and being the No. 1 exporter and being such a big defense contractor — that manifests itself in shocking recklessness. With regard to the Florida condo collapse, think of the FAA as the building inspector and Boeing as the contractor. But now imagine the contractor has the power to ask for exceptions to all the building permits and has the power to argue that this outdated design is perfectly fine. People would really balk at that! But that’s what has been happening with Boeing and aircraft.

At the top you get people like Muilenberg and former general counsel J. Michael Luttig and current CEO David Calhoun who think they are playing three-dimensional chess and have this unearned belief in their own intelligence. There’s a section in the book where Luttig uses his White House connections to try and play hardball in an attempt to acquire the Canadian plane-maker Bombardier, and it totally backfires. There are a lot of scenes of them trying to win over Donald Trump while he’s in the middle of some anti-immigration rant.

It’s all so sad when you go back to the history of Boeing’s management. Alan Mulally designed what most people consider the best and safest modern commercial aircraft in the 777, and he was repeatedly passed over for the CEO job. You contrast that with Calhoun, and it’s just breathtaking.

What happens next? The Department of Justice essentially absolved Boeing of wrongdoing earlier this year with a deferred prosecution agreement that made my skin crawl. A prosecution of the C-suite seems fantastically remote. Nothing has fundamentally changed at Boeing. Do Elon Musk and Jeff Bezos get into this business?

It’s hard to see a future for Boeing within the next ten years. They have $60 billion in debt and product lines that are old and need updating. The Max is still not flying in China — and not only is its biggest product still banned from operating in its biggest market, its biggest market is developing a competitor in Comac. It’s hard not to think of Boeing like McDonnell Douglas in the late 1990s, when people treated it like a player to be reckoned with but it was slowly dying.

I’ve met people who retired in 1980 after the 747, and they’re still collecting a pension. Those liabilities are real. They would have been manageable if the company had been managed well, but it hasn’t. I have often wondered: If things get dire enough, could the government just nationalize it? Or does Jeff Bezos start building commercial airliners? Amazon has a cargo airplane unit, and then there’s Blue Origin. There’s a lot of crossover. I’ve wondered whether you need to have a smaller, more focused company with a visionary founder to really make something great. People have pointed out to me that Bill Allen, Boeing’s visionary CEO from the ’40s to the ’60s, didn’t love unions, either. But he did write down in his notes, “Make a sincere effort to listen to the views of labor.” You need to have a management who cares about products and people ultimately.

It sounds simple, but can you think of a CEO who really cares about people? Alan Mulally is currently unemployed — another tragedy of this story. Thank you for your time and your journalism. I didn’t think I could get any angrier about this story, but you took me there.

Read more: New York Magazine »

NPR Cookie Consent and Choices

petermrobison moetkacik Cc t_solih

Do You Have Blind Faith in Your Nail Tech? Try the Flashcard Nail ChallengeThese nail techs understood the assignment. 💅

4 dead after single-engine plane crashes near California airport, authorities sayAt least four people are dead after a plane crashed near an airport in central California on Saturday, authorities said.

Man crashes truck into church then stabs two people, killing one: PoliceThe suspect was out on parole for six other offenses, noted a local police chief, describing a 'never-ending source of suspects.'

Zendaya and Tom Holland Get Adorable Talking About Their Height DifferenceZendaya And Tom Holland Get Adorable Talking About Their Height Difference

Zendaya and Tom Holland Get Adorable Talking About Their Height DifferenceIt's actually interfered with stunts. It becomes awkward if you make it. 🤷🏾‍♀️ Own it! 🤎 Doesn't matter how short or tall a person is.If they are good to you,all that matters.

Microsoft shareholders vote to force company to better report sexual harassment dataMicrosoft Corp. shareholders voted on Tuesday to force the company to more transparently address sexual harassment claims via independent investigations and public reporting. Shareholders had to vote on this? BLM boycotting you and others..Best to write them another check..