When the door of a Boeing Co. plane exploded at an altitude of about 16,000 feet during an Alaska Airlines flight, it became clear to analyst Ronald Epstein that the aircraft manufacturer was valuing increased profits over strict safety practices and engineering expertise. This is the latest evidence that this is the case.
Mr. Epstein, a veteran research analyst at Bank of America, relentlessly criticized Boeing and its vendor partner Spirit AeroSystems following an early January crash that ripped a hole in the fuselage of a Boeing 737 Max 9. criticized.
The pilot crew landed the plane safely and no passengers or crew members were killed. But the door episode on Boeing’s new jet has left regulators, analysts, the flying public and other stakeholders wondering what went wrong at Boeing.
The Boeing 737 Max 9 crash follows crashes of Boeing 737 Max planes in 2018 and 2019 that killed 346 people.
“Culture is not in the employee handbook,” Epstein wrote in an analyst report in January. In addition to being a seasoned equity analyst, Mr. Epstein holds a master’s degree and a Ph.D. He received his bachelor’s degree in mechanical engineering from Duke University and his MBA from the Wharton School of the University of Pennsylvania.
He argued that Boeing needs a “radical” cultural overhaul. “This cultural shift will not come about by FAA mandate, Congressional hearing, internal memo, or hour-long all-hands meeting,” Epstein wrote. He included Wichita, Kansas-based Boeing supplier Spirit AeroSystems in his criticism.
“We believe Boeing and Spirit will need to fundamentally rethink the way they operate in order for culture to move from company jargon to the habits and ethos of both employees. ” Epstein wrote. “Rekindling the engineering culture and rebuilding employee trust is paramount to achieving true cultural change for each.”
Because the design, manufacture, and maintenance of airplanes affects human lives, it emphasizes the need to prioritize the safety concerns and procedures of engineers over those of business executives who wish to pursue less costly paths to maximize profits. Did.
“Boeing and Spirit’s engineering capabilities have declined due to their obsession with financial metrics, reinforced by cost reduction and cash flow generation,” Epstein wrote. “Who would start an innovative company with the end goal of optimizing stock buybacks and paying dividends? Both companies promoted product development-oriented engineers to the highest levels of decision-making and We believe we should strive to chart a path forward that will allow us to regain our reputation as an engineering giant.”
The Wall Street Journal reported Monday that the bolts needed to secure the doors of the exploding Alaska Airlines plane “appeared to have been missing when the plane left the Boeing factory.”
This door was manufactured at Spirit’s Malaysian factory. “Boeing says the door plugs were opened and removed after the fuselage of the 737 Max 9 jet was damaged. [made by Spirit] It arrived at the plane maker’s factory in Renton, Wash., for final assembly,” the Journal reported.
Boeing’s top executives have previously been based in Washington state, near the company’s large manufacturing facilities. However, Boeing moved its headquarters to Chicago in 2001 and to Arlington, Virginia in 2023. The North Charleston, South Carolina, plant opened in 2011.
Bank of America’s Epstein has argued that Boeing and Spirit AeroSystems leaders should “repair” their relationships with their employees. “We believe it is necessary for both countries to focus on retaining and attracting the best young engineers with interesting work and competitive salaries in an open and non-threatening environment,” Epstein said. Stated. “Essentially, they are both aircraft companies. If they succeed in delivering the best aircraft in the world, success will follow as measured by all stakeholders, including shareholders.”
Delta Air Lines Avoids Some Major Problems with Boeing
Like many major airlines, Delta Air Lines operates Boeing and Airbus planes.
But Atlanta-based Delta Air Lines currently has no Boeing Max model in its fleet. As a result, Delta Air Lines, the dominant airline at Minneapolis-St. Paul International Airport, avoided grounding its aircraft this month after the Alaska Airlines incident.
A few years ago, Delta Air Lines also managed to avoid operational problems associated with bringing Boeing’s 787 Dreamliner to market.
Before Delta Air Lines acquired Eagan-based Northwest Airlines in a 2008 merger, Northwest Airlines advertised that it would be the North American launch customer for the Dreamliner.
Northwest Airlines has ordered 18 Boeing 787s. After the two airlines merged, Delta Air Lines did not move forward with the order.
The decision to avoid Boeing 787s spared Delta Air Lines from having to deal with grounding the planes in 2013 when problems with the 787’s batteries surfaced.
Delta Air Lines also didn’t jump on Boeing’s Max plane bandwagon.
In 2013, then-Delta Air Lines CEO Richard Anderson told Reuters that the airline would take time to assess the performance of the Boeing 737 Max.
Mr. Anderson said in an interview in New York that he would like to buy the aircraft “closer to the end of the production line,” once initial problems have been resolved with a new type of aircraft.
“We would rather have a proven product that we can return for cash from the moment we deliver it,” Anderson said.
GE’s cost-cutting culture overtakes Boeing
Airline industry insiders, journalists and analysts say Boeing’s exceptional post-World War II reputation for building commercial aircraft was due to the fact that engineers held power within the company and that they were the best and safest. It is pointed out that this was due to the company’s dedication to manufacturing aircraft.
They argue that a cultural shift occurred after Boeing acquired McDonnell Douglas in 1997 and replaced Harry Stonecipher, a former General Electric executive focused on cost-cutting, as CEO. There is. He led the combined company from late 2003 until early 2005, when Boeing’s board asked him to resign after it was revealed that Stonecipher had been having an affair with a female Boeing executive.
Boeing’s chief financial officer (CFO) briefly became interim CEO. Subsequently, Boeing’s board of directors elected him W. James McNerney Jr. to be the aerospace company’s chairman, president, and CEO.
McNerney was neither an engineer nor a scientist. He received his BA in American Studies from Yale University and his MBA from Harvard University. But when he was chosen as CEO, he was on Boeing’s board and had a General Electric pedigree. He spent nearly 20 years at GE, making a name for himself while leading its aircraft engine business.
Journalist Bill Saporito outlined McNerney’s role in the development of the 737 Max in a January essay for the New York Times. McNerney served as CEO of Boeing from June 2005 to July 2015.
In 2011, Saporito wrote that McNerney “made the fateful decision to greenlight the 737 Max rather than invest billions of dollars in developing a new short-haul aircraft.”
Saporito sees this 2011 decision as having a knock-on effect on Boeing that continues to this day.
“Mr. McNerney’s decision allows the Federal Aviation Administration to ensure that certification of redesigned jets in which the engines have been physically moved forward does not require pilot retraining, saving customers time and money. “This meant accelerating the development of the 737 MAX,” Saporito wrote. “Poor management of the institutions responsible for ensuring product safety can cause the entire process to be beyond purpose. This, combined with the decline in other capabilities of the company, The 737 Max was grounded for nearly two years after contributing to two fatal crashes in 2017. And even before the Alaska Airlines 737 Max 9 crash, Boeing was rolling out the 787 Dreamliner on a production line in South Carolina. There was a serious problem with the assembly.
After McNerney’s departure, Boeing was led by Dennis Muilenburg, an Iowa native with degrees in aerospace engineering, aeronautics, and astronautics. He was responsible for two fatal accidents. He left Boeing in late 2019 after facing harsh criticism for the company’s response to the tragedy.
“A little over a year later, in early 2021, Muilenburg launched a new investment business, moving his headquarters to the Cayman Islands to avoid taxes,” wrote Dominic Gates, a veteran aerospace reporter for the Seattle Times. New Vista Acquisition Corporation, a member of the Pulitzer Prize-winning team of reporters who exposed the 737 Max’s design flaws.
In early 2023, Gates reported that NewVista “failed and is scheduled to be liquidated without any investment.”
Boeing’s current CEO is David Calhoun, who took over leadership after Muilenburg’s retirement. Mr. Calhoun has a 26-year career at GE and has been on Boeing’s board since 2009.
McNerney cost management provides throughline at 3M, Boeing
It’s been nearly 19 years since Mr. McNerney became CEO of Maplewood-based 3M, but his footprint on the company was revealed in an October Wall Street Journal article. Ta.
Boeing engineers argued that in recent decades their authority and decision-making ability had often been overridden by cost-conscious executives, including Mr. McNerney.
Similar concerns were expressed by 3M scientists and engineers in a Wall Street Journal article headlined “The Long Drought at One of America’s Most Innovative Companies.”
A 2023 article states that 3M researchers are “encouraged to pursue incremental improvements to existing products rather than novel breakthroughs.”
Rob Kischke, a former 3M research director who left the company in 2022, reportedly said elements of McNerney’s approach are still part of 3M’s culture. “Mr. McNerney introduced “Six Sigma,” which is used at GE to measure and standardize business practices but is hated by 3M researchers as a killer of creativity.” states.
Mr. McNerney joins Boeing after a career at 3M. A 2014 article in the Seattle Times examined McNerney’s track record at both GE and 3M.
A 3M manager said McNerney’s attention to cost efficiency “led to significant improvements.” [profit] Meanwhile, the inventor of the Post-it note said innovation has significantly declined under McNerney’s watch.
3M has been grappling with large payouts in recent months to settle lawsuits over its manufacturing of permanent chemicals. Meanwhile, Boeing is in the early stages of responding to the aftermath of the 737 Max 9’s door failure.
Journalist Saporito discussed Boeing’s course correction in an analysis article for the New York Times.
“What Boeing missed in trying to dump costs and speed up production was an opportunity to ensure safety was at the core of its culture and a competitive advantage,” Saporito wrote. . “When employees know they can help build the safest aircraft possible, not the cheapest, the end product benefits and buyers feel more confident. Sho.”
Liz Fedor previously spent seven years covering the airline industry for the Star Tribune.