When a Boeing aircraft door blew out on an Alaska Airlines flight at about 16,000 feet, it was the latest evidence for analyst Ronald Epstein that the airplane manufacturer had elevated growing profits over rigorous safety practices and engineering expertise.
Epstein, veteran research analyst for Bank of America, was unsparing in his criticism of Boeing and its vendor partner, Spirit AeroSystems, following the early January episode that left a hole in the fuselage of the Boeing 737 Max 9.
The pilot crew safely landed the plane, and no passenger or crew lives were lost. But the door episode with the new Boeing airplane has left regulators, analysts, the flying public, and other stakeholders asking what’s gone wrong at Boeing.
This incident with the Boeing 737 Max 9 follows the 2018 and 2019 crashes of Boeing 737 Max planes in which 346 people were killed.
“Culture isn’t found in an employee handbook,” wrote Epstein in a January analyst report. In addition to being a veteran equity analyst, Epstein holds a master’s degree and Ph.D. in mechanical engineering from Duke University and an MBA from the Wharton School at the University of Pennsylvania.
He argued that Boeing needs a “drastic” cultural overhaul. “This cultural change won’t come from FAA mandates, congressional hearings, internal memos, or one-hour all hands meetings,” Epstein wrote. In his critique, he included Boeing supplier Spirit AeroSystems, which is based in Wichita, Kansas.
“For culture to move from corporate jargon to being embodied in the habits and minds of both workforces, we see it as necessary for Boeing and Spirit to drastically rethink the ways they have operated,” Epstein wrote. “For each to achieve a true cultural shift, reigniting engineering culture and rebuilding employee trust are paramount.”
Because the design, construction, and maintenance of airplanes affect human lives, he stresses the need to prioritize the safety concerns and procedures of engineers over business executives who may want to pursue less costly paths to maximize profits.
“Boeing and Spirit’s engineering prowess has waned due to an obsession with financial metrics bolstered by cost cutting and cash flow generation,” Epstein wrote. “Did anyone ever start an innovative company with the end goal of optimizing share repurchases and paying a dividend? It’s our view both companies should look to promote product development-oriented engineers to the highest levels of decision making to map the road ahead which can restore their names as engineering titans.”
The Wall Street Journal reported Monday that bolts needed to secure the door of the Alaska Airlines jet that blew off “appear to have been missing when the plane left Boeing’s factory.”
The door was manufactured in Spirit’s Malaysian factory. “Boeing opened or removed the door plug after the 737 Max 9 jet’s fuselage [made by Spirit] arrived at the plane maker’s Renton, Wash., factory for final assembly,” the Journal reported.
Top Boeing executives previously were based in Washington state close to the company’s large manufacturing facilities. But Boeing moved its headquarters to Chicago in 2001 and to Arlington, Virginia, in 2023. A North Charleston, South Carolina, plant opened in 2011.
Bank of America’s Epstein maintains that leaders of Boeing and Spirit AeroSystems should “repair relationships” with their workforces. “We view it as necessary for both to focus on retaining and attracting the brightest young engineers with interesting work and competitive pay in an open and nonthreatening environment,” Epstein wrote. “At their core, both are aircraft companies. If they are successful at delivering the finest aircraft in the world, success as measured by all stakeholders will follow, including shareholders.”
Delta sidesteps some key Boeing problems
Like many major airlines, Delta Air Lines operates Boeing and Airbus planes.
But Atlanta-based Delta doesn’t have any Boeing Max models currently in its fleet. Consequently, Delta, the dominant carrier at Minneapolis-St. Paul International Airport, avoided taking planes out of service this month after the Alaska Airlines episode happened.
Several years ago, Delta also managed to sidestep operational issues associated with the introduction of Boeing’s 787 Dreamliner to the marketplace.
Before Delta acquired Eagan-based Northwest Airlines in a 2008 merger, Northwest had touted the fact that it planned to be the North American launch customer for the Dreamliner.
Northwest had an order for 18 Boeing 787s. Following the merger of the two carriers, Delta didn’t proceed with the order.
The decision to bypass the Boeing 787 meant that Delta didn’t have to deal with grounding of planes in 2013 when problems surfaced with batteries in the 787.
Delta also didn’t jump on the bandwagon for Boeing’s Max aircraft.
In 2013, then-Delta CEO Richard Anderson told Reuters that he would take his time to evaluate the performance of the Boeing 737 Max.
“We’d rather get toward the end of a production line” and purchase planes after any early problems are resolved with a new aircraft model type, Anderson said in the interview in New York.
“We would rather see proven products that have cash-on-cash returns from the moment we take delivery,” Anderson said.
GE cost-cutting culture overtakes Boeing
Airline industry insiders, journalists, and analysts have noted that Boeing’s post World War II reputation for making commercial aircraft was exceptional because engineers held power within the company, and they were committed to making the best and safest planes.
They say a culture shift occurred following Boeing’s acquisition of McDonnell Douglas in 1997 and the CEO tenure of Harry Stonecipher, a former General Electric executive who focused on reducing expenses. He led the combined company from late 2003 until early 2005 when the Boeing board asked him to resign after it was determined Stonecipher was in a relationship with a Boeing female executive.
Boeing’s CFO became the interim CEO for a brief period. Then Boeing’s board selected W. James McNerney Jr. to become the aerospace company’s chairman, president, and CEO.
McNerney wasn’t an engineer or scientist. He earned a bachelor’s degree in American studies from Yale and an MBA from Harvard. But he was serving on Boeing’s board when he was chosen to become CEO, and he had a General Electric pedigree. He worked for GE for nearly two decades, making his mark while leading the aircraft engines business.
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In a January essay in The New York Times, journalist Bill Saporito outlined McNerney’s role in the development of the 737 Max. McNerney was CEO of Boeing from June 2005 to July 2015.
In 2011, Saporito wrote, McNerney “made what became a fateful decision by greenlighting the 737 Max rather than investing billions in developing a new short-haul aircraft.”
Saporito views that 2011 decision as having a cascading negative effect upon Boeing to the present day.
“Mr. McNerney’s decision meant rushing development of the 737 Max while managing the Federal Aviation Administration so that the certification of the redesigned jet — whose engines had been physically moved forward—would not require retraining of pilots, thus saving customers time and money,” Saporito wrote. “Being good at managing the agency charged with ensuring your product’s safety can put the whole process at cross-purposes. That, combined with the decline in the company’s other competencies, contributed to the two fatal crashes in 2018 and 2019 that prompted the 737 Max’s grounding for nearly two years. And even before the Alaska Airlines 737 Max 9 incident, Boeing had been having significant problems assembling its 787 Dreamliner on its South Carolina production line.”
Following McNerney’s retirement, Boeing was led by Dennis Muilenburg, an Iowa native who had degrees in aerospace engineering and aeronautics and astronautics. He was in charge when the two fatal air crashes occurred. In late 2019, he left Boeing after he was roundly criticized for the way Boeing responded to the tragedies.
“Just over a year later, in early 2021, Muilenburg launched a new investment venture: New Vista Acquisition Corp., headquartered in the Cayman Islands to avoid taxes,” according to an article by veteran Seattle Times aerospace reporter Dominic Gates, who was part of the Pulitzer Prize winning team of reporters that exposed design flaws in the 737 Max.
In early 2023, Gates reported that New Vista “has failed and will liquidate without ever making an investment.”
Today, Boeing’s CEO is David Calhoun, who took the leadership reins after Muilenburg’s departure. Calhoun, who had a 26-year career at GE, has been on Boeing’s board since 2009.
McNerney’s cost controls provide through line at 3M, Boeing
While it’s been almost 19 years since McNerney was CEO of Maplewood-based 3M, his imprint on the corporation surfaced in an October Wall Street Journal story.
Boeing engineers contended their power and decision-making ability often was overridden by cost-conscious executives, including McNerney, in recent decades.
Similar concerns were expressed by 3M scientists and engineers in the Wall Street Journal story headlined “The Long Dry Spell at One of America’s Most Innovative Companies.”
The 2023 article said that 3M researchers “are encouraged to pursue incremental improvements to existing products rather than novel, swing-for-the fences breakthroughs.”
Rob Kieschke, a former 3M research director who left the company in 2022, was quoted as saying that elements of McNerney’s approach remain part of 3M’s culture. “McNerney installed ‘Six Sigma,’ a regimen used at GE to measure and standardize business practices but loathed by 3M researchers as a creativity killer,” the article said.
McNerney’s history at 3M trailed him to Boeing. A 2014 article in the Seattle Times examined McNerney’s record at both GE and 3M.
A 3M manager said that McNerney’s attention to cost efficiencies led to “significantly greater [profit] margins,” while a Post-it note inventor said innovation declined drastically on McNerney’s watch.
In recent months, 3M has been dealing with large payouts to address litigation over its production of forever chemicals. Meanwhile, Boeing is in the early weeks of responding to the fallout of its 737 Max 9 door malfunction.
Journalist Saporito described a course correction for Boeing in his New York Times analysis piece.
“What Boeing has missed, as it tried to dump costs and speed production, was the chance to ensure that safety was a cultural core and a competitive advantage,” Saporito wrote. “When employees know they’ll be supported in building the safest possible aircraft as opposed to the cheapest, the end product will benefit—and buyers will have more confidence.”
Liz Fedor previously covered the airline industry for seven years at the Star Tribune.
