Analysis: Boeing’s priority after recertifying, delivering MAX: remake the Board

  • Editor’s Note: Just last night I wrote this piece for publication on Jan. 6 as Pontifications. The news today of Dennis Muilenburg’s ouster causes acceleration.

By Scott Hamilton

Jan. 6, 2020, Dec. 23, 2019, © Leeham News: Boeing’s first priority this year is to get the 737 MAX recertified, returned to service, production restarted and begin the long path on the road to normalcy.

The second priority is to remake the leadership and governance.

The third, which may slip to 2021, is to launch a new airplane program to replace the MAX 9 and MAX 10.

First priority

Achieving the first priority needs no explanation. So much about these issues was written last year. I’ll skip to the second.

Update: A statement from a law firm representing families of the Lion Air JT610 has been received.

Second Priority
  • Update: Some of this section is superseded by this morning’s news.

Boeing needs to take bold steps—and I mean, really bold steps—to recover from the worst crisis in its 103 year history.

I outlined in an Oct. 7 column why the top executives and half the Board of Directors need to go. This was limited to the MAX crisis.

Things only got worse since then.

The US House hearing was so clearly a sound-bite moment for Members of Congress, that Boeing CEO Dennis Muilenburg came away largely unscathed.

But Muilenburg’s performance at the US Senate hearing was just horrible.

His repeated predictions about recertification and return to service resulted each time in a hand-slap by the Federal Aviation Administration.

Relations with airlines and lessors are sinking.

The FAA complains it still isn’t getting documents required.

Production is now suspended.

It is puzzling how Board Chairman David Calhoun could have said in a CNBC interview that, “from the Board’s view, everything Muilenburg has done is right.”

On its face, the statement is either ludicrous or it shows how insulated and out of touch the Board is.

The annual shareholders meeting is in April.

This would be a good time to name a new CEO and replace half the Board, as described in the Oct. 7 column.

Entrenched Board

As noted in the Oct. 7 column, the Boeing board is entrenched.

It also fails to include a pilot of high stature—someone like a Chesley Sullenburger or the late Al Haynes. Given what’s happened, a former investigator from the National Transportation Safety Board or a former member of the EASA regulatory agency might be a good addition.

The GE cost-cutting culture in the executive ranks and the Board that’s been prevalent for 20 years needs to go.

Crucial is a Board that has fresh perspective and is not married to “shareholder value” as the No. 1, 2 and 3 priorities.

Shareholder value is important, of course. But not at the expense of safety and investing in new airplanes rather than derivatives of a 50-year old design (the 737) or a band aid (the 777X).

Third Priority

This brings us to the third priority.

Boeing, as I’ve previously written, must quit dithering and launch a new airplane.

The weakest links in the Boeing product line are the MAX 9 and 10.

These airplanes will do well what they are designed to do. However, they are inferior to the Airbus A321, by a wide margin.

The market made this clear. Depending on the moment the data is measured, the A321 outsells the MAX 9 and 10 by three to five to one.

Boeing must launch a new airplane to replace the MAX 9 and 10. The program launch should be in 2020 or 2021, at the latest.

(Boeing has an even weaker link with the 737-7, but the solution to this end of the market will rest with Boeing Brasil, if this joint venture is ever approved by regulators.)

Problems long in the making

Boeing’s problems have been two decades in the making, at least.

If one can pinpoint the start of Boeing’s decline, it is with the 1997 merger between Boeing and McDonnell Douglas.

This was the beginning of the priorities on shareholder value and cutting costs.

The industrial plan for the 787, a cost-cutting drive, was a total disaster that went well beyond the $32bn in deferred costs, plus customer compensation. The 747-8 was negatively affected, over budget and late. The decision to launch the 737 re-engining came while these two programs were still in production instead of in service.

Launch of the 777X came in the year the 787 had been grounded.

The cost-cutting, and some say, corner-cutting, began with the influence of the McDonnell family, Harry Stonecipher, Jim McNerney and the GE influence on the Board.

Boeing handed market share to Airbus as much as Airbus earned it, even as the latter went through its own industrial challenges, scandal and executive suite turnover.

Restarting

Just as 2020 is the year Boeing needs to restart deliveries and production of the MAX, it needs to restart the executive suite, the Board of Directors and the company culture.

The Annual meeting in April is a good time to start.

118 Comments on “Analysis: Boeing’s priority after recertifying, delivering MAX: remake the Board

  1. I’m wondering where the NMA fits into the equation? From what I gather, without even turning the salesmen loose into their territories, there are about 500 orders just sitting out there among American airline companies and a few other places. With market fragmentation coming this could be a dominate market segment with a plane that (in actual costs) comes to $100 million.

    • There are more important questions for Boeing than whether they can make and sell 500 more planes.

      • This is not an either or but a both (or all 3 to 5 depending on how the whole issues is outlined.

        Unless Boeing gets out of its hole and that means new aircraft, then yes it needs 500 sales and then some.

        It needs a whole new product line started and execute as well as getting rid of the MD and GE created messes management wise.

        An engineer in charge is not necessarily the answer, but you need an origination man who understands how the entire origination balances out, not sucking up to share holders and getting your pay out first and foremost.

        Boeing’s found and 2nd leader were both lawyers (not engineers) who knew how to balance a company needs.

        That does not exclude an engineer but it does not demand an engineer either though it may be a good choice if the right one can be found, ala Mulalley.

        Like good aircraft, if you do it right the success comes with the good aircraft.

        We have seen how it works with the tail wagging the dog.

        • Most Boeing CEO are lawyers. Allen and Condit were engineers and both good for the company. Stonecipher had a physicists degree but I doubt he practised. Muilenburg was an engineer and apart from the (I suspected) heavy drinkers who allowed MCAS to trigger on only one alpha sensor might have gone down in history as a great success. By 2011 Boeing was grandfathering a 43 year old design. I doubt this mess would have happened under engineer background Allan Mullaly had he have been given the job.

  2. Its not often that I fully agree with Scott, but this is about 99.9%, and I would entertain 100%.

    Of all them I am on the ledge with the 777X. This would have required an an new aircraft to compete with the A350 so its a bit ????

    Is/was there enough of an improvement there for an all new aircraft? Of possibly it would have locked in existing preferences but many operators have gone with A350s. So when would you have need to launch it?

    Clearly the 737 needed replacing but now we looking at two aircraft not one and is the NMA even a possible (3 new aircraft)

    The A220 will slowly eat their lunch down low and when the -500 comes out, its going to eat the 737-8 big time (and send the A320 into its swan song which is fine, it too is a dated air frame)

    Clearly Boeing has no direct competitor against any of the A321 let alone the newer ones.

    Boeing has put themselves into a very very tough corner and the bills for the MAX debacle are making it worse.

    I figured Muilenberg was done but he was no more than the puppet for the board. .

    • Sonic cruiser -> 787

      TWA> Clearly the 737 needed replacing but now we looking at two aircraft not one and is the NMA even a possible (3 new aircraft)

      MNA -> FSA as actively marketed by BA it seems (LNA article 1-2 weeks ago). The upper of the 3 being the lower end of the NMA but all single aisle. BA can’t do a dual aisle NMA now. Too distracting.

      AB will kill/obliterate BA on teh FSA pricing. The straight FSA business case won’t fly, no way. Engines are not there for the 10-15% beyond the 321XL(R) improvements. Cannibalization of the current MAX orders will hurt really hard.
      AB really really has them cornered. But it’s BA’s fault. Fair and square. They messed up hard in their rush to market/focus on shareholder returns at all costs.

      But BA probably has little choice. They must turn back to the FSA focus. Fix the MAX, get it to fly, discount it hard to blunt AB, and push the FSA with switch rights (MAX to FSA) as soon as the FSA is available. Shareholders will suffer. That why you buy shares and take risks.

      VLA: Ironically, BA always said that the A380 was too big. Point to point was going to win. They were right. Point to point service model is now so right that the 777X is too big too, the A350-1000 could be even too big. The point to point will chip at the need for the 777 replacements. Though there still is a market for that size/range.

      The 321XLR will really chip at the 787 and A350 except for the real range needs. 10-12h 321XLR++ anyone? New wing? etc. We will get there. Travel/hub patterns will evolve…even more to point to point.

      This will be fun to watch 🙂 I’d avoid BA shares though i have watched them carefully.

      ps: I listened to NPR news today on my way back home from the mall of america (in MN… and what a zoo today!). Very scathing/articulate attack on BA’s board composition/behavior by the father of one of the MAX victims as interviewed by a commentator. Worth trying to find on the web.

      Merry Xmas everyone! And to the LNA folks 🙂

      • Muilenberg claimed he left his bonus on the table.
        DeFazio asked him about that.
        The truth, nobody got a bonus.

  3. Welcomed news in trying to put Boeing back on the right direction, that is if these 3 points are accomplished. Good Luck!

  4. Good piece, Scott. To get governance on track, I suggest there needs to be a board member whose sole role is safety. There is a tension between precautionary safety processes and cost and time to market. This person would manage that tension and if they say, we need six months they would have the confidence of getting CEO and board support.

    • “To get governance on track, I suggest there needs to be a board member whose sole role is safety. ”

      I agree with this at this time. But does exist that person?

      • I don’t, the BOD has to take a collective role on the fundamental risk affecting the organisation, if you have a board member that is reminiscent of parking the problem. What could be done would be to have a committee separate to the board, made up of board members and reporting to the board. The sub-committee would be able to focus on safety issue, culture, fundamental engineering and design issues and signing off on ‘safety’ reports in more depth than the main board. An not up to date on US corp gov so not sure if this is possible

      • first you have to start separating managing leads from supervisory leads to get away from “group humming” and corporate Kumbaya singing.

      • Boards aren’t responsible for day to day management, they only meet every 3 months. They represent the interests of the shareholders. There are structures that can have important functions such as safety, environmental, legal compliance report directly to the board bypassing the CEO. These take the form of a compliance audit to make sure the company is meeting its legal obligations in the area. There are executive directors on boards, these work in the day to day activities of the company. I think Muilenburg was the only one.

        • “”Boards aren’t responsible for day to day management, they only meet every 3 months.””

          Could the BOD reject Muilenburg and all the others when walking on the moon

    • As minor indirect Boing shareholder I’d be looking to get someone out of the system on the board board. Tom Enders ex CEO of Airbus. John Leahy was an American and Airbuses legendary COO (a position more enduring than CEO) and utterly critical to Airbuses success. Enders had strong familiarity with US aviation through the Northrop Grumman tanker partnership, the Mobil Alabama plant, the A220 acquisition. (Brilliant Strategic move). He’s the kind of affable personable guy likely to likely to listen, put people at ease and therefore be aware of what’s going on. I liked Muilenburg but he did have a sort of wooden aspect to his public personality. Not a PR guy. I’m sure he’s glad he’s out as he’s the kind of guy that would hang around to do his duty and clean up. Talk to Tom or someone like him.

    • I think localising safety toward the hands of one board member risks isolating safety over time and not making it part of the culture. Really, ‘safety’ (in reality engineering of acceptable quality) should simply be a given, a non-issue, something that everyone, absolutely everyone within the company accepts and believes. It is simply part of the essential balance for a company in Boeing’s position of product fit for purpose, profit and cashflow.

      • Yep, the reason for being, so ingrained in the corporate psyche that it goes unquestioned. Once the genie is out of the bottle however how do you put it back in place? A fundamental cultural asset of Boeing has been chipped away at until now the brand stands for nothing.

  5. Uncompromised capitalism is the base for Boeing choices, stock value, salaries and priorities over the last 10 years.

    Many people capitalized on the Boeing brand, public confidence to pull out billions.

    Now the legacy has been drained, who has the guts to challenge the capitalist mechanism behind the failed strategy?

    • How is it uncompromising capitalism throwing away capital?

      I don’t think it is that. The issue as i see it is that revolutionary industry ideals are very strong in US culture, so the company does not make aircraft that bring a 10% improvement but at 50% they would have had made it.
      Reality is that technology does not move as fast.
      We see it also with with gold plated military industry.
      Every next warship needs to be the next Dreadnought that makes everything else obsolete. So it happens the useless DDG-1000.
      Every fighter need to be several fold better than before. Result a fighter needs 20-30 years to reach operational status.
      That is a culture that is good to get capital for starting new industries – eg. Space – but an established industry needs more redundancy, more stepped approach, more continuity, not revolutionary steps.

      • Boeing is so ambitious, it just can’t invest in new products. And some fall for that proud BS. E.g. Muilenberg was payed 20 million in stock value related bonusses. Not spending billions on new aircraft while convincing everyone everything is fine, having Trump do import taxes and congress soften up FAA, states give huge tax cuts for buying back stock, it isn’t innovative. It is what it is.

        Stockholdershave been blinded for years. Why is the stock value higher than a year ago?

        • “Boeing is so ambitious, it just can’t invest in new products.”

          Correct. New products that don’t bring an amazing market domination, outstanding profits are not considered- a culture of superlatives – so they prefer to continue to milk the 737.
          Unless you can convince me that the Boeing management did/does not intend to develop any new aircraft again you have to look for the reasons they did not developed a 737 heir yet. Shareholder value isn’t the only factor, if there were some new revolutionary material, engine and/or energy available for aircraft you could be sure they would have jumped right away.

          • “if there were some new revolutionary material, engine and/or energy available for aircraft you could be sure they would have jumped right away.”

            Revolutionary material?… CFRP
            Engine?… geared turbofans (not suitable for 737 design from 1960s)

            Boeing just slept over this momentum :/ It has to catch up.

    • I don’t want to slap down on the achievements of Soviet or Russian aviation under communism but it wasn’t any better than capitalist aviation or tsarist aviation. Worse I would think in most instances they relied heavily on media censorship to hide their embarrassing failures. Under Stalin there was even a few executions to make sure an individual was scapegoated as a criminal rather than the political structure getting any blame. The National Socialists made achievements as well. The reality is that companies and the boards that control them can mess up under any political economic system. My opinion is that when a country has high interest rates investment in long term projects, engineering or automation stops. Check out the NPV or nett present worth equation is and run some numbers through it and you’ll understand it. The problem in our western world is not capitalism but the reserve banking system. Until you understand how money is created by them and how it was before you don’t understand the world.

      • I don’t think we need Reserve Bank Money conspiracy theories to explain, what is going on here.

        The problem is not capitalism per se, but the way it has been exercised in the last 20-40 years in the US. Senior Management has been rewarded for pulling as much money out of the business as possible. It started with all the leveraged buy-outs and continued with a culture, where companies were expected to buy back as many stocks as possible. A lot of that tax-driven (those buy backs are tax-free and the stock appreciation is taxed at lower rates).

        What management is basically saying, is that they have no better use for the money than giving it to shareholders to invest in other stock. That leads companies to milk the business for a short- to medium-term benefit. They outsource core competencies, reduce R&D and so on.

        This all works for five or ten years but eventually, once glorious companies, which were way ahead of the competition are suddenly just one of many. There is a reason family-owned businesses with a long-term perspective do better. There is a reason European car manufacturers with strong employee rights (in Germany e.g. 50% of the board members represent labor) or innovator-driven companies like Tesla are doing better than GM, Ford, or Chrysler. They have a long-term perspective.

        We know a lot about program accounting thanks to LNA. If Boeing wouldn’t have used this trick, its capital would be negative. They wouldn’t have had the possibility to buy back so much stock and would have had to put the cash to use in the company. I think we would not talk about a different company today

        • I’m afraid the problem might be much more significant than we want to believe.

          From reading posts on this sight, from posting, and from thinking about his issue, I’m just not sure if Boeing has the incentive (never mind the vision) to pull itself out of this. What is the incentive for executives drifting to the ground on golden parachutes? What is the incentive for the Board, who after all are not really owners, but representatives of owners scattered throughout the globe. It’s not a government; it’s not a democracy that must answer to voters.

          We — the public, workers, engineers — need for Boeing to be much more than it is because it has such a huge place in our economy. But it is not beholden to us or to anyone.

          In addition to other named problems is the problem of value and the problem of perception of value. This is even the basic problem of a Ponzi scheme. Once, in a documentary on Madov, one financial analyst said such schemes work out pretty well in the short term for investors — until they come tumbling down.

          But Boeing isn’t a Ponzi scheme. It is an engineering company competing on a global level with other engineering companies that make a product — airplanes — that must be manufactured according to the highest standards. They hold our lives in their hands.

          The problem is that during the last 30 years, it has been all to easy for corporations to lose sight of what it is that they produce whether it is airplanes or sports shoes. Indeed, once a company goes public, it is easy to see stock value as being their main product. The problem with such a value is that it privileges the short term and it is often based on perception and not the product itself.

          But this environment of producing ephemeral value becomes even more intense in what journalist Naomi Klein calls in her book No Logo, “a new branded world.” In such a world, Klein observes, companies become more concerned with producing or adding value to their brand than to the product itself. In fact, the product becomes superfluous — mere brand content — as the brand, an ephemeral idea becomes more real. So, companies scatter production all over the globe, contract out services, and then direct a huge amount of their resources into public relations and hyping their brand. The big issue in a crash, for instance, becomes one of perception and not one of engineering. I’m not sure if this can be corrected.

          We have all been reading about what happened with the Max. Boeing got stuck in a plethora of double binds to which it had a disastrous, short-term response. The most serious, I think, was responding to the business plan of a company like Southwest which was anchored in the 737. For Southwest to survive, the 737 had to become like Peter Pan and exhibit a remarkable, unchanging youth in a competitive environment of better, more efficient, more youthful airliners. And Boeing promised a magical vehicle that everyone should have known it couldn’t deliver: the same old airplane jetting about the skies like an efficient, newly engineered system. And it had the marketing to make everyone believed that it was true.

          So, even right now, it’s almost impossible for us to see through the haze of marketing, public relations, and brand hype. And Boeing is too big to fail and incredibly important to us all — at least those of us who live in the U.S. economy. But it just doesn’t look like the company has many options if it operates within the American corporate real of what is actually possible.

          Right now, it appears the competition is intense. Other companies in other countries are going to put real, cutting edge, well-engineered airliners on the market. And it won’t just be a question of how well Boeing can hype the safety of the Max — the consumers are not the passengers. The consumers are the airlines which will have more choices, and which must stake their futures on safe, efficient and modern aircraft — not on a 50 year old hybrid.

          I just can’t see the structure of Boeing, with its board ,being able to respond to a crisis of this magnitude with vision and a willingness to forgo short-term profits for long-term gain. What’s the incentive? Who in such a structure really cares about the long-term health of the corporation?

          • I would really like to know who you are. Your posts are too good. Are you going to tell everybody who you are?

            The situation at Boeing is dire. There is a serious aerodynamic problem with the MAX.

            I will keep posting using deductive reasoning until Boeing tell the truth.

          • “But Boeing isn’t a Ponzi scheme. It is an engineering company competing on a global level with other engineering companies …”

            Afaics has Boeing “ponzified” its operations for competing instead of really offering superior products.
            Nothing in their reach stays “ungamed”.
            self certify plus Xtra waivers while the competition gets some extra leaning on from FAA ( from sensible to frivolous items . Blowback: forces your competitor to do even better designs, ups! )
            politics via old boys network and judicious application of money gifts.
            bookkeeping via corporation designed GAAP plus some extra gimmicks like deferred cost project accounting. pinochio style PR …

            finally doing all the visible things that let you appear as a super successful commercial entity to prop your share value.

            In the end Boeing is a US corporation. in the decidedly partisan justice system there they’ll get away with a wrist slap where foreigners are bled to a full “whitening”.

        • Can you explain what you mean by “monetary conspiracy theory”? I don’t think you understand how the monetary system works at all nor aspects of it such as the fact that it is unavoidably inflationary due to the need to inflate the currency to supply the currency needed to pay interest. I await your explanation.

  6. The McDonnell management practice (I won’t say philosophy) is like an acid-producing bacteria: corrosive and invasively self-replicating. Step 1 would be for the Board’s representative to identify all McDonnell-trained managers and rebalance the level of human capital by smartsizing them.

    That said, there seem to be fewer and fewer US manufacturing firms who are interested in maintaining deep understanding of their product and its technologies; “it was engineered to the spec” seems to be the dominant operating philosophy today.

  7. The problem with NMA or FSA launch is the next generation material and manufacturing processes haven’t matured to make it economical and have vibrate supply chain Meaning, the next gen commercial aircraft program will be additive manufactured parts and thermoplastic composite airframe (e.g. fuselage and wings) Launching another metallic fuselage tube (e.g. 737 fuselage tube has 450,000 drill and fills) with CFRP wing (heavy and needs autoclave -capital intensive) will just be upgraded A220 for FSA. What about the next gen engine technology? Boeing is 5 years away from FSA

    • BBD has a much different wing approach and there is a great deal of out of auto clave work being done (MC21)

      The issue is more the form of the aircraft.

      If a MAX is competitive (even to an A220 though the A220 is 10-15% better) then the air frame is the issue.

      Just a Me too A220 locks in the imballance.

  8. Moving their headquarters to Chicago in 2001 was the start of their falure for me. Not far from the “Sears” tower and their culture of focusing on stock price instead success for decades.

    • that may have finalized it.
      Developing the 777 already exceeded its budget by 100%. It still was more or less on time though.

      IMU later projects started to draw satisfaction from playing off certification requirements to best Airbus. It boosted convoluted thinking “how do I best shoehorn new features into a superanuated cert environment”. Good KISS engineering and convoluted solutions don’t go well together.

  9. Boeing lived in a bubble, far removed from reality. The Lion Air crash should have busted that bubble, alas, they were lived in it for so long, they thought it was reality. They thought they were invincible. They thought they were exceptional. They thought the law was their to shape.
    How can they act differently with the same greedy fools at the helm? Now they are panicked. Reality hit them hard, like the proverbial train in the dark tunnel.
    With the same old board, I don’t expect any significant change from Boeing, other than some changes of tone.

  10. OK, everyone, knock off the politics. This post is not about that.

    Hamilton

    • Agree absolutely. But the future in the 737 size market must surely be new materials, a point well made by Pritchard. At the moment maybe still too expensive, but technology gets you out of trouble and with a will, they’ll get there. Less weight, more moisture, lower pressuriation levels – all the stuff the 787 and A350 do so well.

      • The NMA /NSA is mainly about robotization and composites in a cost effective package. If Boeing designs a A321 XLR++ or A322 competitior the key is automation, quality and speed of manufacture. A few % better SFC than Airbus is worth some but having a production system to deliver a steady stream of precision built aircrafts by mainly robots makes a huge difference. The 35k A320neo engines as promised will do fine initially. Waiting for new super engines of approx 40k will take years and they are maybe certified around 2027 with a Boeing go ahead on this New Years eve and deliver meningful volumes by 2030, Boeing will suffer for 10 years from the A321neo and if they don’t act swiftly they will suffer for 20 years. Soon all 3 big US Airlines will fly volumes of A321neo’s, just the A321 with winglets is tough enough competition.

    • Scott,

      I have a wish.
      You have a great website with great articles, providing knowledge and facts. But it could be improved.

      On a hot article where posts are made every hour, it’s not easy to notice every new post the longer the comment section grows.

      Much better would be a timeline order of posts how LNA adds posts to the comment section. Then of course in every responding post a quote needs to be posted too, but we already do this when the post we want to respond to has no reply button. This would be very easy to follow, especially on comment sections with over 100 posts.

      What we now have is the thread order. It’s great to read after a month when everybody stopped posting. But I wish there were a button to have the comment section ordered in a minute timeline.
      Sometimes a post is delayed. I recognized a new post I didn’t read was placed into the section on the far left side even I already read later posts. Mostly I miss these delayed posts which is sad. I wouldn’t miss them in a minute timeline order. The printing time of the post would be helpful too since many posts can be made in a minute.

      Thanks,
      Merry Christmas and All the Best for 2020

      • Leon

        You are so right.
        I use Edge and so I can search for a date but when there are so many posts on one date this is still not perfect. A time stamp would help.

        Merry Christmas to all.

    • Well said Scott, though I fear politics is probably going to have to be part of the answer to Boeing’s problems.

      A recent-ish Seattle Times article examined the role of the pursuit of shareholder value across US industry in general, and noted that it’s a blight on businesses in general. Boeing’s management cannot operate wholly outside of that commercial environment no matter who is CEO, Chairman, etc, not unless it’s taken into private ownership.

      Political leadership / legal changes are needed to force changes to the way companies are run.

      A matter worth debating is whether or not Boeing (or indeed, any other company) can ever be regarded as “trustworthy” over safety critical matters if the commercial environment in which it is funded remains focused on short term shareholder value. If we conclude that we cannot ever wholly trust such a company in such an environment, that then places a heavier emphasis on tight regulation by a state backed regulator.

      • True shareholders are not interested in short term. Only those who buy and sell stocks often are interested in short term.

        How much is Boeing owned by the US, more than 50%?

  11. I think what they need is another 757/767 pairing. If they did a NMA as wide body and 757 large narrow body but understand where tech is going they could do something now that could be upgraded in those areas later. Matching an a321 will put them behind and that ship has sailed. Obviously orders still remain for a small, short turn wide body since a321 are all the narrow body orders. If it was a tandem development again they could back-port the tech and make a lower volume 757 successor which is all it would be at this point. Then punt with the MAX-8 which next cycle will be too small and focus on a second wing pairing and tech insertion. We all seem to forget that despite its failings, the MAX-8 is still a competitive airframe even with its “old” tech. This would then introduce commonality into those larger offerings and give it a leg up in future competitions, especially as the market moves to bigger sizes. I think the jury is still out for 777x although it will not be as high of volume as 77W it will still fit the needs well for moving large routes efficiently. If the actual frame misses fuel burn then they’re in trouble but if it delivers as promised it was really the logical move to do.

    • 757/767 pairing. I heard a story 30 years ago about 757/767 pairing and the airlines got too involved and each aircraft was not optimized…757 got a little bigger and 767 got a little smaller and they didn’t hit their sweet spot.

      • Commonality was a late addition.
        Probably to balance Airbus starting to go for common Cockpit features with the A310.
        Just like CRT screens showing steam gauges were introduced to counter Airbus CRT screen based airplane management system.

    • Im not sure a pairing of a single aisle and a widebody is the way to go for Boeing.

      Maybe it would be an idea to create 1 new single aisle cross section (around A320 to MC21 size) but 2 new wings.
      One optimized for shorter range (max range around 3000-3500 nm). And another one wider (cat D) for longer range, able to take over from the 767 (max range around 6000 nm).

      With different fuselage lenghts for 180 to 250 people it would allow it to undercut the A321 on CASM on shorter ranges, and the wider wing variants would offer a lot more range.

      Not sure if we have reached the point where a new single aisle has to have a carbon fuselage, or it can be like the A220 (carbon wings, aluminium fuselage).

      Ther big question is if Boeing can build this cheap enough and at a high rate to compete with Airbus. A major advantage would be that they can design it with automated production in mind.

  12. “The program launch should be in 2020 or 2021, at the latest.”

    In the current environment seriously? Have you been taking advantage of Washington State’s liberal laws on the recreational use of cannabis?

  13. Calhoun, the guy with “out of touch” and “ridiculous” statement supporting the fired CEO, will actually be the next CEO.

    How is that solving the problem??

    • I would guess he’s a placeholder who’s chosen to ammend relations with customers and the FAA.

      Boeing needs to get rid of their “if you don’t agree, sue us” mindset and come to realise clients aren’t one time customers but long term clients (decades), and their CEO needs to be someone that comes acros as a sincerely friendly person that airline CEOs, FAA president, media enjoy to communicate and do business with.

      Basically that’s everything Muilenberg is not (only based on how he comes acros in media and Washington hearings).

      For reference, watch some videos with John Slattery (Embraer), John Leahy (former Airbus), Ed Bastian (Delta).

      • The CEO is important to give confidence to everybody but needs a fully staffed and skilled organisation behind him/her to deliver.
        Just look at Elon Musk and Space X, he promises and eventually the company deliver thanks to all the skilled and hard working staff and massive US Govement funding.
        So the dynamnic and visionary CEO needs the skilled staff built under decades to be able to deliver. Without it is is just hopes and empty promises.

    • You have to look at actions and outcome less so at proclamations of intent or what has been made visible as “problem”. ( and reconsider what the objective is…)

      Works quite well for US foreign policy actions.
      Look at effects.
      One can’t tag everything as fall out from incompetence
      of achieving proclaimed targets. In a majority of cases “fall out” is the desired outcome.

  14. I feel a significant amount of blame for Boeing’s immediate mess lies with their large institutional shareholders. Vanguard, T Rowe Price, Newport Trust, S SgA, BlackRock and Capital Research, together own roughly 1/3 of Boeing, enough to exert significant leverage and the ability to pressure Boeing to alter the Board and/or priorities. It should have been obvious to them for at least a few months now that these changes need to happen and that they are the ones best placed to push this shareholder return obsessed Boeing.

  15. So, 22 years after the event, we’re still blaming McDonnell Douglas for Boeing’s ills?

  16. Great post – right on the money.
    Can I suggest that the Programme Accounting be phased out? It is great for executive bonuses, but somehow skews the value (and accounting) of the company.
    I would also suggest a purge of the accountants and lawyers on the board. Appoint some engineers and as you said, a proper pilot with strong experience.

  17. I think the strong denial on the Boeing side has put them in a corner. Their portfolio isn’t as strong as they have reepeating to willing ears.

    – Competing with the A350’s, the current 787 /777X combinations isn’t the hottest duo around> 300 seats. The 777X is heavy & it’s backlog shrunk, the 787 backlog is Great for .. 3 years? Reality.

    – The 737MAX has been heralded as a match for the NEO, but isn’t. No engine choice, compromised engine sfc, no container option, narrow cabin, dated cockpit, systems. Forget the -7, -9.

    – Big regionals. Does Embraer really need Boeing? Why? The Brand? Sales Network? KC390? Embraer has a lean solid infrastructure already. Better watch out, another party might do a better offer. Better for Embraer.

  18. How much is Boeing riding the coattails of investments past? Betting the future on slightly outdated products doesn’t always work. The A340-600 wasn’t that bad, it just wasn’t the 777-300ER. How much will that hold true for Being and its current products? Time to invest in new program(s).

    • Arguably Boeing’s entire product line needs rethinking. Doing so is a 15, 20 year project. They could have started a long time ago, but didn’t. Now they might not survive.

      The 787 was an attempt, but they got it slightly wrong. Had they done their thinking a bit better they’d have added 6inches to the fuselage and ended up with an economic and comfortable enough 9 across airliner. It is noticeable that the A350 seems to have got the cabin breadth right. It is also noticeable how Airbus with one basic product line seems able to compete effectively against 2 of Boeing’s, 787 and 777-8 (and possibly -9 if they stretch the A350 to a -1100).

      Working out a better way of identifying the design specifications for an airliner is key to Boeing’s future. If they don’t do that then any effort to correct their other problems will be for nothing.

      Arguably their inability to objectively determine that the design specifications of their current products are not competitive is what’s lead them into this situation they’re now in.

  19. Surprised to see Boeing has made the CFO (Greg Smith) the interim CEO.

    He must have been one of the driving forces behind the $43 billion in share repurchases in recent years.

    https://www.ft.com/content/f3e640ee-b537-11e9-8cb2-799a3a8cf37b

    Boeing could have done a new single aisle program for well less than that.

    It is a bit much to read in the Wall Street Journal that he put out a note to staff about pledging to chart a new direction.

    I will never understand American style capitalism.

    • @Rafael: When Stonecipher was canned, CFO James Bell was named interim CEO until McNerney was chosen. Boeing is simply following this precedent.

    • “I will never understand American style capitalism.”

      What kind of capitalism do you understand or prefer? It is very obvious that American style capitalism produces far more innovation and wealth than any other style of capitalism? Do you just want less innovation, risk taking and change? A more sclerotic style of capitalism like they practice in the EU?

      Investors will only invest in a company that produces an acceptable return on capital. Boeing has done that well up until the Max crisis, and looks poised to continue that sometime in 2020.

      • ” It is very obvious that American style capitalism produces far more innovation and wealth than any other style of capitalism? ”

        Pfft.
        it is a parasitic scavenger culture.
        Few inventions really are US derived.
        Most operations are redistributive and not creative.

    • American style capitalism means dividends are double taxed, firstly as the companies profits and then again in shareholders hands, that’s why returning money via share buybacks is preferred.

      • That afaics is a misunderstanding?
        Tax differentiation:
        Capital gains tax vs tax on dividends.
        beyond other differences and IMU dividends are taxable on reception while capital gains only turn effective on sale.

        • That makes it 3 times then when shares are sold the increase in value is taxed. But a lot of people can get around that
          “USE TAX-ADVANTAGED ACCOUNTS
          These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. ”
          https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/

          Venture capital share gains arent taxed , which explains the mad prices for ‘paper’ companies of little value

  20. Don’t need me-too designs, need differentiation.

    For that reason and that the market shifts, I advocate two – just as Boeing launched the 767 then 757 in quick succession.

    (Out of different factories, notably for production people – Everett and Renton.)

    With a common flight deck and avionics.

    • Boeing already has a good nose design for a narrow-body airplane – the 757’s which has common flight deck with the 767, albeit the fuselage should be wider (could different materials widen the interior, or could the nose be faired into a wider fuselage?).

      • Why is it that people talk endlessly about the power of innovation
        and then come up with stuff from yestercentury? 🙂

  21. Great post Scott. I only hope that this mess reverberates across numerous boards of directors across a wide range of industries in the coming years. Universities (business & engineering colleges) often expose students to case studies on bad corporate practice and the resulting fallout in senior level ethics courses. We’re still several years away from this stuff making the text books but I hope truth emerges, right corrections are made, and the story is told. I believe Muilenburg and other board members were banking on, “this too will pass”. He (they) didn’t realize that he (they) would end up separated from the company as the ‘passing’ played out. Muilenburg is just the first domino.

  22. It is just striking in my opinion that Muilenburg and McAllister are pushed out and the top level bean counter who was an integral part of the team and strategy is given a free pass. Calhoun probably never met a bean counter he did not like.

  23. Apart from cleaning house, repopulating the board with aviation savvy members, and ditching its high and mighty, and destructive, attitude toward labor, Boeing needs to move its headquarters back to Seattle pronto so that its high level managers can visit the shop floor frequently and maybe even get a bit of cutting oil on their hands.

  24. Scott, why do you think the Max 9 and 10 should be replaced? From everything I have read, it sounds like the Max 10 should have a lower CASM than the A321 on short and medium length flights, which make up a significant majority of flights in the real world.

    • Can’t compare MAX seat width with A321. It’s like comparing 32in seat pitch on a MAX with 31in on A321, then the A321 would have 6 seats more for a CASM calculation.

      Very important are exit limits with different door configurations. Often door pairing 3LR is not needed on the A321 which would add another 6 seats.

      For short range there are 80t and 89t MTOW A321 configurations.

    • @Bruce: The MAX 9/10 will do well what they are designed to do, but field performance is inferior to the A321neo and lacking range, these are not as flexible for airline ops as A321. CASM differences aren’t great (certainly not as great as Boeing would have you believe). As noted, the market has spoken: it prefers the A321. The lopsided preference is why Airbus has 55%-60% of the single aisle market (depending on the point of measurement).

    • Many airplane decisions are driven by “edge of the envelope” considerations. There was a strong desire within United to standardize on Boeing equipment. But Boeing doesn’t have a 757 replacement – only the A321LR/XLR is available. United just bought 50 of them. So notwithstanding a desire by United’s operation to be pure Boeing, it will not be for the foreseeable future. That means other Airbus narrowbodies are now in the frame for future purchase (to leverage existing parts, training, etc to which United is now committed for the A321 purchase), and even, arguably, a somewhat greater likelihood to consider Airbus widebodies.

      And again, this happened because only the Airbus A321 has the necessary range.

      The 737MAX is simply less capable in some currently highly relevant dimensions than is the A32x family at the moment, and that’s counting against it. Incidentally, 15 years ago, it was the other way around. The NG was more capable in some relevant dimensions than the A32x CEO. Only the NG could make it from the US west coast to Hawaii, for instance. That drove some decisions for the 737.

      But put that all aide. The 737’s day is done. Boeing will still likely deliver a ton of MAXes, but a lot of passengers will avoid them for years. The deep tarnish on Boeing’s reputation will not fade for a decade or more, and one of the best ways forward is to replace the ancient guppy with a modern design.

      Do you know that the 737 is the only large passenger aircraft still in real production (kinda) that is not FBW, for instance? (the 747 pax and 767 pax are dead). In technological terms, it’s a living fossil. It’s appalling that Boeing reanimated the corpse one more time for the MAX, especially given the state of pilot training around the world. Financial engineering at its worst.

      • Boeing calculated that the 737MAX8 would generate a much higher profit per plane compared to what Airbus makes from the A320neo, hence in a price war Boeing would win.
        So even with an old basic design with a narrow and fairly light fuselage, the new wing and new engines would give it an operating cost advantage over the A320neo.
        Boeing kind of forgot the A321neo and that customers became used to the advanced features of the A320neo becoming standard on most new planes today including its own 787. The 737MAX is becoming the UH-1 of the 2020’s..

        • What was this calculation good for, to pay more dividends, buy back more stocks, and then?
          What can they offer, a 777X nobody wants, a discounted 787 only few took a chance with?
          How long will it take till Boeing announce a NEW plane, one which follows regulations. You have to think they could easily breed one.

  25. Watching Boeing’s troubles at the moment is like watching a huge ship crashing very slowly into a rock with a lot of momentum. The management are at the far end, and seem to have no idea that the other end of their vessel is crumpling up on the rock. They demoted the captain to helmsman, and now they’ve thrown him overboard, but that crumple zone is still advancing down the ship.

    Thing is, they’ve all got golden lifeboats, whereas everyone else who depends on the ship hasn’t, or their cargo isn’t insured…

  26. Muilenberg was already a dead man walking. I feel a little bit bad for the guy – he deserved it, but at the same time, I’m pretty sure that he was only executing exactly what the board wanted. He may have spent his whole life at Boeing, but he drank the McDonnell Douglas Koolaid for sure. He kind of struck me a little bit as the star pupil of the financial engineering types that are on the board. An experiment by the board in whether they could train a Boeing native to think like them. Why, yes, it’s unfortunately true that you can twist a Boeing engineer to be just as ****ed up as those on the board.

    I read that if you look at the last few years before the MAX, 100% of operating cashflow was being routed to shareholders. I am of course in favor of shareholders being rewarded, but this is a big capital intensive business and the idea that there wouldn’t be net investment is insane.

    Also, and I don’t think it’s accidental, Muilenberg was not from the commercial side of Boeing. It has now been over 20 years since the commercial side of Boeing was appointed to the CEO position, even though that is clearly the heart of Boeing. I don’t think that’s accidental. The people now in charge of Boeing do not trust the commercial side of the business to make “good” financial decisions, at least as the board would define “good”. It’s very much a McDonnell Douglas mentality.

    Just a week or so before Muilenberg was kicked out, the board declared the usual large dividend to shareholders. Nothing to worry about, shareholders, have your sweet, sweet dividend. Keep that share price high. It’s insane. Dividends are for companies that are not facing crises, and this is the biggest crisis Boeing has faced in almost 50 years, if not longer. If I was a shareholder, I’d take my dividend and run.

    But Boeing’s strategy, which I am sure was endorsed by the board, of trying to publicly pressure the FAA into getting the MAX back into the air ASAP, backfired badly. Sure, you can blame Muilenberg for not being an extrovert, for not making friends with Steve Dickson, but the fact remains that the strategy was obnoxious and grossly inappropriate, and it really doesn’t matter how charismatic or friendly or whatever Muilenberg was – the strategy was still obnoxious and grossly inappropriate. If a random guy comes up on the street and fondles you without your consent, that’s grossly inappropriate, it really doesn’t matter if he’s taken the time to sweeten his breath before he does so.

    The FAA bought itself a massive helping of goodwill and credibility from its other stakeholders by saying “enough is enough” and kicking Boeing where it counts. If I had the opportunity to shake Dickson’s hand and thank him for what he did, I would.

    That said, Muilenberg’s departure, while necessary, is less than opportune for Boeing. He was almost certainly going to be discarded after this mess was over, but the key words are “after the mess was over”. Boeing desperately needs new leadership, and the reality is everyone on its current board is badly tarred. But no big outside player will want to come in and fix things until the mess is over. So they have to live with Calhoun for now.

    I don’t care how qualified Calhoun is (he has a great resume) – he’s not the right guy for the long run because he’s been on the board for 10 years. That makes Calhoun culpable for the environment that caused those original disastrous MAX decisions to be made. This b*llsh*t financial engineering culture Boeing has had for 20 years needs to die, and Calhoun is as responsible as anyone for that.

    • “caused those original disastrous MAX decisions to be made”
      The Board knew that the Mcas system was extended from the small action at high speed to large action at low and high speed ?
      Of course they didnt , thats not how Boards of $100 bill company’s like Boeing work. It probably didnt even get to executive row at Boeing Commecial Aircraft HQ in Seattle.
      That Boeing has a culture problem, and that included the flight safety department is unmistakable, but this is also the same company that has advanced the flight safety with remarkable results for its 777 and 787 models.

    • @enplaned,

      “Just a week or so before Muilenberg was kicked out, the board declared the usual large dividend to shareholders. Nothing to worry about, shareholders, have your sweet, sweet dividend. Keep that share price high. It’s insane. Dividends are for companies that are not facing crises, and this is the biggest crisis Boeing has faced in almost 50 years, if not longer. If I was a shareholder, I’d take my dividend and run.”

      I hadn’t heard that. It is indeed insane. Right now, when the company may very well have to scramble to develop a new aircraft as quickly as it can, they’re giving away cash.

      If I were a shareholder, I would indeed be taking the dividend and running, possibly to buy Airbus shares…

      • The dividend of Boeing is small relative to the size of the company and its revenue.
        Yes , shareholders that might be retired , do rely on that income. They have the money , why not pay it . You may not know this but its what public companies do.

        • They have the money , why not pay it . You may not know this but its what public companies do.
          It’s usually what companies do that are doing well.
          Companies that are going through a year where they more than halved their deliveries while at the same time creating (and paying for) a huge stockpile of inventory, undergoing intense re-certification scrutiny (and cost) for their core product, and facing multi-billion dollar payouts to customers… generally tend to not pay a dividend, or a very much reduced one.

          Boeing has just decided to keep its dividend at its all-time high of $2.055
          By contrast, when teh A380’s initial troubles really hit EADS in 2005/06, they drastically reduced their dividend by more than 4/5.
          In 2009, as the A380 hit again, combined with the troubled A400M, they nixed their dividend completely. Because they had better things to do with that money.

  27. Dumping on Boeing is now the fashion but really their strategy was not that bad…. build the MAX for cheap and use the cash flow to build a NMM that will validate a new production system for a NSA. It all went wrong due to 1 strategic error and a terrible, terrible MCAS implementation.

    1) The strategic error: was not to buy the CSeries for $1 billion (even $2 billion). This is not the $1 Airbus got it for but much less than the $3.7 billion for Embraer. That would have given them a state of the art transcontinental (marginal transatlantic) single aisle with capacity up to 18o (via a CS500). Essentially a NSA for 1/4 the price of developing one. They could then launch a 5000+nm range NSA starting at about 200 passengers with a common cockpit to the CS range. This error is totally on Muilenberg.

    2) The implementation error was not disabling MCAS on AOA disagree. I know it should also have an authority limit and a never trigger repeatedly check. But just disabling it on an AOA disagreement would have prevented the entire crisis. This error is an inditement of the current Boeing engineering culture

      • Solution:
        Fully mechanic Yoke conversion kits
        ( i.e. Pulleys from the Yokes pull on the sidesticks 🙂

        Then I do think that Boeing excessively competent management would have
        soundly gutted and trashed the C-Series design/manufacturing setup into oblivion.

    • I don’t think that it was ever a good strategy to do the MAX. The good strategy was to have replaced the 737 back in the 1990s when it became obvious that the A320 was going to be a big hit and, moreover, was extensible towards the 757 market.

      The failure to adopt this strategy predates the arrival of McDonnell Douglas’s management. The continued failure to replace the 737 has been all theirs… Missing out on BBD C Series was indeed a bad mistake, and the implementation of the MAX has seemingly been dreadful.

      It’s widely understood that Boeing had the option to introduce a proper 737 replacement instead of the MAX, but didn’t take it. It remains to be determined whether the MAX is or is not certifiable; it is possible at the time of writing that it is not. If so then the indicators (troublesome wind tunnel results, limited scope for architectural changes, etc) for that situation could have, should have been available to Boeing a long time ago.

      • Well after they failed to develop a direct competitor to Airbus, MAX makes sense as a less worse option. I agree with all jbeeko posted.

        I also think that MCAS disaster is not a direct failure of top management, but they failed to stem or even created the culture that made possible a failure of that magnitude.

  28. There has been a continious effort to bring this down to an MCAS fix Unsuccesfully, because Boeing, FAA and congress can no longer fix this behind closed doors between the 3 of them.

    FAA killed the grandfathering of aging design and requirements 20 years ago. For good reason.

    https://www.flightglobal.com/faa-rules-kill-grandfather-rights-in-usa-and-europe-/32615.article

    To prevent out-of-date certification standards being miss-used.

    Until 2011, when the 737 needed to be saved from the NEO and CSeries. Now close your eyes and cover your ears, make noises….. Voila, the 737MAX!

    I assume all this came up as root causes during the 737 MAX crash investigations. JATR told us. But everybody involved cooperated for the good cause at the time. Including congress.

    https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.gao.gov/assets/690/683649.pdf&ved=2ahUKEwiw35ezjdLmAhWILMAKHaAMC1YQFjAAegQIBxAG&usg=AOvVaw2NKKAznSULmcDmmFp1pfAt

    We are still witnessing smoke screens, dancing on ice.. because it is not only MCAS and not only the MAX.

  29. Well, if they replace the Max 9 and 10 with a NSA, that first Max 10 could be a one of a kind airplane. Maybe it will be used as BBJ.,… or replace Trump’s 757… You never know.

  30. A Bloomberg news story I read in today’s paper (Thursday, Dec., 26) references more communications not yet release from the Boeing test pilots. In these communications the test pilot said and I paraphrase – the MCAS… appears to be “running rampant.” And then he said he might have unknowingly misled the FAA about it. “In separate emails he sent to the FAA…. he said he was “Jedi-mind tricking” regulators outside the US into accepting training for the Max.” I don’t have the link but the byline on the story is Alan Levin. He mentions this under the topic of what the new CEO will be dealing with.

    • This sounds like Forkner. Why is this old story brought up again.

      This reminds me of a few months ago when media outlets printed an 6-months old NYT article about Forkner again. As if the outlets got paid for advertisements and had to print this old article to relief pressure from Boeing.

      Makes me think that this whole Forkner stuff was played by Boeing lawyers. I wonder how much money Forkner got.
      Boeing lawyers provided these Forkner documents (fakes?) when they were still hiding other documents. On December 12, Dickson told Muilenburg to provide all self-certification documents.

      Nothing new.

      • Yes, it’s more click bait re using an old story and leaving out the important detail that the ‘test pilot’ never left the ground, and was just a ‘simulator jockey’.
        It has some use , but not in the way the story suggests

  31. Looking back ?

    This Max issue is just another decadal thing for Boeing
    2018 Max crash from a botched Mcas system
    2008 787 debacle
    1998 Boeing production lines a shambles and halts output for a month or so

    I’m wondering if there was a big problem too in the late 1980s?

  32. “I’m wondering if there was a big problem too in the late 1980s?”

    Airbus FBW families: A320, A340/330.

    Boeing PR machine went into overdrive.
    777 and 737NG answer in mid/late 1990ties.
    If you have to buy up competitor products to place your own …

    • This may not mean much, Leonardo seems prone to using lawsuits as a way to workout contractual issues. About a year ago they sued Airbus regarding terms of work on the a220 tail surfaces.

    • Makes you wonder about Southwest’s obsession with the 737.
      The 757 is not different in cross section size.
      The 767 was great for passengers.
      Now the A321 takes the market, indeed better than 737/757 but I would still prefer a 767 size. I think an A322 will come but that might be not easy to do. It could be like the 787-10, only stretched same MTOW with less range. So there would still be a place for a 767 size which could top a A322 below the A330.

      • 737 Fleet total 747 frames :-))

        A single type strategy is a simple/primitve environment for capacity management. also see Ryan Air. Market wise the frequency model is a cul de sac like the dinosaur evolution.

        • Really ?
          Some years Southwest made more money than all other US airlines combined…
          Worldwide more and more major airlines are copying the single model strategy in some form…ie huge numbers of flights on major routes with a single aisle type , when you would think they would up size when suitable.
          Its not a dinosaur , its more like the rapid evolution of the mammalian species

          • That is not the point.

            US market is a closed market.
            the special US environment disallows paradigm changes as that opens attack vectors.

            you can’t compete against a frequency model beyond “more frequency”. Even if other models can be more efficient.
            Dinosaurs competed on size with no recourse. A similar cul de sac. In the end a catastrophic Evolutionary dead end

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