Boeing is in more trouble than you think

How bad could things get for Boeing?

It feels like the aviation giant makes headlines every day. Since my last article, Boeing has faced an endless series of problems: United Airlines 737 MAX reported flight controls It broke down when the plane landed In Newark. The FAA reports problems with de-icing equipment on 737 MAX and 787 Dreamliner aircraft.Which raised fears that the engines would lose momentum. And the last one is A A LATAM 787 Dreamliner flying from Australia to New Zealand fell mid-flightAs a result, 50 people were injured, some of whom fell from their seats on the roof of the plane. The Justice Department opened a criminal investigation into the company, and the Federal Aviation Administration expressed extreme frustration with Boeing's responses to its inquiries while investigating the loss of a door plug on an Alaska Airlines flight, which set off a series of problems for the company.

In my last article, I said I would make some suggestions for the company's path forward. But as recent events have unfolded, I've heard from several people with inside knowledge of Boeing's corporate culture. My biggest takeaway, other than my gratitude for them coming forward? Things are much worse than I thought (and I've been saying that Boeing has been in trouble for 14 years).

Boeing's problems begin with the fact that its financial situation is worse than it seems. Boeing is divided into multiple divisions, including Defense, Commercial, and Global Services (a division that provides aircraft maintenance, modification, and repair, among other services). Boeing has historically relied on defense to cover gaps when Boeing's business falters. However, the US defense budget is likely to remain functionally stable—or perhaps even decline after accounting for inflation—for the foreseeable future, as the US government's finances are constrained by rising deficits, rising interest rates, and increased entitlement spending. Absent a major change in U.S. government priorities, there simply isn't room in Boeing's defense budget to grow enough there to make up for its losses in civil aviation.

The cavalry does not come. Perhaps even more troubling is the fact that Boeing does not seem to realize that this is the case bad And it is likely to get worse – even without significant government intervention, which seems more likely by the day. Admittedly, some problems are likely not unique to Boeing. Other aircraft have had safety issues in the past: In 2021, Qatar Airways files a lawsuit against Airbus over chipped paint on its A350 aircraft, exposing a copper grille, citing a safety risk. In 2018, A third of A320neo aircraft powered by Pratt & Whitney engines have been affected by a new engine fault. But in light of the recent series of crises, at any time anything As with Boeing, the news headlines will inevitably highlight this.

Boeing clearly has a PR problem.

But more importantly, it suffers from a leadership and culture problem. As I wrote in 2020, and again just a few weeks ago, what Boeing needs are engineers — not financiers — to lead it into the future. This does not mean that engineers at Boeing in the past were perfect, that is far from the case. This does not mean that all of Boeing's non-engineering leaders failed: Bill Allen, the greatest CEO in Boeing's history, was a lawyer. The problem with Boeing is that engineers have been alienated from its culture and approach. Its historic commitment to engineering excellence has been abandoned and replaced by a Jack Welch-style obsession with return on net assets.

Dave Calhoun, Boeing's current CEO, has held the position for only three years. But he had been on the board since 2009, and was completely uninvolved in Boeing's downward spiral. Boeing's recent crises didn't come suddenly, and they certainly shouldn't have surprised Calhoun, who was hired in 2020 to replace former CEO Dennis Muilenburg (Muilenburg was fired after 346 people were killed on a Boeing 737 in 2018 and 2019). Max 8 incidents).

Calhoun should have been ahead of this a long time ago. Instead, things seem to have gotten worse during his reign. And at least so far, he doesn't seem interested in restoring Boeing to its former greatness. In November, for example, he announced that Boeing would not develop a new plane for at least another decade. The last “clean” Boeing — a new plane designed entirely from scratch — was the 787, launched in 2009. When he made that statement, he told an entire generation of Boeing engineers that they would spend their entire careers without paying for one. Advancing the civil aviation state of the art. What talented aerospace engineer, who knows that, would choose to work for Boeing?

Why did Calhoun make these choices? His background gives us an idea. Calhoun is an accountant trained under Jack Welch – the man who transformed General Electric from the world's largest industrial conglomerate into a hedge fund that also happened to own a few factories. It was Jack Welch's management style, more than anything else, that put Boeing in its current crisis, as the legendary aviation analyst so brilliantly described. Richard Aboulafia on the Odd Lots podcast. In fact, if you look at Boeing's senior executives, Calhoun's lack of engineering background is typical. Stephanie Pope, his chief operating officer, is also an accountant. from the beginning nine Of the senior executives listed on Boeing's website, only two hold engineering degrees.

It is time – in fact, long past time – for Boeing's Board of Directors to step in (note here – one of the board members, retired Admiral John Richardson, was the Chief of Naval Operations on whose senior executive advisory committee I served. He is a brilliant engineer and a great leader (He's someone I have great respect for, but we've never communicated about anything Boeing-related.)

Boeing desperately needs new leadership, and I will provide my suggestions soon. It also needs a new strategy and culture. Or, indeed, it needs an old culture — one that successive generations of leaders had before — where Wall Streeters became more interested in getting an extra penny per share in their next quarter than in building the kinds of airplanes that made Boeing. Great – squandered the legacy of one of America's most famous and important companies.

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