What went wrong with Boeing?

This year, a fuselage panel blew up one of the jets. The Starliner space capsule left two astronauts in orbit. The largest trade union stopped aircraft production, which deepened the cash drain. He’s ready to plead guilty in a case involving two fatal accidents, and his credit score flirts with junk status.

There are many potential villains here: a culture that favors financial engineering over aeronautical engineering, an outsourcing strategy that shifts work to cheaper factories or suppliers, a preference for production goals over safety goals, and a remote leadership away from employees.

Whatever the reason, Boeing has reached the point where people are really asking themselves: Can Boeing fail? And what would the ending look like in such a scenario involving a national icon?

After the disasters reduced public confidence in the company, regulators, under pressure from lawmakers, began scrutinizing Boeing more closely, slowing deliveries and approvals of new plane models.

Kelly Ortberg, who took over as Boeing’s CEO just three months ago, told investors and employees last week: “Confidence in our company has declined.” Boeing declined to comment and referred to Ortberg’s comments this week.

“Returning Boeing to its legacy will take time, but with the right focus and culture, we can once again become an iconic company and a leader in the aerospace industry,” he said. In a memo to employees, Ortberg said the company needs to fix a broken culture, shrinking and improved execution.

To plug the cash drain, Ortberg decided to lay off 17,000 employees and sell up to $25 billion in stock or debt. Boeing is considering selling some of its space businesses. But the new executive has failed to reach an agreement with the 33,000 mechanics who left six weeks ago in search of higher pay and benefits. The strike wipes out $1 billion a month from Boeing’s dwindling reserves.

In many respects, the planemaker’s assembly problems have their roots in the 737 MAX, the latest version of its decades-old single-aisle workhorse.

The focus on cutting training costs coincided with design errors that led to the fatal crash of Lion Air Flight 610 six years ago this month. Boeing’s subsequent inability to admit its mistakes and quickly address the plane’s safety problems has prepared set the stage for a second crash just months later in Ethiopia, squandering the trust the company had placed in regulators, airlines and passengers for decades.

After the first 737 MAX crash on October 29, 2018 in Indonesia, Boeing downplayed problems related to a faulty flight control system and instead pointed to errors by pilots and airline staff.

According to an agreement with securities regulators, then-CEO Dennis Muilenburg directed his communications team to remove from the draft press release any mention of work to repair the new cockpit component that caused the plane’s fatal plunge. The press release said the MAX is “as safe as any aircraft that has ever flown in the sky.” Boeing and Muilenburg settled the case without admitting or denying wrongdoing.

There is debate inside and outside the company about whether Boeing’s overemphasis on financial metrics has led to cultural decline. Critics trace the beginning of the decline to the 1990s, when Boeing began adopting many of the management practices common at its supplier, General Electric, including a focus on short-term profitability.

Rival merger McDonnell Douglas in 1997 further cemented Boeing’s shift away from an engineering-led culture toward more centralized corporate control. The decision to relocate its headquarters from its manufacturing center in Seattle to Chicago in 2001 and then to Virginia in 2022 exemplifies this change.

Special attention to financial indicators had a positive impact on the aerospace industry, which at that time often did not spend money on things that airlines actually needed. For example, the L-1011 TriStar was beloved by engineers, but came late and had too short a range, effectively putting Lockheed Martin out of the commercial airliner industry in the 1980s.

But as the culture changed at Boeing, some engineers became afraid to raise safety issues with managers or faced undue pressure, current and former employees say. In the run-up to the first MAX accident, some feared that the flight control system, known as MCAS, could lead to costly simulator training for airlines and make purchasing the plane less attractive. Boeing said it was taking steps to encourage more employees to express their concerns.

Federal prosecutors unearthed an email they said showed a Boeing employee was under financial pressure to deceive the Federal Aviation Administration into not requiring pilots flying the MAX for simulator time. The email said the employee feared he would be accused of “the one that cost Boeing tens of millions of dollars!”

Muilenburg seemed concerned that regulatory issues after the first accident could disrupt the company’s cash flow. “We must be careful to ensure that (the FAA’s interest in pilot manuals) does not turn into a compliance issue that restricts near-term deliveries,” the CEO said in one email that appeared in shareholder litigation.

When David Calhoun took over as CEO in 2020, he said the company would focus on building trust and getting back to basics. “We will have a little less vision and a little less long-term planning,” Calhoun told reporters at the time. “We will get back to restoring trust in each other, trust in our customers, and trust our regulator and we will remain transparent every step of the way.”

There were increasing quality and workmanship problems in commercial, defense and space aircraft programs. Boeing management has repeatedly said it will focus on safety, engineering and quality. Since 2018, the company has not achieved an annual profit.

The Alaska Airlines blowout in January revealed that many of Boeing’s problems remained unresolved. Government investigations revealed that frontline workers continued to face production pressures and aircraft problems continued to move down the production line and leave the factory.

David Boulter, the FAA’s safety chief, said the key to fixing Boeing is ensuring all employees can speak up about problems and be heard – the kind of culture that has helped improve safety at the airline.

“That’s certainly where we’ve seen the greatest airline success,” Boulter said on the sidelines of an industry event this month in Las Vegas. “People with an excellent safety culture have a strong safety record.”

The planemaker lost about 20% of its stock market value after the Ethiopian Airlines crash in March 2019, which grounded the global 737 MAX fleet. But even that didn’t completely reverse the big rally in the previous three months that had pushed the stock to a record high of $446.

In December 2019, when the company was forced to temporarily stop production of the plane, the company’s shares held steady. The decline only occurred at the onset of the Covid-19 pandemic in 2020, when all production was halted and the recertification of the MAX was further delayed.

Now investors have accepted that Boeing’s profits will be much smaller in the future. The shares are worth $155.

As a result of the ongoing strike, all three major ratings firms have issued a warning that Boeing’s debt could be downgraded to “speculative.”

Wall Street analysts estimate that increasing production to more than 50 MAXs and 10 Dreamliners a month would generate more than $10 billion a year, but this is proving increasingly elusive. On Wednesday, Chief Financial Officer Brian West told analysts that Boeing’s operations will burn cash in 2025.

While the long-term business case may be strong, investment-grade companies simply don’t burn cash.

In the second half of the decade, executives will need to begin investing significantly in the development of a new, innovative single-aisle aircraft to replace the MAX. Failure to do so would likely mean giving up direct competition with European rival Airbus.

More than a decade has passed since Boeing began delivering the Boeing 787 Dreamliner, its last “clean sheet” commercial design – that is, not based on a previous model. However, excessive outsourcing has exposed this program to problems.

To reignite its true success story, Boeing must go back to the 1990s, when a team led by longtime company engineer and later Ford Motor CEO Alan Mulally designed the 777 in collaboration with airline customers and pioneered new tools for computer design.

Some analysts believe the best way forward would be to split the company so that each division could better focus on its strengths, following in GE’s footsteps. Boeing’s defense, space and security division, which generates 31% of total revenue, could perhaps do without space projects that fall short of Elon Musk’s SpaceX. But for the rest, advances in aerodynamics, materials science and manufacturing processes often combine defense and commercial interests.

The defense business also gives Boeing access to lucrative Pentagon contracts, reinforcing the perception in Washington that the company is “too big to fail.”

With a debt of $58 billion, $12.5 billion of which is due in 2025 and 2026, there is no easy way out. Boeing appears to be issuing new shares worth about $10 billion of the total $25 billion it could raise. Typically, equity investors are afraid of dilution. This time around, many are encouraging executives to max out their cash hoarding to gain room to maneuver.

It may be that as time runs out to recover from the crisis, the interests of producers and bean counters will finally align.

Write to Andrew Tangel at [email protected] and Jon Sindreu at [email protected]