By Jon Sindreu
November 18, 2020 1:21 pm ET
A dark chapter in Boeing’s history can finally be closed. The moral is that business works best when finance and technology are in creative tension.
On Wednesday, the Federal Aviation Administration approved the Boeing 737 MAX jet for passenger flights, more than 20 months after grounding it. Shares of the company initially rose, but later gave up their gains in a sign that many investors cashed in after the announcement—though the stock is still up 45% in November. The plane maker now faces an uphill battle to deliver the 450 MAX jets it has in storage. Chief Executive David Calhoun has admitted that plans to ship most of them within a year of the “ungrounding” have been upset by Covid-19. This in turn puts the MAX’s scheduled production rates at risk.
What can investors and analysts learn from this fiasco, now that industry leadership has been ceded to European rival Airbus ?
First, the initial impression in 2019 that the plane crashes involving the MAX were only a minor setback for Boeing was mistaken. It failed to take into account that the aviation industry is exposed to unpredictable disasters, like Covid-19 and 9/11 before it. It also missed that the accidents involving the MAX were a sign of deep-seated problems, such as the increasing power of bean counters over engineers at Boeing and the dangerous lack of oversight of regulators like the FAA.
But doomsayers who claimed the MAX would never fly again also were wrong. Many analysts lambasted the decision to update the 53-year-old 737, rather than launch an all-new model, as an example of the company’s excessive financial focus. This also is questionable.
The call to build the MAX in 2011 had a lot more to do with excessive haste: Airbus had suddenly come out with the re-engineered A320neo and pressure from American Airlines forced Boeing to respond quickly. Even so, the MAX could have been an efficient way to temporarily meet the challenge, especially if the extra resources had been dedicated to a new midsize jet.
This is where a culture that gave priority to meeting targets over safety did real harm: It fast-tracked a flawed plane. This was likely unrelated to whether the aircraft was a clean-sheet model or not: The obsession with lowering development costs also plagued projects such as the now-successful 787 Dreamliner, and probably delayed the announcement of a much-needed new midsize aircraft—now indefinitely postponed.
Yet excessive focus on developing new technology also can be problematic. In the late 1960s, Lockheed Martin and McDonnell Douglas bet the house on large trijet planes that delighted aerodynamicists but missed where the market was going. Both ended up exiting the commercial-jet business. Another example is the unsuccessful Airbus A380 superjumbo.
The lesson for Chicago-based Boeing is that financial and engineering rationales each need to play their proper role. The MAX will remain popular but still lose out against its Airbus peer. It would be a mistake for an indebted Boeing to stretch itself too thinly to challenge this supremacy. At the same time, the firm needs to regain its engineering focus to look ahead to the mid-2030s: The potential for hybrid propulsion and even hydrogen to revolutionize aircraft is hanging over the aerospace industry. Boeing will need a new model that beats the competition in both short-haul and medium-haul flights.
Boeing’s recent history has been one of struggle between the engineers in Seattle and the executives in Chicago. It is time they find common ground.
Major omission here for why the 737 MAX was concepted: being a more "green" aircraft to compete against the A320neo by changing the new engine location on the wing.
ReplyDeleteBoeing statement on being pressured by "progressive green" groups: "Reducing emissions is aligned to our customers’ strategic desire to decrease fuel use, a major cost and priority in their purchasing decisions. Our customers increasingly require that Boeing’s products and services include environmentally progressive attributes."
Check out the Seattle Times - its aerospace writer Dominic Gates wrote a series of in-depth articles about the woes of the Max as well as Boeing's and the FAA's complicity in the issue. Dominic knows the aviation industry and is not a Boeing apologist.
ReplyDeleteSo, here's the truth for the flying public to know, since we can't get it from the media. The aircraft was never unsafe to fly. What is unsafe is the training and maintenance of these "rising" 3rd world air carriers. Perhaps Boeing shares some blame for "assuming" the pilot-in-command could handle a common problem by not mandating an update or review of those emergency procedures. Since all the gee-whiz automatic computer fly the airplane stuff still REQUIRES a pilot that knows what [s]he's doing. When you get uncommanded input from an automated/computer driven system, you turn it off, and you FLY THE AIRPLANE. Every professional aviation journal on this planet has questioned why that did not occur, and the answer is obvious: poor pilot training. I'm telling you this: until the world does recognizes this serious shortcoming in the industry, something will happen again, in any aircraft. It already has happened in a Pakistan crash in an Airbus. Don't fly until they correct training.
ReplyDeleteThe MCAS system was clearly unsafe. The idiot engineers thought a single-thread control system driving a horizontal stabilizer was a good idea and that an average(ha?) pilot could discern the faults made it a safe system. The big problem here was lack of adequate systems engineering by Boeing to ensure failures don't propagate into accidents, and lack of adequate oversight within Boeing to analyze failure effects. When designing such a system you have to assume the pilot is an idiot (not trashing pilots here - just have to make the assumption) and the system should have adequate safeguards to prevent it from causing harm when it fails. This whole accident scenario is not much different from the Air France 447 accident (A330) from a piloting-ability perspective.
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