An American Airlines Boeing 737 MAX 8 flight from Los Angeles approaches for landing at Reagan National Airport shortly after an announcement was made by the FAA that the planes were being grounded by the United States in Washington, U.S. March 13, 2019.
Joshua Roberts | Reuters
Boeing executives spent years after two fatal 737 Max crashes trying to convince Wall Street, regulators, airlines and the flying public that they had an eagle eye on quality, reliability and safety.
Then on Jan. 5, about six minutes and 16,000 feet into a packed flight out of Portland, Oregon, a door plug blew out of a nearly new Boeing 737 Max 9. The panel was missing key bolts that hold it in place, which the company had removed to fix damaged rivets, according to early accident reports.
No one was seriously injured, but the harrowing flight jolted Boeing’s leaders back into crisis mode. It also reignited scrutiny and skepticism from the same groups the iconic plane-maker spent years trying to win back after the two Max crashes.
Now Boeing’s leaders say they have charted a path forward to fix the company: Better oversight, improved safety and manufacturing procedures, and more robust training for workers, many of them new hires after pandemic-era buyouts and layoffs of thousands of employees.
Boeing this month unveiled a long-awaited deal to buy back its troubled fuselage supplier, Spirit AeroSystems, in a bid to help stamp out production flaws.
A week later, Boeing said it reached a deal with the Justice Department to plead guilty to a federal charge of conspiracy to defraud the U.S. government tied to the fatal 737 Max crashes. Attorneys representing crash victims’ families blasted the agreement as a “sweetheart” deal. If approved by a federal judge, it would allow Boeing to avoid a potentially lengthy and costly criminal trial, though it would also brand Boeing as a felon.
“This past January, the facade quite literally blew off the hollow shell that had been Boeing’s promises to the world,” Sen. Richard Blumenthal, D-Conn., said in testimony for a Senate panel hearing he called last month, where Boeing CEO Dave Calhoun was roasted by lawmakers.
The fuselage plug area of Alaska Airlines Flight 1282, Boeing 737 Max 9, which was forced to make an emergency landing with a gap in the fuselage, is seen during its investigation by the National Transportation Safety Board (NTSB) in Portland, Oregon, U.S. January 7, 2024.
NTSB | Via Reuters
Industry watchers and insiders say a string of decisions stretching back decades — from a 1997 merger to outsourcing — led to the problems at the longtime touchstone of American manufacturing quality and innovation. Boeing employs some 170,000 people, and its products have landed everywhere from the Maldives to the moon.
Even with its road map in hand, fixing its problems and restoring Boeing’s reputation will take years — and it won’t be cheap.
And Boeing still has plenty of people to convince.
Boeing hasn’t posted an annual profit since 2018, and the plane maker’s shares have tumbled about 30% this year while the broader market rallied. Its stock closed at a high of $440.62 in March 2019, days before the second Max crash. It now trades closer to $185 per share.
Boeing finance chief Brian West told investors in May that the company expects to burn, rather than generate, cash this year, some $8 billion in the first half of 2024. It reports quarterly results on July 31.
“This company is more important than a few quarters of Wall Street,” Aengus Kelly, CEO of aircraft leasing giant AerCap, a major Boeing customer, said in an interview in the spring. “It has to be nurtured and rebuilt.”
Boeing will be back on the global stage next week during the biennial Farnborough Airshow in the United Kingdom, one of the world’s largest aircraft shows. But the manufacturer will have a muted presence: It’s not sending its yet-to-be-certified 777X, 737 Max 7 or Max 10 planes as Boeing employees focus on the fixing problems at home rather than showcase its new planes as it did during past air shows.
Delayed deliveries
Boeing began 2024 fresh from a surge in annual jetliner sales and a jump in deliveries, welcome tallies that appeared to show the company was turning a corner after the fatal dives of two 737 Maxes in 2018 and 2019 that killed all 346 people on the flights.
But the Jan. 5 door plug blowout on Flight 1282, operated by Boeing’s crosstown customer Alaska Airlines, brought a swift response from regulators. The Federal Aviation Administration barred Boeing from increasing output of its Max planes and stepped up hands-on inspections at production plants. The FAA said in March that its audit found “non-compliance issues in Boeing’s manufacturing process control, parts handling and storage, and product control.”
Its production limitations have exacerbated delivery delays for Boeing customers, a slowdown that’s impacting its commercial jet business, as airlines pay the bulk of a plane’s price when they receive it. That division accounted for more than 43% of Boeing’s nearly $78 billion in revenue last year.
In the first half of 2024, Boeing delivered 175 airplanes, compared with the 323 aircraft that Airbus handed over during the same period. The two companies dominate the commercial jet market.
Leaders at the top of major airlines from Emirates to Southwest have aired their frustration with the jet maker as deliveries run behind schedule. Southwest, United and American have blamed slowdowns in hiring and changed flight plans on Boeing’s delays.
“Boeing needs to become a better company,” Southwest CEO Bob Jordan said at a JPMorgan industry conference in March, an uncharacteristically strong comment from the leader of the all-Boeing 737 airline.
Even if planes arrive late, compensation doesn’t often make up for the shortfall of jets.
“I’m not in the compensation business. I’m the airline business,” Etihad Airways CEO Antonoaldo Neves said in an interview.
Tight supply at both Boeing and Airbus makes shifting orders over to the European company nearly impossible. Both companies are sold out of narrow-body planes through almost the end of the decade. Boeing has an order book of more than 5,400 jetliners, after accounting adjustments, while Airbus has about 8,000 unfilled orders.
And Airbus isn’t on solid ground either, warning customers and investors last month that supply chain problems will slow its planned ramp up in production and slow deliveries.
Earlier this year as airline executives’ patience wore thin, they sought meetings with Boeing’s board chairman, people familiar with the matter said.
Shortly afterward, Boeing in March announced a leadership shake-up, with the head of its all-important commercial airplane unit replaced. CEO Calhoun, an alumnus of General Electric and Blackstone, said he would step down by the end of the year. Boeing replaced its chairman, too, installing ex-Qualcomm CEO Steve Mollenkopf.
Boeing hasn’t yet named a replacement for Calhoun. The CEO of Spirit AeroSystems, Pat Shanahan, who previously worked at Boeing and served as former deputy secretary and acting secretary of defense under former President Donald Trump, is considered a strong contender.
Across the airline industry, executives publicly and privately say they would rather Boeing take the time to fix problems than face prolonged uncertainty over when new planes will be delivered.
Long history
The 108-year old Boeing has a firm place in American history. Its bombers were crucial in World War II. It has built presidential aircraft. Former Presidents Barack Obama and Donald Trump have each held events Boeing 787 Dreamliner factories. And in space, a Boeing-built rocket propelled Apollo 11 to the moon in 1969.
Most of the general public knows Boeing as the company to usher in the jet age. It designed and launched four aircraft in just over a decade, including the first 737.
The narrow-body plane was soon dwarfed by Boeing’s groundbreaking and more glamorous jumbo jet, the 747, which could fit more than 500 people, and in some configurations, a piano bar. The 737 was dubbed “Baby Boeing” and went on to become the company’s bestseller, helping to make Boeing the largest U.S. exporter. It has built more than 11,000 of the 737s to date.
“Without Boeing, the world is a worse place,” AerCap’s Kelly said.
But within a five-month span in 2018 and 2019, two Max 8 planes crashed: one in Indonesia operated by Lion Air that plunged into the Java Sea, killing the 189 people on board; and one operated by Ethiopian Airlines that crashed shortly after takeoff from Addis Ababa, killing the 157 people on that flight.
Pilots in those Boeing planes fought against a flight-control system, the Maneuvering Characteristics Augmentation System, that pushed the nose of the planes downward repeatedly. The Department of Justice later alleged the company misled the FAA about the system, the charge to which Boeing ultimately agreed to plead guilty.
Rescuers work at the scene of an Ethiopian Airlines flight crash near Bishoftu, or Debre Zeit, south of Addis Ababa, Ethiopia, Monday, March 11, 2019.
Mulugeta Ayene | Reuters
Last year, it looked like Boeing was back on a better footing.
“I have heard those outside our company wondering if we’ve lost a step. I view it as quite the opposite,” Calhoun said in note to employees last October.
Months later, the powerful blast from the Alaska Airlines door plug blowout ripped off head rests, seatbacks and the first officer’s headset, leaving a gaping hole in row 26. The incident terrified passengers and exposed the most serious in a series of quality control issues on Boeing jets. Previous issues included mis-drilled holes and incorrect spacing on some of Boeing fuselages.
The manufacturer’s production portfolio includes a host of jets that are regularly flown commercially around the world: the workhorse 737, the wide-body 787 Dreamliner, and soon, once approved by regulators, the 777X.
And while production flaws make headlines, Boeing jets continue to carry travelers safely around the world, with more than 13,000 at the end of last year. The company has a 45% market share of commercial jets currently flying, according to AeroDynamic Advisory.
Across all of its divisions, its customers also include the U.S. and foreign militaries, and NASA — and some of those units haven’t been without issue either.
“Our airplanes have carried the equivalent of more than double the population of the planet,” Calhoun said in testimony to a Senate panel last month for a hearing titled “Boeing’s Broken Safety Culture.”
“Getting this right is critical for our company, for the customers who fly our planes every day, and for our country,” he said. He apologized during the hearing to the family members of the Lion Air and Ethiopian crash victims, as they held posters with pictures of lost loved ones.
Cost-cutting proves costly
Critics say a yearslong push to reward Boeing shareholders and lower costs came at the expense of building totally new aircraft, in favor of updating older models. Boeing also outsourced production of key parts to suppliers that it increasingly put under pressure to deliver, exposing the supply chain to potential flaws.
United CEO Scott Kirby told CNBC in January that he believes the issues date back to Boeing’s merger with competing airplane manufacturer McDonnell Douglas in 1997. The tie-up is often cited as a turning point for Boeing that replaced its once engineering-led culture with a greater focus on returns.
From 2010 to 2019, Boeing spent $68 billion on stock buybacks and dividends, according to Melius Research analyst Rob Spingarn.
“This is a long time building,” Kirby said.
BOZEMAN, MT – MARCH 12: Boeing 737 Max 8 fuselages manufactured by Spirit Aerosystems in Wichita, Kansas are transported on a BSNF train heading west over the Bozeman Pass March 12, 2019 in Bozeman, Montana.
William Campbell | Corbis News | Getty Images
In 2001, Boeing moved its corporate headquarters from its original home in Seattle to Chicago, farther away from the factory floors where it had built aircraft since the early 20th century. In 2022, it moved headquarters again to Arlington, Virginia.
In 2005, Boeing sold its Wichita division that makes fuselages for many of its planes to a private equity firm for just under $1 billion. That spinoff would eventually become Spirit AeroSystems, which Boeing is now buying back for about $4.7 billion plus debt.
And in 2020, Boeing said it would consolidate 787 Dreamliner production in South Carolina, more than 2,400 miles away from its other manufacturing facilities in Washington state, including where the Dreamliners were previously built. It also outsourced parts production to a network of suppliers.
Those moves have been put under a microscope in recent years as Boeing disclosed recurring production flaws. Allegations from whistleblowers at the company and at Spirit have claimed Boeing was cutting corners in production.
Calhoun, when asked about outsourcing production to Spirit, told CNBC in January: “Did it go too far? Yeah … probably did, but now it’s here and now I gotta deal with it.”
Flaws on its planes have cost Boeing billions of dollars due to periods of production drops, delivery pauses and compensation to customers.
Turning a page
Boeing does say that it’s on the right track.
For one, it’s been forced to slow production of its planes. While painful in the near term because it drives up costs and deprives the company of new planes to hand over to customers, executives say it’s the way to make sure manufacturing flaws don’t reappear.
Jefferies estimates Boeing produced about 24 Max jets a month in the second quarter and could move to roughly 35 a month in the last three months of the year. Boeing has said it aims to increase rates to about 50 Max planes a month in the next few years.
It’s also brought employees into the recovery effort. The company has held so-called “stand-downs” at its factories to pause work and discuss problems on the line.
And its plea deal with the DOJ, if approved by a judge in the coming weeks, could allow the company to settle a federal probe with a roughly $244 million fine and a probationary period of three years, during which time an independent monitor would oversee quality control, and other conditions.
Boeing’s CEO Dave Calhoun and chief engineer Howard McKenzie turn to face those who lost loved ones in fatal crashes as they testify before a Senate Homeland Security and Governmental Affairs Committee Investigations Subcommittee hearing on the safety culture at Boeing, on Capitol Hill in Washington, U.S., June 18, 2024.
Kevin Lamarque | Reuters
“We are taking comprehensive action today to strengthen safety and quality,” Calhoun said in his testimony before the Senate panel last month. “And, we know, as America’s premier aerospace manufacturer, this is what you and the flying public have every right to expect from us.”
Goldman Sachs aerospace analyst Noah Poponak said Boeing can “still make a product that’s a total marvel. If they can get their act together, I think their reputation can improve quickly.”
Promoting and building up the Boeing workforce will be key in the coming years, according to Alex Krutz, managing director of Patriot Industrial Partners, an aerospace consulting firm.
The company has more competition for new workers than in previous generations in the Seattle area, he said, because of rapid expansion of tech companies there in the past few decades, as well as engineering competition from the private space industry.
“Companies thrive or don’t based on leadership,” he said.
The International Association of Machinists and Aerospace Workers, District 751, which represents some 30,000 Boeing technicians in Washington State and Oregon, is currently in contract negotiations with company, seeking more than 40% raises and a seat on Boeing’s board.
“We have more leverage than we’ve ever had in our history,” said Jon Holden, president of IAM District 751. “There’s massive demand for new airplanes.”
Some analysts say designing a new plane could help attract talent and set the company up for years to come, a project that was largely set to the backburner after the crashes.
The advice of Richard Aboulafia, an longtime aerospace analyst and a managing director at AeroDynamic Advisory is simple: “Begin a new program, and say, ‘We’re a company with a future.'”