Speaker 1: I'm Bethany McClane. This is making a killing in this show.
Speaker 1: I cut through the hype and handwringing to reframe the
Speaker 1: stories you thought you understood and uncover the ones you
Speaker 1: didn't know were important. On October twenty ninth, twenty eighteen,
Speaker 1: Lion Air flight six ten took off from Jakarta and
Speaker 1: crashed into the Javacy, killing all one hundred and eighty
Speaker 1: nine passengers and crew aboard. Less than five months later,
Speaker 1: on March tenth, two, nineteen, Ethiopian Airlines flight three O
Speaker 1: two crashed over the countryside, killing everyone on board. What
Speaker 1: a grim opening for this episode. Put stick with me
Speaker 1: as the world now knows. Both planes were Bowing seven
Speaker 1: thirty seven Max jets, a new model that had become
Speaker 1: the fastest selling plane ever in between the crashes. Bowing
Speaker 1: said this, as our customers and their passengers continue to
Speaker 1: fly the seven thirty seven Max to hundreds of destinations
Speaker 1: around the world every day, they have our assurance that
Speaker 1: the seven thirty seven Max is as safe as any
Speaker 1: airplane that has ever flown the skies. But it would
Speaker 1: turn out that Boeing allegedly knew there was a problem
Speaker 1: with a key sensor back in twenty seventeen, long before
Speaker 1: the crashes, and there's more to the story. With the
Speaker 1: Max's grounding in March. Boeing has now had two airplanes
Speaker 1: taken out of the sky by the Federal Aviation Administration
Speaker 1: in six years, following battery fires on its Dreamliner in
Speaker 1: twenty thirteen. The last model the FAA grounded was the
Speaker 1: McDonald Douglas DC ten back in nineteen seventy nine. Now
Speaker 1: Boeing is facing congressional scrutiny, lawsuits, and public fury in spades.
Speaker 1: At the company's annual meeting in Chicago in April, family
Speaker 1: members of crash victims stood outside in a driving rain,
Speaker 1: holding up photos of loved ones and signs reading prosecute
Speaker 1: bowing and exacts from manslaughter and Boeing's arrogance kills. How
Speaker 1: could this happen to Boeing, which was supposed to represent
Speaker 1: everything that was best about American manufacturing. Bloomberg writer Peter
Speaker 1: Robeson conducted more than a dozen interviews with former employees
Speaker 1: and FAA inspectors, and went through hundreds of pages of
Speaker 1: internal emails and records, and a piece entitled former Boeing
Speaker 1: Engineers Say relentless cost cutting sacrifice safety. He writes this
Speaker 1: the crisis is best understood as part of a larger
Speaker 1: drama that's played out as Boeing has reshaped its workforce
Speaker 1: in an all consuming focus on shareholder value. It wasn't
Speaker 1: supposed to be this way. Theoretically, the company that makes
Speaker 1: the best, safest product wins competitions should engender a race
Speaker 1: to the top, not a race to the bottom. Good
Speaker 1: business practices and good profits should go hand in hand.
Speaker 1: Helf forget the theory. We have actual proof that this
Speaker 1: is the way it works. There are famous examples from
Speaker 1: business history. Who can forget Paul O'Neill, who, as Alcoa's
Speaker 1: newly minted CEO, gave a speech to the Wall Street
Speaker 1: investment community in nineteen eighty seven in which he spoke
Speaker 1: not about profits and cost cutting, but rather about worker safety.
Speaker 1: He said his goal in the company was to reach
Speaker 1: zero injuries. When an analyst asked him about company inventories,
Speaker 1: O'Neill replied, I'm not certain you heard me. If you
Speaker 1: want to understand how alco is doing, you need to
Speaker 1: look at our workplace safety figures. By the time O'Neill
Speaker 1: retired in two thousand, Alcoa's market cap had grown nine
Speaker 1: hundred percent and worker injuries had dropped to a meniscular level.
Speaker 1: Has something changed today? So many companies operate in an
Speaker 1: environment of fear. Fear that they'll be taken over if
Speaker 1: earning sag, or if they lose ground to a competitor,
Speaker 1: Fear that an activist investor will oust management, thereby ending
Speaker 1: their rich paychecks. In that pressured environment, what gets sacrificed
Speaker 1: on the altar of more profits? Now, if this could
Speaker 1: happen to Boeing, what's the lesson for other companies? I'm
Speaker 1: thrilled to have Peter here with me from Seattle. After
Speaker 1: starting on the Boeing beat in nineteen ninety eight and
Speaker 1: then leaving that beat and then coming back to it,
Speaker 1: what was your reaction to how the company had changed?
Speaker 1: I suppose it was surprise, mostly because the background chatter
Speaker 1: and grumbling that I've been hearing twenty years ago from
Speaker 1: engineers about how Boeing was moving away from an engineering
Speaker 1: focus and was only worried about Shecherholder return seemed to
Speaker 1: be coming true. And usually that kind of grumbling remains
Speaker 1: grumbling among employees, and it doesn't have what seems to
Speaker 1: be such drastic effects, And according to engineers I talked
Speaker 1: to for this story, it's the culmination of years of
Speaker 1: cost cutting that was aimed at increasing Boeing's profitability. So
Speaker 1: you started to hear this grumbling twenty years ago. Yeah,
Speaker 1: Boeing had bought McDonald douglass, and at that time there
Speaker 1: was a real diversion in the culture between the two companies.
Speaker 1: McDonald Douglass I've heard described as sort of hunter killer
Speaker 1: assassins of business, and the Boeing people at that time
Speaker 1: were described as boy scouts. And Boeing had always been
Speaker 1: a very engineer dominated company, many of its CEOs had
Speaker 1: been engineer, but McDonald douglass under Harry stone Cipher was
Speaker 1: very interested in shareholder return and part of the way
Speaker 1: that they tried to do that was by outsourcing a
Speaker 1: lot of the technology and expertise to other companies to
Speaker 1: keep their own costs down. And that tension was just
Speaker 1: starting to play out when I started covering Boeing back
Speaker 1: in ninety eight. That's so interesting that the seeds of
Speaker 1: this could have implanted so long ago. How was it
Speaker 1: Do you think that the acquired company's culture ended up
Speaker 1: becoming the dominant one. How does that happen? I think
Speaker 1: part of the answer is in the style of Phil Condit,
Speaker 1: who was the CEO at that time. He talked about
Speaker 1: trying to merge the two companies. The story he told
Speaker 1: at the time was that he drew two boxes on
Speaker 1: a paper and put himself in one and Harry Stonecipher
Speaker 1: in the other, and he said they would work as
Speaker 1: a team. As it turned out, according to people I
Speaker 1: talked to, what happened because McDonald douglas executives were more
Speaker 1: aggressive and we're more used to the sort of corporate infighting,
Speaker 1: is that the McDonald douglass style became ascendant and within
Speaker 1: a few years Harry stone Cipher was running the company.
Speaker 1: Do you think it also what played out at Boeing
Speaker 1: tells a larger story of changes in the business world too.
Speaker 1: In other words, that grumbling that started twenty years ago.
Speaker 1: If our business world hadn't remained and become increasingly relentlessly
Speaker 1: focused on shareholder value, maybe it would have played out differently.
Speaker 1: Does it tell a larger story of how the business
Speaker 1: climate overall has changed? I think it does because what
Speaker 1: happened at Boeing is very similar to what happened at
Speaker 1: other companies which are manufacturing base. They shifted production overseas
Speaker 1: and did whatever they could to reduce costs. In Boeing's case,
Speaker 1: that happened in some cases, but you didn't see the
Speaker 1: effects for much longer because it takes so much longer
Speaker 1: to develop planes. But you know, the people that I
Speaker 1: talked to find it interesting that the all new planes
Speaker 1: that have been or the new models that have come
Speaker 1: out since Boeing bought McDonald Douglass are the seventy seven
Speaker 1: Dreamliner and the seven thirty seven Max, both of which
Speaker 1: have been grounded by the FAA, and that had not
Speaker 1: happened to Boeing before. So let's back up to the
Speaker 1: specifics of your story. You begin the story with this
Speaker 1: anecdote about level D training. Why did you choose that?
Speaker 1: And what larger picture does that tell? It sounds arcane
Speaker 1: and technical, but it's important because Level D training signifies
Speaker 1: a kind of training that the FAA requires. That means
Speaker 1: any pilots flying this new model have to undergo simulator training.
Speaker 1: Simulator training is expensive for airlines. It's also disruptive. They
Speaker 1: have to run many hundreds or even thousands of pilots
Speaker 1: through this training, so it disrupts their flight schedules, and
Speaker 1: so Boeing at the time was trying to catch up
Speaker 1: with Airbus, which had a competing model that was running
Speaker 1: about a year ahead in the planning to Boeings. And so,
Speaker 1: according to Rick Ludkey, who's been one of the more
Speaker 1: outspoken former Boeing engineers managers from the start, said, you know,
Speaker 1: whatever designs come up with, they cannot require Level D training,
Speaker 1: which means no simulator training. So that's what they did,
Speaker 1: and according to him, it may have led to some
Speaker 1: shortcuts in the design and ultimately it led to pilots
Speaker 1: getting about an hour of training on an iPad instead
Speaker 1: of undergoing a full simulator training on this new model.
Speaker 1: That's shocking. An hour of training on an iPad. Yeah,
Speaker 1: it used to be that pilots would carry their flight
Speaker 1: manuals around in those square suit cases that you would
Speaker 1: see them rolling in airports. But they've shifted all their
Speaker 1: training onto iPad. It's still an hour of training. And
Speaker 1: it's really interesting the picture that paints your A story
Speaker 1: begins with one of those perfect anecdotes that really does
Speaker 1: sum up this much larger issue. So what role. Did
Speaker 1: the fierce competition with Airbus play? I mean, theoretically you
Speaker 1: think of competition as this thing that should make everybody
Speaker 1: do better, right, But it appears to have been a
Speaker 1: more destructive force in this case. Is that fair? It
Speaker 1: may have been it just because Airbus had an advantage
Speaker 1: in that It's A three twenty is about twenty five
Speaker 1: years newer, and so the newer models of the Airbus
Speaker 1: A three twenty had a more seamless similarity to the
Speaker 1: previous models. And also they use electrical controls. The seven
Speaker 1: thirty seven had originally been fled by wire, which means
Speaker 1: hydraulically controlled. So it's an older plane that Boeing is
Speaker 1: sort of jury rigging electrical control into try to make
Speaker 1: it have modern handling, and according to people I talked to,
Speaker 1: it ended up with this pury rigged system that was
Speaker 1: confusing to pilots. Ultimately, And why did competition have this
Speaker 1: negative impact instead of being a positive one. Is it
Speaker 1: simply that in today's world, Boeing just couldn't risk losing
Speaker 1: to Airbus for even a short period of time that
Speaker 1: it would have taken to make a truly better plane. Yeah.
Speaker 1: I think the thing that both of them try to
Speaker 1: do with These models are very high volume, and they're
Speaker 1: the highest source of income for the companies, and they
Speaker 1: need to keep their assembly lines full. And if Boeing
Speaker 1: had let air Bus get ahead of it with the
Speaker 1: A three twenty, I think the thing, the thing that
Speaker 1: surprising the most was that American Airlines had said that
Speaker 1: it planned to order the A three twenty. American as
Speaker 1: a bed rock customer of Boeings, and only twenty years
Speaker 1: ago American had said that it would order only Boeing
Speaker 1: planes for twenty years. Airbus saying that they wanted to
Speaker 1: switch to the E three twenty was a critical moment
Speaker 1: for Boeing, and at that point they launched the seven
Speaker 1: thirty seven Max, which they hadn't been planning on doing
Speaker 1: for several more years. I have this thing that business
Speaker 1: stories are always stories about people. So let's let's start
Speaker 1: with Dennis Mullenberg. Who is he? Dennis Mullenberg grew up
Speaker 1: in Iowa on a farm. He tells a story frequently
Speaker 1: about having gone to college at Iowa State and wanting
Speaker 1: to grow up to become the world's best airplane designer.
Speaker 1: And he had an internship at Boeing in Seattle and
Speaker 1: the first time he'd been there for the summer. This
Speaker 1: is in the mid eighties, and after he graduated, he
Speaker 1: started at Boeing and he remained at Boeing. He's a lifer.
Speaker 1: He's been there thirty plus years, so among the engineers
Speaker 1: that there's a sense that he is one of them,
Speaker 1: although at the same time there's been a lot of
Speaker 1: disappointment in his public statements because he seems to huge
Speaker 1: these legalistic formulations that seem partly designed to prevent liability
Speaker 1: for Boeing, and he seems to struggle with connecting emotionally.
Speaker 1: I had someone early on say it sounded like Boeing
Speaker 1: statements were written by a lawyer and an engineer, which
Speaker 1: is not surprising because they were so Muhlenberg. I also
Speaker 1: find interesting because it seems like the kind of crisis
Speaker 1: that might push out a CEO. But at this point,
Speaker 1: the shares are are hanging pretty tough, and partly that's
Speaker 1: because it is a duopoly, and ultimately airlines may not
Speaker 1: have much choice, at least until new entrants in China
Speaker 1: enter the market. I want to come back to that
Speaker 1: because that's a truly frightening point. You also write about
Speaker 1: Muhlenberg that he's somebody despite his engineering background, he's somebody
Speaker 1: who also pushed for cost cutting, right he is. But
Speaker 1: before this story in Business Week, we wrote another story
Speaker 1: a year ago at a time when Boeing was writing
Speaker 1: about as high as it ever had, at least in
Speaker 1: the time that I've been covering it. It had seen
Speaker 1: its shares triple in the space of a few years
Speaker 1: and was really taking over the mantle from GE, as
Speaker 1: you know, the America's industrial champion. And partly that was
Speaker 1: because Muhlenberg had followed his predecessor, Jim McNerney, who was
Speaker 1: a former GE executive, in pushing for cost cuts, pushing
Speaker 1: suppliers to reduce their prices. They had a program called
Speaker 1: Partnering for Success, which the suppliers grumbled was called pilfering
Speaker 1: from suppliers. So that's part of the backdrop here, is
Speaker 1: that Boeing an n Airbus had been pushing the system
Speaker 1: for lower prices and cost cuts for years and years.
Speaker 1: So is GE going all the way back to Jack Welch?
Speaker 1: Is toe the source of all evil? I mean, I'm kidding,
Speaker 1: But some of this relentless focus on earnings traces its
Speaker 1: way back to Jack Welch right in the ge culture. Yeah,
Speaker 1: it's definitely an element of it here. One issue is
Speaker 1: that Boeing. Boeing's incentives have pushed it to reduce its
Speaker 1: cost of capital. That top executives are compensated based on
Speaker 1: a measure that penalizes them for the cost of capital,
Speaker 1: so they have more incentive to outsource work. They have
Speaker 1: more incentive to return cash to shareholders, which which they've done,
Speaker 1: and shareholders have profited handsomely, as have the top executives.
Speaker 1: We had a stat that Muhlenberg and McNerney his predecessor,
Speaker 1: just since twenty twelve have taken in two hundred million
Speaker 1: plus and bonuses and stock awards. And do you think
Speaker 1: it's as simple as greed that makes people conform or
Speaker 1: push such metrics or is there a fear component too,
Speaker 1: and that if they don't deliver, shareholders will find somebody
Speaker 1: else who will. I think it's more the fear components.
Speaker 1: That there's a moment that I described in the story
Speaker 1: where the top executives at Boeing were really fearful that
Speaker 1: they would be taken over or pushed out in some
Speaker 1: fashion at a meeting in ninety eight, Phil Condit called
Speaker 1: his top managers together and said the stock price was
Speaker 1: so depressed that Boeing could be taken over, which seems unthinkable,
Speaker 1: But at the times its price was only thirty bucks
Speaker 1: or so, and now it's three hundred and fifty or so,
Speaker 1: and in today's era of activist investing and private equity,
Speaker 1: it's actually not unthinkable, right exactly. And we think this
Speaker 1: is interesting because there's a component of reality to that fear, right,
Speaker 1: It's not just a desire for executives to put more
Speaker 1: money in their pocket or focus on shareholder value. There's
Speaker 1: a real element of self preservation at work too. Exactly exactly,
Speaker 1: it's it's the entire construct which requires these companies to
Speaker 1: produce higher earnings and returns for shareholders, no matter what
Speaker 1: the circumstances are. So one of the really compelling quotes
Speaker 1: there was. There were a lot of them, but in
Speaker 1: your story, it was the CFO saying all the way
Speaker 1: back in two thousand not to get overly focused on
Speaker 1: the box. And what she meant is that the plane
Speaker 1: itself was obviously important, but customers knew that, and so
Speaker 1: it was time to focus on other things. Did that
Speaker 1: strike you at the time or is it one of
Speaker 1: those quotes that in retrospect you say, oh my god,
Speaker 1: that was a moment. It struck me at the time.
Speaker 1: I remember thinking that the customer focus should always be
Speaker 1: emphasized as number one, and safety should always be emphasized
Speaker 1: as number one in that type of business. And the
Speaker 1: message that the CFO at the time was trying to
Speaker 1: push was that it was a message to shareholders. It
Speaker 1: was that Boeing understands the need for profitability, and so
Speaker 1: that's where that quote was coming from. But at the
Speaker 1: time I thought it could lead to problems pushed to
Speaker 1: its farthest limits, and you were hearing that rumbling all
Speaker 1: the way back then, which the quote is. The quote
Speaker 1: is part of right. The engineers reacted strongly to that, exactly.
Speaker 1: Part of the audience was also the engineers who were
Speaker 1: pushing back on the shareholder focus. So this is there's
Speaker 1: the Man thirty seven, and then there's the Dreamliner. There's
Speaker 1: also this problem too. The New York Times wrote apiece,
Speaker 1: and I guess it is the factory that makes the
Speaker 1: Dreamliner that this plant was supposed to be trumpeted as
Speaker 1: the state of the art manufacturing hub and that too
Speaker 1: has been plagued by shoddy production. Is that a part
Speaker 1: of this story is as well, that it isn't just
Speaker 1: the Max. It isn't just the seven thirty seven Max.
Speaker 1: The problems are much deeper. Yeah, and that I think
Speaker 1: the way to understand the problems at the plant in
Speaker 1: South Carolina that produces the Dreamliner is that that plant
Speaker 1: was established because Boeing was trying to control its unions.
Speaker 1: Boeing had felt that the unions had the upper hand
Speaker 1: because the especially the Machinist Union, could always shut down
Speaker 1: production if they struck, which meant that the plant and
Speaker 1: evert which produced s wide bodies couldn't produce and so
Speaker 1: Bowing had to capitulate. So Boing, as part of a
Speaker 1: strategy to increase its leverage against the Machinist Union, opened
Speaker 1: this new plant in South Carolina, which analysts at the
Speaker 1: time were surprised by because they felt it would be
Speaker 1: difficult to replicate the aerospace workforce, the supply base that
Speaker 1: Boeing had in Washington. So, and that's exactly what's happened.
Speaker 1: There have been numerous documented problems with faulty parts and
Speaker 1: ending up on airplanes and quality inspections not catching. I
Speaker 1: thought this quote in your story that McNerney jokes on
Speaker 1: this conference call with journalists when he's getting ready to retire,
Speaker 1: and he joked, the heart will still be beating, the
Speaker 1: employees will still be cowering. Yeah, And that was a
Speaker 1: striking quote at the time because it was in the
Speaker 1: middle of all this conflict with unions and so, you know,
Speaker 1: the engineers I spoke was said that at the time
Speaker 1: they actually some people had signs on their desks showing
Speaker 1: a kind of a cowering middle manager and it said
Speaker 1: if I'm not here, I'm probably cowering. That's that's not encouraging,
Speaker 1: is it. No, And that's just part of the back door.
Speaker 1: I mean, the people that I talked to, you know,
Speaker 1: described a really chilling, you know environment. It was the
Speaker 1: kind of environment where layoffs were happening, at first voluntary
Speaker 1: and then involuntary, and so people didn't feel that they
Speaker 1: could speak up. And when I heard that from multiple people,
Speaker 1: it began to make more sense how a problem like
Speaker 1: the one on the MAX could have developed, which seems
Speaker 1: to have been largely because of miscommunications and just sloppy mistakes,
Speaker 1: such as an alert that might have alerted the pilots
Speaker 1: to the fact that one of the angle of attack
Speaker 1: sensors was not working, that was just not hooked up properly,
Speaker 1: which which Boeing discovered a year before the first crash.
Speaker 1: Explain what that was and how that how that played out,
Speaker 1: how that's kind of miscommunication can become something that takes
Speaker 1: people's lives. The real problem, at least as pilots describe it,
Speaker 1: is that they did not even know that this automated
Speaker 1: software system was on the airplane, that this maneuvering characteristics
Speaker 1: augmentation system which automatically began pushing the nose of the
Speaker 1: plane down when one sensor detected that the nose was
Speaker 1: going up too high. Unfortunately, it turned out that this
Speaker 1: sensor was faulty and the nose should not have been
Speaker 1: pushed down, And when the pilots tried to countermand that order,
Speaker 1: the software kept pushing the nose down, which was not
Speaker 1: what the FAA had had certified and it was not
Speaker 1: the intention of the software engineers at Bowing, and Bowing
Speaker 1: has since announced a fix which would take information from
Speaker 1: both sensors and would reduce the ability of the software
Speaker 1: to continue pushing the nose down, even when the pilots
Speaker 1: try to countermand it. And it's really unusual after an
Speaker 1: accident to have such clear evidence of what happened. In
Speaker 1: many cases, accident investigations don't reach a firm conclusion for years.
Speaker 1: But in this case, we had two accidents within five
Speaker 1: months where investigators very quickly determined a critical error in
Speaker 1: the software. It was crystal clear what the cause was.
Speaker 1: But how does that happen. I'm still unclear as to
Speaker 1: how that could happen. How somebody couldn't have said we've
Speaker 1: got a problem here, especially since they knew it before
Speaker 1: the crash has happened. You're hitting on what investigators are
Speaker 1: still trying to determine who knew what when, and so
Speaker 1: far it seems that the errors were there were honest
Speaker 1: mistakes made, or at least that's what people have talked
Speaker 1: to assume, you know, barring other evidence. But it may
Speaker 1: come back to the fact that this was a compartmentalized
Speaker 1: design system where one hand didn't know what the other
Speaker 1: was doing. In other words, a mistake of this magnitude
Speaker 1: could happen through sheer sloppiness, not through deliberate wrongdoing or
Speaker 1: deliberate obfuscation exactly. There's this lawsuit that was recently filed,
Speaker 1: and there's an exchange in the lawsuit where a pilot
Speaker 1: is heard saying, in this conversation, we flat out deserve
Speaker 1: to know what is on our airplanes, and this unidentified
Speaker 1: Boeing official answers, I don't disagree, and then a pilot says,
Speaker 1: these guys didn't even know the damn system was on
Speaker 1: the airplane, referring to the Lion air pilots in their crash,
Speaker 1: nor did anybody else, And the Boeing official says, I
Speaker 1: don't know that understanding this system would have changed the
Speaker 1: outcome of this. In a million miles, you're going to
Speaker 1: maybe fly this airplane and maybe once you're going to
Speaker 1: see this. Ever, so I wondered if from that there
Speaker 1: was this sense that, well, this was just a minor
Speaker 1: issue and something we could afford to overlook, rather than
Speaker 1: something that was going to blow up into this reputation
Speaker 1: destroying thing. Yeah. I think that quote was given to
Speaker 1: the American Airlines pilots in November after the first crash
Speaker 1: of the Lion airplane, and he was saying, you won't
Speaker 1: see this again in a million miles. Well, it happened
Speaker 1: within one hundred thousand flights of the plan within five months,
Speaker 1: so that conclusion seems wrong. Yeah, it's a really interesting
Speaker 1: story about odds, right, that you can try to calculate
Speaker 1: the odds of something going wrong and say they're minimal,
Speaker 1: but that can actually be an incredibly misleading way to
Speaker 1: think about things right. One of the heroes of the
Speaker 1: Boeing engineering workforce is a manager named at Well Al
Speaker 1: Molalley went on to run Forward. He designed the Triple
Speaker 1: seven and had a quote that he would often use,
Speaker 1: which is that the problem with communication is the illusion
Speaker 1: that it happened. So he would try to manage his
Speaker 1: meetings and airplanes with really overcommunicating and trying to make
Speaker 1: sure that all sides understood what was happening. And it
Speaker 1: seems that Boeing went away from that, and that's another
Speaker 1: reason I led the story with that first anecdote, which
Speaker 1: shows that Boeing was trying to limit what people knew
Speaker 1: and according to when the engineer involved, this was just
Speaker 1: to save money that it would have been costly for
Speaker 1: airlines and if they had been given all the information
Speaker 1: and if there was a new software system that was
Speaker 1: introduced on the plane, and that that may have triggered
Speaker 1: this additional training, and that's just that better communication would
Speaker 1: just be more costly, so therefore keep everything siloed. Exactly
Speaker 1: after all these years of covering business, does your gut
Speaker 1: tell you that this is a case of sloppiness and
Speaker 1: miscommunication rather than something I don't even even know if
Speaker 1: it's arguably darker, because sometimes sometimes incompetence is actually more
Speaker 1: frightening than malevolence, right, yeah. One of my editors described
Speaker 1: this early on as Boeing's Challenger moment, and that's you know,
Speaker 1: the famous case where it ended up being this one
Speaker 1: faulty o'erring seal that brought down the Challenger and it
Speaker 1: shouldn't have flown, and engineers were warning the day before
Speaker 1: that the seal couldn't stand up to the cold on
Speaker 1: the day that the shuttle flew, and you know, some
Speaker 1: of those engineers who tried to stop the Challenger from flying,
Speaker 1: you know, we're tormented by it for years. You know,
Speaker 1: would talk thirty years later about how they wish they
Speaker 1: could have changed their manager's minds about that. And that's
Speaker 1: why I'm really interested to see what the investigators turn up,
Speaker 1: because that will turn up who said what when you
Speaker 1: know there may be a challenger moment that we don't
Speaker 1: know about. Did you hear some of that? And you're
Speaker 1: reporting some feeling of maybe if I had been louder,
Speaker 1: I could I could have done this, even from people
Speaker 1: who weren't necessarily central to that issue, but from the
Speaker 1: people who were warning that something was going wrong with
Speaker 1: the culture for years. I didn't hear that exact tone
Speaker 1: of contrition. It was more just how could this happen?
Speaker 1: You know, to you know Boeing, you know, this vaunted
Speaker 1: engineering company, renowned for meticulous engineering. How could it happen?
Speaker 1: And it was it was more just wanting to know
Speaker 1: the answers. And there was another scene that we described
Speaker 1: for the end of the story where Dennis Muhlenberg came
Speaker 1: to meet with the engineers in Seattle, and it was
Speaker 1: an emotional meeting. It was introduced by the head of
Speaker 1: the commercial airplanes business, and at least one person was weeping.
Speaker 1: And then Muhlenberg got up and answered five questions or
Speaker 1: so with these artfully vague responses that people have gotten
Speaker 1: used to. And this engineer told someone it was a
Speaker 1: nothing burger. So they I think that people even within
Speaker 1: Boeing want to know how it happens. So there's this
Speaker 1: Forbes headline that asks, really bluntly, can Bowing be safe
Speaker 1: and profitable? And it was a consultant who used software
Speaker 1: to search through Boeing's reports and Airbuses reports to see
Speaker 1: how many times each one used the words safe. And
Speaker 1: it turns out Boeing only had seventeen words related to safe,
Speaker 1: and it's one hundred and fifty four page annual report,
Speaker 1: and Airbuses three hundred and twenty four page annual report.
Speaker 1: It has one hundred and fifty five words related to safe,
Speaker 1: which would ratio wise suggest airs is thinking a little
Speaker 1: bit more about safety and Bowing used two profit words
Speaker 1: for every safety word, while Airbus's ratios one profit word
Speaker 1: for every safety word. Do you think language matters? And
Speaker 1: do you think safety and profitability are diametrically opposed or
Speaker 1: should they go together? I don't see how safety and
Speaker 1: profitability are diametrically opposed, because if you produce the safest
Speaker 1: airplane ever, that's the one people are going to want
Speaker 1: to fly on, you would hope. So, right back to
Speaker 1: something you'd said earlier, why do you think it is
Speaker 1: that Boeing stock is holding up as well as it has.
Speaker 1: I mean, it's it's way off its peak, but yet
Speaker 1: it still is up this year despite these two horrific
Speaker 1: accidents in the first two groundings of planes by the
Speaker 1: FA since nineteen seventy nine. How does that square It's
Speaker 1: because it's ultimately a duopoly and the only option that
Speaker 1: customers have is to go to Airbus, which has completely
Speaker 1: full assembly lines for several years. So unless further evidence emerges,
Speaker 1: or unless there's another crashs are sticking with Boeing, sensing
Speaker 1: that it's going to find a way to tough this out.
Speaker 1: And do you think that's true? Do you think Boeing
Speaker 1: will find a way to tough it out. I think
Speaker 1: it's a hundred year old plus company that has incredible
Speaker 1: brands and engineering knowledge still behind it. So it may,
Speaker 1: but there may be more surprises and bruises along the way.
Speaker 1: The duopoly structure is really interesting in the protection that
Speaker 1: that affords a company, even as in as precariously seeming
Speaker 1: a place as Boeing. Is right, and is it just
Speaker 1: that there's literally nobody else other than Boeing and Airbus,
Speaker 1: and this business is so complicated and so has so
Speaker 1: much history to it that you can't have a new
Speaker 1: competitor step up and take one of their places. Yeah,
Speaker 1: that is That is the case, and that's probably the
Speaker 1: case for ten years or more. You know. Most of
Speaker 1: the analysts I talked to are just very skeptical about
Speaker 1: new competitors, including China, which has developed a plane of
Speaker 1: roughly similar size to the seven thirty seven eight through twenty,
Speaker 1: but it's not considered a viable contender at least for
Speaker 1: a decade. But the interesting thing for Boeing is whether
Speaker 1: customers in Asia stick with it, because Asia is so
Speaker 1: much of the market now and Lion Air and Indonesia
Speaker 1: is so upset at Boeing for its handling of the
Speaker 1: crash and really in blaming the airline's maintenance at first.
Speaker 1: So oh did they do that? They blame the maintenance
Speaker 1: at first. They pointed very pointedly at several cases where
Speaker 1: maintenance steps weren't followed, and Lion Air had not had
Speaker 1: a spotless maintenance record. So after the first crash, there
Speaker 1: wasn't the scrutiny you saw after the second one, because
Speaker 1: this narrative that maintenance may have been partly to blame,
Speaker 1: or even more to blame. What's holding Wow, interesting act
Speaker 1: of corporate ducking of responsibility? Right to put it kindly,
Speaker 1: you could put it. So, why are people skeptical about
Speaker 1: the Chinese plane and about the market share that might garner,
Speaker 1: Because you know, as you were saying, it is such
Speaker 1: a complex product. It's it's millions of parts, it's the
Speaker 1: most rigorous safety standards of any product in the world,
Speaker 1: and it's a product that involves hundreds of suppliers. They've
Speaker 1: everything's got to come together exactly right. And in addition
Speaker 1: to that, you know, even if you do make this
Speaker 1: plane perfectly, people are going to be reluctant to fly
Speaker 1: a brand new plane before there's a track record, and
Speaker 1: Boeing and Airbus have track records stretching back decades. And
Speaker 1: for all of Boeing's problems, China doesn't exactly have a
Speaker 1: great reputation for manufacturing precision either, right, No, no, exactly.
Speaker 1: You also write about Boeing's relationship with its regulator, the
Speaker 1: Federal Aviation Administration. I've long been fascinated by companies and
Speaker 1: their regulators, and there's some maybe not unique things about
Speaker 1: about that dynamic. But what surprise, do you the most?
Speaker 1: And looking into Boeing's relationship with the FA. This all
Speaker 1: happened after I was covering Bowing directly as a beat
Speaker 1: and so I was surprised to see how much the
Speaker 1: regulatory system had had changed. And it's a system called
Speaker 1: organization designation authorization. In this system, it used to be
Speaker 1: that the FAA would would have sort of direct managerial
Speaker 1: authority over the engineering workforce at Boeing that are responsible
Speaker 1: for the safety sign offs. But back in two thousand
Speaker 1: and nine, under initiative that started in the George W.
Speaker 1: Bush administration, the FAA began shifting that authority to the manufacturer.
Speaker 1: And people I talked with said that they noticed the
Speaker 1: change that that once Boeing had more authority over the
Speaker 1: regulatory process, they started putting more junior engineers, you know,
Speaker 1: people that may have been more easily controllable, into these positions.
Speaker 1: Self regulation is something that happens in many industries. It's
Speaker 1: relatively new in aerospace, at least in terms of this system.
Speaker 1: I should say that self regulation has happened since the
Speaker 1: FAA was born in nineteen sixty. The engineers have always
Speaker 1: had authority to certify the products but there was much
Speaker 1: closer supervision before this new system came into ploy. What
Speaker 1: brought about this new system, this shift in two thousand
Speaker 1: and nine. Is that a story of cost as well? Yeah,
Speaker 1: that's a story of lobbying, and that's lobbying by the
Speaker 1: aerospace industry but which felt that this system was slow.
Speaker 1: They wanted to have the control to keep projects moving
Speaker 1: along as quickly as they felt was warranted, and it
Speaker 1: took longer when the FAA was involved in directly nominating
Speaker 1: an approving individual engineers in the process. I thought there
Speaker 1: was a stunning statistic in your story that the fa
Speaker 1: says it would need ten thousand more employees and an
Speaker 1: additional one point eight billion of taxpayer money each year
Speaker 1: to bring certification entirely in house. Those are stunning numbers,
Speaker 1: don't you think. Yeah, yeah, it's something that Congress has
Speaker 1: gone along with because government is expensive. From where we
Speaker 1: sit today, where would you say Boeing is going to
Speaker 1: be in five years? Is this going to leave lasting
Speaker 1: scars or given this duopoly position, are they going to
Speaker 1: be able to effect waltz away from this? They may
Speaker 1: be a more clear number two to Airbus in five years,
Speaker 1: because even if they are getting some orders for the
Speaker 1: seven thirty seven Max. Three twenty seems to have an
Speaker 1: advantage in the narrow body planes that are a majority
Speaker 1: of the market. And I think the surveys are showing
Speaker 1: that a solid number up to half of flyers are
Speaker 1: saying they don't want to fly on the Max for
Speaker 1: a year. So there may be a sales overhang that
Speaker 1: Boeing finds hard to overcome. They may find it harder
Speaker 1: to make the profits they've been banking. Would you get
Speaker 1: on a seven thirty seven Max. I would after the
Speaker 1: FAA certifies it and once international regulators certified, So you
Speaker 1: need both, not just the fa You want international regulators
Speaker 1: to look at it too. And do you hear anything
Speaker 1: from inside Boeing that the engineers think, well, maybe now
Speaker 1: we'll start being listened to. Do you think it will
Speaker 1: result in a cultural shift of any of any type
Speaker 1: inside Boeing? It really depends on how reflective the company is.
Speaker 1: I hear from some people who think there may be
Speaker 1: a shift. One encouraging thing is that before these crashes,
Speaker 1: Dennis Muhlenberg was looking to bring more work in house,
Speaker 1: so the avionics sort of cockpit electronics work would have
Speaker 1: come back in house, and maybe if we were in house,
Speaker 1: you wouldn't have these problems. That that was partly profit
Speaker 1: driven as well, because Boeing has been a little resentful
Speaker 1: of what it feels are higher profits that some of
Speaker 1: the suppliers are getting. But it's a someone encouraging sign
Speaker 1: that Muhlenberg is an engineer, So you hope that he would,
Speaker 1: even if he's not saying it publicly, would have some
Speaker 1: grasp of what the issues are. So I'm going to
Speaker 1: be uncharacteristically happy and say that just maybe maybe there'll
Speaker 1: be a silver lining to all of this terrible tragedy.
Speaker 1: I hope so. On that note, I hope so too,
Speaker 1: And thank you so much for taking the time to
Speaker 1: chat with me. Thank you it was a pleasure. Before
Speaker 1: talking to Peter, I saw the Boeing story as a
Speaker 1: terrible tragedy for the passengers and crew who were killed
Speaker 1: and for their families. Now I see it also as
Speaker 1: a tragic tale of a company that lost its way
Speaker 1: and lost its soul and as a result, had what
Speaker 1: Peter calls a challenger moment. Was it, like the Challenger
Speaker 1: a result of sloppiness, bad communication, and in this case
Speaker 1: too much focus on reducing costs or will it turn
Speaker 1: out to be something darker and more deliberate? Stay tuned.
Speaker 1: What we know for sure is the truth of that
Speaker 1: famous Warren Buffett quote it takes twenty years to build
Speaker 1: a reputation and five minutes to ruin it. If you
Speaker 1: think about that, you'll do things differently. I bet Boeing
Speaker 1: wishes it could have done things differently. Making a Killing
Speaker 1: is the co production of Pushkin Industries and Chalk and Blade.
Speaker 1: It's produced by Ruth Barnes and Rosie Stoffer. My executive
Speaker 1: producers are Alison mcclein. No relation in Making Casey. The
Speaker 1: executive producer at Pushkin is Mia Loebell. Engineering by Jason
Speaker 1: Gambrell and Jason Rostkowski. Our music is by Jed Flood.
Speaker 1: Special thanks to Jacob Weisberg at Pushkin and everyone on
Speaker 1: the show. I'm Bethany mcclin. Thank you so much for listening.
Speaker 1: You can find me on Twitter at Bethany mac twelve
Speaker 1: and let me know which episodes you've most enjoyed.