WEBVTT - An Inside Look At The Crisis At Boeing, with Bloomberg's Peter Robison 0:00:00.960 --> 0:00:06.320 I'm Bethany McClane. This is making a killing in this show. 0:00:06.400 --> 0:00:09.080 I cut through the hype and handwringing to reframe the 0:00:09.119 --> 0:00:12.400 stories you thought you understood and uncover the ones you 0:00:12.520 --> 0:00:17.520 didn't know were important. On October twenty ninth, twenty eighteen, 0:00:17.760 --> 0:00:20.880 Lion Air flight six ten took off from Jakarta and 0:00:21.040 --> 0:00:24.279 crashed into the Javacy, killing all one hundred and eighty 0:00:24.320 --> 0:00:27.960 nine passengers and crew aboard. Less than five months later, 0:00:28.120 --> 0:00:32.280 on March tenth, two, nineteen, Ethiopian Airlines flight three O 0:00:32.400 --> 0:00:37.000 two crashed over the countryside, killing everyone on board. What 0:00:37.080 --> 0:00:39.680 a grim opening for this episode. Put stick with me 0:00:40.440 --> 0:00:43.240 as the world now knows. Both planes were Bowing seven 0:00:43.320 --> 0:00:46.520 thirty seven Max jets, a new model that had become 0:00:46.560 --> 0:00:50.720 the fastest selling plane ever in between the crashes. Bowing 0:00:50.840 --> 0:00:54.600 said this, as our customers and their passengers continue to 0:00:54.640 --> 0:00:58.160 fly the seven thirty seven Max to hundreds of destinations 0:00:58.160 --> 0:01:01.080 around the world every day, they have our assurance that 0:01:01.160 --> 0:01:04.080 the seven thirty seven Max is as safe as any 0:01:04.120 --> 0:01:08.199 airplane that has ever flown the skies. But it would 0:01:08.240 --> 0:01:11.200 turn out that Boeing allegedly knew there was a problem 0:01:11.360 --> 0:01:15.160 with a key sensor back in twenty seventeen, long before 0:01:15.200 --> 0:01:18.440 the crashes, and there's more to the story. With the 0:01:18.480 --> 0:01:21.640 Max's grounding in March. Boeing has now had two airplanes 0:01:21.680 --> 0:01:24.880 taken out of the sky by the Federal Aviation Administration 0:01:25.200 --> 0:01:28.880 in six years, following battery fires on its Dreamliner in 0:01:28.920 --> 0:01:33.120 twenty thirteen. The last model the FAA grounded was the 0:01:33.200 --> 0:01:37.720 McDonald Douglas DC ten back in nineteen seventy nine. Now 0:01:37.840 --> 0:01:42.520 Boeing is facing congressional scrutiny, lawsuits, and public fury in spades. 0:01:43.080 --> 0:01:46.360 At the company's annual meeting in Chicago in April, family 0:01:46.360 --> 0:01:49.200 members of crash victims stood outside in a driving rain, 0:01:49.560 --> 0:01:53.160 holding up photos of loved ones and signs reading prosecute 0:01:53.200 --> 0:01:58.640 bowing and exacts from manslaughter and Boeing's arrogance kills. How 0:01:58.680 --> 0:02:01.120 could this happen to Boeing, which was supposed to represent 0:02:01.200 --> 0:02:05.600 everything that was best about American manufacturing. Bloomberg writer Peter 0:02:05.680 --> 0:02:09.480 Robeson conducted more than a dozen interviews with former employees 0:02:09.520 --> 0:02:12.840 and FAA inspectors, and went through hundreds of pages of 0:02:12.880 --> 0:02:16.480 internal emails and records, and a piece entitled former Boeing 0:02:16.520 --> 0:02:20.720 Engineers Say relentless cost cutting sacrifice safety. He writes this 0:02:21.639 --> 0:02:24.320 the crisis is best understood as part of a larger 0:02:24.400 --> 0:02:27.680 drama that's played out as Boeing has reshaped its workforce 0:02:28.080 --> 0:02:32.239 in an all consuming focus on shareholder value. It wasn't 0:02:32.240 --> 0:02:35.200 supposed to be this way. Theoretically, the company that makes 0:02:35.240 --> 0:02:38.840 the best, safest product wins competitions should engender a race 0:02:38.880 --> 0:02:41.440 to the top, not a race to the bottom. Good 0:02:41.440 --> 0:02:44.320 business practices and good profits should go hand in hand. 0:02:45.240 --> 0:02:48.080 Helf forget the theory. We have actual proof that this 0:02:48.200 --> 0:02:50.520 is the way it works. There are famous examples from 0:02:50.560 --> 0:02:54.200 business history. Who can forget Paul O'Neill, who, as Alcoa's 0:02:54.200 --> 0:02:57.000 newly minted CEO, gave a speech to the Wall Street 0:02:57.040 --> 0:02:59.960 investment community in nineteen eighty seven in which he spoke 0:03:00.120 --> 0:03:03.480 not about profits and cost cutting, but rather about worker safety. 0:03:04.000 --> 0:03:05.959 He said his goal in the company was to reach 0:03:06.080 --> 0:03:09.519 zero injuries. When an analyst asked him about company inventories, 0:03:09.560 --> 0:03:12.560 O'Neill replied, I'm not certain you heard me. If you 0:03:12.560 --> 0:03:14.920 want to understand how alco is doing, you need to 0:03:14.919 --> 0:03:18.240 look at our workplace safety figures. By the time O'Neill 0:03:18.320 --> 0:03:21.440 retired in two thousand, Alcoa's market cap had grown nine 0:03:21.480 --> 0:03:24.920 hundred percent and worker injuries had dropped to a meniscular level. 0:03:25.600 --> 0:03:29.040 Has something changed today? So many companies operate in an 0:03:29.120 --> 0:03:31.960 environment of fear. Fear that they'll be taken over if 0:03:32.000 --> 0:03:34.840 earning sag, or if they lose ground to a competitor, 0:03:35.240 --> 0:03:38.680 Fear that an activist investor will oust management, thereby ending 0:03:38.720 --> 0:03:43.160 their rich paychecks. In that pressured environment, what gets sacrificed 0:03:43.240 --> 0:03:46.240 on the altar of more profits? Now, if this could 0:03:46.280 --> 0:03:49.680 happen to Boeing, what's the lesson for other companies? I'm 0:03:49.720 --> 0:03:53.080 thrilled to have Peter here with me from Seattle. After 0:03:53.120 --> 0:03:55.280 starting on the Boeing beat in nineteen ninety eight and 0:03:55.320 --> 0:03:57.840 then leaving that beat and then coming back to it, 0:03:58.200 --> 0:04:00.640 what was your reaction to how the company had changed? 0:04:01.160 --> 0:04:05.880 I suppose it was surprise, mostly because the background chatter 0:04:05.920 --> 0:04:08.800 and grumbling that I've been hearing twenty years ago from 0:04:08.840 --> 0:04:12.800 engineers about how Boeing was moving away from an engineering 0:04:12.800 --> 0:04:16.680 focus and was only worried about Shecherholder return seemed to 0:04:16.720 --> 0:04:20.520 be coming true. And usually that kind of grumbling remains 0:04:20.560 --> 0:04:25.760 grumbling among employees, and it doesn't have what seems to 0:04:25.760 --> 0:04:29.400 be such drastic effects, And according to engineers I talked 0:04:29.440 --> 0:04:32.840 to for this story, it's the culmination of years of 0:04:33.240 --> 0:04:37.280 cost cutting that was aimed at increasing Boeing's profitability. So 0:04:37.320 --> 0:04:40.680 you started to hear this grumbling twenty years ago. Yeah, 0:04:40.760 --> 0:04:43.720 Boeing had bought McDonald douglass, and at that time there 0:04:43.800 --> 0:04:45.960 was a real diversion in the culture between the two companies. 0:04:46.080 --> 0:04:50.119 McDonald Douglass I've heard described as sort of hunter killer 0:04:50.160 --> 0:04:53.039 assassins of business, and the Boeing people at that time 0:04:53.080 --> 0:04:56.160 were described as boy scouts. And Boeing had always been 0:04:56.360 --> 0:04:59.440 a very engineer dominated company, many of its CEOs had 0:04:59.440 --> 0:05:03.320 been engineer, but McDonald douglass under Harry stone Cipher was 0:05:03.400 --> 0:05:07.360 very interested in shareholder return and part of the way 0:05:07.360 --> 0:05:09.640 that they tried to do that was by outsourcing a 0:05:09.680 --> 0:05:12.839 lot of the technology and expertise to other companies to 0:05:12.960 --> 0:05:15.839 keep their own costs down. And that tension was just 0:05:15.880 --> 0:05:18.400 starting to play out when I started covering Boeing back 0:05:18.440 --> 0:05:21.600 in ninety eight. That's so interesting that the seeds of 0:05:21.600 --> 0:05:24.919 this could have implanted so long ago. How was it 0:05:24.960 --> 0:05:27.480 Do you think that the acquired company's culture ended up 0:05:27.480 --> 0:05:30.800 becoming the dominant one. How does that happen? I think 0:05:31.000 --> 0:05:34.240 part of the answer is in the style of Phil Condit, 0:05:34.320 --> 0:05:38.599 who was the CEO at that time. He talked about 0:05:38.640 --> 0:05:41.560 trying to merge the two companies. The story he told 0:05:41.560 --> 0:05:43.760 at the time was that he drew two boxes on 0:05:43.800 --> 0:05:46.600 a paper and put himself in one and Harry Stonecipher 0:05:46.640 --> 0:05:49.120 in the other, and he said they would work as 0:05:49.120 --> 0:05:52.760 a team. As it turned out, according to people I 0:05:52.760 --> 0:05:56.520 talked to, what happened because McDonald douglas executives were more 0:05:56.720 --> 0:06:00.200 aggressive and we're more used to the sort of corporate infighting, 0:06:00.279 --> 0:06:04.400 is that the McDonald douglass style became ascendant and within 0:06:04.440 --> 0:06:06.680 a few years Harry stone Cipher was running the company. 0:06:06.760 --> 0:06:09.000 Do you think it also what played out at Boeing 0:06:09.040 --> 0:06:12.080 tells a larger story of changes in the business world too. 0:06:12.240 --> 0:06:14.920 In other words, that grumbling that started twenty years ago. 0:06:15.120 --> 0:06:19.599 If our business world hadn't remained and become increasingly relentlessly 0:06:19.640 --> 0:06:22.240 focused on shareholder value, maybe it would have played out differently. 0:06:22.279 --> 0:06:24.159 Does it tell a larger story of how the business 0:06:24.200 --> 0:06:27.520 climate overall has changed? I think it does because what 0:06:27.600 --> 0:06:31.320 happened at Boeing is very similar to what happened at 0:06:31.320 --> 0:06:36.480 other companies which are manufacturing base. They shifted production overseas 0:06:36.520 --> 0:06:40.560 and did whatever they could to reduce costs. In Boeing's case, 0:06:41.240 --> 0:06:43.960 that happened in some cases, but you didn't see the 0:06:43.960 --> 0:06:47.040 effects for much longer because it takes so much longer 0:06:47.040 --> 0:06:49.479 to develop planes. But you know, the people that I 0:06:49.520 --> 0:06:51.880 talked to find it interesting that the all new planes 0:06:51.920 --> 0:06:53.840 that have been or the new models that have come 0:06:53.880 --> 0:06:57.800 out since Boeing bought McDonald Douglass are the seventy seven 0:06:57.839 --> 0:07:00.640 Dreamliner and the seven thirty seven Max, both of which 0:07:00.640 --> 0:07:03.520 have been grounded by the FAA, and that had not 0:07:03.560 --> 0:07:06.080 happened to Boeing before. So let's back up to the 0:07:06.120 --> 0:07:08.560 specifics of your story. You begin the story with this 0:07:08.680 --> 0:07:13.000 anecdote about level D training. Why did you choose that? 0:07:13.080 --> 0:07:17.760 And what larger picture does that tell? It sounds arcane 0:07:17.760 --> 0:07:22.680 and technical, but it's important because Level D training signifies 0:07:22.920 --> 0:07:25.920 a kind of training that the FAA requires. That means 0:07:26.320 --> 0:07:31.000 any pilots flying this new model have to undergo simulator training. 0:07:31.360 --> 0:07:34.960 Simulator training is expensive for airlines. It's also disruptive. They 0:07:35.000 --> 0:07:38.400 have to run many hundreds or even thousands of pilots 0:07:38.400 --> 0:07:41.280 through this training, so it disrupts their flight schedules, and 0:07:41.320 --> 0:07:44.600 so Boeing at the time was trying to catch up 0:07:44.600 --> 0:07:47.480 with Airbus, which had a competing model that was running 0:07:47.480 --> 0:07:51.400 about a year ahead in the planning to Boeings. And so, 0:07:51.840 --> 0:07:54.200 according to Rick Ludkey, who's been one of the more 0:07:54.240 --> 0:07:59.080 outspoken former Boeing engineers managers from the start, said, you know, 0:07:59.120 --> 0:08:02.800 whatever designs come up with, they cannot require Level D training, 0:08:02.840 --> 0:08:06.200 which means no simulator training. So that's what they did, 0:08:06.400 --> 0:08:08.560 and according to him, it may have led to some 0:08:08.920 --> 0:08:13.160 shortcuts in the design and ultimately it led to pilots 0:08:13.280 --> 0:08:15.680 getting about an hour of training on an iPad instead 0:08:15.720 --> 0:08:18.080 of undergoing a full simulator training on this new model. 0:08:18.160 --> 0:08:21.600 That's shocking. An hour of training on an iPad. Yeah, 0:08:21.720 --> 0:08:24.120 it used to be that pilots would carry their flight 0:08:24.200 --> 0:08:26.800 manuals around in those square suit cases that you would 0:08:26.840 --> 0:08:29.360 see them rolling in airports. But they've shifted all their 0:08:29.360 --> 0:08:32.040 training onto iPad. It's still an hour of training. And 0:08:32.160 --> 0:08:35.240 it's really interesting the picture that paints your A story 0:08:35.280 --> 0:08:37.800 begins with one of those perfect anecdotes that really does 0:08:37.880 --> 0:08:41.520 sum up this much larger issue. So what role. Did 0:08:41.520 --> 0:08:44.720 the fierce competition with Airbus play? I mean, theoretically you 0:08:44.760 --> 0:08:47.800 think of competition as this thing that should make everybody 0:08:47.840 --> 0:08:50.040 do better, right, But it appears to have been a 0:08:50.080 --> 0:08:53.920 more destructive force in this case. Is that fair? It 0:08:53.960 --> 0:08:57.439 may have been it just because Airbus had an advantage 0:08:57.440 --> 0:09:00.200 in that It's A three twenty is about twenty five 0:09:00.280 --> 0:09:03.440 years newer, and so the newer models of the Airbus 0:09:03.440 --> 0:09:07.760 A three twenty had a more seamless similarity to the 0:09:07.840 --> 0:09:11.640 previous models. And also they use electrical controls. The seven 0:09:11.800 --> 0:09:14.640 thirty seven had originally been fled by wire, which means 0:09:14.920 --> 0:09:18.920 hydraulically controlled. So it's an older plane that Boeing is 0:09:19.160 --> 0:09:23.079 sort of jury rigging electrical control into try to make 0:09:23.120 --> 0:09:27.080 it have modern handling, and according to people I talked to, 0:09:27.600 --> 0:09:30.839 it ended up with this pury rigged system that was 0:09:30.880 --> 0:09:34.319 confusing to pilots. Ultimately, And why did competition have this 0:09:34.520 --> 0:09:37.400 negative impact instead of being a positive one. Is it 0:09:37.520 --> 0:09:41.079 simply that in today's world, Boeing just couldn't risk losing 0:09:41.080 --> 0:09:42.959 to Airbus for even a short period of time that 0:09:43.480 --> 0:09:46.720 it would have taken to make a truly better plane. Yeah. 0:09:46.559 --> 0:09:48.720 I think the thing that both of them try to 0:09:48.760 --> 0:09:52.320 do with These models are very high volume, and they're 0:09:52.360 --> 0:09:55.960 the highest source of income for the companies, and they 0:09:56.240 --> 0:10:00.439 need to keep their assembly lines full. And if Boeing 0:10:00.480 --> 0:10:02.880 had let air Bus get ahead of it with the 0:10:02.920 --> 0:10:05.440 A three twenty, I think the thing, the thing that 0:10:05.600 --> 0:10:08.520 surprising the most was that American Airlines had said that 0:10:08.559 --> 0:10:11.360 it planned to order the A three twenty. American as 0:10:11.640 --> 0:10:15.160 a bed rock customer of Boeings, and only twenty years 0:10:15.200 --> 0:10:18.920 ago American had said that it would order only Boeing 0:10:19.040 --> 0:10:22.280 planes for twenty years. Airbus saying that they wanted to 0:10:22.280 --> 0:10:26.040 switch to the E three twenty was a critical moment 0:10:26.080 --> 0:10:28.560 for Boeing, and at that point they launched the seven 0:10:28.679 --> 0:10:31.800 thirty seven Max, which they hadn't been planning on doing 0:10:31.840 --> 0:10:34.280 for several more years. I have this thing that business 0:10:34.280 --> 0:10:38.040 stories are always stories about people. So let's let's start 0:10:38.080 --> 0:10:41.960 with Dennis Mullenberg. Who is he? Dennis Mullenberg grew up 0:10:41.960 --> 0:10:45.640 in Iowa on a farm. He tells a story frequently 0:10:45.679 --> 0:10:49.360 about having gone to college at Iowa State and wanting 0:10:49.400 --> 0:10:52.520 to grow up to become the world's best airplane designer. 0:10:53.000 --> 0:10:56.040 And he had an internship at Boeing in Seattle and 0:10:56.520 --> 0:10:58.959 the first time he'd been there for the summer. This 0:10:59.040 --> 0:11:01.840 is in the mid eighties, and after he graduated, he 0:11:01.880 --> 0:11:05.480 started at Boeing and he remained at Boeing. He's a lifer. 0:11:05.559 --> 0:11:10.400 He's been there thirty plus years, so among the engineers 0:11:10.440 --> 0:11:13.120 that there's a sense that he is one of them, 0:11:13.280 --> 0:11:15.880 although at the same time there's been a lot of 0:11:15.920 --> 0:11:19.360 disappointment in his public statements because he seems to huge 0:11:19.440 --> 0:11:26.040 these legalistic formulations that seem partly designed to prevent liability 0:11:26.080 --> 0:11:30.960 for Boeing, and he seems to struggle with connecting emotionally. 0:11:31.200 --> 0:11:33.640 I had someone early on say it sounded like Boeing 0:11:33.679 --> 0:11:36.560 statements were written by a lawyer and an engineer, which 0:11:36.960 --> 0:11:41.960 is not surprising because they were so Muhlenberg. I also 0:11:41.960 --> 0:11:46.280 find interesting because it seems like the kind of crisis 0:11:46.280 --> 0:11:49.319 that might push out a CEO. But at this point, 0:11:49.360 --> 0:11:53.560 the shares are are hanging pretty tough, and partly that's 0:11:53.559 --> 0:11:56.880 because it is a duopoly, and ultimately airlines may not 0:11:56.960 --> 0:12:00.520 have much choice, at least until new entrants in China 0:12:00.880 --> 0:12:02.439 enter the market. I want to come back to that 0:12:02.520 --> 0:12:06.880 because that's a truly frightening point. You also write about 0:12:06.960 --> 0:12:11.280 Muhlenberg that he's somebody despite his engineering background, he's somebody 0:12:11.280 --> 0:12:14.160 who also pushed for cost cutting, right he is. But 0:12:14.280 --> 0:12:16.720 before this story in Business Week, we wrote another story 0:12:16.920 --> 0:12:20.640 a year ago at a time when Boeing was writing 0:12:20.679 --> 0:12:22.760 about as high as it ever had, at least in 0:12:22.800 --> 0:12:26.000 the time that I've been covering it. It had seen 0:12:26.040 --> 0:12:29.040 its shares triple in the space of a few years 0:12:29.559 --> 0:12:32.319 and was really taking over the mantle from GE, as 0:12:32.480 --> 0:12:36.439 you know, the America's industrial champion. And partly that was 0:12:36.480 --> 0:12:39.719 because Muhlenberg had followed his predecessor, Jim McNerney, who was 0:12:39.720 --> 0:12:44.120 a former GE executive, in pushing for cost cuts, pushing 0:12:44.160 --> 0:12:47.760 suppliers to reduce their prices. They had a program called 0:12:47.800 --> 0:12:52.040 Partnering for Success, which the suppliers grumbled was called pilfering 0:12:52.080 --> 0:12:55.040 from suppliers. So that's part of the backdrop here, is 0:12:55.080 --> 0:12:58.720 that Boeing an n Airbus had been pushing the system 0:12:59.040 --> 0:13:02.120 for lower prices and cost cuts for years and years. 0:13:02.160 --> 0:13:04.560 So is GE going all the way back to Jack Welch? 0:13:04.640 --> 0:13:06.840 Is toe the source of all evil? I mean, I'm kidding, 0:13:06.880 --> 0:13:10.679 But some of this relentless focus on earnings traces its 0:13:10.720 --> 0:13:14.000 way back to Jack Welch right in the ge culture. Yeah, 0:13:14.040 --> 0:13:17.400 it's definitely an element of it here. One issue is 0:13:17.760 --> 0:13:22.200 that Boeing. Boeing's incentives have pushed it to reduce its 0:13:22.240 --> 0:13:26.839 cost of capital. That top executives are compensated based on 0:13:27.360 --> 0:13:29.880 a measure that penalizes them for the cost of capital, 0:13:29.960 --> 0:13:32.839 so they have more incentive to outsource work. They have 0:13:33.240 --> 0:13:36.440 more incentive to return cash to shareholders, which which they've done, 0:13:36.440 --> 0:13:40.679 and shareholders have profited handsomely, as have the top executives. 0:13:40.880 --> 0:13:45.480 We had a stat that Muhlenberg and McNerney his predecessor, 0:13:45.559 --> 0:13:48.200 just since twenty twelve have taken in two hundred million 0:13:48.240 --> 0:13:50.679 plus and bonuses and stock awards. And do you think 0:13:50.720 --> 0:13:54.880 it's as simple as greed that makes people conform or 0:13:54.920 --> 0:13:59.040 push such metrics or is there a fear component too, 0:13:59.120 --> 0:14:02.760 and that if they don't deliver, shareholders will find somebody 0:14:02.800 --> 0:14:06.760 else who will. I think it's more the fear components. 0:14:06.800 --> 0:14:09.960 That there's a moment that I described in the story 0:14:10.600 --> 0:14:14.280 where the top executives at Boeing were really fearful that 0:14:14.320 --> 0:14:17.320 they would be taken over or pushed out in some 0:14:17.480 --> 0:14:21.560 fashion at a meeting in ninety eight, Phil Condit called 0:14:21.600 --> 0:14:24.480 his top managers together and said the stock price was 0:14:24.520 --> 0:14:28.320 so depressed that Boeing could be taken over, which seems unthinkable, 0:14:28.720 --> 0:14:31.640 But at the times its price was only thirty bucks 0:14:31.720 --> 0:14:35.000 or so, and now it's three hundred and fifty or so, 0:14:35.360 --> 0:14:38.680 and in today's era of activist investing and private equity, 0:14:38.680 --> 0:14:42.320 it's actually not unthinkable, right exactly. And we think this 0:14:42.360 --> 0:14:45.480 is interesting because there's a component of reality to that fear, right, 0:14:45.520 --> 0:14:48.240 It's not just a desire for executives to put more 0:14:48.240 --> 0:14:51.080 money in their pocket or focus on shareholder value. There's 0:14:51.080 --> 0:14:56.160 a real element of self preservation at work too. Exactly exactly, 0:14:56.200 --> 0:15:00.600 it's it's the entire construct which requires these companies to 0:15:01.320 --> 0:15:04.880 produce higher earnings and returns for shareholders, no matter what 0:15:04.960 --> 0:15:07.920 the circumstances are. So one of the really compelling quotes 0:15:07.960 --> 0:15:09.400 there was. There were a lot of them, but in 0:15:09.400 --> 0:15:12.120 your story, it was the CFO saying all the way 0:15:12.120 --> 0:15:15.000 back in two thousand not to get overly focused on 0:15:15.040 --> 0:15:17.400 the box. And what she meant is that the plane 0:15:17.400 --> 0:15:21.560 itself was obviously important, but customers knew that, and so 0:15:21.600 --> 0:15:23.800 it was time to focus on other things. Did that 0:15:23.920 --> 0:15:25.520 strike you at the time or is it one of 0:15:25.560 --> 0:15:28.240 those quotes that in retrospect you say, oh my god, 0:15:28.240 --> 0:15:30.880 that was a moment. It struck me at the time. 0:15:31.000 --> 0:15:36.000 I remember thinking that the customer focus should always be 0:15:36.040 --> 0:15:39.120 emphasized as number one, and safety should always be emphasized 0:15:39.120 --> 0:15:42.400 as number one in that type of business. And the 0:15:42.440 --> 0:15:44.600 message that the CFO at the time was trying to 0:15:45.320 --> 0:15:48.080 push was that it was a message to shareholders. It 0:15:48.160 --> 0:15:52.400 was that Boeing understands the need for profitability, and so 0:15:52.440 --> 0:15:54.960 that's where that quote was coming from. But at the 0:15:55.160 --> 0:15:57.920 time I thought it could lead to problems pushed to 0:15:58.000 --> 0:16:00.520 its farthest limits, and you were hearing that rumbling all 0:16:00.560 --> 0:16:02.720 the way back then, which the quote is. The quote 0:16:02.800 --> 0:16:06.600 is part of right. The engineers reacted strongly to that, exactly. 0:16:06.880 --> 0:16:09.480 Part of the audience was also the engineers who were 0:16:09.880 --> 0:16:13.480 pushing back on the shareholder focus. So this is there's 0:16:13.600 --> 0:16:17.560 the Man thirty seven, and then there's the Dreamliner. There's 0:16:17.640 --> 0:16:21.040 also this problem too. The New York Times wrote apiece, 0:16:21.080 --> 0:16:22.760 and I guess it is the factory that makes the 0:16:22.840 --> 0:16:25.320 Dreamliner that this plant was supposed to be trumpeted as 0:16:25.320 --> 0:16:28.640 the state of the art manufacturing hub and that too 0:16:28.680 --> 0:16:31.200 has been plagued by shoddy production. Is that a part 0:16:31.200 --> 0:16:33.720 of this story is as well, that it isn't just 0:16:33.880 --> 0:16:36.240 the Max. It isn't just the seven thirty seven Max. 0:16:36.280 --> 0:16:39.640 The problems are much deeper. Yeah, and that I think 0:16:39.680 --> 0:16:43.400 the way to understand the problems at the plant in 0:16:43.560 --> 0:16:48.560 South Carolina that produces the Dreamliner is that that plant 0:16:48.600 --> 0:16:52.560 was established because Boeing was trying to control its unions. 0:16:52.640 --> 0:16:55.480 Boeing had felt that the unions had the upper hand 0:16:55.600 --> 0:16:59.280 because the especially the Machinist Union, could always shut down 0:16:59.280 --> 0:17:03.520 production if they struck, which meant that the plant and 0:17:03.560 --> 0:17:06.720 evert which produced s wide bodies couldn't produce and so 0:17:06.840 --> 0:17:10.720 Bowing had to capitulate. So Boing, as part of a 0:17:10.800 --> 0:17:15.720 strategy to increase its leverage against the Machinist Union, opened 0:17:15.760 --> 0:17:19.320 this new plant in South Carolina, which analysts at the 0:17:19.359 --> 0:17:22.720 time were surprised by because they felt it would be 0:17:22.800 --> 0:17:26.919 difficult to replicate the aerospace workforce, the supply base that 0:17:27.080 --> 0:17:31.160 Boeing had in Washington. So, and that's exactly what's happened. 0:17:31.200 --> 0:17:36.080 There have been numerous documented problems with faulty parts and 0:17:36.240 --> 0:17:38.960 ending up on airplanes and quality inspections not catching. I 0:17:39.000 --> 0:17:41.879 thought this quote in your story that McNerney jokes on 0:17:41.880 --> 0:17:44.879 this conference call with journalists when he's getting ready to retire, 0:17:44.920 --> 0:17:47.080 and he joked, the heart will still be beating, the 0:17:47.119 --> 0:17:50.760 employees will still be cowering. Yeah, And that was a 0:17:50.800 --> 0:17:52.800 striking quote at the time because it was in the 0:17:52.840 --> 0:17:55.919 middle of all this conflict with unions and so, you know, 0:17:56.080 --> 0:17:58.399 the engineers I spoke was said that at the time 0:17:58.880 --> 0:18:02.280 they actually some people had signs on their desks showing 0:18:02.640 --> 0:18:05.320 a kind of a cowering middle manager and it said 0:18:05.359 --> 0:18:11.200 if I'm not here, I'm probably cowering. That's that's not encouraging, 0:18:11.320 --> 0:18:13.600 is it. No, And that's just part of the back door. 0:18:13.680 --> 0:18:15.399 I mean, the people that I talked to, you know, 0:18:15.440 --> 0:18:18.399 described a really chilling, you know environment. It was the 0:18:18.480 --> 0:18:22.200 kind of environment where layoffs were happening, at first voluntary 0:18:22.240 --> 0:18:26.280 and then involuntary, and so people didn't feel that they 0:18:26.320 --> 0:18:30.359 could speak up. And when I heard that from multiple people, 0:18:30.640 --> 0:18:34.679 it began to make more sense how a problem like 0:18:34.760 --> 0:18:37.159 the one on the MAX could have developed, which seems 0:18:37.160 --> 0:18:42.560 to have been largely because of miscommunications and just sloppy mistakes, 0:18:42.560 --> 0:18:46.120 such as an alert that might have alerted the pilots 0:18:46.160 --> 0:18:48.440 to the fact that one of the angle of attack 0:18:48.520 --> 0:18:51.400 sensors was not working, that was just not hooked up properly, 0:18:51.600 --> 0:18:54.359 which which Boeing discovered a year before the first crash. 0:18:54.520 --> 0:18:57.800 Explain what that was and how that how that played out, 0:18:57.800 --> 0:19:01.680 how that's kind of miscommunication can become something that takes 0:19:01.680 --> 0:19:05.520 people's lives. The real problem, at least as pilots describe it, 0:19:05.560 --> 0:19:09.440 is that they did not even know that this automated 0:19:09.480 --> 0:19:13.160 software system was on the airplane, that this maneuvering characteristics 0:19:13.160 --> 0:19:17.879 augmentation system which automatically began pushing the nose of the 0:19:18.160 --> 0:19:23.040 plane down when one sensor detected that the nose was 0:19:23.119 --> 0:19:26.040 going up too high. Unfortunately, it turned out that this 0:19:26.160 --> 0:19:30.160 sensor was faulty and the nose should not have been 0:19:30.280 --> 0:19:33.800 pushed down, And when the pilots tried to countermand that order, 0:19:33.840 --> 0:19:37.200 the software kept pushing the nose down, which was not 0:19:38.080 --> 0:19:40.320 what the FAA had had certified and it was not 0:19:40.640 --> 0:19:43.960 the intention of the software engineers at Bowing, and Bowing 0:19:44.000 --> 0:19:48.160 has since announced a fix which would take information from 0:19:48.160 --> 0:19:51.800 both sensors and would reduce the ability of the software 0:19:51.800 --> 0:19:54.600 to continue pushing the nose down, even when the pilots 0:19:54.600 --> 0:19:58.879 try to countermand it. And it's really unusual after an 0:19:58.920 --> 0:20:04.120 accident to have such clear evidence of what happened. In 0:20:04.160 --> 0:20:09.040 many cases, accident investigations don't reach a firm conclusion for years. 0:20:09.200 --> 0:20:12.760 But in this case, we had two accidents within five 0:20:12.840 --> 0:20:18.000 months where investigators very quickly determined a critical error in 0:20:18.040 --> 0:20:20.720 the software. It was crystal clear what the cause was. 0:20:21.040 --> 0:20:23.800 But how does that happen. I'm still unclear as to 0:20:24.000 --> 0:20:26.720 how that could happen. How somebody couldn't have said we've 0:20:27.040 --> 0:20:29.879 got a problem here, especially since they knew it before 0:20:29.920 --> 0:20:34.080 the crash has happened. You're hitting on what investigators are 0:20:34.119 --> 0:20:38.200 still trying to determine who knew what when, and so 0:20:38.240 --> 0:20:41.639 far it seems that the errors were there were honest 0:20:41.800 --> 0:20:45.359 mistakes made, or at least that's what people have talked 0:20:45.359 --> 0:20:48.680 to assume, you know, barring other evidence. But it may 0:20:48.720 --> 0:20:52.240 come back to the fact that this was a compartmentalized 0:20:52.480 --> 0:20:55.760 design system where one hand didn't know what the other 0:20:55.880 --> 0:20:58.480 was doing. In other words, a mistake of this magnitude 0:20:58.520 --> 0:21:02.359 could happen through sheer sloppiness, not through deliberate wrongdoing or 0:21:02.400 --> 0:21:06.639 deliberate obfuscation exactly. There's this lawsuit that was recently filed, 0:21:06.680 --> 0:21:09.159 and there's an exchange in the lawsuit where a pilot 0:21:09.280 --> 0:21:11.800 is heard saying, in this conversation, we flat out deserve 0:21:11.880 --> 0:21:14.640 to know what is on our airplanes, and this unidentified 0:21:14.640 --> 0:21:18.720 Boeing official answers, I don't disagree, and then a pilot says, 0:21:18.760 --> 0:21:20.960 these guys didn't even know the damn system was on 0:21:21.000 --> 0:21:23.960 the airplane, referring to the Lion air pilots in their crash, 0:21:24.080 --> 0:21:26.760 nor did anybody else, And the Boeing official says, I 0:21:26.800 --> 0:21:29.199 don't know that understanding this system would have changed the 0:21:29.240 --> 0:21:31.320 outcome of this. In a million miles, you're going to 0:21:31.359 --> 0:21:33.399 maybe fly this airplane and maybe once you're going to 0:21:33.480 --> 0:21:36.280 see this. Ever, so I wondered if from that there 0:21:36.440 --> 0:21:39.080 was this sense that, well, this was just a minor 0:21:39.080 --> 0:21:41.600 issue and something we could afford to overlook, rather than 0:21:41.800 --> 0:21:45.320 something that was going to blow up into this reputation 0:21:45.400 --> 0:21:49.120 destroying thing. Yeah. I think that quote was given to 0:21:49.160 --> 0:21:53.760 the American Airlines pilots in November after the first crash 0:21:53.800 --> 0:21:56.560 of the Lion airplane, and he was saying, you won't 0:21:56.600 --> 0:21:59.919 see this again in a million miles. Well, it happened 0:22:00.119 --> 0:22:04.040 within one hundred thousand flights of the plan within five months, 0:22:04.240 --> 0:22:08.320 so that conclusion seems wrong. Yeah, it's a really interesting 0:22:08.359 --> 0:22:11.200 story about odds, right, that you can try to calculate 0:22:11.240 --> 0:22:14.120 the odds of something going wrong and say they're minimal, 0:22:14.240 --> 0:22:17.680 but that can actually be an incredibly misleading way to 0:22:17.720 --> 0:22:21.840 think about things right. One of the heroes of the 0:22:21.840 --> 0:22:24.920 Boeing engineering workforce is a manager named at Well Al 0:22:25.000 --> 0:22:28.480 Molalley went on to run Forward. He designed the Triple 0:22:28.560 --> 0:22:32.200 seven and had a quote that he would often use, 0:22:32.520 --> 0:22:36.280 which is that the problem with communication is the illusion 0:22:36.320 --> 0:22:38.560 that it happened. So he would try to manage his 0:22:38.640 --> 0:22:43.359 meetings and airplanes with really overcommunicating and trying to make 0:22:43.400 --> 0:22:47.960 sure that all sides understood what was happening. And it 0:22:48.040 --> 0:22:51.040 seems that Boeing went away from that, and that's another 0:22:51.040 --> 0:22:53.960 reason I led the story with that first anecdote, which 0:22:54.440 --> 0:22:57.840 shows that Boeing was trying to limit what people knew 0:22:58.480 --> 0:23:01.159