Speaker 1: This is Bloomberg Business Week with Carol Messer and Tim
Speaker 1: Steneveek on Bloomberg Radio. Well. Shares of Boeing have shed
Speaker 1: more than a fifth of their value since the beginning
Speaker 1: of the year, much of that in the wake of
Speaker 1: the near calamity on a seven thirty seven Max nine
Speaker 1: flight operated by Alaska Airlines earlier this month that prompted
Speaker 1: authorities to ground the model and step up security of
Speaker 1: the company's manufacturing in Carol. Now, the chorus of Boeing
Speaker 1: critics has grown louder as more top airline execs have
Speaker 1: called out the planemaker over a series of quality lapses
Speaker 1: that have upended the operations of a number of carriers.
Speaker 2: All right, well, we've got the guy who literally wrote
Speaker 2: the book about how Boeing got to this place.
Speaker 3: Very pleased.
Speaker 2: We've been looking forward to it all week. To welcome
Speaker 2: our colleague, Bloomberg News Projects and Investigations reporter Peter Robinson.
Speaker 2: He is the author of the New York Times Business
Speaker 2: bestseller Flying Blind, The seven thirty seven Max Tragedy and
Speaker 2: the Fall of Boeing. The book, by the Way, a
Speaker 2: behind the scenes look at the dysfunction that contributed to
Speaker 2: one of the worst tragedies in modern avia, of course,
Speaker 2: the twenty eighteen and twenty nineteen crashes of the Boeing
Speaker 2: seven thirty seven.
Speaker 3: Max. Peter Tim joining us on Zoom from our Seattle bureau.
Speaker 1: Hey Peter, good to have you.
Speaker 4: Look.
Speaker 1: We've been thinking about you a lot in the last
Speaker 1: few weeks because a lot of the discussion over what
Speaker 1: happened on that Alaska Airlines flight has had to do
Speaker 1: with manufacturing flaws in the culture at Boeing. And I'm
Speaker 1: wondering if anything that we've seen from Boeing this month,
Speaker 1: from the actual door plug blowing off to the grounding
Speaker 1: of the planes, the course of executives venting their frustration,
Speaker 1: has any of that surprised you.
Speaker 4: I think what happened didn't surprise me, and I in
Speaker 4: my book, I actually wondered what the prospects for Boeing
Speaker 4: would be if there were another Max accident, because I
Speaker 4: wondered in the book if Boeing's reputation could survive it.
Speaker 4: And I think we're seeing the answer to that in
Speaker 4: real time, that there's real disappointment and frustration that Boeing
Speaker 4: hasn't ironed these problems out. And I wrote in the
Speaker 4: book about how the culture had shifted over many years,
Speaker 4: and what happened after the crashes was that the management
Speaker 4: basically remained in place. Dave Calhoun, who had been on
Speaker 4: the board since two thousand and nine, stayed in place.
Speaker 4: So what you're hearing from many people from Wall Street,
Speaker 4: from Congress, from employees is that there needs to be
Speaker 4: a true shakeup of the management ranks at Boeing.
Speaker 1: So, Peter, you talked a little bit about the lack
Speaker 1: of a culture shift following the first two seven thirty
Speaker 1: seven MAX tragedies in twenty eighteen and twenty nineteen. But
Speaker 1: I'm wondering how far back we have to go to
Speaker 1: understand a culture shift that happened at Boeing when it
Speaker 1: turned from a company that was really focused on engineering
Speaker 1: to one that was focused on financial engineering. When did
Speaker 1: that happen?
Speaker 4: You have to go back a very long time, and
Speaker 4: it may seem like events from the late nineties and
Speaker 4: early two thousands cannot possibly be related to something happening now.
Speaker 4: But the aircraft business is such a long cycle business,
Speaker 4: and it takes so long for these aircraft to be
Speaker 4: developed and then produced. And what happened was that Boeing
Speaker 4: bought McDonald Douglas, which was really they also ran in
Speaker 4: commercial aircraft production, and many of the McDonald Douglas executives
Speaker 4: came into high ranks at Boeing, and that included Harry
Speaker 4: stone Ceipher, who'd been an executive at General Electric and
Speaker 4: was really a disciple of Jack Welch and took the
Speaker 4: approach that what matters is return on net assets. What
Speaker 4: matters is the balance sheet, and stone Cipher was actually
Speaker 4: one of the main proponents of selling off what was
Speaker 4: then called Boeing Wichita, which makes the fuselage for the
Speaker 4: seven thirty seven, and the reason was that it would
Speaker 4: lower Boeing's costs. And at the time there were many
Speaker 4: people warning Boeing that you would lose control of your
Speaker 4: production system, that you needed to have insight into what
Speaker 4: was happening at the very lowest levels of the production system.
Speaker 4: And it appears that what those people had worried about
Speaker 4: has now come to fruition because the problems on this
Speaker 4: max plane were apparently if a whistleblower who wrote on
Speaker 4: an aviation website what happened, it appears to be for
Speaker 4: work by the supplier in the now independent company in
Speaker 4: Wichita and rework at Boeing and miscommunication and Boeing lost
Speaker 4: control of its production system as it tried to sell
Speaker 4: it off and save costs.
Speaker 2: Well, you know, it's like a shark circling the waters,
Speaker 2: the bloody waters, those.
Speaker 3: Being the ones that Boeing is swimming in.
Speaker 2: And you know, we had a headline today about Boeing
Speaker 2: excuse me, Airbus looking to persuade customers to return some
Speaker 2: aircraft delivery slots that it could then hand over to
Speaker 2: United and they're basically going out, you know, all out
Speaker 2: for the rare chance to snatch a marquee order away
Speaker 2: from Boeing.
Speaker 3: Like it's getting nasty.
Speaker 2: So what does Boeing need to do? Does it need
Speaker 2: to be nationalized? I don't know, how are you looking
Speaker 2: at it?
Speaker 4: I think bringing in a management team that that truly
Speaker 4: puts safety and quality first, that was raised with that approach.
Speaker 4: Maybe they do need to bring in a team from
Speaker 4: an entirely different company that can look at things with
Speaker 4: fresh eyes. Because the team at Boeing, although it has
Speaker 4: talked a very good game since the since the ouster
Speaker 4: of former CEO Dennis Muhlenberg, is a team that traditionally
Speaker 4: had put schedule first, and as the as the attention
Speaker 4: uh shipped away from Boeing again, you know that emphasis
Speaker 4: on on schedule first came to the four at Boeing.
Speaker 1: Peter, what about making sure an engineer is an executive
Speaker 1: at the company, is a CEO of the company. We
Speaker 1: haven't had this moment where the last few CEOs have
Speaker 1: had backgrounds that have not been engineering backgrounds. And I
Speaker 1: mean this place used to be the gold standard when
Speaker 1: it came to American aviation, when it came to American ingenuity,
Speaker 1: when it came to American engineering. There's certainly been a
Speaker 1: brain drain. We've reported on that in the past few
Speaker 1: years outside out of Boeing. But what's the importance of
Speaker 1: having the person at the helm being an engineer?
Speaker 4: Well, ironically, Denis Muhlenberg was an engineer, and what was
Speaker 4: proofed unable to communicate to the public of what Boeing
Speaker 4: was doing. The one that got away at Boeing, though,
Speaker 4: is really Alan Malallely, who could have been the choice
Speaker 4: for CEO, even going back to the early two thousands,
Speaker 4: and instead he went to Ford and turned around Ford.
Speaker 2: Wow, all right, so what do you think needs to
Speaker 2: be done? Because you know, it's interesting if indeed United somehow,
Speaker 2: you know.
Speaker 3: Change is where it wants to buy its planes.
Speaker 2: I mean that would be a huge loss right and
Speaker 2: a huge sign to Boeing and really the overall industry.
Speaker 4: It would what's Boeing is hanging on to its now
Speaker 4: forty percent share of the narrow body market. And that's
Speaker 4: a complete turnaround from when I started covering Boeing in
Speaker 4: the late nineties, and it was it was an icon.
Speaker 4: It could seemingly do no wrong. It had sixty percent
Speaker 4: of the narrow body market, and it gradually it sort
Speaker 4: of followed the same paths McDonnell Douglas, and that path
Speaker 4: was failing to invest in new aircraft, in modern technology.
Speaker 4: And the way forward for Boeing is to invest, is
Speaker 4: to believe in commercial aircraft. And the seven thirty seven
Speaker 4: is failing in the marketplace not only because of the
Speaker 4: quality problems, but because the A three twenty simply has
Speaker 4: more modern avionics, It has a more modern crueler system
Speaker 4: and buyers ultimately see that. But Boeing is protected in
Speaker 4: some ways because there are only two manufacturers and airbuses
Speaker 4: production slots are essentially sold out. But as you're describing,
Speaker 4: it's it's still finding ways to maneuver around that.
Speaker 3: Peter.
Speaker 2: Going back to though, what I asked is like, does
Speaker 2: bowe need to be nationalized because it is the largest
Speaker 2: exporter right for the United States?
Speaker 3: This is an important company.
Speaker 1: Huge defense contractor huge.
Speaker 2: Defense contractor just got about thirty forty seconds left. Is
Speaker 2: there some role that the government needs to play?
Speaker 3: I mean, it kind of turns capitalism, you know, upside down.
Speaker 3: But I'm just wondering.
Speaker 4: I couldn't say whether Boeing itself needs to be nationalized,
Speaker 4: but what is through in this case is that the
Speaker 4: FAA is taking a much more active role in overseeing Boeing,
Speaker 4: even to the point of limiting the production expansion that
Speaker 4: Boeing plans, and that you could say as a form
Speaker 4: of nationalism, and that the regulators telling Boeing it cannot
Speaker 4: expand unless it's satisfied that it will do so in
Speaker 4: a safe manner.
Speaker 2: Yeah, it's just it's really fascinating after you know, so
Speaker 2: many years of just trying to get the seven thirty
Speaker 2: seven max, you know, back in you know, operation, and
Speaker 2: then to kind of come out and look like things
Speaker 2: were getting better, and then to see to find themselves
Speaker 2: that here is just kind of staggering. Yeah, it's just
Speaker 2: amazing though, Peter, really great. We've been hoping to get
Speaker 2: some time with you and so appreciate it. So thank you,
Speaker 2: thank you, and have a great weeknd. Bloomberg News Projects
Speaker 2: and Investigations reported Peter Robinson joining us from our Seattle bureau.
Speaker 1: Check out his book Flying Blind, The seven thirty seven
Speaker 1: Max tragedy in the fall of Boeing