WEBVTT - Behind-the-Scenes Look at the Dysfunction at Boeing

0:00:00.120 --> 0:00:03.960
<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Tim

0:00:04.000 --> 0:00:07.960
<v Speaker 1>Steneveek on Bloomberg Radio. Well. Shares of Boeing have shed

0:00:07.960 --> 0:00:10.160
<v Speaker 1>more than a fifth of their value since the beginning

0:00:10.200 --> 0:00:11.799
<v Speaker 1>of the year, much of that in the wake of

0:00:11.840 --> 0:00:14.520
<v Speaker 1>the near calamity on a seven thirty seven Max nine

0:00:14.520 --> 0:00:18.239
<v Speaker 1>flight operated by Alaska Airlines earlier this month that prompted

0:00:18.280 --> 0:00:21.560
<v Speaker 1>authorities to ground the model and step up security of

0:00:21.600 --> 0:00:24.800
<v Speaker 1>the company's manufacturing in Carol. Now, the chorus of Boeing

0:00:24.840 --> 0:00:27.600
<v Speaker 1>critics has grown louder as more top airline execs have

0:00:27.760 --> 0:00:30.560
<v Speaker 1>called out the planemaker over a series of quality lapses

0:00:30.880 --> 0:00:33.800
<v Speaker 1>that have upended the operations of a number of carriers.

0:00:33.840 --> 0:00:35.680
<v Speaker 2>All right, well, we've got the guy who literally wrote

0:00:35.760 --> 0:00:38.200
<v Speaker 2>the book about how Boeing got to this place.

0:00:38.440 --> 0:00:39.040
<v Speaker 3>Very pleased.

0:00:39.080 --> 0:00:41.560
<v Speaker 2>We've been looking forward to it all week. To welcome

0:00:41.560 --> 0:00:45.639
<v Speaker 2>our colleague, Bloomberg News Projects and Investigations reporter Peter Robinson.

0:00:45.720 --> 0:00:48.720
<v Speaker 2>He is the author of the New York Times Business

0:00:48.760 --> 0:00:52.440
<v Speaker 2>bestseller Flying Blind, The seven thirty seven Max Tragedy and

0:00:52.520 --> 0:00:55.040
<v Speaker 2>the Fall of Boeing. The book, by the Way, a

0:00:55.080 --> 0:00:57.600
<v Speaker 2>behind the scenes look at the dysfunction that contributed to

0:00:57.600 --> 0:01:00.560
<v Speaker 2>one of the worst tragedies in modern avia, of course,

0:01:00.560 --> 0:01:03.600
<v Speaker 2>the twenty eighteen and twenty nineteen crashes of the Boeing

0:01:03.680 --> 0:01:04.880
<v Speaker 2>seven thirty seven.

0:01:05.000 --> 0:01:08.080
<v Speaker 3>Max. Peter Tim joining us on Zoom from our Seattle bureau.

0:01:08.120 --> 0:01:09.160
<v Speaker 1>Hey Peter, good to have you.

0:01:09.240 --> 0:01:09.440
<v Speaker 4>Look.

0:01:09.800 --> 0:01:11.440
<v Speaker 1>We've been thinking about you a lot in the last

0:01:11.440 --> 0:01:13.880
<v Speaker 1>few weeks because a lot of the discussion over what

0:01:14.000 --> 0:01:16.960
<v Speaker 1>happened on that Alaska Airlines flight has had to do

0:01:17.080 --> 0:01:20.720
<v Speaker 1>with manufacturing flaws in the culture at Boeing. And I'm

0:01:20.720 --> 0:01:23.000
<v Speaker 1>wondering if anything that we've seen from Boeing this month,

0:01:23.040 --> 0:01:25.800
<v Speaker 1>from the actual door plug blowing off to the grounding

0:01:25.840 --> 0:01:28.480
<v Speaker 1>of the planes, the course of executives venting their frustration,

0:01:28.920 --> 0:01:30.319
<v Speaker 1>has any of that surprised you.

0:01:32.440 --> 0:01:36.479
<v Speaker 4>I think what happened didn't surprise me, and I in

0:01:36.480 --> 0:01:41.120
<v Speaker 4>my book, I actually wondered what the prospects for Boeing

0:01:41.160 --> 0:01:46.679
<v Speaker 4>would be if there were another Max accident, because I

0:01:46.760 --> 0:01:49.440
<v Speaker 4>wondered in the book if Boeing's reputation could survive it.

0:01:49.600 --> 0:01:52.440
<v Speaker 4>And I think we're seeing the answer to that in

0:01:52.480 --> 0:01:57.120
<v Speaker 4>real time, that there's real disappointment and frustration that Boeing

0:01:57.160 --> 0:02:00.600
<v Speaker 4>hasn't ironed these problems out. And I wrote in the

0:02:00.600 --> 0:02:03.000
<v Speaker 4>book about how the culture had shifted over many years,

0:02:03.200 --> 0:02:08.880
<v Speaker 4>and what happened after the crashes was that the management

0:02:08.919 --> 0:02:11.240
<v Speaker 4>basically remained in place. Dave Calhoun, who had been on

0:02:11.240 --> 0:02:13.840
<v Speaker 4>the board since two thousand and nine, stayed in place.

0:02:13.919 --> 0:02:17.959
<v Speaker 4>So what you're hearing from many people from Wall Street,

0:02:18.120 --> 0:02:21.920
<v Speaker 4>from Congress, from employees is that there needs to be

0:02:21.960 --> 0:02:24.360
<v Speaker 4>a true shakeup of the management ranks at Boeing.

0:02:24.760 --> 0:02:26.720
<v Speaker 1>So, Peter, you talked a little bit about the lack

0:02:26.760 --> 0:02:29.520
<v Speaker 1>of a culture shift following the first two seven thirty

0:02:29.560 --> 0:02:32.920
<v Speaker 1>seven MAX tragedies in twenty eighteen and twenty nineteen. But

0:02:32.960 --> 0:02:34.840
<v Speaker 1>I'm wondering how far back we have to go to

0:02:35.040 --> 0:02:37.920
<v Speaker 1>understand a culture shift that happened at Boeing when it

0:02:37.960 --> 0:02:40.799
<v Speaker 1>turned from a company that was really focused on engineering

0:02:41.120 --> 0:02:44.200
<v Speaker 1>to one that was focused on financial engineering. When did

0:02:44.200 --> 0:02:44.680
<v Speaker 1>that happen?

0:02:46.120 --> 0:02:48.760
<v Speaker 4>You have to go back a very long time, and

0:02:48.120 --> 0:02:51.040
<v Speaker 4>it may seem like events from the late nineties and

0:02:51.080 --> 0:02:55.000
<v Speaker 4>early two thousands cannot possibly be related to something happening now.

0:02:55.080 --> 0:02:58.000
<v Speaker 4>But the aircraft business is such a long cycle business,

0:02:58.040 --> 0:03:00.840
<v Speaker 4>and it takes so long for these aircraft to be

0:03:01.240 --> 0:03:04.880
<v Speaker 4>developed and then produced. And what happened was that Boeing

0:03:04.919 --> 0:03:08.480
<v Speaker 4>bought McDonald Douglas, which was really they also ran in

0:03:08.639 --> 0:03:13.279
<v Speaker 4>commercial aircraft production, and many of the McDonald Douglas executives

0:03:14.040 --> 0:03:17.960
<v Speaker 4>came into high ranks at Boeing, and that included Harry

0:03:18.000 --> 0:03:21.520
<v Speaker 4>stone Ceipher, who'd been an executive at General Electric and

0:03:21.639 --> 0:03:24.680
<v Speaker 4>was really a disciple of Jack Welch and took the

0:03:24.760 --> 0:03:28.960
<v Speaker 4>approach that what matters is return on net assets. What

0:03:29.080 --> 0:03:32.919
<v Speaker 4>matters is the balance sheet, and stone Cipher was actually

0:03:33.200 --> 0:03:36.640
<v Speaker 4>one of the main proponents of selling off what was

0:03:36.720 --> 0:03:40.360
<v Speaker 4>then called Boeing Wichita, which makes the fuselage for the

0:03:40.360 --> 0:03:42.600
<v Speaker 4>seven thirty seven, and the reason was that it would

0:03:42.600 --> 0:03:46.760
<v Speaker 4>lower Boeing's costs. And at the time there were many

0:03:47.080 --> 0:03:50.360
<v Speaker 4>people warning Boeing that you would lose control of your

0:03:50.560 --> 0:03:53.320
<v Speaker 4>production system, that you needed to have insight into what

0:03:53.400 --> 0:03:56.280
<v Speaker 4>was happening at the very lowest levels of the production system.

0:03:56.840 --> 0:04:01.920
<v Speaker 4>And it appears that what those people had worried about

0:04:02.040 --> 0:04:06.400
<v Speaker 4>has now come to fruition because the problems on this

0:04:06.760 --> 0:04:13.080
<v Speaker 4>max plane were apparently if a whistleblower who wrote on

0:04:13.080 --> 0:04:17.800
<v Speaker 4>an aviation website what happened, it appears to be for

0:04:18.040 --> 0:04:22.080
<v Speaker 4>work by the supplier in the now independent company in

0:04:22.120 --> 0:04:28.600
<v Speaker 4>Wichita and rework at Boeing and miscommunication and Boeing lost

0:04:28.640 --> 0:04:31.000
<v Speaker 4>control of its production system as it tried to sell

0:04:31.040 --> 0:04:32.560
<v Speaker 4>it off and save costs.

0:04:32.640 --> 0:04:34.800
<v Speaker 2>Well, you know, it's like a shark circling the waters,

0:04:35.560 --> 0:04:37.520
<v Speaker 2>the bloody waters, those.

0:04:37.360 --> 0:04:39.400
<v Speaker 3>Being the ones that Boeing is swimming in.

0:04:39.480 --> 0:04:43.000
<v Speaker 2>And you know, we had a headline today about Boeing

0:04:43.600 --> 0:04:46.840
<v Speaker 2>excuse me, Airbus looking to persuade customers to return some

0:04:46.960 --> 0:04:49.359
<v Speaker 2>aircraft delivery slots that it could then hand over to

0:04:49.520 --> 0:04:53.120
<v Speaker 2>United and they're basically going out, you know, all out

0:04:53.200 --> 0:04:55.800
<v Speaker 2>for the rare chance to snatch a marquee order away

0:04:56.000 --> 0:04:56.719
<v Speaker 2>from Boeing.

0:04:56.800 --> 0:04:58.720
<v Speaker 3>Like it's getting nasty.

0:04:58.960 --> 0:05:02.400
<v Speaker 2>So what does Boeing need to do? Does it need

0:05:02.440 --> 0:05:06.000
<v Speaker 2>to be nationalized? I don't know, how are you looking

0:05:06.040 --> 0:05:06.400
<v Speaker 2>at it?

0:05:08.320 --> 0:05:12.000
<v Speaker 4>I think bringing in a management team that that truly

0:05:12.040 --> 0:05:16.640
<v Speaker 4>puts safety and quality first, that was raised with that approach.

0:05:16.680 --> 0:05:20.240
<v Speaker 4>Maybe they do need to bring in a team from

0:05:20.240 --> 0:05:24.680
<v Speaker 4>an entirely different company that can look at things with

0:05:24.760 --> 0:05:29.320
<v Speaker 4>fresh eyes. Because the team at Boeing, although it has

0:05:29.960 --> 0:05:33.599
<v Speaker 4>talked a very good game since the since the ouster

0:05:33.760 --> 0:05:40.000
<v Speaker 4>of former CEO Dennis Muhlenberg, is a team that traditionally

0:05:40.200 --> 0:05:44.320
<v Speaker 4>had put schedule first, and as the as the attention

0:05:44.800 --> 0:05:49.800
<v Speaker 4>uh shipped away from Boeing again, you know that emphasis

0:05:49.839 --> 0:05:53.800
<v Speaker 4>on on schedule first came to the four at Boeing.

0:05:54.480 --> 0:05:58.600
<v Speaker 1>Peter, what about making sure an engineer is an executive

0:05:58.600 --> 0:06:00.719
<v Speaker 1>at the company, is a CEO of the company. We

0:06:00.760 --> 0:06:03.800
<v Speaker 1>haven't had this moment where the last few CEOs have

0:06:03.920 --> 0:06:06.280
<v Speaker 1>had backgrounds that have not been engineering backgrounds. And I

0:06:06.320 --> 0:06:08.680
<v Speaker 1>mean this place used to be the gold standard when

0:06:08.680 --> 0:06:11.880
<v Speaker 1>it came to American aviation, when it came to American ingenuity,

0:06:11.880 --> 0:06:14.240
<v Speaker 1>when it came to American engineering. There's certainly been a

0:06:14.240 --> 0:06:17.200
<v Speaker 1>brain drain. We've reported on that in the past few

0:06:17.240 --> 0:06:20.000
<v Speaker 1>years outside out of Boeing. But what's the importance of

0:06:20.040 --> 0:06:22.720
<v Speaker 1>having the person at the helm being an engineer?

0:06:24.880 --> 0:06:30.280
<v Speaker 4>Well, ironically, Denis Muhlenberg was an engineer, and what was

0:06:30.760 --> 0:06:34.880
<v Speaker 4>proofed unable to communicate to the public of what Boeing

0:06:35.080 --> 0:06:38.640
<v Speaker 4>was doing. The one that got away at Boeing, though,

0:06:38.720 --> 0:06:42.640
<v Speaker 4>is really Alan Malallely, who could have been the choice

0:06:43.040 --> 0:06:47.240
<v Speaker 4>for CEO, even going back to the early two thousands,

0:06:47.520 --> 0:06:50.120
<v Speaker 4>and instead he went to Ford and turned around Ford.

0:06:51.240 --> 0:06:54.440
<v Speaker 2>Wow, all right, so what do you think needs to

0:06:54.440 --> 0:06:58.919
<v Speaker 2>be done? Because you know, it's interesting if indeed United somehow,

0:06:59.160 --> 0:06:59.560
<v Speaker 2>you know.

0:06:59.640 --> 0:07:02.279
<v Speaker 3>Change is where it wants to buy its planes.

0:07:02.360 --> 0:07:04.760
<v Speaker 2>I mean that would be a huge loss right and

0:07:04.800 --> 0:07:08.040
<v Speaker 2>a huge sign to Boeing and really the overall industry.

0:07:09.600 --> 0:07:14.640
<v Speaker 4>It would what's Boeing is hanging on to its now

0:07:14.720 --> 0:07:17.280
<v Speaker 4>forty percent share of the narrow body market. And that's

0:07:17.320 --> 0:07:21.160
<v Speaker 4>a complete turnaround from when I started covering Boeing in

0:07:21.200 --> 0:07:24.560
<v Speaker 4>the late nineties, and it was it was an icon.

0:07:24.800 --> 0:07:27.119
<v Speaker 4>It could seemingly do no wrong. It had sixty percent

0:07:27.160 --> 0:07:31.880
<v Speaker 4>of the narrow body market, and it gradually it sort

0:07:31.880 --> 0:07:34.360
<v Speaker 4>of followed the same paths McDonnell Douglas, and that path

0:07:34.520 --> 0:07:40.560
<v Speaker 4>was failing to invest in new aircraft, in modern technology.

0:07:41.120 --> 0:07:45.120
<v Speaker 4>And the way forward for Boeing is to invest, is

0:07:45.160 --> 0:07:49.720
<v Speaker 4>to believe in commercial aircraft. And the seven thirty seven

0:07:49.840 --> 0:07:52.680
<v Speaker 4>is failing in the marketplace not only because of the

0:07:52.760 --> 0:07:55.880
<v Speaker 4>quality problems, but because the A three twenty simply has

0:07:55.960 --> 0:07:59.440
<v Speaker 4>more modern avionics, It has a more modern crueler system

0:07:59.840 --> 0:08:04.200
<v Speaker 4>and buyers ultimately see that. But Boeing is protected in

0:08:04.240 --> 0:08:07.600
<v Speaker 4>some ways because there are only two manufacturers and airbuses

0:08:07.720 --> 0:08:11.880
<v Speaker 4>production slots are essentially sold out. But as you're describing,

0:08:11.960 --> 0:08:14.920
<v Speaker 4>it's it's still finding ways to maneuver around that.

0:08:15.320 --> 0:08:15.560
<v Speaker 3>Peter.

0:08:15.680 --> 0:08:17.800
<v Speaker 2>Going back to though, what I asked is like, does

0:08:17.840 --> 0:08:21.120
<v Speaker 2>bowe need to be nationalized because it is the largest

0:08:21.160 --> 0:08:22.840
<v Speaker 2>exporter right for the United States?

0:08:22.920 --> 0:08:24.320
<v Speaker 3>This is an important company.

0:08:24.080 --> 0:08:25.680
<v Speaker 1>Huge defense contractor huge.

0:08:25.440 --> 0:08:28.880
<v Speaker 2>Defense contractor just got about thirty forty seconds left. Is

0:08:28.920 --> 0:08:31.000
<v Speaker 2>there some role that the government needs to play?

0:08:31.040 --> 0:08:34.640
<v Speaker 3>I mean, it kind of turns capitalism, you know, upside down.

0:08:34.800 --> 0:08:35.960
<v Speaker 3>But I'm just wondering.

0:08:38.400 --> 0:08:41.040
<v Speaker 4>I couldn't say whether Boeing itself needs to be nationalized,

0:08:41.520 --> 0:08:44.240
<v Speaker 4>but what is through in this case is that the

0:08:44.320 --> 0:08:49.720
<v Speaker 4>FAA is taking a much more active role in overseeing Boeing,

0:08:49.760 --> 0:08:54.160
<v Speaker 4>even to the point of limiting the production expansion that

0:08:54.240 --> 0:08:57.320
<v Speaker 4>Boeing plans, and that you could say as a form

0:08:57.360 --> 0:09:02.760
<v Speaker 4>of nationalism, and that the regulators telling Boeing it cannot

0:09:03.080 --> 0:09:05.360
<v Speaker 4>expand unless it's satisfied that it will do so in

0:09:05.400 --> 0:09:06.280
<v Speaker 4>a safe manner.

0:09:07.280 --> 0:09:11.840
<v Speaker 2>Yeah, it's just it's really fascinating after you know, so

0:09:11.960 --> 0:09:14.680
<v Speaker 2>many years of just trying to get the seven thirty

0:09:14.720 --> 0:09:18.600
<v Speaker 2>seven max, you know, back in you know, operation, and

0:09:18.640 --> 0:09:21.120
<v Speaker 2>then to kind of come out and look like things

0:09:21.120 --> 0:09:24.160
<v Speaker 2>were getting better, and then to see to find themselves

0:09:24.160 --> 0:09:27.319
<v Speaker 2>that here is just kind of staggering. Yeah, it's just

0:09:27.320 --> 0:09:31.440
<v Speaker 2>amazing though, Peter, really great. We've been hoping to get

0:09:31.440 --> 0:09:33.680
<v Speaker 2>some time with you and so appreciate it. So thank you,

0:09:33.720 --> 0:09:36.040
<v Speaker 2>thank you, and have a great weeknd. Bloomberg News Projects

0:09:36.040 --> 0:09:39.720
<v Speaker 2>and Investigations reported Peter Robinson joining us from our Seattle bureau.

0:09:40.080 --> 0:09:42.120
<v Speaker 1>Check out his book Flying Blind, The seven thirty seven

0:09:42.120 --> 0:09:43.760
<v Speaker 1>Max tragedy in the fall of Boeing