1 00:00:10,080 --> 00:00:14,240 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:14,360 --> 00:00:16,760 Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway. 3 00:00:17,040 --> 00:00:20,200 Speaker 1: Tracy, this might seem like the most obvious statement in 4 00:00:20,200 --> 00:00:23,479 Speaker 1: the world, but I'm really worried about Boeing. And I 5 00:00:23,520 --> 00:00:25,520 Speaker 1: don't mean like flying on one per se. 6 00:00:26,079 --> 00:00:28,960 Speaker 2: Oh really, well, I mean that's kind of what I 7 00:00:28,960 --> 00:00:30,800 Speaker 2: would be worried about. But I feel like I need 8 00:00:30,840 --> 00:00:33,800 Speaker 2: to do a disclaimer before we do this episode, which 9 00:00:33,840 --> 00:00:37,519 Speaker 2: is that I have a massive soft spot for Boeing. 10 00:00:38,120 --> 00:00:40,680 Speaker 2: I think a lot of Americans actually maybe still do. 11 00:00:40,920 --> 00:00:44,240 Speaker 2: My dad flew be fifty two's and then he flew 12 00:00:44,280 --> 00:00:46,840 Speaker 2: seven thirty sevens for a Southwest For a long time, 13 00:00:47,120 --> 00:00:50,120 Speaker 2: I've been in a seven thirty seven simulator with him. 14 00:00:50,440 --> 00:00:54,280 Speaker 2: I covered airlines, not really aerospace, but airlines for a while, 15 00:00:54,320 --> 00:00:56,520 Speaker 2: and so I feel like my life has to some 16 00:00:56,600 --> 00:00:59,640 Speaker 2: extent been a little bit entwined with Boeing. A large 17 00:00:59,680 --> 00:01:03,520 Speaker 2: part of my inheritance, if I get it, is Southwest 18 00:01:03,600 --> 00:01:07,240 Speaker 2: stock which I think still kind of correlates with Boeing, 19 00:01:07,319 --> 00:01:10,000 Speaker 2: given that their fleet is all seven thirty sevens. So 20 00:01:10,160 --> 00:01:11,120 Speaker 2: there's my disclaimer. 21 00:01:11,319 --> 00:01:14,160 Speaker 1: That is a front that is a very a very 22 00:01:14,160 --> 00:01:15,640 Speaker 1: good and thorough disclaimer. 23 00:01:15,840 --> 00:01:15,920 Speaker 2: No. 24 00:01:16,080 --> 00:01:18,279 Speaker 1: Like So when I say like I'm worried about Boeing, 25 00:01:18,319 --> 00:01:20,959 Speaker 1: I mean I guess as someone who flies as a passenger, 26 00:01:21,040 --> 00:01:24,040 Speaker 1: as a passenger occasionally. You know, Boeing is one of 27 00:01:24,080 --> 00:01:28,080 Speaker 1: the most important manufacturers in the world, certainly to the 28 00:01:28,160 --> 00:01:32,000 Speaker 1: US economy. Commercial aviation is one of the areas in 29 00:01:32,040 --> 00:01:34,679 Speaker 1: which the US Boeing is still a dominant leader. It's 30 00:01:34,680 --> 00:01:36,560 Speaker 1: not one of these spaces that's like lost. It's you know, 31 00:01:37,040 --> 00:01:39,800 Speaker 1: crown in one way or another to China the way 32 00:01:39,800 --> 00:01:43,440 Speaker 1: we've seen in other industrial sectors, and you know, is 33 00:01:43,480 --> 00:01:45,800 Speaker 1: this society it feels like, policy wise, we want to 34 00:01:45,800 --> 00:01:50,160 Speaker 1: reinvigorate American manufacturing. We know about the importance of complexity, 35 00:01:50,200 --> 00:01:52,360 Speaker 1: which is something that we talk about a lot on 36 00:01:52,400 --> 00:01:55,800 Speaker 1: this show. Probably you know a Boeing plate. These are 37 00:01:55,800 --> 00:01:59,120 Speaker 1: among the most complex manufactured products in the world. And 38 00:01:59,200 --> 00:02:02,800 Speaker 1: so if the pre eminent maker of planes in America 39 00:02:02,960 --> 00:02:07,000 Speaker 1: is having perpetual trouble making planes, that worries me about 40 00:02:07,040 --> 00:02:07,640 Speaker 1: the country. 41 00:02:07,960 --> 00:02:11,440 Speaker 2: So there's two things here. I think there's two ways 42 00:02:11,480 --> 00:02:14,680 Speaker 2: of sort of thinking about what the Boeing story or 43 00:02:15,000 --> 00:02:18,600 Speaker 2: at this point, the downfall of Boeing really says about 44 00:02:18,680 --> 00:02:21,520 Speaker 2: the economy, and I say downfall because while it's true 45 00:02:21,560 --> 00:02:25,560 Speaker 2: it hasn't been superseded by a Chinese manufacturer, it has 46 00:02:25,680 --> 00:02:28,840 Speaker 2: lost a huge amount of market share ye to air Bus, 47 00:02:28,960 --> 00:02:33,600 Speaker 2: its main competitor. So two things. So one absolutely indicative 48 00:02:33,760 --> 00:02:37,840 Speaker 2: of I guess, the path of American manufacturing or industrial 49 00:02:37,840 --> 00:02:40,840 Speaker 2: capacity within the US. But I also think it says 50 00:02:40,880 --> 00:02:43,800 Speaker 2: a lot about the structure of the economy and the 51 00:02:43,919 --> 00:02:47,440 Speaker 2: wider incentives at play. And you think about, you know, 52 00:02:47,600 --> 00:02:53,520 Speaker 2: concentration of corporate power. Boeing and Airbus are so emblematic 53 00:02:53,560 --> 00:02:56,119 Speaker 2: of this. You basically have a duopoly, or you had 54 00:02:56,120 --> 00:02:59,040 Speaker 2: for many years, and now we're kind of moving, I guess, 55 00:02:59,040 --> 00:03:01,800 Speaker 2: to a monopoly as air Bus you know, sells even 56 00:03:01,840 --> 00:03:04,960 Speaker 2: more planes. But it's interesting to me both from a 57 00:03:05,000 --> 00:03:09,240 Speaker 2: manufacturing perspective and also from an incentive perspective, like what 58 00:03:09,320 --> 00:03:11,920 Speaker 2: are the decisions, what is the system in place that 59 00:03:12,040 --> 00:03:14,240 Speaker 2: leads to an outcome where you have one or two 60 00:03:14,560 --> 00:03:18,679 Speaker 2: extremely dominant manufacturers of something that's really. 61 00:03:18,520 --> 00:03:21,560 Speaker 1: Important totally And then of course you know, just sort 62 00:03:21,560 --> 00:03:24,160 Speaker 1: of dovetailing on it what you said, like there's all 63 00:03:24,200 --> 00:03:28,880 Speaker 1: these questions about sort of financial capitalism versus industrial capitalism, 64 00:03:28,919 --> 00:03:31,600 Speaker 1: and whether you know, is this an area in which 65 00:03:31,840 --> 00:03:35,000 Speaker 1: desire to boost the stock price through one way or 66 00:03:35,000 --> 00:03:39,520 Speaker 1: another by increasing the dividend, allocating more to shareholders rather 67 00:03:39,520 --> 00:03:42,920 Speaker 1: than reinvesting in safety, et cetera, like that, whether that 68 00:03:43,120 --> 00:03:45,960 Speaker 1: was the impulse or whether that was a driver of 69 00:03:46,000 --> 00:03:48,880 Speaker 1: the troubles that we've seen at Bowing like huge, I 70 00:03:48,920 --> 00:03:53,000 Speaker 1: just think like core questions for us, you know, in 71 00:03:53,040 --> 00:03:54,600 Speaker 1: the US economy, Boeing. 72 00:03:54,320 --> 00:03:57,000 Speaker 2: Is sort of an expression at this point of some 73 00:03:57,080 --> 00:04:00,360 Speaker 2: of the thorniest issues facing the US economy, Like it 74 00:04:00,400 --> 00:04:01,800 Speaker 2: kind of encapsulates all of them. 75 00:04:01,880 --> 00:04:04,760 Speaker 1: So we really have to do a Boeing episode, probably 76 00:04:04,920 --> 00:04:07,200 Speaker 1: more than one, but we got to start. So I'm 77 00:04:07,200 --> 00:04:10,840 Speaker 1: really excited to say we literally do have the perfect 78 00:04:10,880 --> 00:04:13,440 Speaker 1: guest today. We're going to be speaking with Peter Robinson. 79 00:04:13,520 --> 00:04:16,440 Speaker 1: He is the author of Flying Blind, The seven point 80 00:04:16,440 --> 00:04:19,880 Speaker 1: thirty seven Max Tragedy, and The Fall of Boeing, who 81 00:04:19,920 --> 00:04:23,120 Speaker 1: is a New York Times bestseller. He's also our colleague, 82 00:04:23,160 --> 00:04:27,320 Speaker 1: and he's an investigative journalist here at Bloomberg. So, Peter, 83 00:04:27,440 --> 00:04:29,600 Speaker 1: thank you so much for coming on Odlocks. 84 00:04:29,720 --> 00:04:30,560 Speaker 3: Thank you for having me. 85 00:04:30,839 --> 00:04:33,720 Speaker 1: There's so many different ways we could begin this and 86 00:04:33,760 --> 00:04:36,360 Speaker 1: there's so Boeying touches on so many things, But where 87 00:04:36,360 --> 00:04:38,840 Speaker 1: does the story begin in your view or in your 88 00:04:38,920 --> 00:04:42,360 Speaker 1: book literally, like when you think about the Boeing saga, 89 00:04:42,400 --> 00:04:43,400 Speaker 1: where does the story begin? 90 00:04:43,800 --> 00:04:46,159 Speaker 3: Well, it really reflects some of the things that Tracy 91 00:04:46,279 --> 00:04:50,120 Speaker 3: was saying, because this is a company where just about 92 00:04:50,120 --> 00:04:52,640 Speaker 3: everyone that I meet has an incredible amount of pride 93 00:04:53,120 --> 00:04:55,599 Speaker 3: in the product that they got into the industry because 94 00:04:55,600 --> 00:04:58,040 Speaker 3: they wanted to build things that fly, They wanted to 95 00:04:58,600 --> 00:05:01,719 Speaker 3: affect the future, they wanted work to have meaning. And 96 00:05:01,760 --> 00:05:04,440 Speaker 3: I started covering this company in the late nineteen nineties, 97 00:05:04,480 --> 00:05:07,320 Speaker 3: so I have a lot of history following it. What 98 00:05:07,400 --> 00:05:10,680 Speaker 3: I noticed again and again was that these workers seemed 99 00:05:10,760 --> 00:05:14,080 Speaker 3: let down by management. They seemed let down by management 100 00:05:14,279 --> 00:05:18,200 Speaker 3: who weren't investing for the future, who were pushing for 101 00:05:18,240 --> 00:05:22,200 Speaker 3: free cash flow over investment in new products. And what 102 00:05:22,400 --> 00:05:25,000 Speaker 3: we've seen increasingly over the last few years is the 103 00:05:25,040 --> 00:05:30,039 Speaker 3: fallout of those really management allocation decisions that are being 104 00:05:30,120 --> 00:05:31,359 Speaker 3: shown to be deeply flawed. 105 00:05:32,040 --> 00:05:34,800 Speaker 2: So we should probably talk about why we're doing this 106 00:05:34,880 --> 00:05:38,479 Speaker 2: episode right now. Yeah, we kind of forgot in the intro. 107 00:05:38,800 --> 00:05:41,360 Speaker 2: I guess it's a testament to just how many problems 108 00:05:41,360 --> 00:05:44,320 Speaker 2: Boeing has had at this point with its new Max 109 00:05:44,400 --> 00:05:47,479 Speaker 2: nine model. It's just been like, I guess, years and 110 00:05:47,560 --> 00:05:51,200 Speaker 2: years of problems at this point, But why don't you 111 00:05:51,320 --> 00:05:56,400 Speaker 2: explain what has happened recently? What's the latest fiasco in 112 00:05:56,440 --> 00:05:59,839 Speaker 2: the history of this relatively new aircraft introduced by Boeing. 113 00:06:00,880 --> 00:06:04,440 Speaker 3: This is almost brand new aircraft. The Max nine is 114 00:06:04,480 --> 00:06:08,400 Speaker 3: the latest version of I believe, the fourth version of 115 00:06:08,440 --> 00:06:12,480 Speaker 3: the seven thirty seven, which dates back to nineteen sixty seven, and. 116 00:06:12,800 --> 00:06:14,880 Speaker 2: The world's most popular aircraft for. 117 00:06:14,920 --> 00:06:18,480 Speaker 3: A time, right for a time, Yeah, and best selling 118 00:06:18,880 --> 00:06:23,960 Speaker 3: narrow body plane of all time, more recently superseded by Airbus. 119 00:06:24,560 --> 00:06:27,400 Speaker 3: But I'm sure people have seen the terrifying cell phone 120 00:06:27,480 --> 00:06:31,440 Speaker 3: videos of a portion of the plane being ripped off 121 00:06:31,560 --> 00:06:34,400 Speaker 3: and the plane landing with a gaping hole in its side, 122 00:06:34,680 --> 00:06:38,480 Speaker 3: which Boeing CEO Dave Calhoun said was our mistake, and 123 00:06:38,560 --> 00:06:41,760 Speaker 3: the leading theory is that it was due to perhaps 124 00:06:41,800 --> 00:06:45,560 Speaker 3: shoddy workmanship at either Boeing or its leading supplier, which 125 00:06:45,640 --> 00:06:49,520 Speaker 3: used to be part of Boeing until an outsourcing strategy 126 00:06:49,600 --> 00:06:52,560 Speaker 3: which was partly designed to raise free cash flow, led 127 00:06:52,600 --> 00:06:56,520 Speaker 3: Boeing to sell that supplier, so of. 128 00:06:56,520 --> 00:07:01,800 Speaker 1: Course, now just again zooming out. Obviously January fifth, we've 129 00:07:01,839 --> 00:07:04,160 Speaker 1: seen the cell phone videos of the door flying off 130 00:07:04,200 --> 00:07:08,239 Speaker 1: and sort of miraculously nobody died. The plane was able 131 00:07:08,279 --> 00:07:11,920 Speaker 1: to make an emergency landing. But of course, the story 132 00:07:12,040 --> 00:07:15,760 Speaker 1: in many people's minds beginned in twenty eighteen with the 133 00:07:15,800 --> 00:07:18,480 Speaker 1: two crashes, one in late twenty eighteen, one in early 134 00:07:18,560 --> 00:07:22,240 Speaker 1: twenty nineteen with the seven thirty seven Max. What is 135 00:07:22,240 --> 00:07:24,360 Speaker 1: the seven thirty seven Max Actually, when there is a 136 00:07:24,360 --> 00:07:27,240 Speaker 1: seven thirty seven Max eight or seven thirty seven Max nine, 137 00:07:27,280 --> 00:07:28,560 Speaker 1: what is this product? 138 00:07:29,000 --> 00:07:32,080 Speaker 3: It is a roughly one hundred and fifty to one 139 00:07:32,120 --> 00:07:35,640 Speaker 3: hundred and eighty seat airplane that is designed to be 140 00:07:36,240 --> 00:07:40,080 Speaker 3: the most cost effective a to B device in the skies. 141 00:07:40,160 --> 00:07:43,559 Speaker 3: The seven thirty seven is designed for quick turnaround short 142 00:07:43,600 --> 00:07:48,960 Speaker 3: haul flights. It's meant to be extremely reliable and cost 143 00:07:49,000 --> 00:07:51,040 Speaker 3: effective for the airlines, so a lot of flow cost 144 00:07:51,120 --> 00:07:55,480 Speaker 3: airlines like Southwest fly the seven thirty seven and the Max. 145 00:07:55,760 --> 00:08:00,320 Speaker 3: As you mentioned in twenty eighteen, had the Max eight 146 00:08:00,440 --> 00:08:03,040 Speaker 3: had just been introduced and in the space of five 147 00:08:03,120 --> 00:08:06,080 Speaker 3: months had two crashes that were found to be due 148 00:08:06,080 --> 00:08:09,480 Speaker 3: to a flight control system that had been implemented without 149 00:08:09,760 --> 00:08:12,440 Speaker 3: telling the pilots it was there, and pushed the nose 150 00:08:12,480 --> 00:08:14,880 Speaker 3: of the plane into the ground without them being able 151 00:08:14,920 --> 00:08:15,760 Speaker 3: to control it. 152 00:08:16,400 --> 00:08:19,800 Speaker 2: So I realized, it's early days on the most recent 153 00:08:19,920 --> 00:08:24,000 Speaker 2: incident with the Alaska Airline plane and the door kind 154 00:08:24,040 --> 00:08:27,280 Speaker 2: of blowing out. But what do we know so far 155 00:08:27,480 --> 00:08:31,880 Speaker 2: about that particular situation? And I guess what's the significance 156 00:08:32,160 --> 00:08:35,400 Speaker 2: of the difference of something happening with, say, you know, 157 00:08:35,480 --> 00:08:40,920 Speaker 2: bolts not being drilled correctly versus a problem in the 158 00:08:40,920 --> 00:08:44,920 Speaker 2: flight control I guess essentially software of previous crashes. 159 00:08:45,600 --> 00:08:48,679 Speaker 3: In some ways, this could be seen as potentially as 160 00:08:48,720 --> 00:08:52,040 Speaker 3: a simpler problem than the problem with the flight control software, 161 00:08:52,080 --> 00:08:54,559 Speaker 3: because that was the flight control software was a design 162 00:08:54,640 --> 00:08:59,360 Speaker 3: issue that required extensive reworking of the software and retraining 163 00:08:59,400 --> 00:09:02,760 Speaker 3: of the pilot. In this case, it seems that someone 164 00:09:03,120 --> 00:09:06,600 Speaker 3: didn't do their job and there wasn't potentially a second 165 00:09:06,640 --> 00:09:09,720 Speaker 3: set of eyes on the work that was done. So 166 00:09:09,760 --> 00:09:12,560 Speaker 3: what happened was that a portion of the plane that 167 00:09:12,760 --> 00:09:15,520 Speaker 3: would have looked like a window to passengers was actually 168 00:09:15,880 --> 00:09:18,200 Speaker 3: behind the wall an emergency exit, and there was a 169 00:09:18,200 --> 00:09:21,080 Speaker 3: plug door put over that part of the plane, and 170 00:09:21,120 --> 00:09:24,400 Speaker 3: that plug door as the plane reached sixteen thousand feet, 171 00:09:24,640 --> 00:09:28,040 Speaker 3: escaped the plane, and the hole opened. And the theory 172 00:09:28,160 --> 00:09:30,520 Speaker 3: is that there are just four bolts that attached this 173 00:09:30,559 --> 00:09:34,080 Speaker 3: plug door to the plane, and either they were not 174 00:09:34,200 --> 00:09:37,320 Speaker 3: fastened properly or they simply weren't installed at all. 175 00:09:37,880 --> 00:09:40,640 Speaker 2: Escaped the plane is a very creative way of saying, 176 00:09:40,720 --> 00:09:45,239 Speaker 2: like catastrophic in flight decompression. But here we go, Yes. 177 00:09:45,480 --> 00:09:47,840 Speaker 3: It would have been. It was terrifying to people. 178 00:09:47,679 --> 00:10:02,800 Speaker 4: On the plane. 179 00:10:05,040 --> 00:10:08,240 Speaker 1: The story that people tell or is this idea and 180 00:10:08,400 --> 00:10:10,520 Speaker 1: you sort of already hinted at it, is like that 181 00:10:10,600 --> 00:10:15,120 Speaker 1: at one point Boeing head and engineering culture, and I'm 182 00:10:15,120 --> 00:10:17,760 Speaker 1: sure there still is a very intense engineering culture, but 183 00:10:17,800 --> 00:10:20,760 Speaker 1: that was really dominant, and then it became more of 184 00:10:20,840 --> 00:10:23,880 Speaker 1: a financial culture or a shareholder friendly culture. People were 185 00:10:23,880 --> 00:10:26,160 Speaker 1: brought in and there was more focused on dividends, et cetera. 186 00:10:26,200 --> 00:10:27,960 Speaker 1: And I get why people tell the story, but like, 187 00:10:28,559 --> 00:10:31,800 Speaker 1: what actually happened. What was the culture of Boeing, like 188 00:10:31,880 --> 00:10:34,400 Speaker 1: maybe during its best days, and then when did that 189 00:10:34,480 --> 00:10:36,560 Speaker 1: begin to change? In your view, and you're telling of 190 00:10:36,600 --> 00:10:37,040 Speaker 1: the story. 191 00:10:37,600 --> 00:10:42,400 Speaker 3: I've talked to employees from pretty much every era, even 192 00:10:42,440 --> 00:10:45,480 Speaker 3: back to the nineteen fifties, people who worked at Boeing, 193 00:10:45,960 --> 00:10:48,920 Speaker 3: and the early stage of Boeing is very much this. 194 00:10:49,360 --> 00:10:52,200 Speaker 3: You know, there's a saying that Boeing we hire engineers 195 00:10:52,240 --> 00:10:55,760 Speaker 3: and other people. It was very much focused on product. 196 00:10:55,840 --> 00:10:58,760 Speaker 3: It was focused on customers. It was, you know, will 197 00:10:58,840 --> 00:11:02,120 Speaker 3: we'll have a service team when a new airplane was introduced, 198 00:11:02,120 --> 00:11:05,199 Speaker 3: there would be a service team waiting at every landing 199 00:11:05,240 --> 00:11:08,720 Speaker 3: to see how the plane performed. Over time, as the 200 00:11:08,760 --> 00:11:13,200 Speaker 3: company grew, especially as it became dominant at one train 201 00:11:13,240 --> 00:11:16,200 Speaker 3: of thought is that complacency set in. Boeing at the time, 202 00:11:16,400 --> 00:11:18,920 Speaker 3: by the nineteen eighties, had more than sixty percent of 203 00:11:18,960 --> 00:11:22,160 Speaker 3: the market, and it did settle into essentially a duopoly 204 00:11:22,320 --> 00:11:25,840 Speaker 3: with Airbus. The Triple seven in the nineteen nineties was, 205 00:11:27,000 --> 00:11:29,120 Speaker 3: many people have told me, was the high point of 206 00:11:29,120 --> 00:11:33,240 Speaker 3: Boeing's design culture. One person called it Boeing's camelot. What 207 00:11:33,360 --> 00:11:37,480 Speaker 3: happened after that point was two things. Boeing purchased McDonald douglas, 208 00:11:37,520 --> 00:11:40,720 Speaker 3: and McDonald douglas was the also ran to Boeing's leader 209 00:11:40,800 --> 00:11:44,320 Speaker 3: for much of the commercial jet age. That brought in 210 00:11:44,600 --> 00:11:48,600 Speaker 3: McDonald douglas leaders who were trained more in the free 211 00:11:48,600 --> 00:11:52,680 Speaker 3: cash flow approach to management, and especially one leader, Harry 212 00:11:52,720 --> 00:11:56,080 Speaker 3: Stone Ceipher, who had been a disciple of Jack Welch, 213 00:11:56,600 --> 00:11:59,800 Speaker 3: and it was very much raised the stock price by 214 00:12:00,679 --> 00:12:03,800 Speaker 3: not as much investing for the future. And if you're 215 00:12:03,880 --> 00:12:05,800 Speaker 3: called in the late nineties was also the time when 216 00:12:06,160 --> 00:12:10,040 Speaker 3: Jack Welch was seen as the paragon of corporate culture. 217 00:12:09,840 --> 00:12:13,360 Speaker 2: Cults of ge This kind of leads into something I 218 00:12:13,400 --> 00:12:16,719 Speaker 2: wanted to ask, but why did Boeing feel This might 219 00:12:16,720 --> 00:12:18,880 Speaker 2: be a weird question, but why did it feel financial 220 00:12:18,880 --> 00:12:22,520 Speaker 2: pressure at all? Given that, you know, it was the 221 00:12:22,640 --> 00:12:26,480 Speaker 2: leader in aerospace manufacturing at that moment in time. It 222 00:12:26,520 --> 00:12:29,600 Speaker 2: wasn't like anyone was really doing better than it, at 223 00:12:29,679 --> 00:12:32,440 Speaker 2: least until I guess until Lee he came in as 224 00:12:32,600 --> 00:12:33,439 Speaker 2: the Airbus CEO. 225 00:12:33,760 --> 00:12:36,600 Speaker 3: That's an interesting question. They felt two kinds of pressure. 226 00:12:36,640 --> 00:12:39,839 Speaker 3: They felt market pressure because Airbus came in and did 227 00:12:39,920 --> 00:12:43,360 Speaker 3: have extensive state support and built what was considered a 228 00:12:43,480 --> 00:12:46,400 Speaker 3: very very very good airplane, the eight three twenty, which 229 00:12:46,440 --> 00:12:51,240 Speaker 3: had fly by wire technology and electric sensors that Boeing's 230 00:12:51,400 --> 00:12:54,680 Speaker 3: seven thirty seven didn't have. It was a more analog 231 00:12:54,760 --> 00:12:57,400 Speaker 3: plane that was using cables and pulleys to connect to 232 00:12:57,440 --> 00:13:00,360 Speaker 3: the flight surfaces. So so there was some you know, 233 00:13:00,800 --> 00:13:03,199 Speaker 3: real competition from the point of view of the products, 234 00:13:03,240 --> 00:13:06,959 Speaker 3: and there was always the comparison Boeing. Boeing would be 235 00:13:07,000 --> 00:13:10,080 Speaker 3: compared to other industrial companies, and the comparison company for 236 00:13:10,160 --> 00:13:13,880 Speaker 3: Boeing was General Electric, and so Phil Condit, the CEO 237 00:13:14,000 --> 00:13:17,080 Speaker 3: in the late nineties and early two thousands, would be 238 00:13:17,280 --> 00:13:20,199 Speaker 3: compared quite critically by Wall Street analysts to Jack Welch, 239 00:13:20,240 --> 00:13:22,920 Speaker 3: Why aren't you raising the cash flow like he is? 240 00:13:22,920 --> 00:13:24,240 Speaker 3: Why aren't you raising the dividend? 241 00:13:24,840 --> 00:13:27,240 Speaker 2: It's so crazy to me that people made that comparison 242 00:13:27,320 --> 00:13:30,280 Speaker 2: when it's like GE making, I mean not exclusively, but 243 00:13:30,360 --> 00:13:35,079 Speaker 2: consumer appliances versus the company designing planes. They did make engines, right, yeah, 244 00:13:35,240 --> 00:13:38,120 Speaker 2: they have a huge engine. That's fair, but like but 245 00:13:38,320 --> 00:13:40,760 Speaker 2: still there's a lot more I guess leeway when you 246 00:13:40,760 --> 00:13:44,160 Speaker 2: have an industrial conglomerate, maybe to experiments when you're making 247 00:13:44,240 --> 00:13:45,240 Speaker 2: different one thing. 248 00:13:45,559 --> 00:13:51,760 Speaker 1: Complete completely agree. Okay, So they brought in McDonald douglas executives, 249 00:13:52,360 --> 00:13:54,160 Speaker 1: some of whom or at least one of whom was 250 00:13:54,160 --> 00:13:58,480 Speaker 1: a Jack Welch ecolade. Wall Street started comparing its margins 251 00:13:58,520 --> 00:14:01,599 Speaker 1: to GE and too well, you know the influence of 252 00:14:01,720 --> 00:14:05,400 Speaker 1: jet watch thought all over the place from the perspective 253 00:14:05,960 --> 00:14:09,920 Speaker 1: of engineers within the company, what did they notice as 254 00:14:10,000 --> 00:14:13,680 Speaker 1: these as this new breed brought in? Were there changes 255 00:14:13,720 --> 00:14:15,400 Speaker 1: in what they were told to do? Like, what did 256 00:14:15,400 --> 00:14:17,480 Speaker 1: they How did that manifest itself internally? 257 00:14:18,440 --> 00:14:22,040 Speaker 3: That's a good question. They started feeling it in all 258 00:14:22,080 --> 00:14:24,680 Speaker 3: sorts of ways. One was One good example is their 259 00:14:25,240 --> 00:14:30,880 Speaker 3: employee evaluations. I saw one engineer's evaluation where the manager 260 00:14:30,920 --> 00:14:34,800 Speaker 3: had noted ideas are measured in dollars or as the 261 00:14:34,840 --> 00:14:37,880 Speaker 3: MAX was being developed, which was a time when when 262 00:14:37,920 --> 00:14:42,320 Speaker 3: Boeing did have cash but instead was spending between about 263 00:14:42,320 --> 00:14:46,160 Speaker 3: twenty thirteen and twenty eighteen about forty billion dollars on buybacks, 264 00:14:46,440 --> 00:14:49,840 Speaker 3: but the MAX, the engineers were noticing was was held 265 00:14:49,840 --> 00:14:52,120 Speaker 3: to a tight budget and they were told that any 266 00:14:52,200 --> 00:14:54,480 Speaker 3: changes would have to buy their way onto the airplane. 267 00:14:54,520 --> 00:14:58,600 Speaker 3: So that when one engineer proposed adding a check and 268 00:14:58,720 --> 00:15:02,840 Speaker 3: balance of the flight controls that would have potentially noticed 269 00:15:02,880 --> 00:15:05,080 Speaker 3: the issue with the flight control software that led to 270 00:15:05,120 --> 00:15:09,160 Speaker 3: the crashes in eighteen and nineteen, was told that, no, you. 271 00:15:10,040 --> 00:15:12,960 Speaker 1: Basically anticipated my question. But when you look at what 272 00:15:13,160 --> 00:15:16,640 Speaker 1: happened in twenty eighteen and twenty nineteen, can you just 273 00:15:16,720 --> 00:15:20,720 Speaker 1: sort of tell the story, this sort of succinct version 274 00:15:20,760 --> 00:15:24,000 Speaker 1: of the story about what was going on inside Boeing 275 00:15:24,320 --> 00:15:27,720 Speaker 1: that they made this software change and apparently did not 276 00:15:28,000 --> 00:15:32,200 Speaker 1: communicate well to pilots or to the airlines buying the 277 00:15:32,240 --> 00:15:34,000 Speaker 1: planes that this change had been made. 278 00:15:34,600 --> 00:15:38,600 Speaker 3: It became over time, it became a very compartmentalized organization, 279 00:15:38,720 --> 00:15:41,800 Speaker 3: a lot of different silos, and there was one silo 280 00:15:42,160 --> 00:15:45,560 Speaker 3: that was looking at the issues that were raised by 281 00:15:45,680 --> 00:15:47,560 Speaker 3: the larger engines that were put on the plane. The 282 00:15:47,640 --> 00:15:51,200 Speaker 3: larger engines, you know, potentially made the plane more prone 283 00:15:51,200 --> 00:15:55,320 Speaker 3: to stall. So one group of engineers added this software 284 00:15:55,320 --> 00:15:59,400 Speaker 3: that would push the nose down, and late in the 285 00:15:59,440 --> 00:16:03,240 Speaker 3: process there was a decision made to tie that software 286 00:16:03,280 --> 00:16:06,120 Speaker 3: to a single sensor, the AOA gauge, which is prone 287 00:16:06,160 --> 00:16:09,800 Speaker 3: to you know, bird strikes, it's prone to various failures. Separately, 288 00:16:09,960 --> 00:16:13,040 Speaker 3: there was a group at Boeing that we're working with 289 00:16:14,080 --> 00:16:17,120 Speaker 3: working with the FAA and pilots on the flight manual 290 00:16:17,160 --> 00:16:20,120 Speaker 3: for the plane, and the flight manual showed that there 291 00:16:20,120 --> 00:16:24,480 Speaker 3: were no changes to the flight control software. MCAST was 292 00:16:24,520 --> 00:16:27,560 Speaker 3: not described. Late in the process, it was discovered that 293 00:16:27,840 --> 00:16:31,560 Speaker 3: there were these certain conditions where the nose of the 294 00:16:31,560 --> 00:16:33,920 Speaker 3: plane could be pushed down, but it did not appear 295 00:16:33,960 --> 00:16:37,600 Speaker 3: in the flight control manual, so it was a miscommunication. 296 00:16:37,760 --> 00:16:41,240 Speaker 3: And ultimately what the JUST Department found is that a 297 00:16:41,280 --> 00:16:44,480 Speaker 3: couple of Boeing's employees who learned about this change late 298 00:16:44,520 --> 00:16:46,440 Speaker 3: should have told the FAA, should have brought in the 299 00:16:46,520 --> 00:16:48,520 Speaker 3: FAA and had that included in the manual. 300 00:16:49,200 --> 00:16:53,000 Speaker 2: How do you just aggregate I guess corporate short termism 301 00:16:53,680 --> 00:16:59,200 Speaker 2: and the drive for profits and bureaucratic oversights that led 302 00:16:59,280 --> 00:17:02,680 Speaker 2: to two massive tragedies. I think more than three hundred 303 00:17:02,680 --> 00:17:08,720 Speaker 2: people killed in both those crashes, versus Boeing catering to 304 00:17:08,840 --> 00:17:13,160 Speaker 2: what customers were asking for. Because I remember in sort 305 00:17:13,200 --> 00:17:16,720 Speaker 2: of the mid twenty tens, you know, oil prices were 306 00:17:16,800 --> 00:17:21,400 Speaker 2: going up. The refrain in the aerospace industry was always 307 00:17:21,560 --> 00:17:24,679 Speaker 2: make the planes more efficient, more efficient, more efficient, and 308 00:17:24,720 --> 00:17:28,359 Speaker 2: the larger engine sizes that were you located closer to 309 00:17:28,400 --> 00:17:30,760 Speaker 2: the front of the aircraft that eventually had to be 310 00:17:30,840 --> 00:17:34,680 Speaker 2: offset with the new flight control system MCAST. It was 311 00:17:34,720 --> 00:17:39,320 Speaker 2: a result partially of trying to make the plane burn 312 00:17:39,560 --> 00:17:41,800 Speaker 2: less fuel and I guess to some extent give the 313 00:17:41,840 --> 00:17:43,240 Speaker 2: airlines what they were asking for. 314 00:17:44,160 --> 00:17:46,439 Speaker 3: Yeah, it's I mean, it is a it's an industry 315 00:17:46,480 --> 00:17:49,760 Speaker 3: that's under tremendous cost pressure. In this case, as Boeing 316 00:17:49,920 --> 00:17:51,840 Speaker 3: set itself, it was a few lines of code. It 317 00:17:52,119 --> 00:17:55,879 Speaker 3: didn't it wouldn't have costed anything to do the job correctly. 318 00:17:56,320 --> 00:17:59,600 Speaker 3: As you're saying, it is partly pressure from customers that's 319 00:17:59,680 --> 00:18:02,359 Speaker 3: driving this, and it was you know, in some ways 320 00:18:02,400 --> 00:18:06,200 Speaker 3: Southwest desire to keep the plane similar to previous versions 321 00:18:06,320 --> 00:18:08,800 Speaker 3: that led to some of the cost pressures. 322 00:18:09,200 --> 00:18:12,200 Speaker 2: How do you balance like the drive for continuous improvement 323 00:18:12,520 --> 00:18:17,239 Speaker 2: and efficiency with like the dangers of over engineering or 324 00:18:17,280 --> 00:18:18,960 Speaker 2: creating these kind of problems. 325 00:18:19,280 --> 00:18:23,040 Speaker 3: You know, the simple is always better, And in some 326 00:18:23,119 --> 00:18:28,000 Speaker 3: cases Boeing's management lines became awfully confused. In the case 327 00:18:28,040 --> 00:18:31,159 Speaker 3: of the Max, the engineering team was reporting to a 328 00:18:31,160 --> 00:18:34,199 Speaker 3: business unit manager and it was the business unit manager 329 00:18:34,200 --> 00:18:37,280 Speaker 3: who was making these decisions. There was a they called 330 00:18:37,320 --> 00:18:40,240 Speaker 3: it a countdown clock that was put up near that 331 00:18:40,280 --> 00:18:43,840 Speaker 3: person's desk so the engineers could see, you know, exactly 332 00:18:43,920 --> 00:18:45,160 Speaker 3: how much time there was left. 333 00:18:46,040 --> 00:18:49,040 Speaker 1: Maybe, you know, the Tracy's question makes me think about 334 00:18:49,080 --> 00:18:53,680 Speaker 1: this question in another way. But there's complexity, and there's 335 00:18:53,760 --> 00:18:57,200 Speaker 1: sort of these weird business lines of reporting as you've 336 00:18:57,280 --> 00:19:01,080 Speaker 1: just mentioned, versus again the sort of shareholder capitalism and 337 00:19:01,200 --> 00:19:04,359 Speaker 1: buybacks and the lack of investment or the lack of 338 00:19:04,400 --> 00:19:08,600 Speaker 1: reinvestment or internal investment. Like, how much of the story 339 00:19:08,720 --> 00:19:13,199 Speaker 1: setting aside uses of capital, how much is it a 340 00:19:13,320 --> 00:19:17,560 Speaker 1: story of the company just became as a corporation internal 341 00:19:17,560 --> 00:19:20,880 Speaker 1: and weirdly complex. And now I'm thinking, Tracy about our 342 00:19:20,920 --> 00:19:24,920 Speaker 1: episodes on software and that maximum we talked about it 343 00:19:25,160 --> 00:19:28,919 Speaker 1: that the software product itself becomes a reflection of the complexity. 344 00:19:29,000 --> 00:19:31,159 Speaker 2: Yeah, but the irony was that, like the A three 345 00:19:31,320 --> 00:19:33,320 Speaker 2: twenty is the more complex of the aircraft. 346 00:19:33,440 --> 00:19:33,879 Speaker 4: Well, they're too. 347 00:19:34,040 --> 00:19:36,840 Speaker 1: Like I'm also curious, like why haven't some of these 348 00:19:36,880 --> 00:19:39,600 Speaker 1: same issues bedeviled Airbus the same? 349 00:19:39,760 --> 00:19:41,280 Speaker 2: Yeah, that's the question I was going to ask, like 350 00:19:41,320 --> 00:19:45,240 Speaker 2: why has an airbus succumbed to the same financial incentives 351 00:19:45,600 --> 00:19:47,680 Speaker 2: that have been Boeing's downfall. 352 00:19:47,400 --> 00:19:50,879 Speaker 1: Or the internal the complexity of a gigantic flying machine. 353 00:19:52,280 --> 00:19:56,080 Speaker 3: I mean, I think one difference is that it is 354 00:19:56,800 --> 00:19:59,879 Speaker 3: in Europe, it is not to this point, it's not 355 00:20:00,000 --> 00:20:04,840 Speaker 3: the same shareholder driven culture. And you know, consistently the 356 00:20:04,880 --> 00:20:08,960 Speaker 3: capital expenditures have been higher at Airbus. We had some 357 00:20:09,320 --> 00:20:12,880 Speaker 3: numbers on Bloomberg, you know, showing that over the last 358 00:20:12,920 --> 00:20:16,800 Speaker 3: ten years, Airbus's revenue has has grown Airbus as capex 359 00:20:16,840 --> 00:20:20,200 Speaker 3: has grown, Boeing the revenue has declined and the capex 360 00:20:20,240 --> 00:20:25,280 Speaker 3: has declined, So there's there's a more long term management focus. 361 00:20:25,600 --> 00:20:29,320 Speaker 3: I was told there isn't the same higher and fire mentality, 362 00:20:29,520 --> 00:20:33,240 Speaker 3: that there are stricter work rules so that you may 363 00:20:33,280 --> 00:20:36,760 Speaker 3: not have the turnover. You know, if employees that you 364 00:20:36,880 --> 00:20:40,480 Speaker 3: see in the United States, should Boeing be nationalized. 365 00:20:41,160 --> 00:20:43,320 Speaker 2: Some people would argue that Airbus, I mean, what you're 366 00:20:43,320 --> 00:20:46,560 Speaker 2: alluding to is like Airbus is almost someone's going to 367 00:20:46,600 --> 00:20:48,320 Speaker 2: get someone's going to get very nice. 368 00:20:49,119 --> 00:20:52,680 Speaker 1: But it's the least perceived right to be more evasive to. 369 00:20:52,560 --> 00:20:56,960 Speaker 2: The facto nationalized kind of Please don't ut me online. 370 00:20:57,040 --> 00:20:59,520 Speaker 1: I believe there are big like WTOL fights over the TI. 371 00:20:59,760 --> 00:21:02,960 Speaker 2: Yes, yes, but that's a good way of putting it. 372 00:21:02,720 --> 00:21:05,880 Speaker 3: It's an interesting question. I've wondered that myself. I think 373 00:21:06,520 --> 00:21:10,720 Speaker 3: you mentioned, you know, other countries coming into the market. 374 00:21:11,359 --> 00:21:15,400 Speaker 3: China has an airplane that you know, like they've delivered 375 00:21:15,400 --> 00:21:17,919 Speaker 3: one or two a year so far. It's probably not 376 00:21:17,960 --> 00:21:21,120 Speaker 3: a viable competitor over ten years. But if Boeing doesn't 377 00:21:21,119 --> 00:21:23,600 Speaker 3: get its act together. You have to wonder if nationalization 378 00:21:23,920 --> 00:21:26,960 Speaker 3: is a possibility. It's got forty billion dollars in debt. 379 00:21:27,480 --> 00:21:30,960 Speaker 3: You can't imagine a future where the US wouldn't want 380 00:21:30,960 --> 00:21:34,800 Speaker 3: to maintain a viable commercial aircraft manufacturer. It's also so 381 00:21:35,119 --> 00:21:39,720 Speaker 3: important for military aircraft in some ways, as you alluded to, 382 00:21:40,080 --> 00:21:43,640 Speaker 3: it is state supported already through the military and space contracts. 383 00:22:00,520 --> 00:22:03,119 Speaker 1: What happened after twenty nineteen? So, I, you know, I 384 00:22:03,160 --> 00:22:06,560 Speaker 1: don't remember. I didn't follow it that closely, but you know, 385 00:22:06,600 --> 00:22:09,879 Speaker 1: I assume that after the crashes in twenty nineteen and 386 00:22:09,960 --> 00:22:14,200 Speaker 1: the flaws discovered with the software, et cetera, we're discovering. 387 00:22:14,400 --> 00:22:17,080 Speaker 1: I imagine management, you know, went through a big thing 388 00:22:17,119 --> 00:22:19,360 Speaker 1: of we're changing, We're going to change the culture. We're 389 00:22:19,359 --> 00:22:21,960 Speaker 1: going to focus safety as our number one party. I'm 390 00:22:22,000 --> 00:22:23,760 Speaker 1: just imagining. I don't I didn't see that, but I 391 00:22:23,760 --> 00:22:26,680 Speaker 1: imagine they said things like safety is our number one priority. 392 00:22:26,680 --> 00:22:29,960 Speaker 1: There were memos, yoah, many memos about all that stuff. 393 00:22:30,080 --> 00:22:33,800 Speaker 1: What did actually happen though? Did the company change in 394 00:22:33,840 --> 00:22:36,880 Speaker 1: any way after the second crash in twenty nineteen, Well. 395 00:22:36,680 --> 00:22:41,359 Speaker 3: You've imagined the messaging exactly right. There were times in 396 00:22:41,400 --> 00:22:44,600 Speaker 3: the you know mid OUs when Boeing wouldn't mention the 397 00:22:44,600 --> 00:22:47,560 Speaker 3: word safety and SANDUM report, but Dave Calhoun taking over 398 00:22:47,600 --> 00:22:51,520 Speaker 3: as CEO mentioned safety was the number one priority many 399 00:22:51,560 --> 00:22:54,600 Speaker 3: many times. There was a safety committee created for the 400 00:22:54,600 --> 00:22:58,920 Speaker 3: board of Boeing shockingly didn't even have a committee dedicated 401 00:22:58,920 --> 00:23:02,560 Speaker 3: to safety until the mac accidents. And I'm told that 402 00:23:02,680 --> 00:23:06,240 Speaker 3: Dave Calhoun, you know, talked extensively to Mike Fleming, who 403 00:23:06,280 --> 00:23:09,040 Speaker 3: was the exact in charge of the Max's return to service. 404 00:23:09,080 --> 00:23:12,520 Speaker 3: I'm told that he talked to him regularly. And what 405 00:23:12,560 --> 00:23:18,000 Speaker 3: you're seeing is that throughout the organization the same problems 406 00:23:18,080 --> 00:23:20,240 Speaker 3: are there. They're you know, Boeing is trying to get 407 00:23:20,680 --> 00:23:24,359 Speaker 3: the production rates back up, especially since the pandemic, especially 408 00:23:24,359 --> 00:23:28,080 Speaker 3: at a supplier spirit there was a lot of turnover there. 409 00:23:28,600 --> 00:23:32,080 Speaker 3: And what you're seeing is, you know, as Dave Calhoun 410 00:23:32,359 --> 00:23:35,920 Speaker 3: said himself, that they need to renew the safety culture 411 00:23:35,960 --> 00:23:38,439 Speaker 3: and they need to focus on it again. 412 00:23:38,880 --> 00:23:43,040 Speaker 2: What about the FAA, the Federal Aviation Administration. So I 413 00:23:43,040 --> 00:23:45,840 Speaker 2: don't think we can have this conversation about the incentives 414 00:23:45,880 --> 00:23:50,200 Speaker 2: and the structure of the system that created this bad 415 00:23:50,400 --> 00:23:54,640 Speaker 2: outcome without talking about the relationship between Boeing and the FAA. 416 00:23:55,200 --> 00:23:58,680 Speaker 3: Yes, because that turned out to be a bad relationship. 417 00:23:58,720 --> 00:24:02,400 Speaker 3: The FAA, especially the FAA management, began to see its 418 00:24:02,480 --> 00:24:05,840 Speaker 3: role as to helping Boeing and its goal of delivering 419 00:24:05,960 --> 00:24:11,879 Speaker 3: airplanes and the incentives for managers, you know, became almost 420 00:24:11,880 --> 00:24:14,240 Speaker 3: to see the aircraft industry as the customer rather than 421 00:24:14,280 --> 00:24:18,200 Speaker 3: as the regulated entity. And you know, I wrote about 422 00:24:18,320 --> 00:24:22,080 Speaker 3: many cases in my book where the FA manager in 423 00:24:22,160 --> 00:24:25,120 Speaker 3: charge of monitoring Boeing would then go on to get 424 00:24:25,119 --> 00:24:28,480 Speaker 3: a job at Boeing or at you know, the industry 425 00:24:28,480 --> 00:24:32,120 Speaker 3: lobbying group. So that that problem with the revolving door 426 00:24:33,080 --> 00:24:37,440 Speaker 3: is there in this case. Since the latest incident, the FAA, 427 00:24:38,000 --> 00:24:41,040 Speaker 3: at least in its press releases, is being very careful 428 00:24:41,080 --> 00:24:43,480 Speaker 3: to say that the plane will fly when we determine 429 00:24:43,520 --> 00:24:45,760 Speaker 3: its safe. You know, we determine the timeline here. 430 00:24:46,480 --> 00:24:49,879 Speaker 1: On Calhoun, so I'm doing that. I'm doing the thing 431 00:24:49,920 --> 00:24:52,119 Speaker 1: where I pulled up his Wikipedia page to look at 432 00:24:52,160 --> 00:24:54,240 Speaker 1: his bios so you know, maybe it's wrong, right, but 433 00:24:54,480 --> 00:24:59,040 Speaker 1: former ge guy and then he ran Nielsen, which I 434 00:24:59,040 --> 00:25:01,639 Speaker 1: don't think is a manufact string company, and then he 435 00:25:01,840 --> 00:25:04,800 Speaker 1: also joined the Blackstone and Group as a senior managing 436 00:25:04,840 --> 00:25:08,159 Speaker 1: director and head of private equity portfolio operation. What was 437 00:25:08,200 --> 00:25:11,440 Speaker 1: the choice when he was elevated to become the CEO 438 00:25:12,160 --> 00:25:15,199 Speaker 1: of someone who it's not obvious that their background is 439 00:25:15,280 --> 00:25:17,400 Speaker 1: particularly engineering focus. 440 00:25:18,160 --> 00:25:22,640 Speaker 3: No, he well, he did come from GDGS, and yeah, 441 00:25:23,040 --> 00:25:25,200 Speaker 3: he had been on Boeing's boards since two thousand and nine, 442 00:25:25,359 --> 00:25:29,600 Speaker 3: so definitely not independent by any means. His Nielsen and 443 00:25:29,640 --> 00:25:32,439 Speaker 3: Blackstone period. I wrote about this in my book. He 444 00:25:32,520 --> 00:25:36,000 Speaker 3: went to Blackstone's annual conference and you know, this is 445 00:25:36,040 --> 00:25:39,280 Speaker 3: again going back to twenty you know, twenty ten to 446 00:25:39,320 --> 00:25:43,200 Speaker 3: twenty fourteen period and talked, you know, almost lovingly about 447 00:25:43,240 --> 00:25:46,240 Speaker 3: the amount of cash, you know, the business was generating. 448 00:25:46,880 --> 00:25:50,800 Speaker 3: And he made appearances during this period about the amount 449 00:25:50,800 --> 00:25:54,919 Speaker 3: of government regulation being not helpful. And yet he is 450 00:25:54,960 --> 00:25:58,639 Speaker 3: the person in charge at Boeing now at this crucial time. 451 00:25:59,080 --> 00:26:01,040 Speaker 3: I think one issue was that it would have been 452 00:26:01,119 --> 00:26:03,560 Speaker 3: very hard to find anyone to take the job after 453 00:26:03,800 --> 00:26:07,800 Speaker 3: Dennis Muhlenberg had been you know, so it really had 454 00:26:07,920 --> 00:26:11,280 Speaker 3: been pilloried, you know, internationally for his handling of the 455 00:26:11,320 --> 00:26:15,320 Speaker 3: Max crisis. I did hear that Alan Molalley, who was 456 00:26:15,359 --> 00:26:19,520 Speaker 3: sort of a much loved leader of Boeing, in the 457 00:26:19,640 --> 00:26:22,600 Speaker 3: late night of the Commercial Airplanes Group in the late 458 00:26:22,680 --> 00:26:25,920 Speaker 3: nineties early two thousands, a group of retirees wanted him 459 00:26:25,920 --> 00:26:29,680 Speaker 3: to come back, and he replied, if asked, I will serve, 460 00:26:30,040 --> 00:26:34,040 Speaker 3: But as far as I know, He asked, what. 461 00:26:34,080 --> 00:26:37,639 Speaker 2: Sort of response have we seen from customers of Boeing? 462 00:26:37,760 --> 00:26:40,560 Speaker 2: So the airlines themselves, I have to imagine, and in 463 00:26:40,600 --> 00:26:43,600 Speaker 2: fact we've already seen this since the first two crashes. 464 00:26:43,680 --> 00:26:46,359 Speaker 2: But I mean, you have to be thinking twice about 465 00:26:46,400 --> 00:26:48,560 Speaker 2: whether or not you want to purchase this aircraft. 466 00:26:49,840 --> 00:26:53,080 Speaker 3: Yeah, you're seeing it. You're seeing customers make decisions what 467 00:26:53,200 --> 00:26:56,480 Speaker 3: they're purchasing. Used to be that Boeing was, you know, 468 00:26:56,640 --> 00:26:59,439 Speaker 3: had sixty percent of the air body market. Now Airbus 469 00:26:59,240 --> 00:27:03,000 Speaker 3: has six percent of the narrow body market, and customers 470 00:27:03,160 --> 00:27:05,520 Speaker 3: are saying they need to get their act together. Tim 471 00:27:05,560 --> 00:27:09,520 Speaker 3: Clark from Emirates has been saying this repeatedly for one Do. 472 00:27:09,440 --> 00:27:13,080 Speaker 2: You see customers asking for this? Was always a thing 473 00:27:13,280 --> 00:27:16,760 Speaker 2: in airline and aerospace reporting. The purchase agreements for aircrafts 474 00:27:16,840 --> 00:27:20,480 Speaker 2: were like massively secret, and I remember I used to 475 00:27:20,480 --> 00:27:24,280 Speaker 2: know a cell side analyst whose dream was to one 476 00:27:24,320 --> 00:27:28,359 Speaker 2: day see an actual contract for an aircraft purchase. I 477 00:27:28,400 --> 00:27:30,440 Speaker 2: don't know if you ever got to see one, I'd 478 00:27:30,480 --> 00:27:32,760 Speaker 2: be interested to see one. But do you see people 479 00:27:32,840 --> 00:27:36,159 Speaker 2: asking for discounts on the list prices or do you 480 00:27:36,200 --> 00:27:39,640 Speaker 2: see people maybe I don't even know if this is possible, 481 00:27:39,680 --> 00:27:42,840 Speaker 2: but embedding terms that are like, if there's another issue 482 00:27:42,840 --> 00:27:45,280 Speaker 2: with this aircraft, then we want to get some sort 483 00:27:45,320 --> 00:27:47,000 Speaker 2: of compensation or something out of it. 484 00:27:47,480 --> 00:27:49,800 Speaker 3: They do. They do get compensation. If planes are on 485 00:27:49,880 --> 00:27:55,760 Speaker 3: the ground, there's you know, contradtually agreed compensations. So it's 486 00:27:55,880 --> 00:27:58,720 Speaker 3: likely that something like that is you know, it will 487 00:27:58,720 --> 00:28:03,160 Speaker 3: take place with Alaska and Boeing. In many cases, airlines 488 00:28:03,160 --> 00:28:05,440 Speaker 3: who stepped up and bought the Max after the crashes 489 00:28:05,560 --> 00:28:09,720 Speaker 3: likely did get discounts. So airlines are opportunistic in that way. 490 00:28:10,520 --> 00:28:14,879 Speaker 1: It's easy to point to Calhoun's ge in Blackstone and 491 00:28:15,000 --> 00:28:18,560 Speaker 1: Nielsen and we saw did they engineers that you've spoken 492 00:28:18,640 --> 00:28:22,440 Speaker 1: to within Boeing since he took over. I mean, it's 493 00:28:22,480 --> 00:28:24,040 Speaker 1: one thing to say, Okay, we're going to have a 494 00:28:24,080 --> 00:28:26,800 Speaker 1: safety board or a safety organ that reports to the board. 495 00:28:27,119 --> 00:28:29,280 Speaker 1: Did they feel any different? Did they feel that there 496 00:28:29,280 --> 00:28:33,600 Speaker 1: were changes internally in terms of taking the manufacturing and 497 00:28:33,840 --> 00:28:35,600 Speaker 1: manufacturing quality more seriously? 498 00:28:35,960 --> 00:28:39,440 Speaker 3: That's a good question I'm I, you know, at the 499 00:28:39,480 --> 00:28:42,960 Speaker 3: lower level, I'm not sure if people did feel that 500 00:28:43,040 --> 00:28:46,880 Speaker 3: any differently. I think, you know, definitely at Spirit, the 501 00:28:47,000 --> 00:28:48,960 Speaker 3: Spirit you know, which supplies to the fuselage for the 502 00:28:48,960 --> 00:28:51,120 Speaker 3: seven thirty seven and then. 503 00:28:52,040 --> 00:28:54,960 Speaker 1: The airline, right, so there's Spirit Aerosystems. And was that 504 00:28:55,000 --> 00:28:56,040 Speaker 1: a spin off of Boeing. 505 00:28:56,400 --> 00:28:59,000 Speaker 3: It was originally that was Boeing which hitah and it 506 00:28:59,080 --> 00:29:00,560 Speaker 3: made the fuselage. 507 00:29:00,320 --> 00:29:02,440 Speaker 1: But now it's a separate company that does a lot 508 00:29:02,440 --> 00:29:04,560 Speaker 1: of them yah factor yeah, okay, yeah. 509 00:29:04,600 --> 00:29:07,760 Speaker 3: So what they've experienced was that in the you know, 510 00:29:07,880 --> 00:29:11,560 Speaker 3: sort of nineties early two thousands, they were part of 511 00:29:11,720 --> 00:29:15,520 Speaker 3: Boeing that made the airplane, and they were a cost 512 00:29:15,600 --> 00:29:18,240 Speaker 3: center that was spun off to a private equity firm 513 00:29:18,560 --> 00:29:20,080 Speaker 3: and there was an attempt to turn that into a 514 00:29:20,200 --> 00:29:24,840 Speaker 3: profit center. That proved very difficult because the airline industry 515 00:29:24,880 --> 00:29:28,840 Speaker 3: is cyclical, and so when the pandemic hit, the production 516 00:29:28,880 --> 00:29:32,280 Speaker 3: declined quite a lot, and you know Boeing had to 517 00:29:33,160 --> 00:29:35,280 Speaker 3: you know, had had to redo its agreement to get 518 00:29:35,280 --> 00:29:37,960 Speaker 3: its more cat get it some more cash. So the 519 00:29:38,040 --> 00:29:42,600 Speaker 3: supply base still feels pressure ultimately to raise production rates. 520 00:29:43,120 --> 00:29:46,959 Speaker 2: What impact do all of these issues and again at 521 00:29:47,000 --> 00:29:49,640 Speaker 2: this point, there's sort of a long list. So in 522 00:29:49,680 --> 00:29:54,000 Speaker 2: addition to the mcast failures that we've been describing, there's 523 00:29:54,200 --> 00:29:56,560 Speaker 2: you know, what just happened with Alaska Air. There's also 524 00:29:56,600 --> 00:30:00,280 Speaker 2: been like missing nuts on rudder control systems and a 525 00:30:00,320 --> 00:30:03,880 Speaker 2: couple other smaller issues that have surfaced. But what impact 526 00:30:04,360 --> 00:30:08,760 Speaker 2: does this litany of problems have on the morale of 527 00:30:08,840 --> 00:30:12,240 Speaker 2: engineers and what I guess, what are the options? Like 528 00:30:12,320 --> 00:30:15,480 Speaker 2: if I'm a senior engineer working at Boeing and I 529 00:30:15,560 --> 00:30:18,640 Speaker 2: decide this company is no longer for me, where do 530 00:30:18,720 --> 00:30:18,920 Speaker 2: I go? 531 00:30:20,000 --> 00:30:22,800 Speaker 3: So the some of the knowledge that you get in 532 00:30:22,840 --> 00:30:25,400 Speaker 3: the commercial especially for Boeing, you know, which which has 533 00:30:25,440 --> 00:30:28,200 Speaker 3: this long running plane. I've talked to engineers who say that, 534 00:30:28,560 --> 00:30:31,760 Speaker 3: you know, I'm not employable somewhere else because I know 535 00:30:32,040 --> 00:30:34,920 Speaker 3: this you know particular facet of the seven thirty seven, 536 00:30:35,000 --> 00:30:38,040 Speaker 3: but it's not you know, built that way in other places. 537 00:30:38,120 --> 00:30:40,080 Speaker 3: You know that it really depends on the age of 538 00:30:40,120 --> 00:30:42,320 Speaker 3: the engineer. I mean, some of the older engineers may 539 00:30:42,560 --> 00:30:46,400 Speaker 3: feel that they that their skills aren't transferable, but it 540 00:30:46,640 --> 00:30:50,120 Speaker 3: definitely has an impact on recruitment and hiring. That was 541 00:30:50,120 --> 00:30:53,120 Speaker 3: something I know that people at Boeing worried about after 542 00:30:53,320 --> 00:30:56,880 Speaker 3: the MAX that young engineers might prefer to go to 543 00:30:57,600 --> 00:31:00,280 Speaker 3: Blue Origin or SpaceX or or a tech company. 544 00:31:00,520 --> 00:31:04,160 Speaker 1: Interesting, Yeah, I hadn't thought about that. Another example of like, 545 00:31:04,400 --> 00:31:06,680 Speaker 1: you know, it's when we talked about the engineers not 546 00:31:06,720 --> 00:31:09,960 Speaker 1: wanting to go to energy companies last year or two 547 00:31:10,000 --> 00:31:12,720 Speaker 1: years ago, and they're just maybe more exciting places. What 548 00:31:12,760 --> 00:31:16,240 Speaker 1: do you expect now? Maybe the seven thirty seven Max 549 00:31:16,320 --> 00:31:19,200 Speaker 1: nine will be in the air again soon. I think 550 00:31:19,800 --> 00:31:22,360 Speaker 1: there was a story today on the Bloomberg about the 551 00:31:22,400 --> 00:31:25,840 Speaker 1: first batch of inspections having been made. Maybe the first 552 00:31:25,880 --> 00:31:28,360 Speaker 1: step to getting them back in the air. Is it 553 00:31:28,520 --> 00:31:33,000 Speaker 1: just going to be another we take safety seriously, Like, 554 00:31:33,120 --> 00:31:34,400 Speaker 1: what do you expect to see now? 555 00:31:35,200 --> 00:31:37,760 Speaker 3: I think it'll probably be weeks or months before the 556 00:31:37,800 --> 00:31:42,480 Speaker 3: Max nine's are in the air again, and ultimately we'll 557 00:31:42,680 --> 00:31:46,280 Speaker 3: have to see that gowing, you know, follows through and 558 00:31:46,320 --> 00:31:49,560 Speaker 3: that we do see a real systemic change. You know, 559 00:31:49,600 --> 00:31:52,400 Speaker 3: some of the analysts I've talked to are fairly pessimistic 560 00:31:52,480 --> 00:31:56,320 Speaker 3: and think that what may happen is that this crisis 561 00:31:56,400 --> 00:31:59,440 Speaker 3: passes and then another crisis happens at some point in 562 00:31:59,440 --> 00:31:59,920 Speaker 3: the future. 563 00:32:00,640 --> 00:32:04,040 Speaker 2: So I should just say we're recording this on January seventeenth, 564 00:32:04,080 --> 00:32:06,640 Speaker 2: and this is still a story that is unfolding in 565 00:32:06,680 --> 00:32:10,640 Speaker 2: many ways. But what do you think will happen to Boig? 566 00:32:11,320 --> 00:32:13,280 Speaker 2: I know it, maybe I'm putting you on the spot, 567 00:32:13,280 --> 00:32:16,240 Speaker 2: but you've written a whole book on this topic. What 568 00:32:16,320 --> 00:32:17,320 Speaker 2: do you think the outlook is. 569 00:32:18,200 --> 00:32:20,840 Speaker 3: I think the outlook is that, you know, sadly, I 570 00:32:20,880 --> 00:32:22,920 Speaker 3: think it's it's going to be a long time before 571 00:32:22,960 --> 00:32:25,840 Speaker 3: it is back to number one. It is going to 572 00:32:25,840 --> 00:32:30,960 Speaker 3: be a sort of a number two in the aerospace industry. 573 00:32:31,000 --> 00:32:35,200 Speaker 3: The Chinese competitor, or the COMAC in China is only making, 574 00:32:35,200 --> 00:32:36,720 Speaker 3: as I said, one or two plans a year now. 575 00:32:36,720 --> 00:32:39,040 Speaker 3: But over ten years, you know, in ten years you 576 00:32:39,040 --> 00:32:42,000 Speaker 3: could see if I've talked to some people who say 577 00:32:42,040 --> 00:32:45,680 Speaker 3: they view that company almost like Airbus in its early days, 578 00:32:45,720 --> 00:32:48,480 Speaker 3: where it's stays supported and people may not think much 579 00:32:48,480 --> 00:32:50,760 Speaker 3: of it, but over time it becomes a viable competitor. 580 00:32:51,760 --> 00:32:54,160 Speaker 1: Peter Robinson, thank you so much for coming on the 581 00:32:54,200 --> 00:33:09,280 Speaker 1: outlow those right, Thank you. Crazy. I just find that 582 00:33:09,320 --> 00:33:12,920 Speaker 1: to be such a fascinating topic. You know, it's always 583 00:33:12,960 --> 00:33:16,320 Speaker 1: tempting in any story. Seeing this is a metaphor for America. 584 00:33:16,480 --> 00:33:19,000 Speaker 1: This is a metaphor for the American economy. And you know, 585 00:33:19,120 --> 00:33:21,720 Speaker 1: but I kind of think in Bowing's case, there's a 586 00:33:21,760 --> 00:33:23,720 Speaker 1: lot there to make that kind of legitimate. 587 00:33:23,800 --> 00:33:27,160 Speaker 2: No. Absolutely, And again there there's also this emotional attachment 588 00:33:27,280 --> 00:33:30,880 Speaker 2: to the company, which you don't you don't get for your. 589 00:33:30,840 --> 00:33:33,040 Speaker 1: Case, a big financial aspect. 590 00:33:32,800 --> 00:33:36,240 Speaker 2: Financial incentive. No, that was super interesting. I'd love a 591 00:33:36,320 --> 00:33:40,280 Speaker 2: chance to sort of reminisce about aviation. The thing that 592 00:33:40,360 --> 00:33:44,440 Speaker 2: really strikes me is how much things have changed just 593 00:33:44,480 --> 00:33:47,200 Speaker 2: in the space of like a little over a decade, 594 00:33:47,320 --> 00:33:51,080 Speaker 2: because again I remember early twenty ten's it was Airbus 595 00:33:51,120 --> 00:33:55,239 Speaker 2: going up against Boeing, really and I also remember I 596 00:33:55,280 --> 00:33:57,960 Speaker 2: remember the first time no one's going to believe me, 597 00:33:58,000 --> 00:34:00,280 Speaker 2: but I remember the first time I flee on an 598 00:34:00,320 --> 00:34:02,560 Speaker 2: air bus and just sort of being like, oh, what 599 00:34:02,680 --> 00:34:05,120 Speaker 2: is this aircraft? And then I remember people talking about 600 00:34:05,120 --> 00:34:07,680 Speaker 2: the A three twenty, and there was initially so much 601 00:34:07,720 --> 00:34:10,799 Speaker 2: reticence about it. It was like, oh, it's too technical, 602 00:34:11,040 --> 00:34:14,600 Speaker 2: there's too much software, it's too fancy, it's too French. 603 00:34:14,920 --> 00:34:19,080 Speaker 2: I heard that many times, but then it dominates now, 604 00:34:19,160 --> 00:34:21,520 Speaker 2: you know. I think Pete said like sixty percent of 605 00:34:21,600 --> 00:34:24,279 Speaker 2: narrow bodies now are A three twenties, which again like 606 00:34:24,360 --> 00:34:28,960 Speaker 2: a complete reversal to previously when it was sixty percent. We're, 607 00:34:29,200 --> 00:34:29,800 Speaker 2: you know, Boeing. 608 00:34:30,400 --> 00:34:35,000 Speaker 1: There's also the irony or perversity, or maybe neither of 609 00:34:35,040 --> 00:34:38,280 Speaker 1: those things, which is that air Bus is absolutely trounced 610 00:34:38,280 --> 00:34:40,440 Speaker 1: bowing when it comes to stock price. So is you know, 611 00:34:40,440 --> 00:34:42,320 Speaker 1: people will talk about, oh Boeing. 612 00:34:42,360 --> 00:34:45,640 Speaker 2: Yeah right, yeah, the ultimate irony. They did this all 613 00:34:45,680 --> 00:34:46,799 Speaker 2: for the share price. 614 00:34:46,880 --> 00:34:49,840 Speaker 1: Like so all of this sort of you know, you know, 615 00:34:49,920 --> 00:34:55,120 Speaker 1: this focus on delivering to shareholders, et cetera. And yet 616 00:34:55,360 --> 00:34:57,319 Speaker 1: you know, if you look at the scoreboard, it's not 617 00:34:57,400 --> 00:34:59,880 Speaker 1: even closed because you know, the stock is at levels 618 00:35:00,160 --> 00:35:03,160 Speaker 1: seen in twenty seventeen as of right now, like Airbus 619 00:35:03,520 --> 00:35:06,600 Speaker 1: is at an all time high, up massively since then. 620 00:35:06,800 --> 00:35:09,200 Speaker 1: So it didn't even work to boost the share price. 621 00:35:09,239 --> 00:35:10,960 Speaker 1: I mean, of course it makes sense the stock's down 622 00:35:10,960 --> 00:35:13,520 Speaker 1: another like twenty something percent just this year with the 623 00:35:13,560 --> 00:35:16,239 Speaker 1: door blowout, but it is pretty striking how far it's 624 00:35:16,239 --> 00:35:18,600 Speaker 1: fallen behind, just even on the financial metrics. 625 00:35:18,640 --> 00:35:21,480 Speaker 2: Really an incredible result. The other thing I was thinking 626 00:35:21,760 --> 00:35:25,120 Speaker 2: after that conversation is, you know, we mentioned the Chinese 627 00:35:25,200 --> 00:35:29,560 Speaker 2: aerospace manufacturer Comac a couple of times, but I do wonder. So, 628 00:35:30,120 --> 00:35:32,439 Speaker 2: you know, they are growing, and they've had their first 629 00:35:32,520 --> 00:35:36,520 Speaker 2: sales I think just in the last year. But is 630 00:35:36,560 --> 00:35:41,480 Speaker 2: America ever going to be comfortable with a Chinese producing aircraft? 631 00:35:41,520 --> 00:35:43,440 Speaker 2: I think that's still an open question. 632 00:35:43,680 --> 00:35:46,000 Speaker 1: Maybe not or maybe not for a long time. But 633 00:35:46,239 --> 00:35:49,800 Speaker 1: will the least airlines be comfortable with the Chinese produced aircraft? 634 00:35:49,800 --> 00:35:53,839 Speaker 1: Will other Asian airlines including say, you know, obviously the 635 00:35:53,920 --> 00:35:58,040 Speaker 1: first of seven thirty seven crash in Indonesia, And so 636 00:35:58,600 --> 00:36:01,759 Speaker 1: there are many markets. I mean, this is a huge one, 637 00:36:02,000 --> 00:36:04,200 Speaker 1: you know, for the United States. This is one of 638 00:36:04,239 --> 00:36:08,200 Speaker 1: our big manufacturing exports, and so maybe I imagine it 639 00:36:08,239 --> 00:36:10,240 Speaker 1: would be a long time before we'd see a Comac 640 00:36:10,360 --> 00:36:12,600 Speaker 1: see nine one nine or any other Comac plane in 641 00:36:12,640 --> 00:36:14,640 Speaker 1: the US. But in a bunch of markets where it's 642 00:36:14,680 --> 00:36:18,160 Speaker 1: really important for you know, the for US exports, it 643 00:36:18,200 --> 00:36:19,600 Speaker 1: doesn't seem very implausible at all. 644 00:36:19,760 --> 00:36:22,640 Speaker 2: Yeah, definitely an interesting conversation and probably one that we 645 00:36:22,680 --> 00:36:25,319 Speaker 2: can follow up on. Yeah, I imagine, shall we leave 646 00:36:25,320 --> 00:36:25,839 Speaker 2: it there for now? 647 00:36:25,920 --> 00:36:26,680 Speaker 1: Let's leave it there. 648 00:36:26,960 --> 00:36:29,840 Speaker 2: This has been another episode of the All Thoughts podcast. 649 00:36:29,920 --> 00:36:33,120 Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and. 650 00:36:33,080 --> 00:36:35,920 Speaker 1: I'm Joe Wisenthal. You can follow me at the Stalwart, 651 00:36:36,160 --> 00:36:39,359 Speaker 1: follow our guest Peter Robinson at Peter M. Robinson and 652 00:36:39,440 --> 00:36:42,720 Speaker 1: check out his book Flying Blind, The seven thirty seven 653 00:36:42,840 --> 00:36:47,000 Speaker 1: Max Tragedy and the Fall of Boeing. Follow our producers 654 00:36:47,040 --> 00:36:51,160 Speaker 1: Carmen Rodriguez at Carmen Arman, dash Ol Bennett at Dashbot 655 00:36:51,200 --> 00:36:53,680 Speaker 1: and kel Brooks at kel Brooks. And thank you to 656 00:36:53,719 --> 00:36:56,680 Speaker 1: our producer Moses Onam. And for our Odd Lots content, 657 00:36:56,719 --> 00:36:59,000 Speaker 1: go to Bloomberg dot com slash odd Lots, where we 658 00:36:59,040 --> 00:37:02,040 Speaker 1: have transcripts, blogs, a newsletter, and join the discord. You 659 00:37:02,040 --> 00:37:04,160 Speaker 1: can chat about all these topics twenty four to seven 660 00:37:04,440 --> 00:37:06,760 Speaker 1: Discord dot gg slash odlocks. 661 00:37:07,120 --> 00:37:09,560 Speaker 2: And if you enjoy Odd Lots, if you want me 662 00:37:09,600 --> 00:37:11,279 Speaker 2: to ask my dad to come on the show and 663 00:37:11,280 --> 00:37:14,400 Speaker 2: talk about flying up seven thirty seven, which, to be honest, 664 00:37:14,440 --> 00:37:16,480 Speaker 2: is never going to happen, then please leave us a 665 00:37:16,520 --> 00:37:21,360 Speaker 2: positive review on your favorite podcast platform, and don't forget. 666 00:37:21,480 --> 00:37:25,080 Speaker 2: If you are a Bloomberg subscriber, you can connect your 667 00:37:25,160 --> 00:37:28,680 Speaker 2: Bloomberg account with Apple Podcasts and listen to all the 668 00:37:28,680 --> 00:37:31,720 Speaker 2: Odd Loots episodes ad free. Thanks for listening.