Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 1: Tracy, this might seem like the most obvious statement in
Speaker 1: the world, but I'm really worried about Boeing. And I
Speaker 1: don't mean like flying on one per se.
Speaker 2: Oh really, well, I mean that's kind of what I
Speaker 2: would be worried about. But I feel like I need
Speaker 2: to do a disclaimer before we do this episode, which
Speaker 2: is that I have a massive soft spot for Boeing.
Speaker 2: I think a lot of Americans actually maybe still do.
Speaker 2: My dad flew be fifty two's and then he flew
Speaker 2: seven thirty sevens for a Southwest For a long time,
Speaker 2: I've been in a seven thirty seven simulator with him.
Speaker 2: I covered airlines, not really aerospace, but airlines for a while,
Speaker 2: and so I feel like my life has to some
Speaker 2: extent been a little bit entwined with Boeing. A large
Speaker 2: part of my inheritance, if I get it, is Southwest
Speaker 2: stock which I think still kind of correlates with Boeing,
Speaker 2: given that their fleet is all seven thirty sevens. So
Speaker 2: there's my disclaimer.
Speaker 1: That is a front that is a very a very
Speaker 1: good and thorough disclaimer.
Speaker 2: No.
Speaker 1: Like So when I say like I'm worried about Boeing,
Speaker 1: I mean I guess as someone who flies as a passenger,
Speaker 1: as a passenger occasionally. You know, Boeing is one of
Speaker 1: the most important manufacturers in the world, certainly to the
Speaker 1: US economy. Commercial aviation is one of the areas in
Speaker 1: which the US Boeing is still a dominant leader. It's
Speaker 1: not one of these spaces that's like lost. It's you know,
Speaker 1: crown in one way or another to China the way
Speaker 1: we've seen in other industrial sectors, and you know, is
Speaker 1: this society it feels like, policy wise, we want to
Speaker 1: reinvigorate American manufacturing. We know about the importance of complexity,
Speaker 1: which is something that we talk about a lot on
Speaker 1: this show. Probably you know a Boeing plate. These are
Speaker 1: among the most complex manufactured products in the world. And
Speaker 1: so if the pre eminent maker of planes in America
Speaker 1: is having perpetual trouble making planes, that worries me about
Speaker 1: the country.
Speaker 2: So there's two things here. I think there's two ways
Speaker 2: of sort of thinking about what the Boeing story or
Speaker 2: at this point, the downfall of Boeing really says about
Speaker 2: the economy, and I say downfall because while it's true
Speaker 2: it hasn't been superseded by a Chinese manufacturer, it has
Speaker 2: lost a huge amount of market share ye to air Bus,
Speaker 2: its main competitor. So two things. So one absolutely indicative
Speaker 2: of I guess, the path of American manufacturing or industrial
Speaker 2: capacity within the US. But I also think it says
Speaker 2: a lot about the structure of the economy and the
Speaker 2: wider incentives at play. And you think about, you know,
Speaker 2: concentration of corporate power. Boeing and Airbus are so emblematic
Speaker 2: of this. You basically have a duopoly, or you had
Speaker 2: for many years, and now we're kind of moving, I guess,
Speaker 2: to a monopoly as air Bus you know, sells even
Speaker 2: more planes. But it's interesting to me both from a
Speaker 2: manufacturing perspective and also from an incentive perspective, like what
Speaker 2: are the decisions, what is the system in place that
Speaker 2: leads to an outcome where you have one or two
Speaker 2: extremely dominant manufacturers of something that's really.
Speaker 1: Important totally And then of course you know, just sort
Speaker 1: of dovetailing on it what you said, like there's all
Speaker 1: these questions about sort of financial capitalism versus industrial capitalism,
Speaker 1: and whether you know, is this an area in which
Speaker 1: desire to boost the stock price through one way or
Speaker 1: another by increasing the dividend, allocating more to shareholders rather
Speaker 1: than reinvesting in safety, et cetera, like that, whether that
Speaker 1: was the impulse or whether that was a driver of
Speaker 1: the troubles that we've seen at Bowing like huge, I
Speaker 1: just think like core questions for us, you know, in
Speaker 1: the US economy, Boeing.
Speaker 2: Is sort of an expression at this point of some
Speaker 2: of the thorniest issues facing the US economy, Like it
Speaker 2: kind of encapsulates all of them.
Speaker 1: So we really have to do a Boeing episode, probably
Speaker 1: more than one, but we got to start. So I'm
Speaker 1: really excited to say we literally do have the perfect
Speaker 1: guest today. We're going to be speaking with Peter Robinson.
Speaker 1: He is the author of Flying Blind, The seven point
Speaker 1: thirty seven Max Tragedy, and The Fall of Boeing, who
Speaker 1: is a New York Times bestseller. He's also our colleague,
Speaker 1: and he's an investigative journalist here at Bloomberg. So, Peter,
Speaker 1: thank you so much for coming on Odlocks.
Speaker 3: Thank you for having me.
Speaker 1: There's so many different ways we could begin this and
Speaker 1: there's so Boeying touches on so many things, But where
Speaker 1: does the story begin in your view or in your
Speaker 1: book literally, like when you think about the Boeing saga,
Speaker 1: where does the story begin?
Speaker 3: Well, it really reflects some of the things that Tracy
Speaker 3: was saying, because this is a company where just about
Speaker 3: everyone that I meet has an incredible amount of pride
Speaker 3: in the product that they got into the industry because
Speaker 3: they wanted to build things that fly, They wanted to
Speaker 3: affect the future, they wanted work to have meaning. And
Speaker 3: I started covering this company in the late nineteen nineties,
Speaker 3: so I have a lot of history following it. What
Speaker 3: I noticed again and again was that these workers seemed
Speaker 3: let down by management. They seemed let down by management
Speaker 3: who weren't investing for the future, who were pushing for
Speaker 3: free cash flow over investment in new products. And what
Speaker 3: we've seen increasingly over the last few years is the
Speaker 3: fallout of those really management allocation decisions that are being
Speaker 3: shown to be deeply flawed.
Speaker 2: So we should probably talk about why we're doing this
Speaker 2: episode right now. Yeah, we kind of forgot in the intro.
Speaker 2: I guess it's a testament to just how many problems
Speaker 2: Boeing has had at this point with its new Max
Speaker 2: nine model. It's just been like, I guess, years and
Speaker 2: years of problems at this point, But why don't you
Speaker 2: explain what has happened recently? What's the latest fiasco in
Speaker 2: the history of this relatively new aircraft introduced by Boeing.
Speaker 3: This is almost brand new aircraft. The Max nine is
Speaker 3: the latest version of I believe, the fourth version of
Speaker 3: the seven thirty seven, which dates back to nineteen sixty seven, and.
Speaker 2: The world's most popular aircraft for.
Speaker 3: A time, right for a time, Yeah, and best selling
Speaker 3: narrow body plane of all time, more recently superseded by Airbus.
Speaker 3: But I'm sure people have seen the terrifying cell phone
Speaker 3: videos of a portion of the plane being ripped off
Speaker 3: and the plane landing with a gaping hole in its side,
Speaker 3: which Boeing CEO Dave Calhoun said was our mistake, and
Speaker 3: the leading theory is that it was due to perhaps
Speaker 3: shoddy workmanship at either Boeing or its leading supplier, which
Speaker 3: used to be part of Boeing until an outsourcing strategy
Speaker 3: which was partly designed to raise free cash flow, led
Speaker 3: Boeing to sell that supplier, so of.
Speaker 1: Course, now just again zooming out. Obviously January fifth, we've
Speaker 1: seen the cell phone videos of the door flying off
Speaker 1: and sort of miraculously nobody died. The plane was able
Speaker 1: to make an emergency landing. But of course, the story
Speaker 1: in many people's minds beginned in twenty eighteen with the
Speaker 1: two crashes, one in late twenty eighteen, one in early
Speaker 1: twenty nineteen with the seven thirty seven Max. What is
Speaker 1: the seven thirty seven Max Actually, when there is a
Speaker 1: seven thirty seven Max eight or seven thirty seven Max nine,
Speaker 1: what is this product?
Speaker 3: It is a roughly one hundred and fifty to one
Speaker 3: hundred and eighty seat airplane that is designed to be
Speaker 3: the most cost effective a to B device in the skies.
Speaker 3: The seven thirty seven is designed for quick turnaround short
Speaker 3: haul flights. It's meant to be extremely reliable and cost
Speaker 3: effective for the airlines, so a lot of flow cost
Speaker 3: airlines like Southwest fly the seven thirty seven and the Max.
Speaker 3: As you mentioned in twenty eighteen, had the Max eight
Speaker 3: had just been introduced and in the space of five
Speaker 3: months had two crashes that were found to be due
Speaker 3: to a flight control system that had been implemented without
Speaker 3: telling the pilots it was there, and pushed the nose
Speaker 3: of the plane into the ground without them being able
Speaker 3: to control it.
Speaker 2: So I realized, it's early days on the most recent
Speaker 2: incident with the Alaska Airline plane and the door kind
Speaker 2: of blowing out. But what do we know so far
Speaker 2: about that particular situation? And I guess what's the significance
Speaker 2: of the difference of something happening with, say, you know,
Speaker 2: bolts not being drilled correctly versus a problem in the
Speaker 2: flight control I guess essentially software of previous crashes.
Speaker 3: In some ways, this could be seen as potentially as
Speaker 3: a simpler problem than the problem with the flight control software,
Speaker 3: because that was the flight control software was a design
Speaker 3: issue that required extensive reworking of the software and retraining
Speaker 3: of the pilot. In this case, it seems that someone
Speaker 3: didn't do their job and there wasn't potentially a second
Speaker 3: set of eyes on the work that was done. So
Speaker 3: what happened was that a portion of the plane that
Speaker 3: would have looked like a window to passengers was actually
Speaker 3: behind the wall an emergency exit, and there was a
Speaker 3: plug door put over that part of the plane, and
Speaker 3: that plug door as the plane reached sixteen thousand feet,
Speaker 3: escaped the plane, and the hole opened. And the theory
Speaker 3: is that there are just four bolts that attached this
Speaker 3: plug door to the plane, and either they were not
Speaker 3: fastened properly or they simply weren't installed at all.
Speaker 2: Escaped the plane is a very creative way of saying,
Speaker 2: like catastrophic in flight decompression. But here we go, Yes.
Speaker 3: It would have been. It was terrifying to people.
Speaker 4: On the plane.
Speaker 1: The story that people tell or is this idea and
Speaker 1: you sort of already hinted at it, is like that
Speaker 1: at one point Boeing head and engineering culture, and I'm
Speaker 1: sure there still is a very intense engineering culture, but
Speaker 1: that was really dominant, and then it became more of
Speaker 1: a financial culture or a shareholder friendly culture. People were
Speaker 1: brought in and there was more focused on dividends, et cetera.
Speaker 1: And I get why people tell the story, but like,
Speaker 1: what actually happened. What was the culture of Boeing, like
Speaker 1: maybe during its best days, and then when did that
Speaker 1: begin to change? In your view, and you're telling of
Speaker 1: the story.
Speaker 3: I've talked to employees from pretty much every era, even
Speaker 3: back to the nineteen fifties, people who worked at Boeing,
Speaker 3: and the early stage of Boeing is very much this.
Speaker 3: You know, there's a saying that Boeing we hire engineers
Speaker 3: and other people. It was very much focused on product.
Speaker 3: It was focused on customers. It was, you know, will
Speaker 3: we'll have a service team when a new airplane was introduced,
Speaker 3: there would be a service team waiting at every landing
Speaker 3: to see how the plane performed. Over time, as the
Speaker 3: company grew, especially as it became dominant at one train
Speaker 3: of thought is that complacency set in. Boeing at the time,
Speaker 3: by the nineteen eighties, had more than sixty percent of
Speaker 3: the market, and it did settle into essentially a duopoly
Speaker 3: with Airbus. The Triple seven in the nineteen nineties was,
Speaker 3: many people have told me, was the high point of
Speaker 3: Boeing's design culture. One person called it Boeing's camelot. What
Speaker 3: happened after that point was two things. Boeing purchased McDonald douglas,
Speaker 3: and McDonald douglas was the also ran to Boeing's leader
Speaker 3: for much of the commercial jet age. That brought in
Speaker 3: McDonald douglas leaders who were trained more in the free
Speaker 3: cash flow approach to management, and especially one leader, Harry
Speaker 3: Stone Ceipher, who had been a disciple of Jack Welch,
Speaker 3: and it was very much raised the stock price by
Speaker 3: not as much investing for the future. And if you're
Speaker 3: called in the late nineties was also the time when
Speaker 3: Jack Welch was seen as the paragon of corporate culture.
Speaker 2: Cults of ge This kind of leads into something I
Speaker 2: wanted to ask, but why did Boeing feel This might
Speaker 2: be a weird question, but why did it feel financial
Speaker 2: pressure at all? Given that, you know, it was the
Speaker 2: leader in aerospace manufacturing at that moment in time. It
Speaker 2: wasn't like anyone was really doing better than it, at
Speaker 2: least until I guess until Lee he came in as
Speaker 2: the Airbus CEO.
Speaker 3: That's an interesting question. They felt two kinds of pressure.
Speaker 3: They felt market pressure because Airbus came in and did
Speaker 3: have extensive state support and built what was considered a
Speaker 3: very very very good airplane, the eight three twenty, which
Speaker 3: had fly by wire technology and electric sensors that Boeing's
Speaker 3: seven thirty seven didn't have. It was a more analog
Speaker 3: plane that was using cables and pulleys to connect to
Speaker 3: the flight surfaces. So so there was some you know,
Speaker 3: real competition from the point of view of the products,
Speaker 3: and there was always the comparison Boeing. Boeing would be
Speaker 3: compared to other industrial companies, and the comparison company for
Speaker 3: Boeing was General Electric, and so Phil Condit, the CEO
Speaker 3: in the late nineties and early two thousands, would be
Speaker 3: compared quite critically by Wall Street analysts to Jack Welch,
Speaker 3: Why aren't you raising the cash flow like he is?
Speaker 3: Why aren't you raising the dividend?
Speaker 2: It's so crazy to me that people made that comparison
Speaker 2: when it's like GE making, I mean not exclusively, but
Speaker 2: consumer appliances versus the company designing planes. They did make engines, right, yeah,
Speaker 2: they have a huge engine. That's fair, but like but
Speaker 2: still there's a lot more I guess leeway when you
Speaker 2: have an industrial conglomerate, maybe to experiments when you're making
Speaker 2: different one thing.
Speaker 1: Complete completely agree. Okay, So they brought in McDonald douglas executives,
Speaker 1: some of whom or at least one of whom was
Speaker 1: a Jack Welch ecolade. Wall Street started comparing its margins
Speaker 1: to GE and too well, you know the influence of
Speaker 1: jet watch thought all over the place from the perspective
Speaker 1: of engineers within the company, what did they notice as
Speaker 1: these as this new breed brought in? Were there changes
Speaker 1: in what they were told to do? Like, what did
Speaker 1: they How did that manifest itself internally?
Speaker 3: That's a good question. They started feeling it in all
Speaker 3: sorts of ways. One was One good example is their
Speaker 3: employee evaluations. I saw one engineer's evaluation where the manager
Speaker 3: had noted ideas are measured in dollars or as the
Speaker 3: MAX was being developed, which was a time when when
Speaker 3: Boeing did have cash but instead was spending between about
Speaker 3: twenty thirteen and twenty eighteen about forty billion dollars on buybacks,
Speaker 3: but the MAX, the engineers were noticing was was held
Speaker 3: to a tight budget and they were told that any
Speaker 3: changes would have to buy their way onto the airplane.
Speaker 3: So that when one engineer proposed adding a check and
Speaker 3: balance of the flight controls that would have potentially noticed
Speaker 3: the issue with the flight control software that led to
Speaker 3: the crashes in eighteen and nineteen, was told that, no, you.
Speaker 1: Basically anticipated my question. But when you look at what
Speaker 1: happened in twenty eighteen and twenty nineteen, can you just
Speaker 1: sort of tell the story, this sort of succinct version
Speaker 1: of the story about what was going on inside Boeing
Speaker 1: that they made this software change and apparently did not
Speaker 1: communicate well to pilots or to the airlines buying the
Speaker 1: planes that this change had been made.
Speaker 3: It became over time, it became a very compartmentalized organization,
Speaker 3: a lot of different silos, and there was one silo
Speaker 3: that was looking at the issues that were raised by
Speaker 3: the larger engines that were put on the plane. The
Speaker 3: larger engines, you know, potentially made the plane more prone
Speaker 3: to stall. So one group of engineers added this software
Speaker 3: that would push the nose down, and late in the
Speaker 3: process there was a decision made to tie that software
Speaker 3: to a single sensor, the AOA gauge, which is prone
Speaker 3: to you know, bird strikes, it's prone to various failures. Separately,
Speaker 3: there was a group at Boeing that we're working with
Speaker 3: working with the FAA and pilots on the flight manual
Speaker 3: for the plane, and the flight manual showed that there
Speaker 3: were no changes to the flight control software. MCAST was
Speaker 3: not described. Late in the process, it was discovered that
Speaker 3: there were these certain conditions where the nose of the
Speaker 3: plane could be pushed down, but it did not appear
Speaker 3: in the flight control manual, so it was a miscommunication.
Speaker 3: And ultimately what the JUST Department found is that a
Speaker 3: couple of Boeing's employees who learned about this change late
Speaker 3: should have told the FAA, should have brought in the
Speaker 3: FAA and had that included in the manual.
Speaker 2: How do you just aggregate I guess corporate short termism
Speaker 2: and the drive for profits and bureaucratic oversights that led
Speaker 2: to two massive tragedies. I think more than three hundred
Speaker 2: people killed in both those crashes, versus Boeing catering to
Speaker 2: what customers were asking for. Because I remember in sort
Speaker 2: of the mid twenty tens, you know, oil prices were
Speaker 2: going up. The refrain in the aerospace industry was always
Speaker 2: make the planes more efficient, more efficient, more efficient, and
Speaker 2: the larger engine sizes that were you located closer to
Speaker 2: the front of the aircraft that eventually had to be
Speaker 2: offset with the new flight control system MCAST. It was
Speaker 2: a result partially of trying to make the plane burn
Speaker 2: less fuel and I guess to some extent give the
Speaker 2: airlines what they were asking for.
Speaker 3: Yeah, it's I mean, it is a it's an industry
Speaker 3: that's under tremendous cost pressure. In this case, as Boeing
Speaker 3: set itself, it was a few lines of code. It
Speaker 3: didn't it wouldn't have costed anything to do the job correctly.
Speaker 3: As you're saying, it is partly pressure from customers that's
Speaker 3: driving this, and it was you know, in some ways
Speaker 3: Southwest desire to keep the plane similar to previous versions
Speaker 3: that led to some of the cost pressures.
Speaker 2: How do you balance like the drive for continuous improvement
Speaker 2: and efficiency with like the dangers of over engineering or
Speaker 2: creating these kind of problems.
Speaker 3: You know, the simple is always better, And in some
Speaker 3: cases Boeing's management lines became awfully confused. In the case
Speaker 3: of the Max, the engineering team was reporting to a
Speaker 3: business unit manager and it was the business unit manager
Speaker 3: who was making these decisions. There was a they called
Speaker 3: it a countdown clock that was put up near that
Speaker 3: person's desk so the engineers could see, you know, exactly
Speaker 3: how much time there was left.
Speaker 1: Maybe, you know, the Tracy's question makes me think about
Speaker 1: this question in another way. But there's complexity, and there's
Speaker 1: sort of these weird business lines of reporting as you've
Speaker 1: just mentioned, versus again the sort of shareholder capitalism and
Speaker 1: buybacks and the lack of investment or the lack of
Speaker 1: reinvestment or internal investment. Like, how much of the story
Speaker 1: setting aside uses of capital, how much is it a
Speaker 1: story of the company just became as a corporation internal
Speaker 1: and weirdly complex. And now I'm thinking, Tracy about our
Speaker 1: episodes on software and that maximum we talked about it
Speaker 1: that the software product itself becomes a reflection of the complexity.
Speaker 2: Yeah, but the irony was that, like the A three
Speaker 2: twenty is the more complex of the aircraft.
Speaker 4: Well, they're too.
Speaker 1: Like I'm also curious, like why haven't some of these
Speaker 1: same issues bedeviled Airbus the same?
Speaker 2: Yeah, that's the question I was going to ask, like
Speaker 2: why has an airbus succumbed to the same financial incentives
Speaker 2: that have been Boeing's downfall.
Speaker 1: Or the internal the complexity of a gigantic flying machine.
Speaker 3: I mean, I think one difference is that it is
Speaker 3: in Europe, it is not to this point, it's not
Speaker 3: the same shareholder driven culture. And you know, consistently the
Speaker 3: capital expenditures have been higher at Airbus. We had some
Speaker 3: numbers on Bloomberg, you know, showing that over the last
Speaker 3: ten years, Airbus's revenue has has grown Airbus as capex
Speaker 3: has grown, Boeing the revenue has declined and the capex
Speaker 3: has declined, So there's there's a more long term management focus.
Speaker 3: I was told there isn't the same higher and fire mentality,
Speaker 3: that there are stricter work rules so that you may
Speaker 3: not have the turnover. You know, if employees that you
Speaker 3: see in the United States, should Boeing be nationalized.
Speaker 2: Some people would argue that Airbus, I mean, what you're
Speaker 2: alluding to is like Airbus is almost someone's going to
Speaker 2: get someone's going to get very nice.
Speaker 1: But it's the least perceived right to be more evasive to.
Speaker 2: The facto nationalized kind of Please don't ut me online.
Speaker 1: I believe there are big like WTOL fights over the TI.
Speaker 2: Yes, yes, but that's a good way of putting it.
Speaker 3: It's an interesting question. I've wondered that myself. I think
Speaker 3: you mentioned, you know, other countries coming into the market.
Speaker 3: China has an airplane that you know, like they've delivered
Speaker 3: one or two a year so far. It's probably not
Speaker 3: a viable competitor over ten years. But if Boeing doesn't
Speaker 3: get its act together. You have to wonder if nationalization
Speaker 3: is a possibility. It's got forty billion dollars in debt.
Speaker 3: You can't imagine a future where the US wouldn't want
Speaker 3: to maintain a viable commercial aircraft manufacturer. It's also so
Speaker 3: important for military aircraft in some ways, as you alluded to,
Speaker 3: it is state supported already through the military and space contracts.
Speaker 1: What happened after twenty nineteen? So, I, you know, I
Speaker 1: don't remember. I didn't follow it that closely, but you know,
Speaker 1: I assume that after the crashes in twenty nineteen and
Speaker 1: the flaws discovered with the software, et cetera, we're discovering.
Speaker 1: I imagine management, you know, went through a big thing
Speaker 1: of we're changing, We're going to change the culture. We're
Speaker 1: going to focus safety as our number one party. I'm
Speaker 1: just imagining. I don't I didn't see that, but I
Speaker 1: imagine they said things like safety is our number one priority.
Speaker 1: There were memos, yoah, many memos about all that stuff.
Speaker 1: What did actually happen though? Did the company change in
Speaker 1: any way after the second crash in twenty nineteen, Well.
Speaker 3: You've imagined the messaging exactly right. There were times in
Speaker 3: the you know mid OUs when Boeing wouldn't mention the
Speaker 3: word safety and SANDUM report, but Dave Calhoun taking over
Speaker 3: as CEO mentioned safety was the number one priority many
Speaker 3: many times. There was a safety committee created for the
Speaker 3: board of Boeing shockingly didn't even have a committee dedicated
Speaker 3: to safety until the mac accidents. And I'm told that
Speaker 3: Dave Calhoun, you know, talked extensively to Mike Fleming, who
Speaker 3: was the exact in charge of the Max's return to service.
Speaker 3: I'm told that he talked to him regularly. And what
Speaker 3: you're seeing is that throughout the organization the same problems
Speaker 3: are there. They're you know, Boeing is trying to get
Speaker 3: the production rates back up, especially since the pandemic, especially
Speaker 3: at a supplier spirit there was a lot of turnover there.
Speaker 3: And what you're seeing is, you know, as Dave Calhoun
Speaker 3: said himself, that they need to renew the safety culture
Speaker 3: and they need to focus on it again.
Speaker 2: What about the FAA, the Federal Aviation Administration. So I
Speaker 2: don't think we can have this conversation about the incentives
Speaker 2: and the structure of the system that created this bad
Speaker 2: outcome without talking about the relationship between Boeing and the FAA.
Speaker 3: Yes, because that turned out to be a bad relationship.
Speaker 3: The FAA, especially the FAA management, began to see its
Speaker 3: role as to helping Boeing and its goal of delivering
Speaker 3: airplanes and the incentives for managers, you know, became almost
Speaker 3: to see the aircraft industry as the customer rather than
Speaker 3: as the regulated entity. And you know, I wrote about
Speaker 3: many cases in my book where the FA manager in
Speaker 3: charge of monitoring Boeing would then go on to get
Speaker 3: a job at Boeing or at you know, the industry
Speaker 3: lobbying group. So that that problem with the revolving door
Speaker 3: is there in this case. Since the latest incident, the FAA,
Speaker 3: at least in its press releases, is being very careful
Speaker 3: to say that the plane will fly when we determine
Speaker 3: its safe. You know, we determine the timeline here.
Speaker 1: On Calhoun, so I'm doing that. I'm doing the thing
Speaker 1: where I pulled up his Wikipedia page to look at
Speaker 1: his bios so you know, maybe it's wrong, right, but
Speaker 1: former ge guy and then he ran Nielsen, which I
Speaker 1: don't think is a manufact string company, and then he
Speaker 1: also joined the Blackstone and Group as a senior managing
Speaker 1: director and head of private equity portfolio operation. What was
Speaker 1: the choice when he was elevated to become the CEO
Speaker 1: of someone who it's not obvious that their background is
Speaker 1: particularly engineering focus.
Speaker 3: No, he well, he did come from GDGS, and yeah,
Speaker 3: he had been on Boeing's boards since two thousand and nine,
Speaker 3: so definitely not independent by any means. His Nielsen and
Speaker 3: Blackstone period. I wrote about this in my book. He
Speaker 3: went to Blackstone's annual conference and you know, this is
Speaker 3: again going back to twenty you know, twenty ten to
Speaker 3: twenty fourteen period and talked, you know, almost lovingly about
Speaker 3: the amount of cash, you know, the business was generating.
Speaker 3: And he made appearances during this period about the amount
Speaker 3: of government regulation being not helpful. And yet he is
Speaker 3: the person in charge at Boeing now at this crucial time.
Speaker 3: I think one issue was that it would have been
Speaker 3: very hard to find anyone to take the job after
Speaker 3: Dennis Muhlenberg had been you know, so it really had
Speaker 3: been pilloried, you know, internationally for his handling of the
Speaker 3: Max crisis. I did hear that Alan Molalley, who was
Speaker 3: sort of a much loved leader of Boeing, in the
Speaker 3: late night of the Commercial Airplanes Group in the late
Speaker 3: nineties early two thousands, a group of retirees wanted him
Speaker 3: to come back, and he replied, if asked, I will serve,
Speaker 3: But as far as I know, He asked, what.
Speaker 2: Sort of response have we seen from customers of Boeing?
Speaker 2: So the airlines themselves, I have to imagine, and in
Speaker 2: fact we've already seen this since the first two crashes.
Speaker 2: But I mean, you have to be thinking twice about
Speaker 2: whether or not you want to purchase this aircraft.
Speaker 3: Yeah, you're seeing it. You're seeing customers make decisions what
Speaker 3: they're purchasing. Used to be that Boeing was, you know,
Speaker 3: had sixty percent of the air body market. Now Airbus
Speaker 3: has six percent of the narrow body market, and customers
Speaker 3: are saying they need to get their act together. Tim
Speaker 3: Clark from Emirates has been saying this repeatedly for one Do.
Speaker 2: You see customers asking for this? Was always a thing
Speaker 2: in airline and aerospace reporting. The purchase agreements for aircrafts
Speaker 2: were like massively secret, and I remember I used to
Speaker 2: know a cell side analyst whose dream was to one
Speaker 2: day see an actual contract for an aircraft purchase. I
Speaker 2: don't know if you ever got to see one, I'd
Speaker 2: be interested to see one. But do you see people
Speaker 2: asking for discounts on the list prices or do you
Speaker 2: see people maybe I don't even know if this is possible,
Speaker 2: but embedding terms that are like, if there's another issue
Speaker 2: with this aircraft, then we want to get some sort
Speaker 2: of compensation or something out of it.
Speaker 3: They do. They do get compensation. If planes are on
Speaker 3: the ground, there's you know, contradtually agreed compensations. So it's
Speaker 3: likely that something like that is you know, it will
Speaker 3: take place with Alaska and Boeing. In many cases, airlines
Speaker 3: who stepped up and bought the Max after the crashes
Speaker 3: likely did get discounts. So airlines are opportunistic in that way.
Speaker 1: It's easy to point to Calhoun's ge in Blackstone and
Speaker 1: Nielsen and we saw did they engineers that you've spoken
Speaker 1: to within Boeing since he took over. I mean, it's
Speaker 1: one thing to say, Okay, we're going to have a
Speaker 1: safety board or a safety organ that reports to the board.
Speaker 1: Did they feel any different? Did they feel that there
Speaker 1: were changes internally in terms of taking the manufacturing and
Speaker 1: manufacturing quality more seriously?
Speaker 3: That's a good question I'm I, you know, at the
Speaker 3: lower level, I'm not sure if people did feel that
Speaker 3: any differently. I think, you know, definitely at Spirit, the
Speaker 3: Spirit you know, which supplies to the fuselage for the
Speaker 3: seven thirty seven and then.
Speaker 1: The airline, right, so there's Spirit Aerosystems. And was that
Speaker 1: a spin off of Boeing.
Speaker 3: It was originally that was Boeing which hitah and it
Speaker 3: made the fuselage.
Speaker 1: But now it's a separate company that does a lot
Speaker 1: of them yah factor yeah, okay, yeah.
Speaker 3: So what they've experienced was that in the you know,
Speaker 3: sort of nineties early two thousands, they were part of
Speaker 3: Boeing that made the airplane, and they were a cost
Speaker 3: center that was spun off to a private equity firm
Speaker 3: and there was an attempt to turn that into a
Speaker 3: profit center. That proved very difficult because the airline industry
Speaker 3: is cyclical, and so when the pandemic hit, the production
Speaker 3: declined quite a lot, and you know Boeing had to
Speaker 3: you know, had had to redo its agreement to get
Speaker 3: its more cat get it some more cash. So the
Speaker 3: supply base still feels pressure ultimately to raise production rates.
Speaker 2: What impact do all of these issues and again at
Speaker 2: this point, there's sort of a long list. So in
Speaker 2: addition to the mcast failures that we've been describing, there's
Speaker 2: you know, what just happened with Alaska Air. There's also
Speaker 2: been like missing nuts on rudder control systems and a
Speaker 2: couple other smaller issues that have surfaced. But what impact
Speaker 2: does this litany of problems have on the morale of
Speaker 2: engineers and what I guess, what are the options? Like
Speaker 2: if I'm a senior engineer working at Boeing and I
Speaker 2: decide this company is no longer for me, where do
Speaker 2: I go?
Speaker 3: So the some of the knowledge that you get in
Speaker 3: the commercial especially for Boeing, you know, which which has
Speaker 3: this long running plane. I've talked to engineers who say that,
Speaker 3: you know, I'm not employable somewhere else because I know
Speaker 3: this you know particular facet of the seven thirty seven,
Speaker 3: but it's not you know, built that way in other places.
Speaker 3: You know that it really depends on the age of
Speaker 3: the engineer. I mean, some of the older engineers may
Speaker 3: feel that they that their skills aren't transferable, but it
Speaker 3: definitely has an impact on recruitment and hiring. That was
Speaker 3: something I know that people at Boeing worried about after
Speaker 3: the MAX that young engineers might prefer to go to
Speaker 3: Blue Origin or SpaceX or or a tech company.
Speaker 1: Interesting, Yeah, I hadn't thought about that. Another example of like,
Speaker 1: you know, it's when we talked about the engineers not
Speaker 1: wanting to go to energy companies last year or two
Speaker 1: years ago, and they're just maybe more exciting places. What
Speaker 1: do you expect now? Maybe the seven thirty seven Max
Speaker 1: nine will be in the air again soon. I think
Speaker 1: there was a story today on the Bloomberg about the
Speaker 1: first batch of inspections having been made. Maybe the first
Speaker 1: step to getting them back in the air. Is it
Speaker 1: just going to be another we take safety seriously, Like,
Speaker 1: what do you expect to see now?
Speaker 3: I think it'll probably be weeks or months before the
Speaker 3: Max nine's are in the air again, and ultimately we'll
Speaker 3: have to see that gowing, you know, follows through and
Speaker 3: that we do see a real systemic change. You know,
Speaker 3: some of the analysts I've talked to are fairly pessimistic
Speaker 3: and think that what may happen is that this crisis
Speaker 3: passes and then another crisis happens at some point in
Speaker 3: the future.
Speaker 2: So I should just say we're recording this on January seventeenth,
Speaker 2: and this is still a story that is unfolding in
Speaker 2: many ways. But what do you think will happen to Boig?
Speaker 2: I know it, maybe I'm putting you on the spot,
Speaker 2: but you've written a whole book on this topic. What
Speaker 2: do you think the outlook is.
Speaker 3: I think the outlook is that, you know, sadly, I
Speaker 3: think it's it's going to be a long time before
Speaker 3: it is back to number one. It is going to
Speaker 3: be a sort of a number two in the aerospace industry.
Speaker 3: The Chinese competitor, or the COMAC in China is only making,
Speaker 3: as I said, one or two plans a year now.
Speaker 3: But over ten years, you know, in ten years you
Speaker 3: could see if I've talked to some people who say
Speaker 3: they view that company almost like Airbus in its early days,
Speaker 3: where it's stays supported and people may not think much
Speaker 3: of it, but over time it becomes a viable competitor.
Speaker 1: Peter Robinson, thank you so much for coming on the
Speaker 1: outlow those right, Thank you. Crazy. I just find that
Speaker 1: to be such a fascinating topic. You know, it's always
Speaker 1: tempting in any story. Seeing this is a metaphor for America.
Speaker 1: This is a metaphor for the American economy. And you know,
Speaker 1: but I kind of think in Bowing's case, there's a
Speaker 1: lot there to make that kind of legitimate.
Speaker 2: No. Absolutely, And again there there's also this emotional attachment
Speaker 2: to the company, which you don't you don't get for your.
Speaker 1: Case, a big financial aspect.
Speaker 2: Financial incentive. No, that was super interesting. I'd love a
Speaker 2: chance to sort of reminisce about aviation. The thing that
Speaker 2: really strikes me is how much things have changed just
Speaker 2: in the space of like a little over a decade,
Speaker 2: because again I remember early twenty ten's it was Airbus
Speaker 2: going up against Boeing, really and I also remember I
Speaker 2: remember the first time no one's going to believe me,
Speaker 2: but I remember the first time I flee on an
Speaker 2: air bus and just sort of being like, oh, what
Speaker 2: is this aircraft? And then I remember people talking about
Speaker 2: the A three twenty, and there was initially so much
Speaker 2: reticence about it. It was like, oh, it's too technical,
Speaker 2: there's too much software, it's too fancy, it's too French.
Speaker 2: I heard that many times, but then it dominates now,
Speaker 2: you know. I think Pete said like sixty percent of
Speaker 2: narrow bodies now are A three twenties, which again like
Speaker 2: a complete reversal to previously when it was sixty percent. We're,
Speaker 2: you know, Boeing.
Speaker 1: There's also the irony or perversity, or maybe neither of
Speaker 1: those things, which is that air Bus is absolutely trounced
Speaker 1: bowing when it comes to stock price. So is you know,
Speaker 1: people will talk about, oh Boeing.
Speaker 2: Yeah right, yeah, the ultimate irony. They did this all
Speaker 2: for the share price.
Speaker 1: Like so all of this sort of you know, you know,
Speaker 1: this focus on delivering to shareholders, et cetera. And yet
Speaker 1: you know, if you look at the scoreboard, it's not
Speaker 1: even closed because you know, the stock is at levels
Speaker 1: seen in twenty seventeen as of right now, like Airbus
Speaker 1: is at an all time high, up massively since then.
Speaker 1: So it didn't even work to boost the share price.
Speaker 1: I mean, of course it makes sense the stock's down
Speaker 1: another like twenty something percent just this year with the
Speaker 1: door blowout, but it is pretty striking how far it's
Speaker 1: fallen behind, just even on the financial metrics.
Speaker 2: Really an incredible result. The other thing I was thinking
Speaker 2: after that conversation is, you know, we mentioned the Chinese
Speaker 2: aerospace manufacturer Comac a couple of times, but I do wonder. So,
Speaker 2: you know, they are growing, and they've had their first
Speaker 2: sales I think just in the last year. But is
Speaker 2: America ever going to be comfortable with a Chinese producing aircraft?
Speaker 2: I think that's still an open question.
Speaker 1: Maybe not or maybe not for a long time. But
Speaker 1: will the least airlines be comfortable with the Chinese produced aircraft?
Speaker 1: Will other Asian airlines including say, you know, obviously the
Speaker 1: first of seven thirty seven crash in Indonesia, And so
Speaker 1: there are many markets. I mean, this is a huge one,
Speaker 1: you know, for the United States. This is one of
Speaker 1: our big manufacturing exports, and so maybe I imagine it
Speaker 1: would be a long time before we'd see a Comac
Speaker 1: see nine one nine or any other Comac plane in
Speaker 1: the US. But in a bunch of markets where it's
Speaker 1: really important for you know, the for US exports, it
Speaker 1: doesn't seem very implausible at all.
Speaker 2: Yeah, definitely an interesting conversation and probably one that we
Speaker 2: can follow up on. Yeah, I imagine, shall we leave
Speaker 2: it there for now?
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1: I'm Joe Wisenthal. You can follow me at the Stalwart,
Speaker 1: follow our guest Peter Robinson at Peter M. Robinson and
Speaker 1: check out his book Flying Blind, The seven thirty seven
Speaker 1: Max Tragedy and the Fall of Boeing. Follow our producers
Speaker 1: Carmen Rodriguez at Carmen Arman, dash Ol Bennett at Dashbot
Speaker 1: and kel Brooks at kel Brooks. And thank you to
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