WEBVTT - The Moment That Boeing's Culture Started To Rot 0:00:10.080 --> 0:00:14.240 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.360 --> 0:00:16.760 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:17.040 --> 0:00:20.200 Tracy, this might seem like the most obvious statement in 0:00:20.200 --> 0:00:23.479 the world, but I'm really worried about Boeing. And I 0:00:23.520 --> 0:00:25.520 don't mean like flying on one per se. 0:00:26.079 --> 0:00:28.960 Oh really, well, I mean that's kind of what I 0:00:28.960 --> 0:00:30.800 would be worried about. But I feel like I need 0:00:30.840 --> 0:00:33.800 to do a disclaimer before we do this episode, which 0:00:33.840 --> 0:00:37.519 is that I have a massive soft spot for Boeing. 0:00:38.120 --> 0:00:40.680 I think a lot of Americans actually maybe still do. 0:00:40.920 --> 0:00:44.240 My dad flew be fifty two's and then he flew 0:00:44.280 --> 0:00:46.840 seven thirty sevens for a Southwest For a long time, 0:00:47.120 --> 0:00:50.120 I've been in a seven thirty seven simulator with him. 0:00:50.440 --> 0:00:54.280 I covered airlines, not really aerospace, but airlines for a while, 0:00:54.320 --> 0:00:56.520 and so I feel like my life has to some 0:00:56.600 --> 0:00:59.640 extent been a little bit entwined with Boeing. A large 0:00:59.680 --> 0:01:03.520 part of my inheritance, if I get it, is Southwest 0:01:03.600 --> 0:01:07.240 stock which I think still kind of correlates with Boeing, 0:01:07.319 --> 0:01:10.000 given that their fleet is all seven thirty sevens. So 0:01:10.160 --> 0:01:11.120 there's my disclaimer. 0:01:11.319 --> 0:01:14.160 That is a front that is a very a very 0:01:14.160 --> 0:01:15.640 good and thorough disclaimer. 0:01:15.840 --> 0:01:15.920 No. 0:01:16.080 --> 0:01:18.279 Like So when I say like I'm worried about Boeing, 0:01:18.319 --> 0:01:20.959 I mean I guess as someone who flies as a passenger, 0:01:21.040 --> 0:01:24.040 as a passenger occasionally. You know, Boeing is one of 0:01:24.080 --> 0:01:28.080 the most important manufacturers in the world, certainly to the 0:01:28.160 --> 0:01:32.000 US economy. Commercial aviation is one of the areas in 0:01:32.040 --> 0:01:34.679 which the US Boeing is still a dominant leader. It's 0:01:34.680 --> 0:01:36.560 not one of these spaces that's like lost. It's you know, 0:01:37.040 --> 0:01:39.800 crown in one way or another to China the way 0:01:39.800 --> 0:01:43.440 we've seen in other industrial sectors, and you know, is 0:01:43.480 --> 0:01:45.800 this society it feels like, policy wise, we want to 0:01:45.800 --> 0:01:50.160 reinvigorate American manufacturing. We know about the importance of complexity, 0:01:50.200 --> 0:01:52.360 which is something that we talk about a lot on 0:01:52.400 --> 0:01:55.800 this show. Probably you know a Boeing plate. These are 0:01:55.800 --> 0:01:59.120 among the most complex manufactured products in the world. And 0:01:59.200 --> 0:02:02.800 so if the pre eminent maker of planes in America 0:02:02.960 --> 0:02:07.000 is having perpetual trouble making planes, that worries me about 0:02:07.040 --> 0:02:07.640 the country. 0:02:07.960 --> 0:02:11.440 So there's two things here. I think there's two ways 0:02:11.480 --> 0:02:14.680 of sort of thinking about what the Boeing story or 0:02:15.000 --> 0:02:18.600 at this point, the downfall of Boeing really says about 0:02:18.680 --> 0:02:21.520 the economy, and I say downfall because while it's true 0:02:21.560 --> 0:02:25.560 it hasn't been superseded by a Chinese manufacturer, it has 0:02:25.680 --> 0:02:28.840 lost a huge amount of market share ye to air Bus, 0:02:28.960 --> 0:02:33.600 its main competitor. So two things. So one absolutely indicative 0:02:33.760 --> 0:02:37.840 of I guess, the path of American manufacturing or industrial 0:02:37.840 --> 0:02:40.840 capacity within the US. But I also think it says 0:02:40.880 --> 0:02:43.800 a lot about the structure of the economy and the 0:02:43.919 --> 0:02:47.440 wider incentives at play. And you think about, you know, 0:02:47.600 --> 0:02:53.520 concentration of corporate power. Boeing and Airbus are so emblematic 0:02:53.560 --> 0:02:56.119 of this. You basically have a duopoly, or you had 0:02:56.120 --> 0:02:59.040 for many years, and now we're kind of moving, I guess, 0:02:59.040 --> 0:03:01.800 to a monopoly as air Bus you know, sells even 0:03:01.840 --> 0:03:04.960 more planes. But it's interesting to me both from a 0:03:05.000 --> 0:03:09.240 manufacturing perspective and also from an incentive perspective, like what 0:03:09.320 --> 0:03:11.920 are the decisions, what is the system in place that 0:03:12.040 --> 0:03:14.240 leads to an outcome where you have one or two 0:03:14.560 --> 0:03:18.679 extremely dominant manufacturers of something that's really. 0:03:18.520 --> 0:03:21.560 Important totally And then of course you know, just sort 0:03:21.560 --> 0:03:24.160 of dovetailing on it what you said, like there's all 0:03:24.200 --> 0:03:28.880 these questions about sort of financial capitalism versus industrial capitalism, 0:03:28.919 --> 0:03:31.600 and whether you know, is this an area in which 0:03:31.840 --> 0:03:35.000 desire to boost the stock price through one way or 0:03:35.000 --> 0:03:39.520 another by increasing the dividend, allocating more to shareholders rather 0:03:39.520 --> 0:03:42.920 than reinvesting in safety, et cetera, like that, whether that 0:03:43.120 --> 0:03:45.960 was the impulse or whether that was a driver of 0:03:46.000 --> 0:03:48.880 the troubles that we've seen at Bowing like huge, I 0:03:48.920 --> 0:03:53.000 just think like core questions for us, you know, in 0:03:53.040 --> 0:03:54.600 the US economy, Boeing. 0:03:54.320 --> 0:03:57.000 Is sort of an expression at this point of some 0:03:57.080 --> 0:04:00.360 of the thorniest issues facing the US economy, Like it 0:04:00.400 --> 0:04:01.800 kind of encapsulates all of them. 0:04:01.880 --> 0:04:04.760 So we really have to do a Boeing episode, probably 0:04:04.920 --> 0:04:07.200 more than one, but we got to start. So I'm 0:04:07.200 --> 0:04:10.840 really excited to say we literally do have the perfect 0:04:10.880 --> 0:04:13.440 guest today. We're going to be speaking with Peter Robinson. 0:04:13.520 --> 0:04:16.440 He is the author of Flying Blind, The seven point 0:04:16.440 --> 0:04:19.880 thirty seven Max Tragedy, and The Fall of Boeing, who 0:04:19.920 --> 0:04:23.120 is a New York Times bestseller. He's also our colleague, 0:04:23.160 --> 0:04:27.320 and he's an investigative journalist here at Bloomberg. So, Peter, 0:04:27.440 --> 0:04:29.600 thank you so much for coming on Odlocks. 0:04:29.720 --> 0:04:30.560 Thank you for having me. 0:04:30.839 --> 0:04:33.720 There's so many different ways we could begin this and 0:04:33.760 --> 0:04:36.360 there's so Boeying touches on so many things, But where 0:04:36.360 --> 0:04:38.840 does the story begin in your view or in your 0:04:38.920 --> 0:04:42.360 book literally, like when you think about the Boeing saga, 0:04:42.400 --> 0:04:43.400 where does the story begin? 0:04:43.800 --> 0:04:46.159 Well, it really reflects some of the things that Tracy 0:04:46.279 --> 0:04:50.120 was saying, because this is a company where just about 0:04:50.120 --> 0:04:52.640 everyone that I meet has an incredible amount of pride 0:04:53.120 --> 0:04:55.599 in the product that they got into the industry because 0:04:55.600 --> 0:04:58.040 they wanted to build things that fly, They wanted to 0:04:58.600 --> 0:05:01.719 affect the future, they wanted work to have meaning. And 0:05:01.760 --> 0:05:04.440 I started covering this company in the late nineteen nineties, 0:05:04.480 --> 0:05:07.320 so I have a lot of history following it. What 0:05:07.400 --> 0:05:10.680 I noticed again and again was that these workers seemed 0:05:10.760 --> 0:05:14.080 let down by management. They seemed let down by management 0:05:14.279 --> 0:05:18.200 who weren't investing for the future, who were pushing for 0:05:18.240 --> 0:05:22.200 free cash flow over investment in new products. And what 0:05:22.400 --> 0:05:25.000 we've seen increasingly over the last few years is the 0:05:25.040 --> 0:05:30.039 fallout of those really management allocation decisions that are being 0:05:30.120 --> 0:05:31.359 shown to be deeply flawed. 0:05:32.040 --> 0:05:34.800 So we should probably talk about why we're doing this 0:05:34.880 --> 0:05:38.479 episode right now. Yeah, we kind of forgot in the intro. 0:05:38.800 --> 0:05:41.360 I guess it's a testament to just how many problems 0:05:41.360 --> 0:05:44.320 Boeing has had at this point with its new Max 0:05:44.400 --> 0:05:47.479 nine model. It's just been like, I guess, years and 0:05:47.560 --> 0:05:51.200 years of problems at this point, But why don't you 0:05:51.320 --> 0:05:56.400 explain what has happened recently? What's the latest fiasco in 0:05:56.440 --> 0:05:59.839 the history of this relatively new aircraft introduced by Boeing. 0:06:00.880 --> 0:06:04.440 This is almost brand new aircraft. The Max nine is 0:06:04.480 --> 0:06:08.400 the latest version of I believe, the fourth version of 0:06:08.440 --> 0:06:12.480 the seven thirty seven, which dates back to nineteen sixty seven, and. 0:06:12.800 --> 0:06:14.880 The world's most popular aircraft for. 0:06:14.920 --> 0:06:18.480 A time, right for a time, Yeah, and best selling 0:06:18.880 --> 0:06:23.960 narrow body plane of all time, more recently superseded by Airbus. 0:06:24.560 --> 0:06:27.400 But I'm sure people have seen the terrifying cell phone 0:06:27.480 --> 0:06:31.440 videos of a portion of the plane being ripped off 0:06:31.560 --> 0:06:34.400 and the plane landing with a gaping hole in its side, 0:06:34.680 --> 0:06:38.480 which Boeing CEO Dave Calhoun said was our mistake, and 0:06:38.560 --> 0:06:41.760 the leading theory is that it was due to perhaps 0:06:41.800 --> 0:06:45.560 shoddy workmanship at either Boeing or its leading supplier, which 0:06:45.640 --> 0:06:49.520 used to be part of Boeing until an outsourcing strategy 0:06:49.600 --> 0:06:52.560 which was partly designed to raise free cash flow, led 0:06:52.600 --> 0:06:56.520 Boeing to sell that supplier, so of. 0:06:56.520 --> 0:07:01.800 Course, now just again zooming out. Obviously January fifth, we've 0:07:01.839 --> 0:07:04.160 seen the cell phone videos of the door flying off 0:07:04.200 --> 0:07:08.239 and sort of miraculously nobody died. The plane was able 0:07:08.279 --> 0:07:11.920 to make an emergency landing. But of course, the story 0:07:12.040 --> 0:07:15.760 in many people's minds beginned in twenty eighteen with the 0:07:15.800 --> 0:07:18.480 two crashes, one in late twenty eighteen, one in early 0:07:18.560 --> 0:07:22.240 twenty nineteen with the seven thirty seven Max. What is 0:07:22.240 --> 0:07:24.360 the seven thirty seven Max Actually, when there is a 0:07:24.360 --> 0:07:27.240 seven thirty seven Max eight or seven thirty seven Max nine, 0:07:27.280 --> 0:07:28.560 what is this product? 0:07:29.000 --> 0:07:32.080 It is a roughly one hundred and fifty to one 0:07:32.120 --> 0:07:35.640 hundred and eighty seat airplane that is designed to be 0:07:36.240 --> 0:07:40.080 the most cost effective a to B device in the skies. 0:07:40.160 --> 0:07:43.559 The seven thirty seven is designed for quick turnaround short 0:07:43.600 --> 0:07:48.960 haul flights. It's meant to be extremely reliable and cost 0:07:49.000 --> 0:07:51.040 effective for the airlines, so a lot of flow cost 0:07:51.120 --> 0:07:55.480 airlines like Southwest fly the seven thirty seven and the Max. 0:07:55.760 --> 0:08:00.320 As you mentioned in twenty eighteen, had the Max eight 0:08:00.440 --> 0:08:03.040 had just been introduced and in the space of five 0:08:03.120 --> 0:08:06.080 months had two crashes that were found to be due 0:08:06.080 --> 0:08:09.480 to a flight control system that had been implemented without 0:08:09.760 --> 0:08:12.440 telling the pilots it was there, and pushed the nose 0:08:12.480 --> 0:08:14.880 of the plane into the ground without them being able 0:08:14.920 --> 0:08:15.760 to control it. 0:08:16.400 --> 0:08:19.800 So I realized, it's early days on the most recent 0:08:19.920 --> 0:08:24.000 incident with the Alaska Airline plane and the door kind 0:08:24.040 --> 0:08:27.280 of blowing out. But what do we know so far 0:08:27.480 --> 0:08:31.880 about that particular situation? And I guess what's the significance 0:08:32.160 --> 0:08:35.400 of the difference of something happening with, say, you know, 0:08:35.480 --> 0:08:40.920 bolts not being drilled correctly versus a problem in the 0:08:40.920 --> 0:08:44.920 flight control I guess essentially software of previous crashes. 0:08:45.600 --> 0:08:48.679 In some ways, this could be seen as potentially as 0:08:48.720 --> 0:08:52.040 a simpler problem than the problem with the flight control software, 0:08:52.080 --> 0:08:54.559 because that was the flight control software was a design 0:08:54.640 --> 0:08:59.360 issue that required extensive reworking of the software and retraining 0:08:59.400 --> 0:09:02.760 of the pilot. In this case, it seems that someone 0:09:03.120 --> 0:09:06.600 didn't do their job and there wasn't potentially a second 0:09:06.640 --> 0:09:09.720 set of eyes on the work that was done. So 0:09:09.760 --> 0:09:12.560 what happened was that a portion of the plane that 0:09:12.760 --> 0:09:15.520 would have looked like a window to passengers was actually 0:09:15.880 --> 0:09:18.200 behind the wall an emergency exit, and there was a 0:09:18.200 --> 0:09:21.080 plug door put over that part of the plane, and 0:09:21.120 --> 0:09:24.400 that plug door as the plane reached sixteen thousand feet, 0:09:24.640 --> 0:09:28.040 escaped the plane, and the hole opened. And the theory 0:09:28.160 --> 0:09:30.520 is that there are just four bolts that attached this 0:09:30.559 --> 0:09:34.080 plug door to the plane, and either they were not 0:09:34.200 --> 0:09:37.320 fastened properly or they simply weren't installed at all. 0:09:37.880 --> 0:09:40.640 Escaped the plane is a very creative way of saying, 0:09:40.720 --> 0:09:45.239 like catastrophic in flight decompression. But here we go, Yes. 0:09:45.480 --> 0:09:47.840 It would have been. It was terrifying to people. 0:09:47.679 --> 0:10:02.800 On the plane. 0:10:05.040 --> 0:10:08.240 The story that people tell or is this idea and 0:10:08.400 --> 0:10:10.520 you sort of already hinted at it, is like that 0:10:10.600 --> 0:10:15.120 at one point Boeing head and engineering culture, and I'm 0:10:15.120 --> 0:10:17.760 sure there still is a very intense engineering culture, but 0:10:17.800 --> 0:10:20.760 that was really dominant, and then it became more of 0:10:20.840 --> 0:10:23.880 a financial culture or a shareholder friendly culture. People were 0:10:23.880 --> 0:10:26.160 brought in and there was more focused on dividends, et cetera. 0:10:26.200 --> 0:10:27.960 And I get why people tell the story, but like, 0:10:28.559 --> 0:10:31.800 what actually happened. What was the culture of Boeing, like 0:10:31.880 --> 0:10:34.400 maybe during its best days, and then when did that 0:10:34.480 --> 0:10:36.560 begin to change? In your view, and you're telling of 0:10:36.600 --> 0:10:37.040 the story. 0:10:37.600 --> 0:10:42.400 I've talked to employees from pretty much every era, even 0:10:42.440 --> 0:10:45.480 back to the nineteen fifties, people who worked at Boeing, 0:10:45.960 --> 0:10:48.920 and the early stage of Boeing is very much this. 0:10:49.360 --> 0:10:52.200 You know, there's a saying that Boeing we hire engineers 0:10:52.240 --> 0:10:55.760 and other people. It was very much focused on product. 0:10:55.840 --> 0:10:58.760 It was focused on customers. It was, you know, will 0:10:58.840 --> 0:11:02.120 we'll have a service team when a new airplane was introduced, 0:11:02.120 --> 0:11:05.199 there would be a service team waiting at every landing 0:11:05.240 --> 0:11:08.720 to see how the plane performed. Over time, as the 0:11:08.760 --> 0:11:13.200 company grew, especially as it became dominant at one train 0:11:13.240 --> 0:11:16.200 of thought is that complacency set in. Boeing at the time, 0:11:16.400 --> 0:11:18.920 by the nineteen eighties, had more than sixty percent of 0:11:18.960 --> 0:11:22.160 the market, and it did settle into essentially a duopoly 0:11:22.320 --> 0:11:25.840 with Airbus. The Triple seven in the nineteen nineties was, 0:11:27.000 --> 0:11:29.120 many people have told me, was the high point of 0:11:29.120 --> 0:11:33.240 Boeing's design culture. One person called it Boeing's camelot. What 0:11:33.360 --> 0:11:37.480 happened after that point was two things. Boeing purchased McDonald douglas, 0:11:37.520 --> 0:11:40.720 and McDonald douglas was the also ran to Boeing's leader 0:11:40.800 --> 0:11:44.320 for much of the commercial jet age. That brought in 0:11:44.600 --> 0:11:48.600 McDonald douglas leaders who were trained more in the free 0:11:48.600 --> 0:11:52.680 cash flow approach to management, and especially one leader, Harry 0:11:52.720 --> 0:11:56.080 Stone Ceipher, who had been a disciple of Jack Welch, 0:11:56.600 --> 0:11:59.800 and it was very much raised the stock price by 0:12:00.679 --> 0:12:03.800 not as much investing for the future. And if you're 0:12:03.880 --> 0:12:05.800 called in the late nineties was also the time when 0:12:06.160 --> 0:12:10.040 Jack Welch was seen as the paragon of corporate culture. 0:12:09.840 --> 0:12:13.360 Cults of ge This kind of leads into something I 0:12:13.400 --> 0:12:16.719 wanted to ask, but why did Boeing feel This might 0:12:16.720 --> 0:12:18.880 be a weird question, but why did it feel financial 0:12:18.880 --> 0:12:22.520 pressure at all? Given that, you know, it was the 0:12:22.640 --> 0:12:26.480 leader in aerospace manufacturing at that moment in time. It 0:12:26.520 --> 0:12:29.600 wasn't like anyone was really doing better than it, at 0:12:29.679 --> 0:12:32.440 least until I guess until Lee he came in as 0:12:32.600 --> 0:12:33.439 the Airbus CEO. 0:12:33.760 --> 0:12:36.600 That's an interesting question. They felt two kinds of pressure. 0:12:36.640 --> 0:12:39.839 They felt market pressure because Airbus came in and did 0:12:39.920 --> 0:12:43.360 have extensive state support and built what was considered a 0:12:43.480 --> 0:12:46.400 very very very good airplane, the eight three twenty, which 0:12:46.440 --> 0:12:51.240 had fly by wire technology and electric sensors that Boeing's 0:12:51.400 --> 0:12:54.680 seven thirty seven didn't have. It was a more analog 0:12:54.760 --> 0:12:57.400 plane that was using cables and pulleys to connect to 0:12:57.440 --> 0:13:00.360 the flight surfaces. So so there was some you know, 0:13:00.800 --> 0:13:03.199 real competition from the point of view of the products, 0:13:03.240 --> 0:13:06.959 and there was always the comparison Boeing. Boeing would be 0:13:07.000 --> 0:13:10.080 compared to other industrial companies, and the comparison company for 0:13:10.160 --> 0:13:13.880 Boeing was General Electric, and so Phil Condit, the CEO 0:13:14.000 --> 0:13:17.080 in the late nineties and early two thousands, would be 0:13:17.280 --> 0:13:20.199 compared quite critically by Wall Street analysts to Jack Welch, 0:13:20.240 --> 0:13:22.920 Why aren't you raising the cash flow like he is? 0:13:22.920 --> 0:13:24.240 Why aren't you raising the dividend? 0:13:24.840 --> 0:13:27.240 It's so crazy to me that people made that comparison 0:13:27.320 --> 0:13:30.280 when it's like GE making, I mean not exclusively, but 0:13:30.360 --> 0:13:35.079 consumer appliances versus the company designing planes. They did make engines, right, yeah, 0:13:35.240 --> 0:13:38.120 they have a huge engine. That's fair, but like but 0:13:38.320 --> 0:13:40.760 still there's a lot more I guess leeway when you 0:13:40.760 --> 0:13:44.160 have an industrial conglomerate, maybe to experiments when you're making 0:13:44.240 --> 0:13:45.240 different one thing. 0:13:45.559 --> 0:13:51.760 Complete completely agree. Okay, So they brought in McDonald douglas executives, 0:13:52.360 --> 0:13:54.160 some of whom or at least one of whom was 0:13:54.160 --> 0:13:58.480 a Jack Welch ecolade. Wall Street started comparing its margins 0:13:58.520 --> 0:14:01.599 to GE and too well, you know the influence of 0:14:01.720 --> 0:14:05.400 jet watch thought all over the place from the perspective 0:14:05.960 --> 0:14:09.920 of engineers within the company, what did they notice as 0:14:10.000 --> 0:14:13.680 these as this new breed brought in? Were there changes 0:14:13.720 --> 0:14:15.400 in what they were told to do? Like, what did 0:14:15.400 --> 0:14:17.480 they How did that manifest itself internally? 0:14:18.440 --> 0:14:22.040 That's a good question. They started feeling it in all 0:14:22.080 --> 0:14:24.680 sorts of ways. One was One good example is their 0:14:25.240 --> 0:14:30.880 employee evaluations. I saw one engineer's evaluation where the manager 0:14:30.920 --> 0:14:34.800 had noted ideas are measured in dollars or as the 0:14:34.840 --> 0:14:37.880 MAX was being developed, which was a time when when 0:14:37.920 --> 0:14:42.320 Boeing did have cash but instead was spending between about 0:14:42.320 --> 0:14:46.160 twenty thirteen and twenty eighteen about forty billion dollars on buybacks, 0:14:46.440 --> 0:14:49.840 but the MAX, the engineers were noticing was was held 0:14:49.840 --> 0:14:52.120 to a tight budget and they were told that any 0:14:52.200 --> 0:14:54.480 changes would have to buy their way onto the airplane. 0:14:54.520 --> 0:14:58.600 So that when one engineer proposed adding a check and 0:14:58.720 --> 0:15:02.840 balance of the flight controls that would have potentially noticed 0:15:02.880 --> 0:15:05.080 the issue with the flight control software that led to 0:15:05.120 --> 0:15:09.160 the crashes in eighteen and nineteen, was told that, no, you. 0:15:10.040 --> 0:15:12.960 Basically anticipated my question. But when you look at what 0:15:13.160 --> 0:15:16.640 happened in twenty eighteen and twenty nineteen, can you just 0:15:16.720 --> 0:15:20.720 sort of tell the story, this sort of succinct version 0:15:20.760 --> 0:15:24.000 of the story about what was going on inside Boeing 0:15:24.320 --> 0:15:27.720 that they made this software change and apparently did not 0:15:28.000 --> 0:15:32.200 communicate well to pilots or to the airlines buying the 0:15:32.240 --> 0:15:34.000 planes that this change had been made. 0:15:34.600 --> 0:15:38.600 It became over time, it became a very compartmentalized organization, 0:15:38.720 --> 0:15:41.800 a lot of different silos, and there was one silo 0:15:42.160 --> 0:15:45.560 that was looking at the issues that were raised by 0:15:45.680 --> 0:15:47.560 the larger engines that were put on the plane. The 0:15:47.640 --> 0:15:51.200 larger engines, you know, potentially made the plane more prone 0:15:51.200 --> 0:15:55.320 to stall. So one group of engineers added this software 0:15:55.320 --> 0:15:59.400 that would push the nose down, and late in the 0:15:59.440 --> 0:16:03.240 process there was a decision made to tie that software 0:16:03.280 --> 0:16:06.120 to a single sensor, the AOA gauge, which is prone 0:16:06.160 --> 0:16:09.800 to you know, bird strikes, it's prone to various failures. Separately, 0:16:09.960 --> 0:16:13.040 there was a group at Boeing that we're working with 0:16:14.080 --> 0:16:17.120 working with the FAA and pilots on the flight manual 0:16:17.160 --> 0:16:20.120 for the plane, and the flight manual showed that there 0:16:20.120 --> 0:16:24.480 were no changes to the flight control software. MCAST was 0:16:24.520 --> 0:16:27.560 not described. Late in the process, it was discovered that 0:16:27.840 --> 0:16:31.560 there were these certain conditions where the nose of the 0:16:31.560 --> 0:16:33.920 plane could be pushed down, but it did not appear 0:16:33.960 --> 0:16:37.600 in the flight control manual, so it was a miscommunication. 0:16:37.760 --> 0:16:41.240 And ultimately what the JUST Department found is that a 0:16:41.280 --> 0:16:44.480 couple of Boeing's employees who learned about this change late 0:16:44.520 --> 0:16:46.440 should have told the FAA, should have brought in the 0:16:46.520 --> 0:16:48.520 FAA and had that included in the manual. 0:16:49.200 --> 0:16:53.000 How do you just aggregate I guess corporate short termism 0:16:53.680 --> 0:16:59.200 and the drive for profits and bureaucratic oversights that led 0:16:59.280 --> 0:17:02.680 to two massive tragedies. I think more than three hundred 0:17:02.680 --> 0:17:08.720 people killed in both those crashes, versus Boeing catering to 0:17:08.840 --> 0:17:13.160 what customers were asking for. Because I remember in sort 0:17:13.200 --> 0:17:16.720 of the mid twenty tens, you know, oil prices were 0:17:16.800 --> 0:17:21.400 going up. The refrain in the aerospace industry was always 0:17:21.560 --> 0:17:24.679 make the planes more efficient, more efficient, more efficient, and 0:17:24.720 --> 0:17:28.359 the larger engine sizes that were you located closer to 0:17:28.400 --> 0:17:30.760 the front of the aircraft that eventually had to be 0:17:30.840 --> 0:17:34.680 offset with the new flight control system MCAST. It was 0:17:34.720 --> 0:17:39.320 a result partially of trying to make the plane burn 0:17:39.560 --> 0:17:41.800 less fuel and I guess to some extent give the 0:17:41.840 --> 0:17:43.240 airlines what they were asking for. 0:17:44.160 --> 0:17:46.439 Yeah, it's I mean, it is a it's an industry 0:17:46.480 --> 0:17:49.760 that's under tremendous cost pressure. In this case, as Boeing 0:17:49.920 --> 0:17:51.840 set itself, it was a few lines of code. It 0:17:52.119 --> 0:17:55.879 didn't it wouldn't have costed anything to do the job correctly. 0:17:56.320 --> 0:17:59.600 As you're saying, it is partly pressure from customers that's 0:17:59.680 --> 0:18:02.359 driving this, and it was you know, in some ways 0:18:02.400 --> 0:18:06.200 Southwest desire to keep the plane similar to previous versions 0:18:06.320 --> 0:18:08.800 that led to some of the cost pressures. 0:18:09.200 --> 0:18:12.200 How do you balance like the drive for continuous improvement 0:18:12.520 --> 0:18:17.239 and efficiency with like the dangers of over engineering or 0:18:17.280 --> 0:18:18.960 creating these kind of problems. 0:18:19.280 --> 0:18:23.040 You know, the simple is always better, And in some 0:18:23.119 --> 0:18:28.000 cases Boeing's management lines became awfully confused. In the case 0:18:28.040 --> 0:18:31.159 of the Max, the engineering team was reporting to a 0:18:31.160 --> 0:18:34.199 business unit manager and it was the business unit manager 0:18:34.200 --> 0:18:37.280 who was making these decisions. There was a they called 0:18:37.320 --> 0:18:40.240 it a countdown clock that was put up near that 0:18:40.280 --> 0:18:43.840 person's desk so the engineers could see, you know, exactly 0:18:43.920 --> 0:18:45.160 how much time there was left. 0:18:46.040 --> 0:18:49.040 Maybe, you know, the Tracy's question makes me think about 0:18:49.080 --> 0:18:53.680 this question in another way. But there's complexity, and there's 0:18:53.760 --> 0:18:57.200 sort of these weird business lines of reporting as you've 0:18:57.280 --> 0:19:01.080 just mentioned, versus again the sort of shareholder capitalism and 0:19:01.200 --> 0:19:04.359 buybacks and the lack of investment or the lack of 0:19:04.400 --> 0:19:08.600 reinvestment or internal investment. Like, how much of the story 0:19:08.720 --> 0:19:13.199 setting aside uses of capital, how much is it a 0:19:13.320 --> 0:19:17.560 story of the company just became as a corporation internal 0:19:17.560 --> 0:19:20.880 and weirdly complex. And now I'm thinking, Tracy about our 0:19:20.920 --> 0:19:24.920 episodes on software and that maximum we talked about it 0:19:25.160 --> 0:19:28.919 that the software product itself becomes a reflection of the complexity. 0:19:29.000 --> 0:19:31.159 Yeah, but the irony was that, like the A three 0:19:31.320 --> 0:19:33.320 twenty is the more complex of the aircraft. 0:19:33.440 --> 0:19:33.879 Well, they're too. 0:19:34.040 --> 0:19:36.840 Like I'm also curious, like why haven't some of these 0:19:36.880 --> 0:19:39.600 same issues bedeviled Airbus the same? 0:19:39.760 --> 0:19:41.280 Yeah, that's the question I was going to ask, like 0:19:41.320 --> 0:19:45.240 why has an airbus succumbed to the same financial incentives 0:19:45.600 --> 0:19:47.680 that have been Boeing's downfall. 0:19:47.400 --> 0:19:50.879 Or the internal the complexity of a gigantic flying machine. 0:19:52.280 --> 0:19:56.080 I mean, I think one difference is that it is 0:19:56.800 --> 0:19:59.879 in Europe, it is not to this point, it's not 0:20:00.000 --> 0:20:04.840 the same shareholder driven culture. And you know, consistently the 0:20:04.880 --> 0:20:08.960 capital expenditures have been higher at Airbus. We had some 0:20:09.320 --> 0:20:12.880 numbers on Bloomberg, you know, showing that over the last 0:20:12.920 --> 0:20:16.800 ten years, Airbus's revenue has has grown Airbus as capex 0:20:16.840 --> 0:20:20.200 has grown, Boeing the revenue has declined and the capex 0:20:20.240 --> 0:20:25.280 has declined, So there's there's a more long term management focus. 0:20:25.600 --> 0:20:29.320 I was told there isn't the same higher and fire mentality, 0:20:29.520 --> 0:20:33.240 that there are stricter work rules so that you may 0:20:33.280 --> 0:20:36.760 not have the turnover. You know, if employees that you 0:20:36.880 --> 0:20:40.480 see in the United States, should Boeing be nationalized. 0:20:41.160 --> 0:20:43.320 Some people would argue that Airbus, I mean, what you're 0:20:43.320 --> 0:20:46.560 alluding to is like Airbus is almost someone's going to 0:20:46.600 --> 0:20:48.320 get someone's going to get very nice. 0:20:49.119 --> 0:20:52.680 But it's the least perceived right to be more evasive to. 0:20:52.560 --> 0:20:56.960 The facto nationalized kind of Please don't ut me online. 0:20:57.040 --> 0:20:59.520 I believe there are big like WTOL fights over the TI. 0:20:59.760 --> 0:21:02.960 Yes, yes, but that's a good way of putting it. 0:21:02.720 --> 0:21:05.880 It's an interesting question. I've wondered that myself. I think 0:21:06.520 --> 0:21:10.720 you mentioned, you know, other countries coming into the market. 0:21:11.359 --> 0:21:15.400 China has an airplane that you know, like they've delivered 0:21:15.400 --> 0:21:17.919 one or two a year so far. It's probably not 0:21:17.960 --> 0:21:21.120 a viable competitor over ten years. But if Boeing doesn't 0:21:21.119 --> 0:21:23.600 get its act together. You have to wonder if nationalization 0:21:23.920 --> 0:21:26.960 is a possibility. It's got forty billion dollars in debt. 0:21:27.480 --> 0:21:30.960 You can't imagine a future where the US wouldn't want 0:21:30.960 --> 0:21:34.800 to maintain a viable commercial aircraft manufacturer. It's also so 0:21:35.119 --> 0:21:39.720 important for military aircraft in some ways, as you alluded to, 0:21:40.080 --> 0:21:43.640 it is state supported already through the military and space contracts. 0:22:00.520 --> 0:22:03.119 What happened after twenty nineteen? So, I, you know, I 0:22:03.160 --> 0:22:06.560 don't remember. I didn't follow it that closely, but you know, 0:22:06.600 --> 0:22:09.879 I assume that after the crashes in twenty nineteen and 0:22:09.960 --> 0:22:14.200 the flaws discovered with the software, et cetera, we're discovering. 0:22:14.400 --> 0:22:17.080 I imagine management, you know, went through a big thing 0:22:17.119 --> 0:22:19.360 of we're changing, We're going to change the culture. We're 0:22:19.359 --> 0:22:21.960 going to focus safety as our number one party. I'm 0:22:22.000 --> 0:22:23.760 just imagining. I don't I didn't see that, but I 0:22:23.760 --> 0:22:26.680 imagine they said things like safety is our number one priority. 0:22:26.680 --> 0:22:29.960 There were memos, yoah, many memos about all that stuff. 0:22:30.080 --> 0:22:33.800 What did actually happen though? Did the company change in 0:22:33.840 --> 0:22:36.880 any way after the second crash in twenty nineteen, Well. 0:22:36.680 --> 0:22:41.359 You've imagined the messaging exactly right. There were times in 0:22:41.400 --> 0:22:44.600 the you know mid OUs when Boeing wouldn't mention the 0:22:44.600 --> 0:22:47.560 word safety and SANDUM report, but Dave Calhoun taking over 0:22:47.600 --> 0:22:51.520 as CEO mentioned safety was the number one priority many 0:22:51.560 --> 0:22:54.600 many times. There was a safety committee created for the 0:22:54.600 --> 0:22:58.920 board of Boeing shockingly didn't even have a committee dedicated 0:22:58.920 --> 0:23:02.560