Boeing – From Bust to Glory and Back
On August 1, 1997, McDonald Douglas Aircraft bought Boeing, then went bust. Technically you’re probably thinking I’ve got it backward, because on that fateful day news accounts said Boeing had purchased failing McDonald Douglas, absorbing their MD90 (re-named the 717) aircraft and their mammoth military business. What they didn’t tell you much about was how Boeing merged with MD. Essentially, they ‘bought’ the MD Board votes by plying them with Boeing stock options. The industry scuttlebutt was Harry Stonecipher, MD Chairman, got $48 million in options to promote the ‘merger.’ Other board members also got attractive offers. It was a fateful day – when the emphasis to chase stock price and shareholder short term gains took precedent at Boeing over product development and technical prowess.
Since that day, Boeing has insisted on chasing the same bean counter mentality McDonald Douglas had just so thoroughly demonstrated as unsustainable. Along with Stonecipher, some of the illustrious MD Board members took their seats at Boeing and proceeded to engage in the same short game of lining their own pockets by engineering a surging stock price, a stock split and stock options, relying on the momentum established at Boeing before they got there. Many of us who worked at, with or on airplanes made at the Big B had an idea about what was about to happen. Boeing had just made a deal with the devil.
Gradually, mistakes and missteps began to pile up. Shortly after an impetuous move of corporate headquarters to Chicago, in 2003 Phil Condit was almost literally caught with his pants down and had to resign. Less than two years later, Stonecipher, who followed Condit as CEO and was a known sexual harasser, finally got axed for it.
From my perspective the final straw broke right after, when a spineless Boeing board passed over obvious choice Alan Mulally for CEO and picked Pentagon-preferred bean counter James McNerney. It didn’t take long for Ford to pluck the gem Mulally for their CEO, allowing him to escape and not only save Ford from bankruptcy but completely transform it and make it hugely profitable. Funny how properly executed product development, led by a died-in-the-wool product guy, brings profitability and a soaring stock price, not as an initiative, but as a by-product of smart, product-driven leadership.
Now, the die was cast. Boeing continued with brilliantly misguided strategies, like their destructive ‘Partnership for Success’ and ‘risk-sharing’ programs intended to drive cost and risk down to suppliers. In typical bean counter fashion, Boeing felt no company should make more profit than Boeing. This is typical big-company CFO stupidity.
For starters, the arrogance that what someone else has built and perfected could NEVER deserve to be better rewarded than you is appalling. Second, it’s always been true that profit margins tend, out of necessity, to be higher for smaller companies. If you have a brain, it’s a recognized axiom of sound business. The smaller the company, the higher the risk of failure and the smaller the room for error. One misstep can bankrupt a smaller company. Larger corporations have more financial tools at their disposal, as well as greater access to cash and borrowing power in relation to revenue. Smaller companies need higher margins to survive. Even higher margins do not provide the kind of insulation from mistakes that comes from sheer size and hard asset equity.
Beyond that, Boeing product development and manufacturing technological capabilities were given up or passed down to suppliers in the name of deflecting development risk from Boeing to its ‘partner’ companies. This did two things to damage Boeing: 1, it transferred technical know-how out of the company, effectively letting themselves fall behind the expertise curve and 2, it ceded control of its manufacturing and schedule destiny to other companies. This resulted in Boeing suffering numerous project and schedule delays and not knowing how to fix its supplier’s problems.
Without all that knowledge and expertise, Boeing no longer had a way to reassert control other than to bitch about schedule and quality. Their idea of control was to further squeeze suppliers to decrease costs, assess late penalties, and implement longer payment terms. All that only served to further exacerbate deteriorating supplier relations and cooperation. What a great way to maximize anti-productive practices. Did any of these dumb shits ever learn anything in business school, human psychology class, or team athletics? The whippings will continue until morale improves – that always works, right?
The 787 program was a template on how to do everything wrong. The incorporation of new manufacturing and material technologies was too aggressive. But Boeing, in its infinite wisdom said, “Okay, we’ll just spread all the new development risk to our suppliers.” It didn’t change the level of risk, it just spread it around. It didn’t reduce the likelihood or potential number of failures, so risk and the likelihood of problems was never decreased. Mitsubishi and Kawasaki Heavy Industries still had no clue how to build large-scale carbon fiber fuselages at high production rates. They simply said yes to the challenge because Boeing ordered them to take it on or get no future Boeing business. No help, just bullying. Typical Boeing.
Then there was the master schedule for the program. Boeing had historically been very good at assessing and mitigating risk and padding their new airplane program schedules so that they were never late introducing or delivering a new type of airplane. Now, because they had purged themselves of long-time know-how and experience with cost-cutting ‘golden parachutes’ to valuable employees and engineers, they thought this blue sky, drive risk and development to suppliers routine couldn’t fail. It resulted in so many program delays, none of their customers or anyone in the industry believed any schedule they produced. What was once a company impeccable with its word was now one riding on borrowed time and a ghost of former integrity.
The only reason Boeing has a chance of surviving is because it is half of an industry duopoly. No one can afford to see them fail. If it were a car company, they would have folded shop a long time ago. The place, the leadership, is a joke. They have an awfully long way to go to restore even a semblance of what this company stood for in its first 90 years.
Can new leadership bring investor, bank and customer confidence back from the edge? They’ve started a housecleaning, but it must continue. It will be a long road and must absolutely reinstate an emphasis on held technology, integrity, discipline and product development.
