A Lion Air Boeing 737
crashed into the sea this morning.
Rescuers have located debris,
but they do not expect to find any survivors.
Some of the warning signs, in retrospect
were there all along.
Some of the decisions, or changes,
were so subtle that people might not even have realized
the importance, as they were taking place.
And Ethiopian Airlines flight
has crashed shortly after takeoff
from Addis Ababa, killing all 157 passengers and crew
thought to be on board.
Boeing's best-selling plane
is coming under increased scrutiny
after another deadly accident.
We'll do everything possible to earn and re-earn
that trust and confidence
from our customers and the flying public
in the weeks and months ahead.
Boeing is an American icon,
revered around the world for its engineering innovation.
But with two crashes in under six months,
critics have asked if Boeing is straying
from its original mission.
The SEC is investigating whether Boeing
properly disclosed issues tied to the grounding
of its 737 Max Airliners.
One message described the 737 Max
as a plane designed by clowns, overseen by monkeys.
The safety culture at Boeing was corrupted
under pressure from Wall Street,
and executives, and board members
who were lookin' more at their bonuses
than they were at the integrity of the organization.
Boeing was playing a game, to a certain extent.
It was a game of numbers.
They were meeting Wall Street's expectations,
but unfortunately, that came
at the expense of the end customer, and the flying public.
The failures that happened at Boeing
are really complicated, and involve subtle forces
and cultural changes that have been underway
for decades at the company.
This is a story of how
an American icon lost its way,
and whether or not it can find it again.
2019 was not the best year for Boeing.
Just five months apart, two Boeing 737 Max planes crashed,
and the planes have been grounded since March of 2019.
There's simply no precedent, in aviation,
for a plane this important to be grounded this long.
In the first crash, Lion air flight 610,
something was discovered with the technology on the plane.
Investigators believe the plane's sensors
or its computers, had bad data suggesting a potential stall.
There was this software system,
known as MCAST, that stands for
maneuvering characteristics augmentation system.
This obscure flight control software
was created so the Max handled the same way for pilots
as the previous generation of 737s.
Black box data indicated that
a bad sensor had triggered MCAST,
which automatically pushed the plane down.
Within probably 24 hours of them discovering this,
Boeing and the FAA put out a warning,
indicating that this could occur,
and then also telling them how to counteract it.
There is a fix, simply flipping a switch
should have turned the automatic system off.
The second crash, however, the same failure.
I've covered dozens and dozens of plane crashes,
and one of my mantras has always been
that crashes don't occur for the same cause.
China grounded the plane,
and it just set off a ripple effect.
Any plane currently in the air
will go to its destination, and thereafter be grounded.
Boeing is an incredible company,
and hopefully they'll very quickly come up with the answer.
What had been billed as
a relatively simple software fix proved not to be so simple.
Every time it seemed like Boeing was just around the corner,
then a new issue cropped up.
MCAST wasn't the only issue on this airplane,
you had issues where the computers
were getting overloaded with information,
now there's a new issue that
the computers don't start up properly,
when you want them to.
And then, the first batch of
really embarrassing employee emails leaked.
The FAA is demanding answers from Boeing
after they waited months to disclose to the agency
internal messages between test pilots
who were working in the 737 Max flight simulator.
"It's running rampant in the sim on me."
One pilot, referencing the flight simulator.
"The plane is trimming itself like crazy."
The emails came out two weeks before
Boeing's Chief Executive, Dennis Muilenburg,
was due to testify before Congress,
and it was a bipartisan shellacking.
346 people are dead
because what these chief pilots describe as egregious.
You're the CEO, the buck stops with you,
did you read this document,
and how did your team not put it in front of you,
run in with their hair on fire, sayin'
'We got a real problem here.'
Ultimately, we don't quite know
exactly what caused the MCAST design,
just like we don't know all the causes of the crash,
we don't quite know, but it's very clear
that the one big cultural change at Boeing
had been a disruption in the communication
between engineers and top management.
But this kind of cultural change
for a company as old as Boeing happens slowly,
over the course of not years, but decades.
Boeing's history goes back over a century,
and while its early sea planes weren't iconic,
by World War Two, their military aircraft were.
When news of the successful raid
by the Flying Fortresses comes in,
these are the people who get the biggest thrill,
the thousands of Boeing workers who build them.
Boeing's an American manufacturing icon.
It was churning out bombers
that were critical to the allied defense effort,
and gave us Rosie the Riveter.
Sort of a symbol for American can-do culture.
Employers find that women can do
many jobs as well as men, some jobs better.
They were the great survivors of the post-World War Two
shakedown in aircraft design,
and the most successful new entrant
in the new jetliner market of the late 1950s.
The company gambled everything on a prototype
of what became its first jetliner, the Boeing 707.
Nearing completion
in the Boeing plant at Seattle,
America's first jet transport
is a unit of glistening beauty.
And that was followed by the 727,
and built this revolutionary behemoth, the 747,
you probably know it for the hump behind the nose,
and at the same time, they came up with what became
Boeing's greatest commercial success,
and that was the 737.
The 737 wasn't immediately successful.
It took several design and engineering iterations
to turn it into the plane that we see today.
It became a work horse for airlines like Southwest,
that fly primarily shorter routes,
and really brought travel to every day people.
And even as more and more
travelers flew on these aircraft,
the aviation safety record during this time
made flying one of the statistically safest ways to travel.
We've been the technology leader in aviation in the world.
Boeing was a magnificent company,
who made, in my opinion, the best airplanes in the world,
until some of these recent cultural changes,
which all came from pressure to Wall Street,
and bad management.
You know, over the years,
Boeing was this tremendously important
and innovative company,
but it wasn't necessarily a great stock.
In 1997, Boeing merged with McDonnell Douglas,
another aerospace and defense giant.
Boeing said
'let's do a merger, we'll continue with the innovation,
'and maybe McDonnell Douglas will help us
'in terms of our structure
'and telling our story to Wall Street.'
Almost immediately you began to hear
kind of a bitter joke coming out of Seattle,
that McDonnell Douglas had used
Boeing's money to buy Boeing,
and certainly, in terms of management structure,
it began to look that way.
Harry Stonecipher, a former GE executive
and McDonnell Douglas CEO,
becomes COO of the combined companies.
And more and more of the company's style and culture
began to be more of a McDonnell Douglas sort of picture.
He almost immediately signaled
there was a new sheriff in town,
and he was gonna bring financial disciple to Boeing.
Stonecipher would eventually become CEO,
and continued his emphasis on
controlling costs within the company.
A culture that engineers within the company
would begin to feel.
We had breakfast with the president of the--
This is Stan Sorscher,
he was a physicist at Boeing for over 20 years,
and felt these changes firsthand.
And he said he was so proud of cutting his
capital expenditure budgets by 60%.
Capital expenditures, for us,
were improvements in the factory, in our shop floor,
in processes and materials and things like that.
By 2000, there was a great deal of dissatisfaction
with the way our
problem solving culture was being displaced,
and we thought it was just much more difficult
for us to do our job.
And that's when a lot of people trace
this sort of fundamental shift in thinking
in terms of what you prioritize,
whether that be profits, or whether that be engineering.
Further evidence of
a move away from engineering prowess
and innovation, to profit, was Boeing's decision
to move company headquarters to Chicago,
when Boeing's jet manufacturing
and airplane designers were in Seattle.
Probably the biggest motivation was
to send a message to the Street
that this was a company that was not going to make
investment decisions on the basis of legacy,
or heritage, or anything like that,
but rather, purely make investment decisions
on the basis of returns,
and by moving to a place where there were no
legacy loyalties, no heritage production facilities,
they were sending that message.
And it also started to shape how
Boeing viewed its own internal investments
in things like airplane programs,
tremendously important as the company
started planning for what became the 787 Dreamliner.
Ladies and gentlemen,
your 787 Dreamliner.
For this event, it was held on July 8, 2007, so 787,
Tom Brokaw was there,
I was there just sitting in the audience,
just trying to soak it all in.
I think they raised the factory door,
and there was the plane.
But at the time, it was just, it was an empty shell.
We didn't know it, but it was all for appearances.
For the 787, Boeing attempted
a new system for designing the aircraft.
Instead of doing everything in house,
it would outsource much of the plane's
design and manufacturing to its biggest suppliers.
It was gonna be about outsourcing,
outsourcing to the places where
we could produce things more cheaply,
as opposed to the finest, best,
safest airplanes in the world,
which is what Boeing made for decades.
This works for running shoes, ladies garments,
cell phones, hard drives, integrated circuits,
it works for everybody, it'll work for you, and I thought
'No, it won't.'
Boeing had never done a plane using the system before,
this was very different from
Boeing controlling the processes itself,
and it did not go well.
We launched the 787, the worst I could think of
was that we'd be three months late,
which is a shooting offense at Boeing.
It wasn't three months late, it was three years late,
it wasn't 5 billion dollars over budget,
it was 30 or 40 or 50 billion dollars over budget.
Grounded the fleet for three months.
The suppliers were just in over their heads,
most of them, we had years of issues,
there was an engine explosion at one point,
there was an electrical fire on flight test aircraft.
And I thought
'Okay, this experiment is done.'
This didn't work.
And the executive said
'The business model is fine, we just didn't execute it.'
Every new airplane has growing pains,
especially those that kind of
push the edge of the envelope in technology.
Eventually, Boeing would fix
many of the 787's issues,
and the Dreamliner slowly started to bring in big returns,
and with a profitable plane,
Boeing looked at other measures
to boost its returns to shareholders.
There's different ways of getting your profit up,
so one is just that you make the best product imaginable,
and everybody wants to buy it,
and so your sales go up,
and you make more money on that plane.
The other is that you do financial engineering.
One common technique
for companies to boost their stock price
is a practice known as stock buybacks,
where a company uses its capital
to buy back its own stock from the marketplace.
And the math is really simple to understand,
if you have fewer shares trading, absent all else,
the price goes up, the shares worth more,
they get a nice return on their investment.
Boeing's stock was on the rise,
and by 2015, new CEO Dennis Muilenburg
would ramp the program up even more.
From 2014 to 2019, Boeing would re-purchase
about 38 billion of its own shares.
They went from a relatively normal percentage,
something like 30%, to over 90%
of cash being returned to investors.
And the contrast to pensions being cut
was really shocking,
and sort of a bitter moment for some people.
Buying back shares, and paying huge dividends,
while you're laying off senior engineers
to hire cheap labor in India, that's a sickness.
But while long time employees at Boeing
may have been frustrated, at the time,
this was viewed as a huge success.
In less than a decade, the company's stock price tripled.
Wall Street just loved this company, its stock shot up.
I see a new Boeing, I just see just straight line growth.
And Muilenburg was getting the rockstar treatment.
You're obviously a very accomplished executive,
you've done a great job for Boeing and its shareholders,
I wish I had bought the stock when you took over.
It's still a good deal. Still a good deal.
Around the same time all of this was happening,
Boeing was selling record numbers of its newest plane,
the 737 Max.
The 737 Max was born out of a competition with Airbus.
The aviation industry is
a duopoly between Boeing and Airbus,
with the two giants controlling
almost all of the jetliner market.
For both companies, it's beating commercial heart
is an enormously profitable family of single-aisle jets,
the Boeing 737, and Airbus A320.
While Boeing had planned to build an all-new jet
to replace the 737,
it was sidetracked by the Dreamliner debacle.
Airbus shocked everyone by announcing a simple upgrade
to its A320 family of planes,
in what became known as the A320 Neo.
Since the new planes had engines
that increased fuel efficiency
and required no lengthy training for pilots to fly,
it became a huge cost saver for airlines,
and a big hit for Airbus.
So Boeing had to do the same thing,
if Boeing didn't act, or waited too long,
they could lose significant market share.
American Airlines called Boeing and said
'We're gonna buy 400 planes,
'and they will all be Airbus
'unless you can match their fuel economy,
'and the fact that no pilot training is required,
'it's identical to their other Airbus models.'
And the Boeing CEO said
'No no no no, we'll match that,
'we want half that order.'
With the Max, Boeing was also trying to shake
the image of incompetence that had followed
the 787 debacle,
so there was a lot of pressure there,
to show that the,
'Hey, look, we can design planes,
'and we can meet deadlines with the Max.'
And to their credit, with the Max, they did.
Unfortunately for Boeing,
some of the critical engineering decisions that were made
came back to haunt them.
In late 2015,
Boeing's first 737 Max takes shape, right on schedule.
Flight testing begins in early 2016,
and in 2017, the Max enters the commercial market,
months early, and it is, in fact,
that fastest selling aircraft in company history.
You saw huge orders coming for both companies,
airlines seemed generally pleased with it,
and to be honest, they still are.
Even after the crisis, some of the biggest customers say
'You know what, this is a good airplane.'
But internal emails,
made public from investigators,
revealed that Boeing had gone to extraordinary measures
to get the Max into the air,
including some employees lying to the FAA.
The Chief Technical Pilot on the plane
described how he used Jedi mind tricks on regulators.
In one exchange, a Boeing employee says
"I still haven't been forgiven by God
"for the covering up I did last year."
The most disturbing thing we've found is,
there was a 2013 meeting,
and they conspired to conceal the system.
MCAST was created
so that the larger, more fuel-efficient engines on the Max
wouldn't make the plane handle any differently
than the previous generation of 737s.
At that meeting, they said
'Well wait a minute, wait a minute,
'if we tell anybody about this system,
'then they might require that
'pilots have additional training,
'and our bosses, from the top, in Boeing,
'and our contracts with the airlines say
'no additional training required,
'so we have to conceal this,
'no one outside Boeing can know
'that this safety-critical system exists.'
Another week, another shakeup at Boeing.
The company's former CEO, Dennis Muilenburg,
forced out after 35 years with the company,
and four years as CEO.
After firing Muilenburg,
Boeing would close their books
on one of the worst financial performances in history,
estimating 18.6 billion in total costs
for the grounded 737 Max,
and it would report its first annual loss since 1997.
Dave Calhoun, a member of Boeing's board,
was tapped as the next CEO,
and immediately starts to make
sweeping changes within the company.
The first couple of weeks on the job,
he moved very quickly to get any embarrassing overhang
from the last year, just clean out the cobwebs,
get all the bad news out there right now.
Trying to be more transparent,
Calhoun dumped even more damning documents,
and holds a conference call with reporters.
When boards reach a conclusion to change a CEO,
they expect change.
And they recognize the arguments
that have been presented from the outside world as legit,
and they're gonna experience
a different style of leadership,
a different way of doin' things.
But it's unclear whether or not Calhoun
will shift Boeing's priority away from pleasing Wall Street,
and return the company to its engineering roots
and heritage of creating top flight planes.
We believe this airplane's safer
than the safest airplane flying today.
Every next airplane has to be that way,
it has to be that way for Boeing,
it has to be that way for our competitors.
He's been on the board since mid-2009,
and also one of the, well,
almost all of the board members
that do not have an engineering degrees,
from a purely accounting background,
private equity, hedge funds, that kind of thing.
This is a bit strange, because on one level
a company really needs to change.
On the other hand, other than a shareholder emergency,
I'm not really sure
what would be the instigator of that change.
We are gonna have the most open book
the world's ever seen, on this subject.
Transparency is what we lost for a moment,
and it's something we have to regain,
because it speaks to the trust that the world has in us.
I am very hopeful that he can restore
the safety culture there,
so that they can focus on making safe airplanes.
The old days of simply harvesting cash
from legacy programs,
and returning it to shareholders, needs to stop,
and the idea of engineers being some sort of a commodity
that you can rely upon to come through for you,
that needs to stop, too.
The bigger issue of setting the tone,
changing culture, which, these things happen gradually,
bit by bit, he's saying all the right things right now,
about correcting course,
but we won't know for awhile as to whether
Boeing's on the right course.