What Happened to Boeing?

Summary

The video discusses Boeing's ongoing crises, particularly related to the 737 Max jet, including safety concerns and misdrilled holes. It highlights the company's shift from prioritizing safety to profits, resulting in two tragic crashes and subsequent regulatory scrutiny. Boeing's management, led by CEO Dave Calhoun, faces mounting pressure to fix its quality control issues. As Boeing's production lags and air travel demand surges, the public suffers from fewer available flights. Despite the challenges, Boeing remains a critical player in aviation, with many believing the company is too big to fail.

Takeaways

• ✈️ Boeing, once a leading name in American aviation, is now facing multiple crises, notably with its 737 Max jets.
• 🛠️ The most recent problem involves misdrilled holes in the 737 Max, raising concerns about the quality of Boeing's manufacturing process.
• 💸 Boeing's shift toward prioritizing profits over safety became evident, especially after its acquisition of McDonnell Douglas in the late 1990s.
• 💻 The 737 Max crashes in 2018 and 2019, which killed 346 people, were caused by faulty MCAS software that pilots weren't adequately trained to handle.
• 🚨 Boeing's production issues persist, including an emergency landing due to bolts not being secured properly on a 737 Max.
• ⚠️ The FAA has restricted Boeing's production rate of the 737 Max until it can prove it can maintain safety and quality control.
• 📉 Boeing's market cap has shrunk significantly, and it now trails behind Airbus, losing its once-dominant position.
• 🛫 The demand for new airplanes remains high, but Boeing's production delays are causing ripple effects, affecting airline capacities and causing travel disruptions.
• 📊 Boeing's ongoing troubles are contributing to a shortage of available seats for travelers, which may lead to travel delays and fewer flight options.
• 🇺🇸 Despite its problems, Boeing is considered too important to fail due to its critical role in national defense, government contracts, and commercial aviation.

Q & A

What recent issue has Boeing faced with the 737 Max jet?

Boeing has faced an issue with misdrilled holes in the 737 Max jet, raising further concerns about the quality of its equipment.

Why has Boeing been struggling recently?

Boeing has been struggling due to several safety concerns, including two fatal 737 Max crashes caused by faulty software, misdrilled holes, and a series of production and quality control failures. These have raised questions about its safety culture and management.

What role did the MCAS software play in the 737 Max crashes?

The MCAS software, designed to prevent stalls, overwhelmed pilots' ability to control the aircraft in two separate crashes. The software was not fully disclosed to pilots, and they weren't trained on how to override it.

How has Boeing's corporate culture changed since its merger with McDonnell Douglas?

Since merging with McDonnell Douglas, Boeing shifted focus from flight safety to profit-making, prioritizing stockholder returns. This cultural shift contributed to its current challenges, including safety lapses.

How has Boeing’s stock buyback strategy impacted the company?

Boeing spent $41.5 billion on stock buybacks between 2013 and 2018, which benefited investors and managers but has been criticized as it diverted funds from potential safety investments and operational improvements.

How is the FAA addressing Boeing’s production issues?

The FAA has restricted Boeing’s ability to increase production of the 737 Max until it demonstrates safe and responsible production practices. Inspectors found multiple quality control issues that contributed to this decision.

How is Boeing’s production backlog affecting airlines?

Boeing has a backlog of nearly 5,000 planes, and production delays are affecting airline fleets. For instance, Southwest Airlines expected 80 deliveries this year but now anticipates receiving only 20, leading to capacity shortages.

What competition does Boeing face in the aviation industry?

Boeing faces competition mainly from Airbus, creating a duopoly in the commercial aircraft market. Other competitors, like China, have struggled to enter the market due to the high costs and regulatory barriers.

How has Boeing's market performance compared to Airbus since COVID-19?

Before COVID-19, Boeing was twice the size of Airbus, but now Boeing's market capitalization is $12 billion smaller than Airbus due to ongoing production issues and safety concerns.

What is Boeing’s outlook for the future despite its current troubles?

While Boeing is facing significant challenges, many believe the company is too big to fail, given its importance to the U.S. government and military. Some argue that Boeing’s current struggles could be a critical turning point in its history.

Outlines

00:00

🚨 Boeing's Recent Struggles and Crises

Boeing, once a leader in American aviation, faces ongoing crises. Recent problems with the 737 Max jet, including misdrilled holes, have raised concerns about Boeing’s quality control. The company is now seen as 'rudderless,' struggling with safety issues and a management culture focused on profits over customer and operational safety. Boeing's reputation is tarnished, and customers face more challenges in air travel. Airlines, on the other hand, have limited aircraft options, leading to a duopoly between Boeing and Airbus in commercial aircraft manufacturing. Due to the high costs involved in developing new planes, the competitive landscape remains narrow, with only a few manufacturers managing to compete globally.

05:01

💔 Boeing’s 737 Max Tragedies and Cultural Shift

Two deadly crashes involving the Boeing 737 Max in 2018 and 2019 killed 346 people. The crashes, caused by faulty MCAS software, highlighted the company’s shift away from safety towards profitability. Boeing rushed to compete with Airbus’s more fuel-efficient planes by modifying the 737 design instead of developing a new model. However, Boeing didn’t properly train pilots on how to override the software, which contributed to the crashes. This cultural shift towards prioritizing shareholder returns can be traced back to Boeing’s 1997 acquisition of McDonnell Douglas, a company known for putting profits first. In the years following, Boeing focused heavily on stock buybacks, diverting funds from innovation and safety.

🛫 Regulatory Scrutiny and Production Limitations

The FAA has imposed restrictions on Boeing, limiting the number of 737 Max planes they can produce until the company demonstrates its ability to maintain safety standards. Boeing faces a significant backlog of 5,000 orders while struggling to meet demand. This supply-side issue is compounded by maintenance challenges in aging planes and engine recalls, reducing overall capacity for air travel. Despite these hurdles, Boeing’s leadership claims that the company is on a path to recovery, with improvements in safety protocols and a potential easing of airfares if passengers can secure seats during peak travel seasons.

📉 Boeing's Decline, Market Position, and Leadership Challenges

Boeing's ongoing difficulties have caused the company to fall behind Airbus in market capitalization, shrinking from being twice Airbus's size before COVID-19 to $12 billion smaller today. Despite these challenges, Boeing leadership sees this as a turning point for the company. CEO Dave Calhoun plans to step down by the end of the year, raising questions about Boeing's future leadership. While Boeing's market position has weakened, many believe the company remains too big to fail, given its importance to the U.S. economy, military, and government. The future will depend on Boeing's ability to recover from its setbacks and synchronize supply chains with the high demand for aircraft.

Keywords

💡Boeing 737 Max

The Boeing 737 Max is a commercial aircraft that became infamous after two major crashes in 2018 and 2019. The crashes were attributed to faulty software, MCAS, which overwhelmed the pilots' control of the aircraft. This plane is central to the video's discussion of Boeing's decline in safety and reputation, highlighting the shift in Boeing's priorities from safety to profit.

💡MCAS (Maneuvering Characteristics Augmentation System)

MCAS is a piece of software developed by Boeing to prevent stalls on the 737 Max. It is cited as the main cause of the two deadly crashes that led to the grounding of the aircraft. The video uses MCAS as an example of how Boeing's rush to compete with Airbus led to cutting corners in safety and pilot training.

💡Airbus

Airbus is Boeing's primary competitor in the commercial aviation industry. The video highlights how Airbus' fuel-efficient narrow-body planes prompted Boeing to make hasty modifications to their 737 Max in order to keep up. The duopoly between Airbus and Boeing is discussed as a key reason for the challenges in the aviation industry.

💡Stock buybacks

Stock buybacks refer to a company repurchasing its own shares to boost its stock price. Between 2013 and 2018, Boeing spent $41.5 billion on buybacks, a strategy that enriched shareholders but contributed to the company's neglect of its core mission of flight safety. This is used as an example of how Boeing prioritized profit over safety, leading to its current crisis.

💡FAA (Federal Aviation Administration)

The FAA is the U.S. government body responsible for regulating all aspects of civil aviation. After the 737 Max crashes, the FAA grounded the plane for 20 months and scrutinized Boeing’s production and safety procedures. The video highlights the FAA’s critical role in ensuring that Boeing follows proper safety protocols before resuming full production.

💡Safety culture

Safety culture refers to the set of values and practices that prioritize the safety of operations. Boeing's deviation from its historic safety culture is a central theme of the video, which links the company's pursuit of profit to its neglect of rigorous safety standards, leading to multiple incidents, including the 737 Max crashes.

💡Late-stage capitalism

Late-stage capitalism is an economic term that refers to a system where profit maximization often comes at the expense of ethics, safety, and social responsibility. The video describes Boeing as a classic case of late-stage capitalism, where the focus on shareholder returns led to a degradation in the quality and safety of its products.

💡Supply chain issues

Supply chain issues in the context of Boeing refer to the delays and problems in producing and delivering aircraft due to quality control problems. The video points out that Boeing has an order backlog of nearly 5,000 planes, but production is hindered by quality concerns and FAA-imposed restrictions, affecting the availability of planes for airlines and consumers.

💡Duopoly

A duopoly refers to a market dominated by two major players. In the case of the commercial aviation industry, Boeing and Airbus are the only significant suppliers of commercial airplanes, limiting competition. The video explains how this duopoly makes it difficult for new entrants and poses challenges for airlines, leaving them with limited choices despite Boeing's ongoing problems.

💡Production mishaps

Production mishaps refer to errors in the manufacturing process that compromise the safety or functionality of an aircraft. The video mentions incidents like a door plug blowing off a Boeing 737 Max Nine due to improperly secured bolts as examples of ongoing quality control failures at Boeing, which further erode trust in the company's ability to ensure aircraft safety.

Highlights

Boeing, once a leader in American aviation, is now facing multiple crises, including issues with its 737 Max jet.

The latest problem with the 737 Max involves misdrilled holes, adding to ongoing concerns about Boeing's equipment quality.

Boeing is grappling with a tarnished brand identity, safety concerns, and a culture of prioritizing profits over safety.

Boeing's near-duopoly with Airbus in the aircraft manufacturing industry shows how high the barriers to entry are for new competitors.

The development of a new airplane from scratch can cost upwards of $20 billion, making it difficult for new entrants to compete with Boeing and Airbus.

Chinese narrow-body planes aiming to compete with Boeing and Airbus have not yet been certified in the US or Europe.

Boeing faced intense scrutiny after two fatal crashes involving the 737 Max, which resulted in 346 deaths due to faulty MCAS software.

The 737 Max was grounded for 20 months while Boeing revised its software to prevent similar accidents.

Boeing's focus on shareholder returns began after its merger with McDonald Douglass, with $41.5 billion spent on stock buybacks between 2013 and 2018.

A shift in management culture at Boeing in favor of profits over safety has been blamed for many of its recent failures.

The FAA has imposed restrictions on Boeing's 737 Max production rates until safety standards are met, impacting order deliveries.

Boeing’s production delays and issues, coupled with supply chain constraints, are affecting airline capacity and passenger experience.

Airbus is also facing problems, with hundreds of jets grounded due to an engine recall by Pratt & Whitney, further reducing flight availability.

Boeing’s CEO, Dave Calhoun, has announced his resignation, adding uncertainty about the company's future leadership.

Despite its challenges, Boeing remains a critical player in the aerospace industry, with many arguing that it is too big to fail due to its importance to both commercial aviation and national defense.

Transcripts

Once the pride of American aviation,

Boeing keeps making headlines for all the wrong reasons.

Yet another issue with the 737 Max jet.

The problem now is misdrilled holes.

A lot of questioning about the quality

of Boeing's equipment right now. The

many headaches for Boeing

of late. Boeing is in utter crisis right now.

It has challenges on all fronts.

It has questions about its safety,

questions about its management culture. It's

A rudderless ship, so to speak.

It's really a classic case of late stage capitalism.

Newest arrival in the Boeing family of airliners,

a new queen of the sky.

Boeing as a company has bungled

its once prestigious brand identity,

and its ongoing challenges are poised

to make air travel even more

of an ordeal than it already is.

So I think what you're looking at is not necessarily a

pricing crunch like what we saw last year,

but just a massive travel nightmare for people trying

to get anywhere because there's just not a lot

of slack in the system right now.

When flying the friendly skies.

We as customers have a variety of carriers to choose from.

But when choosing the actual plane we fly in,

the airlines aren't exactly spoiled for choice.

You really just have a duopoly between Boeing and Airbus.

It is just hugely expensive both

to produce these commercial aircraft

and to support them once they're in the air. To

put a finer point on that experts estimate

that creating a new plane from the ground up can cost

upwards of $20 billion.

The barriers to entry are so great

that when new entrants have tried to come in the field,

they've often disappeared.

The Chinese have been trying to develop narrow-body planes

that can compete with Boeing and Airbus.

Those jets have not been certified in the US or in Europe

and are unlikely to be anytime soon. Now,

being the only game in town has its benefits. Revenue,

profitability, and share price were all sky high.

But then two tragic accidents changed everything.

A Lion Air Boeing 737, crashed into the sea this morning. An

Ethiopian Airlines flight has crashed shortly

after takeoff from Addis Ababa. Boeing's

bestselling plane is coming under increased scrutiny.

Over the space of five months in 2018

and 2019, 2 planes both 737 Max Eights crashed.

346 people died in the space

of five months on an almost brand new airplane.

And in both cases, a piece of software

that Boeing had developed called MCAS was at fault

and overwhelmed the pilot's ability to control the planes.

They were trying to catch up to Airbus,

which already had a more fuel efficient narrow

body on the market.

And so they instead tried to work with the design

that they had, but

to fit the great new engines on the plane, they had

to put them further forward

and hence the installation of the system

to help guard against potential stall.

But there was one big problem with this plan.

Boeing didn't fully disclose or train pilots on the software

and how to override it if necessary.

In fact, the first time most aviators learned about it was

after the Lion Air crash of 2018.

Finally, the max was grounded.

It was ultimately grounded for 20 months while Boeing developed new

software that wouldn't overwhelm the pilot's authority.

The FAA took that opportunity to comb through every inch

of the 737 max.

These two crashes

and the subsequent fallout showed

how much Boeing had strayed from flight safety

as a core mission to making profits.

Boeing got here through changes to its culture that began

as far back as the late 1990s when Boeing purchased

McDonald Douglass. And McDonald

Douglass had always been known as a company

that put stockholders first.

The focus was really on how do you make money,

and it did very well at that.

A series of CEOs gradually moved the needle a little

farther toward stockholder returns.

And in the period from 2013 to 2018,

Boeing actually spent $41

and a half billion on stock buybacks,

which went straight to investors and the managers themselves.

Responding to this backlash,

Boeing's CEO stepped down and was replaced by Dave Calhoun.

Under Calhoun's guidance, Boeing did manage

to get the 737 Max back in the air,

and everything was flying high, at least for a time.

A door plug blew off of a 737 max Nine plane. The gaping

hole forced the plane to make an emergency landing.

It really wasn't a surprise.

And what was more shocking is that it emerged

that this piece had left the airplane

because bolts had not been secured to keep it in place.

It was a production mishap that was directly the fault

of either Boeing or suppliers to Boeing.

FAA inspectors reported

that they had found multiple incidents

where quality control procedures hadn't been found.

They never really, and they still haven't, quite frankly,

said that they have a culture

problem.

So the FAA took this unprecedented step of saying,

we're not gonna allow you to increase your production rate

until you satisfy us

that you can do this safely and responsibly.

The FAA has limited the number of 737 Max aircraft

that Boeing can produce. All while Boeing has an order

backlog of almost 5,000 planes.

And this is really

where the supply side hits the demand side

of your summer vacation.

And we're seeing pretty serious cuts

to delivery expectations.

Southwest is expecting to get 20 Max deliveries this year.

In January, it expected almost 80.

Some of them are flying older planes for longer,

which then creates maintenance issues.

Speaking of maintenance issues, hundreds

of Airbus jets are being pulled out of service

because of a recall for an engine made by Pratt and Whitney.

This is compounding the supply

Problem. In general,

you just have a lot less capacity out there

for the flying public.

At the same time that demand is expected to be at a peak.

But there's a silver lining in the friendly skies.

Calhoun says Boeing is now a different company

than back in January.

Travelers have more confidence in airline safety

and summer airfares may not necessarily go up-

if you can get a seat.

Prices have been coming down.

In some cases, fairs may be down from

where they were the year prior.

But that may not necessarily feel like a huge relief

for the consumer if you can't find the flight

that you wanna take because there's just

fewer seats available.

And it also means that if you do have delays,

there's just a lot less capacity

to absorb those displaced passengers.

And so you're more likely to see yourself perhaps pushed

to the next day or sitting in an airport for, you know,

a much longer period of time

because there's just not a lot of places

to put those passengers

because the other flights are sold out.

All of this makes Boeing the scapegoat

for your summer travel woes.

And as Boeing's troubles linger, it's falling behind.

Take a look at this chart.

Before Covid, Boeing was about twice as big as Airbus.

Now its market cap is currently around $12 billion smaller.

If we slow it down

and stick to the disciplines

that will synchronize this supply chain

with the insatiable demand for airplanes,

and we will be way better for it.

And there will be a moment later in life

where someone will look back and say,

this may have been the most important

moment in Boeing's life.

Boeing CEO Dave Calhoun has announced he's stepping down

by the end of the year.

Now, on the one hand, this is smart of Boeing.

They're taking their time.

They want to make sure that they find the right leader.

But at the same time, it does create sort of this question

of, well, who is going to take over?

But despite all the hardship writing Boeing off completely

could be shortsighted.

Many would argue the company is simply too big to fail.

It's hard to imagine

that the US government would allow a situation

where the country has no supplier of commercial airplanes.

The president flies on a Boeing 747. Aircraft are

essential to the military.

In some ways

everyone in the country is invested in Boeing getting this

right.