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Boeings Darkest Hour 5e02447229474 5e04c43e7303f

Boeing’s Darkest Year: A Look Back, and an Uncertain Path Forward

Dec. 26, 2019
After the firing of CEO Muilenburg, manufacturing experts take a look at missteps, underreported problems and what's to come for suppliers and the US economy.

It’s been the longest year ever for 103-year-old Boeing, after two 737 Max jet crashes attributed to similar issues with sensor and software design killed 347 people. The investigation is ongoing, and the fallout, pressure and scrutiny into Boeing’s operations have grounded hundreds of planes, caused chaos for airlines and now are bringing Boeing production lines to a halt.

In light of the firing yesterday of Boeing CEO Dennis Muilenburg--who has been widely criticized for a host of issues including a culture of profits at all costs and not grounding planes sooner—we asked two manufacturing leadership veterans to take stock of the past year in Boeing news and where the aerospace giant goes from here

Jamie Flinchbaugh is a lean leadership consultant, co-founder of the Lean Learning Center and author of The Hitchhiker’s Guide to Lean.  He has held lean leadership roles at Chrysler and DTE Energy.

Dave Nolletti is a director at Conway MacKenzie, specializing in aerospace and defense. A commercial pilot who has flown for the military, he has worked directly with Boeing and their suppliers for the past 18 years. Prior to his consulting work, he worked as a global market research manager for Procter & Gamble.

On Muilenburg’s firing:

DN: I think that the timing of his departure probably could have been accelerated. You look at the series of programmatic mishaps that Boeing has endured over the last five or six years, and the 737 Max is really the last of four or five that you can put your finger on where the company just hasn’t performed up to its own historical standards

JF: In general, you don’t want the CEO of a multi-division company like Boeing having to pay attention to what are essentially new features launched in derivative products. Like at no point should the CEO be overseeing the specifics of, this was a feature, it wasn’t a new aircraft it was a derivative aircraft and it was a new feature launched on that derivative aircraft. If the CEO paid attention to all of those—I mean they have to launch a couple hundred every year—there’s no way they’re doing their job. Then it begs the question, is this a one-off issue that was poorly executed, or symptomatic of a systemic culture of design and carelessness and other issues. Nobody’s really pointed to anything that says it’s a broader issue yet, which is where I would like to see the deeper story go.

I do think they were right to move on, because even if a CEO deserves no blame, it’s really hard for to move on without them leaving. We see this in sports all the time. It could be bad players on the field, and the manager couldn’t turn it around, but at some point if that’s the only story, you have to pull the trigger anyway.

My only hope is in the firing of the CEO, is they don’t then declare, "OK, we’ve fired the culprit now we’re clean." I would rather they do a deep study and then declare how they’ve fixed their system if they find real problems.

On the path forward for incoming CEO David Calhoun:

JF: Well, for one, and this is a pet peeve of mine about being overstretched, will he step down as lead outside director at Caterpillar? These are both pretty serious jobs and you can’t do both at the same time. And I would start a systematic study--whether it be outside resources or carved out full time internal resources to study the design system--how is it working, how do things come to bear, is there a systematic problem or not … I would also work to clean up the discipline and at least confidence in the integrity of manufacturing, if for no other reason that it’s now become a public spotlight issue and needs to be addressed, even if it is irrelevant to the 737 Max crash.

DN: He will likely continue along the same path that Mr. [James] McNerney [Boeing CEO from 2005 to 2015] and Mr. Muilenburg pursued. So l don’t’ see a big change in the way Boeing’s conducting themselves or the way they operate their business.

On stronger candidates to lead Boeing:

DN: Boeing has a reputational issue now, both with the regulatory agencies around the world and with the flying public and with the airlines. So they need someone that knows operations, knows how the industry works but also someone that is credible to the workforce, the regulatory agencies and the customer base. I think that there are a couple people that are currently working in aerospace. [Former Ford CEO and former Boeing president of commercial airplanes] Alan Mulally is a name that comes to mind. He got passed over for the job and I think if he were available or interested he would be a prime candidate. He’s demonstrated he knows the industry and he can run the business.

Or maybe someone like Kelly Ortberg, the president of Collins Aerospace. He was chairman, president and CEO of Rockwell Collins before they were acquired by UTC. He’s another professional that has just an outstanding reputation in the industry.

On Muilenberg’s biggest misstep:

DN: I think if you trace the Max program back, the initial decision made inside of Boeing was whether or not you design a new aircraft and bring it to market, or you try and upgrade the 737. That was a long discussion inside of Boeing and it was followed in the media pretty closely. Upgrading the existing 737, that presented some really practical engineering problems for how to do it. The engines on the Max are much larger, high-thrust engines. Just getting them under the wing and maintaining ground clearance was a very practical issue. I think Boeing chose to upgrade the engine to the Max because they did not want to undertake the expense and the risk of engineering an all-new airplane. And that decision at the outset I really think set the program up for these kinds of issues that they’re dealing with now.

On quality problems reported at Boeing’s Charleston, South Carolina and Renton, Washington, plants:

JF: The part that gets me tripped up, there’s lots of noise about production conditions and overtime, and pushing the schedule. Yet the actual crash has been what seems to be clearly identified, including by Boeing and the FAA to be a [software] design flaw, which has nothing to do with anything happening in a factory. And so is all the noise about production conditions related to a broader cultural problem of lack of attention to detail and discipline and decision-making that spans both design and production? Or is it completely a red herring and unrelated to any real issues Boeing has.

If you have hundreds or thousands of people and thousands of parts coming together, in the end, there’s a lot of things that have to happen, and a lot of things can seem on the surface to be carelessness or other attributes. But when it’s that many people and that many parts, of course if you look you’re going to find some problems.

The sources of evidence were limited. And so it’s hard to say whether that’s really reflective of the whole factory on a day-to-day basis. There are certainly concerns, but again, I could go into any factory and find enough reasons to tell them they should shut down because it’s a mess. It’s the complexity of manufacturing with that many people and that much stuff going on and that many decisions. … Probably no factory in the world, I couldn’t go in and say you have some problem, but your job is to fix them. I think the response is more important than the issues themselves.

DN: My knowledge of Charleston is it’s exclusively 787. Which 787 is a predominately carbon fiber aircraft and the processes are new. So I would expect there to be some learning going on there. But I didn’t really hear anything about manufacturing that alarmed me as someone that’s worked in the supply chain. I think you expect there to be problems. Not so much problems that contributed to safety, but things that are just unexpected that the company has to deal with.

On the best path forward for Boeing suppliers:

DN: I think a lot of middle-market companies started their contingency planning for this kind of event early, trying to get their balance sheet in order, which means controlling working capital, inventory, getting their banking relationships and their credit facilities ready for the shock of the shutdown. They’re going to have to figure out to cover their debts with significantly lower revenues, with the 737 shutdown. If you’re a company that derives 60% of your revenues from Boeing and half of it just goes away because the 737 gets shut down, that’s going to make for some very, very difficult cash flow months. 

So if I were a middle-market supplier, that’s what I would be focusing on right now. How do I position myself to survive? To be able to meet my fixed charges, to be able to pay my lenders, to be able to pay my employees and still operate a business. They’re in survival mode.

No matter how swiftly they move to diversify and bring in new business, there’s going to be a period of time when the revenue and the cash flow isn’t there, and that’s really the difficult time they need to prepare for. And when it comes back into production, it creates even more working capital demands on the company.

On the best-case scenario for Boeing:

DN: They get the aircraft recertified and back in the air in the second quarter, 2020. You’re probably looking at a three- to four-year period, where they ramp production back up to 52 a month where they were.

On the impact of Boeing shutdown on the US economy:

DN: Boeing dollar-wise, is the largest exporter in the country. I don’t know if a lot of the public realizes how many hundreds of thousands of people work in the supply chain for Boeing in this country. It is an enormous industry and you think about how shutting plants down or furloughing employees  as the supply base grapples with the problem, how that’s going to affect working people in this country, it is a very big deal, and not just at the publicly traded company level but certainly for companies much smaller than that. If you look at all the big aerospace clusters in the country—Los Angeles; Seattle; Wichita, Kansas; St. Louis; Long Island; Charleston; Connecticut; Dallas-Fort Worth—there is exposure across the country, not just Seattle. 

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