Boeing | What Went Wrong? | 5
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Hi, this is linsey gram, host of american scandal. Our back call ague has moved behind a payland. Recent episodes remain free, but older ones will require a wone plus subscription with wondering plus you get access to the full american, have add free, plus early access to new seasons and more join wondering plus in the wondering APP or on apple podcasts.

From wondering I Linda gram, and this is american scandal.

On july seven, two thousand and twenty four, bowling agreed to plead guilty to a felony charge of conspiring to defraud the federal government over the two fatal 737 max crashes in two thousand。 And in two thousand, the company has also agreed to pay a nearly half billion dollars fine and spent roughly another four hundred fifty million dollars more to upgrade safety programs.

But whenever the final outcome, it's a far cry from the old slogan, if it's not bowing, i'm not going. The tragic loss of life and ongoing safety concerns raised the question, how did we get here? Boeing was once the pride. Enjoy american aviation. It's b seventeen and b twenty nine bomber planes helped win world war two in one thousand nine hundred and fifty eight boeing seven o seven series after the in the age of commercial jet travel, when pan american world airways began flying from new york to london, and for decades the seattle based company dominated commercial aircraft manufacturer with little competition, but then airbus came onto the scene.

Aviation companies from france, germany, spain and later britain joined together to compete to b IT took a while for airbus to become a serious rival, but in one thousand nine hundred ninety two, the company secured a deal with united airlines to least fifty eight three twenty plains. And forever after IT was game on between boeing and airbus. My yesterday day is gott hamilton.

He's been tracking the boeing airbus rivalry for years as well as the change in boeing's corporate culture. He's an aviation industry consulting for lhamo company based in weakly annoy is also the author of air wards, the global combat between air bus and boy. Our conversation is next.

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Scott haden, thanks for speaking with me today on american scandal.

Happy to with you. Thank you forever.

Me vowing is a quite essential american company. So why do we start at the beginning? And could you tell us a bit about boeing origins?

A boy was serf, founded in one thousand sixteen and seattle, washington by billboard, ing and snake bill. Boeing earned his fortune logging. And boy was part of a consortium that included britain with me, the engine maker, and united airlines.

Bullin developed the two forty seven airliner with united as part of the family, and the two forty seven was the first lowing mono airplane. And IT was a twinge in airplane. IT was faster.

IT was more comfortable. IT was quieter. Although back in those days, that's a subjective term.

In its day, one thousand nine hundred and thirty three was character as as the first modern airline er of its iron in the first six year planes of that two forty seven had degree united by win, couldn't sold them anybody else. And T, W, A, an airline which doesn't exist in more transworld airlines. T W A was placed at a comparative disadventure, or because I had tried motors in quanto.

Over the two forty seven, T, W, A sent letters up to a number manufacturer, among them Douglas aircraft company, which created the D, C. One prototype. The D, C, two became the competitor, or to the point to forty seven.

And the D, C, three follow that, which was just a global success. Uh, before world were two deleted plans remained. Eighty five percent of the world's commercial traffic in in world war two, the D C, three was renamed the sea forty seven by the military, just to a phenomenal airplane.

And as in most early days of aviation, there were just A A whole number of competing airplane companies and just so many of them out of business. Uh, very few companies. I think in the end, we're really a going strong military business to survive. And then ultimately, the commercial business.

So you kind of described how boeing built a great airplane, the model two forty seven, and started out in the early commercial market, but then got pushed out by its Douglas aircraft. How did boeing respond? What happened after the war.

boeen competed for a long range military bomber, which they named the b seventeen, and they won the contract against strugglin, the b seventeen in and later the beat twenty nine. The airplane that trapped the atomic bombs on japan were the backbone of boeing during the war. There just wasn't really much in the way a commercial traffic or in the war.

After the war, boys engineers were among the first to go into germany and german course in the last year of the warhead developed jet fighters, and bowen was able to get that jet technology is are the investigations by the allies to see what kind of technologies the germans were creating. And they brought that ject technology home and created the boy b forty seven and b fifty two bombers. And erie refueling was a key part of the strategic recommend of the postwar era.

The only refueling takers of the time was a foreign piston airliner that was a driver of of the beat twenty nine banner of world war two that was called the K C. Ninety seven. But IT was a piston airliner and IT was too slow to uh fly information with jet bombers that were develop.

So boy created a jet taker and IT was off of that design. That one developed the commercial airliner that became known as the seven, eight, seven and the the range of the very first model of the seven or seven required a refueling stop. But within the year, boy had the longer ranger plane with more fuel.

And and then they could start consistently going nonstop between new york and london. New new york comparison really opened up the world. The long range jet travel.

And it's what caused bond. A leap frog double aircraft company is the number one supplier of airplanes globally. And that's what putty on the path to be in the dominant powerhouse that IT was to become.

Boeing has, uh, now today, pretty much one competitor, airbus. How did this company come about?

Afterworld war two, the european commercial air space industry was set up in britain and france um eventually actually in germany. Spain even had a very small commercial space industry. But IT was so fragmented and so parochial in its purpose that the european airplanes really could not compete effectively with a long range and capacity driven airliners that the U.

S. Companies were in. So through the fifties, in the sixties, you had a number of these companies in europe all competing with each other, all producing plants that were, what I would care, rises, OKR plans designed for the european market rather than a global market. So in nineteen seventy, all these very serious spaceship got together and decided to consolidate, and they all came together under the name of airbus. In the first airplane was the three hundred twin I twin engine airplane that entered service in one thousand and seventy four.

So the the europeans pretty much created airbus to be a boeing competitor. But how did boeing and the rest of the U. S. Aviation market view airbus adverse?

So we had three american manufacturers versus this new upstart airbus. And none of the three american manufacturer really took her bus seriously because of this decades long history of the fragmentation of the european airspace companies. And the america's reviewed the europeans eric space efforts as a jobs program, more than anything else. And they looked at the previous decades of european airplanes that were OK airplanes for what they did, medio c airplanes for what the americans would have needed, and completely uncompetitive, and trans ocean type of line. And they just thought that our bus would fail, because I was just another european jobs programme that would would design an airplane that wouldn't be competitive.

So in your book air wars, you mention a pivotal figure in american who gave airbus a bit of an edge. Who was john lay? he? And why was he so important? Airbus, a success.

John lai, he is a very interesting character from queens in new york. He had zero commercial aviation experience. He was a marketing guy for piper aircraft, which was a private airplane company.

And he had reached a point over the number years that he had been a piper, where he was offered the opportunity to go to you up to seller plants for pippa and a head hunter that was retained by airbus. Persuade john that don't go to europe and work for piper, come to airbus and you can eventually go to europe. But instead of selling these little private airplanes, now you can.

So commercial alias. And what john really brought to airbus and the european dominated mentality was an understanding nari of just the american market, but also of what international airlines needed to trans ocean. And joan is a extremely bright guy.

I think I could come the closet breath, new yorker. And i've known john for over thirty years and thank the world of him, but he brought an american mentality to airbus, which was had quarter in to lose france. That said, look, you have to build airplanes for the world market.

You need to build airplanes that will be able to fly across the oceans. Uh, you need to. I have certain features in the airplanes that the passengers want. You need to have certain features in the airplane that the airlines want. You can't build airplanes just for the european market so late.

He brings this american vision to airbus, but he also brings an opportunity to lure a large american customer. How did airbus and lay he get a deal with united airlines?

Lay, he went to airbus americas in ninety eighty four. An airbus globally had about a fifteen percent market share, with the boeing at sixty percent in tandem. Douglas dealer, they, he was able to make inroads at eastern airlines and at the northwestern airlines.

But eastern was even then a fantasy distressed airline. And american airlines, the actual company, united, delta, kt metal and all those Carriers felt that IT was a kind of a desperation deal that airbus had just to penetre s market. But in one thousand nine ninety two, airbus, america's under lady and his sales team made in a deal with united airlines, which up to that point was an exclusive boeing customer to buy the a three twenty single airplane family.

Boeing lost that competition with the seven thirty seven. And that transaction was the wake up call to boeing that they had to take lady seriously and they had to take airbus seriously. And IT was that when that really started, the whole international bitter rivalry that we would later see.

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In one thousand nine and ninety seven, boeing merged with mcDonald Douglas and a new president. In later, CEO came to boy. His name was Harry stones cypher. Who was he and what did he bring?

Bring Harry was a actually a multi decade. I think there's about thirty years employ of G E under jack welch who was the CEO of A G E for I think twenty something years. He became known as neutron jack because he would just ruthlessly lay off people um and IT was jack well who had this whole idea about shareholder value for stack holders and investors.

Andy would hear every financial decision toward shredder value. And stone safer came up through much of his career in that environment. When Harry stonesifer became president C O. A. Boy, he brought this G E.

Culture, what I like to call the gentrification boy and I make that capital g capital league, were shifted from its legacy heritage of being an engineering company. Two, one being more focused on the shareholder value, stuff that jack welch taught stone safer. He taught stones for successor.

Anji was a lifer at the G. E. As well. And course, David kahn, the most recent CEO before the resignation in july, and Harry became public enemy number one within boy, stones ever didn't appreciate the engineering legacy.

He was all about shareholder value and to legacy boone employees. IT was at gentil ation that destroyed boy as we knew IT, particularly after these two max accident. Steve families in particular, and buying critics in general, believed that boeing was placing shareholder value as a priority over safety.

In my book, words I wrote that I don't buy into the thesis that boeing made a conscious decision to sacrifice safety for shareholder value. That does nobody any good. But I think IT is fair sy, that the cost cutting mentality in order to increase profits, in order to benefit shareholder value, meant that some of the research, development and protocols that when into safety had cost cutting as well. But I do not agree that there was a conscious decision to sacrifice safety for profits.

Shareholder value as a term that that's probably most are familiar with, but maybe we don't understand that know what IT actually means. Give us A A quick lesson in this business philosophy.

Shareholder value is all about generating your profits and cash flow. And profits and cash lower are different. You take your cash flow and return a portion that to share through Stacy purchases with which boosts the stock Price on wall street or you pay dividends to your investors.

And that sort jack welch really began to emphasized in his long ten CEO of g. That's what Harry stone safer really began to emphasize, uh, when he came over from, uh, that was to become boeing president. So through the areas in the nine days in the two thousands, jack watches influence even after he left.

G, E, was all about shareholder value. And IT remains in many companies even today, shareholder value, stack buybacks, uh, free cash, low dividends. And I have a very strong opinion about you should try to baLance there for the good of the company, the long term future, the company.

But too many c OS in C F hos are more focused on wall street in the stack Price. And quite Frankly, their compensation is now fox attached to what the stock Prices. So I think in many respects, the executive sweets of lost track of what's good for the company is opposed what's good for them.

So we have this, this switch and philosophy in the executive sweet and a change in strategy. But what did this change mean for bowing in terms of its everyday Operations?

If you invest in a development of a new airplane that is a fresh design, it's called a clean sheet airplane, you're talking about investing billions of dollars, which hits into that free casual and therefore reduces the shareholder by back and the dividends. Instead, you can do the river of airplanes, which are not cheap, but they are fraction of the cost of what IT is to develop and produce a brand new airplane.

So boeing began to really focus on the river of airplay designs, is opposed to brand new airplane designs. By two thousand and three, a boy had been looking at developing a new year plan for a number of years. But with stone history of emphasis on shareholder value, pretty much everybody thought that that stones for would never agree to developing a new airplane.

Any fault. Everybody would buy agreement to develop what is now called the seven, eight, seven. He told executive order by in commercial planes that if you want to move forward with seven eighty seven, you need to make sure that the development cost the boeing is no more than what turned out to be a five billion dollar target, the triple seven in one thousand nine ninety four cost point, about twelve billion dollars.

So the only way to reduce that cost, the boy would be outsourced and spread the risk, and the work would come into revert, and flaws would be identified, design problems would be identified, and boy would have to spend its time, its resources and its money to rework the engineering, rework the production, we work the quality, and accost the billions and millions of dollars. IT was so screwed up. You had an italian company called alenia.

You had japanese heavy industry companies. Cosby, I super u believe IT or not, but the trouble was the work that they had done for boy in the past and other airspace companies was not on this level of magnitude. In the mistake that boy made, among others, was they did not embed their own employees and these other companies to be sure that the work they were doing at the requirements, the standards, the quality that boeing was used to doing premerger with nineteen ninety seven. And it's really what happened with the development of the seven eighty seven. They had started bowing on its long downtown, in my view.

So the seven eighty seven, the dream liner, as is called, was announced in two thousand three and took years to come to market. Can you give us a sense of its design?

Seven eight seven is a twenty nine to an engineer plane. In the smallest version, the seven eighty seven eight Carries two hundred pretty passengers. The largest version, three hundred and thirty passengers. But what was different about IT was that I was the first all composite airliner. The wing's, in a few large, are all composite.

IT was supposed to be what I like to call the prefabricated plane, or another rector said plane were a nose section or send a few slides in a tail section would be built. Different locations. They would be airlifted to ever washington or bone's.

Wildlife players in each of these sections would be arrived. Stuff ed, with all the components, the wiring, the interiors. And theory was you'd be able to do this with eight hundred people on the assembly line.

You'd be able to do the final assembly, and three days the plane would be out the door in all that. Well, that was the theory. In fact, IT was one of the greatest industrial screw PS of all time.

Basically still hasn't made money to the stay, except for some accounting china against. But when does? And IT was three and a half years later in service. And on top of that, I had a flaw from one of its suppliers that two years after under service, IT was grounded for four months.

So boy is in trouble in the two thousands. The dream liner is not doing well. They are facing delays and costa runs. And then comes the idea of the redesign of the seven thirty seven. Where does that originate?

They had all of this going on, but at the same time they recognized that the seven thirty seven was forty years old. Basically, the triple seven was also beginning to age. So boeing head this strategy were, once we deliver the seven, eight seven will replace the seven thirty seven, and then will replace the seven, seven seven with new airplane designs.

And at the same time, airbus is talking to airlines about a major upgrade for its competing a three twenty plain. But airbus is deciding to go down the road of reagent in the airplane with more modern engines. Boy is looking at remaining the seven thirty seven or coming out with a brand new design. And through a number of very interesting maneuvers, airbus basically back boeing into a corner to go with a reagent ent seven thirty seven instead of a new design.

How did air bus force bowing to take this path?

So once again, lay he gently, he turned to the american market. The force boys hand late. He turned back to the U.

S. Market, as he did with at ninety ninety, deal with united airlines, said g if I get A U. S.

Career, there have bought nothing but boeing airplanes and got in to order the eight three twenty that would force boys hand into the engine in the seven thirty seven to be compared to an a timely this basis, because developing the european sticks a long time. So there were three, four airlines at that time that were exclusive boeing customers. And amErica was the one that had the oldest fleet of any U.

S. Carrier at the time. IT needed nowhere planes. IT was financially distressed because of the two thousand eight global recession, and airbus went into amErica and got their agreement to a contract for more than four hundred days, three twenties, including these three engineer airplanes.

The C E O of the american called the C E O of bowling gym y. By now, he says, we're gna sign this contract with their bus. You want a part of this deal? And within forty eight hours, mcny directed his executives, overtook n commercial airplanes, make up an offer for a reining in seven, thirty seven. That the only way we can get part of the deal and get a two amount a timely basis. And that's how airbus and he forced the bowing and.

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We know from our series that on october twenty nine, two thousand and eighteen nine eight, flight six ten crashed into the job asc. Only twelve minutes after takeoff, everyone on board was killed. What did boeing looked to as potential .

causes when boy made the decision to ring in the seven thirty seven the size of the engines on to match the fuel economy of the eight, change the year dynamics of the seven thirty seven? To the extent that boeing was concerned about the engines pushing the nose of the airplane up into a stall, boe's solution was a created system called the manuvers character six augmentation system, or m CS.

An emps is an automated system that senses when the nose comes up to a dangerous level and automatically pushes the nose down. There are two fatal flaws of the same care system. One getting its sensors off of one angle of attack indicator on the right inside of the airplane.

The airplane had two, one on the either side of the airplane. But the m. Cas is only associated with one center that was the first fatal floor. An angle of attack sensor is like a little wing, nap is off the nose of the airplane is just a tiny little thing.

And during take off or in flight, the wind goes over this little wing and IT goes up or down, or IT stays stable and associated with instrumentation that tells you whether that knows the starting go up or starting go down. And yeah, that sounds to a laman like, well, you just look out the window. Well, sometimes you're an instrument conditions and you can't look out the window to tell you if your noses going up or going down or whether it's stable flight.

That's what a nail way sensor does. The second pade of flaw is that if the initial design, boeing created a stronger and cup that had more strengthen, pushing the nose down and IT was also a repetitive action instead of just A A single action, they didn't tell the pilots about IT, so the pilots didn't even know the same care system existed. And when ler took off and this aoa sensor, this angle of the tax sensor, male functioned and cast, detected that the nose of the airplane was going up when I really wasn't, and I push the nose of the airplane down, the pilots of the lion air flight tried to pull nose back up, and then the M, K, S.

Push the nose back down, and the pilot pulled up and M, K, S, pushed back down. And this went on for twelve minutes while the senior pilot, the company is flying the airplane. The coal pilot is going through what's called the quick reference manual, the Q R age, trying to figure out what's going on here.

And how do I fix this in the copilot couldn't figure that out after this twelve minutes. So the captain said, you take over the controls, all look in the car age. And that's when he knows.

Questioned into the sea within a week, bowen understood that the m. Cas was involved. Her and the federal aviation administration in the F. A issued what's called an airworthy, a stracted that said, okay, treat us like what's called a runaway trim. And because pilots are used to dealing with this runaway trim, the bullying engineers figured that they would recognize this.

M case failure has been like a runway trim in, push a button here, in another button there, disconnect the trim tab and fly the airplane. That's what boy thought would happen here. Boeing engineers figured that a pilot would be the ultimate backup PS. So that would be the fail safe of this. Boeing figured that pilots needed to recognise and take corrective actions in four seconds, and they, somewhere along the line, in all this calculating and engineering simulations and so on, they determine that if the pilots didn't take the corrective action within ten seconds, they would lose the airplane.

So then, tragically, four months later, on march tenth, two thousand nine, etho ian airlines flight eighty three o two crash six minutes after take off again, killing everyone on board. Hundred aviation authorities around the world of including the F, A, A handled this second crash well.

There were immediate calls for the airplane to be grounded or for boy to tell the airlines to ground the airplanes in, the chinese regulator C, A, says civil ization that say equivalent to the federal varieties istra's ground of the airplane in the same day, within hours of the the open accident, the european regulator, they grounded up shortly after the C.

A, seated transport canada again in the equivalent of the federal vate ministration, grounded IT within a day or two. But the C, E, O boy at the time, denis millboro LED then president trump, and said, don't let the F. A ground my airplane.

Well, IT took three for the F. A to ground the airplay. And during the three day period, the F.

A said, well, these other guys are. And hastily, we don't have enough data to justify ground on the airplane yet. There's a internet company called flight rear, available to anybody out without computer.

They attract the flight profiles of line and of ethopia. And the flight profiles were very similar. And I could see, just by looking at these flight rear profiles, this airplay did the same kind of manuvers that the lane airplane did.

And boy, to ground the airplane well, took the F. A three days to do that, which I think was and IT was in contrast to two thousand and thirteen when the F. A grounded the seven, eight, seven for four months within hours of a second fire that happened within a week on board airplane.

So eventually the plane is grounded in a long period of investigations and lawsuits follows boeing plead guilty just this summer to a felony charge of conspiring to defraud the government for misleading federal authorities into approving the seven thirty seven max in the first place, it's agreed to pay more fines in the hopes of avoiding a trial. What is your take on the potential consequences or the consequences so far for boeing?

Well, the guilty plea this summer is actually the second related to the max back in january twenty twenty one, in the final weeks of the trump administration, the department of justice bind ended into a virtually identical, which called the third prosecution in D, P, A.

And in D, P, A, bone agreed to two or three billion dollars in financial assessment for victim family compensation for compensation to the airlines, and two hundred and forty three million dollar criminal penalty, which the victim families said was wilfully ly in a good. And this more recent D, P, A, boeing elected to pleaded guilty, so they didn't have to go to trial. And the penal day again was two hundred and forty three million.

Another batch, two hundred and forty three million, and a commitment to spend four hundred and fifty five million for safety protocols and a point in independent outside overseer to make sure that boy actually follows through this time. So you take a look at the the two hundred and forty three million dollar penalty of the first deferred prosecution agreement, and they tuned and forty three million dollars penalty for the second to her prosecution agreement. You are now looking at under five hundred million dollars, which the victim families say that is not enough.

That doesn't hurt boeing enough. And for a company that have seven, seven billion dollars in revenue and twenty and twenty three, five hundred million dollars, while a SAT jump change certainly does not hurt boeing, I compare that with penalties that airbus paid in a bribery scandal that in the end they paid over four billion dollars in penalties. But as part of that was, five hundred million dollars went to the united states government for violations that did not kill in a body and no safety was involved.

Boeing is pain, less than five hundred million dollars, where three hundred and forty six people died, and safety violations were found all over the place. And the families think that's holy, inadequate. I do to. But IT turns out that this is the maximum of penalty allowed for these particular violations under the law. I think it's peanuts in terms of a seventy seven billion dollar company.

Now just a few weeks ago, I took a flight and found myself sitting in front of a boeing seven thirty seven max information card. Um this is right in the middle of doing this series. So I I guess I was a tune to which plane I was. I was on knowing your an aviation consultant, would you be comfortable flying on a boeing seven seven max?

I am confident that the fixes that boy did with cars have been successful. What I am not confident about is the production quality of the boeing company. What has come out, especially since two thousand nineteen, in the in the regularity the open accident, is that boone's quality control on the production line, not only of the seven thirty seven production line, but the seven eighty seven production line leaves so much to be desired.

And that's part of what's involved in the second D, P, A agreement that the department of justice just ended. Two were boying. There's supposed to be no retaliation, no retribution for lying workers saying, hey, there's a problem here. I am not at all convinced that those problems have been solved.

I would have no problem getting on a max or seven eighty seven that has been in service with an airline for sever years because these airline would have gone through the maintain systems, these airlines playing, coming fresh out of the factory door. I am still skeptical about those. And we need look no further than january fifty, twenty twenty four.

One in airplane of max nine had been in service for ten weeks, with a asked airlines in a door plug blew out at sixteen thousand feet, creating an explosive decompression. Fortunately, nobody died. The airplanes landed safely.

But coming out of the factory, there were some maintenance worker before delivery that had to be done on that door, and for retaining bolts were not reinstalled. And that's why the door came off and boy could find the records of who worked on that door. That is as slappy as you can possibly get.

And finally, in a june senator ring boeings a CEO. At the time, David kahn said he was proud of the company's safety record, and he also apologize to families who lost loved ones. In the two seven thirty seven max crashes.

Boeing has a new CEO. Kelly ott berg, do you think this is a move in the right direction to restoring public trust? And what can altberg do to further the dead mission? Yeah.

IT is moving in the right direction of one of the first things that worker g said, even on the same day that the announce was made, but a week before he took office, was that he's gonna be locating his office back in seattle, near the bowering factory, which the boeing headquarters removed out of seattle in two thousand and one.

And over the ensuing decades, many had said boeing needs to return their headquarters to seattle to be near where all this trouble is. It's GTA take boin years and years to regain confidence of its customers, of the traveling public, of its own union that's been crying for decade or more about production issues. Every incident that happens to a boeing airplane, whether it's safety related or not, the headline is going to say another incident happened with a boeing airplane, and it's gonna a long time to race there with the customers.

Boeing has start delivering its airplanes on time and with quality control so that there's not rework and you don't have to worry about ten weeks into the delivery, you're gonna a door fall off. Can I get back there where years away from there? I think it's going to take .

at least a decade what's got handled. And thank you so much for talking with me today on americans can happy.

No.

that was my conversation with Scott hamilton and aviation industry consulting for the lehem company based in we in away is the author of air war, the global combat between AAA bus and boy. From wander, this is episode five of boy for american skin. In our next series, we are erring an on core presentation of our story on their reno. IT was one of the hottest companies in silicon valley, and amid two thousand tens, its Young founder, eliza's homes, wanted to transform medicine and become a billionaire celebrity herself.

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