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Tuesday, July 23, 2024

Boeing’s decline is a self-induced disaster stemming from management failures

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Boeing’s aircraft continue to make headlines for their involvement in accidents worldwide.

On May 9 (local time), a TransAir flight Boeing 737, carrying 85 people, skidded off a runway in Senegal. The aircraft caught fire, resulting in 10 injuries.

The previous day, a FedEx Boeing 767 cargo aircraft had to make an emergency landing due to the front landing gear failing to deploy. Although no injuries were reported, the plane had to land with its body scraping along the runway, causing sparks and smoke.

Boeing’s 737 aircraft [Image captured from Boeing website]

1. Global airlines switch contracts to Airbus as safety concern persists
On January 5, an Alaska Airlines flight took off from Portland International Airport in Oregon. The airline’s Boeing 737 Max 9 airliner was flying at about 16,000 feet when a panel was torn and blown out, forcing it to make an emergency landing. A preliminary investigation by the National Transportation Safety Board (NTSB) found that four bolts securing the door were missing during assembly. The Federation Aviation Administration (FAA) criticized the incident, calling it “the accident that should never have happened, and it cannot happen again.”

Another Boeing crash occurred on March 6. An Alaska Airlines Boeing 737-800 en route to Phoenix was forced to return to Portland Airport due to a fume detected in the cabin. Two days later, a United Airlines Boeing 737 Max 8 veered off the runway after landing at Houston International Airport in Texas. On April 26, a Delta Airlines Boeing 767 headed to Los Angeles from New York’s John F. Kennedy International Airport dropped a right-hand emergency egress slide shortly after takeoff. All of these incidents occurred within a few months.

Airlines are quickly cutting their losses with Boeing. Korean Air, for example, South Korea’s top commercial carrier, announced that it would “purchase 33 Airbus A350 family of medium- and large-sized aircraft,” going “all-in” on Airbus for around $13 billion. Until now, Korean Air has maintained a strategic balance of 106 Boeing and 56 Airbus airplanes, with a moderate split between the two.

The same is true for U.S. airlines. United Airlines is in talks with Airbus after delays in deliveries of 10 Boeing 737 Max it ordered. Southwest Airlines has also announced that it will “take delivery of only a fraction of the aircraft it ordered from Boeing,” and “will not take any Max 7.”

2. “Number over quality” and GE-style evaluation lead to management failure
The problem is that Boeing’s failure is more than just the downfall of an aircraft manufacturer. If Boeing falls, the global aviation industry could collapse. It is believed that Boeing’s crisis could lead to a meltdown in the airplane supply chain, which could eventually lead to a spike in consumer ticket prices. This also means that it can tip the pricing power in favor of Airbus.

“Boeing’s failure is not a failure of a corporate but of a management,” so say experts. Many believe the company’s once engineer-centric culture changed around 2003. That’s when General Electric (GE) executives began taking over the reins at Boeing. Boeing acquired McDonnell Douglas (MD), the third-largest aerospace company after Airbus in 1997. After the merger, executives from MD came to Boeing, many of whom had learned the Jack Welch style of efficiency management at GE. From that point on, numbers, not technology, became the focus of management.

With cost-cutting as a priority, executives pushed engineers with numbers. They pushed to finish designs and to deliver results that pleased management. A GE-style management evaluation system meant that a C grade, the lowest grade on an A-B-C scale, was often enough to get someone fired. Employees were not given time to build proficiency on the job and were dismissed when they reported problems to management. Boeing’s once culture of prioritizing quality and safety began to crack.

The final straw came with the headquarters move. In 2011, CEO James McNerney left Seattle, where skilled workers were abundant, to build the assembly facility for the B787 Dreamliner, the next-generation wide-body airliner in Charleston, South Carolina, in order to pressure the union. The less-skilled Charleston workforce struggled to meet Seattle’s quality standards, and the B787s produced there were flawed to the point where airlines refused to take them.

3. Boeing’s downfall in both commercial and defense aircraft market
The CEO, who was formerly in GE, even pushed outsourcing for safety. Working with component suppliers is critical to aircraft design, but Boeing pressured them to lower their prices every year. It didn’t hesitate to threaten to cut off business if they didn’t comply. Under Boeing’s pressure, suppliers began to drop, and then when airplane production stopped immediately after COVID-19, many skilled workers left the industry.

For the time being, Airbus is likely to dominate. Last year, Airbus received orders for 2,319 new airplanes. Not only did it surpass its previous record of 1,796 in 2014 but also it was 1.6 times more than Boeing’s 1,456 orders. Airbus also outpaced Boeing in deliveries in January and February, with 79 deliveries for Airbus and 54 for Boeing. While Boeing still leads in the market for two-aisle widebody aircraft, the growing popularity of smaller single-aisle narrowbody aircraft such as Airbus’ A320neo has led to a surge in Airbus orders. Add to that the fact that Boeing can’t get the B777X to market quickly enough, and Airbus could see a reverse gain in the widebody aircraft market.

If the commercial airplane market is Boeing’s right wing, its left wing is the defense market. Boeing’s influence in the defense market is waning. It has been losing ground since the late 1990s, largely because it was dropped from the U.S. Department of Defense’s program to develop an integrated fighter for the three military forces. In 2001, Lockheed Martin was selected as the contractor for the X-35 model, pivoting the future fighter jet market.

Today, Boeing is trying to rebound as the U.S. Air Force’s next Advanced Pilot Training (APT) program, but things aren’t looking good.

Boeing’s faltering fortunes are also shifting the commercial aircraft market. Japan and China have entered a market once dominated by the U.S. and Europe. The Japanese government has announced that it will relaunch its failed attempt to develop a domestic airliner. The Nikkei reported on March 27 that Japan’s Ministry of Economy, Trade and Industry will work with private companies to develop a next-generation domestic airliner by 2035. Japanese government and the companies will invest a total of 5 trillion yen ($32 billion) over 10 years.

Meanwhile, China has its own commercial airliner, the C919. The 164-seat C919 came under the spotlight in March last year when it successfully made its first commercial flight. A month later, Commercial Aircraft Corporation of China (COMAC) delivered four C919s to China Eastern Airlines to begin commercial operations on domestic routes in China.

BY KIHUN KANG, YOUNGWOO PARK, SAMGWON OH [emckk@joongang.co.kr]