Boeing has been plagued by scandals recently. On January 5, shortly after takeoff, a door of an Alaska Airlines 737 MAX9 passenger plane fell off at an altitude of 16,000 feet, leaving a large hole in the side of the plane. It then had to make an emergency return. Later, United Airlines and Alaska Airlines discovered that some of the 737 MAX9 aircraft they inspected had loose parts.
On January 18, US Secretary of State Blinken was briefly stranded in Davos due to a major malfunction on his Boeing 737 and was unable to fly back to the United States as planned. On the same day, an Atlas Air Boeing 747-8 freighter made an emergency landing in Miami due to an engine fire shortly after takeoff.
Two fatal 737 MAX 8 crashes in 2018 and 2019 resulted in hundreds of jets being grounded for nearly two years. It is rumored that many Boeing models currently have problems with loose rudder bolts. These issues expose big problems with Boeing's management.
Manufacturing business outsourcing is the product of the division of labor in modern manufacturing. Large trunk aircraft containing millions of parts and millions of lines of code are the crystallization of Boeing's global supply chain. Outsourcing is also viewed by companies as a means to reduce costs and increase profits. However, if there is a problem with a supplier in a certain link of the supply chain, the quality of Boeing aircraft will be damaged. In 2001, an engineer named Smith submitted a white paper, proposing the risks of the outsourcing strategy, especially outsourcing too much work without providing suppliers with sufficient on-site quality and technical support, which would create hidden dangers for Boeing aircraft.
Smith pointed out: "The ability of the lowest-level supplier determines the upper limit of the performance of this first-class manufacturer." Smith revealed the so-called barrel principle, that is, no matter how high a bucket is, the height of the water it holds depends on the lowest board in it. The report was posted on the walls of the Boeing factory and circulated widely among engineers. "It's common sense," Smith later said of his warning against excessive outsourcing after he retired from Boeing. But such common sense did not arouse much concern among Boeing's management.
On January 7, 2013, a JAL Boeing 787 caught fire on the tarmac at Boston Logan Airport when the auxiliary power battery at the rear of the fuselage overheated. Subsequent inspections revealed that not only the photovoltaic cells and casing were severely damaged, but the leaking molten electrolyte and hot gas also damaged the body structure half a meter away. An investigation by the U.S. National Transportation Safety Bureau (NTSB) found that parts of the steel structure showed signs of condensation after vaporization, indicating that the local temperature may be as high as 3,000°C.
Nine days later, on January 16, another ANA Boeing 787 flew from Yamaguchi to Tokyo Narita Airport. When it was about to reach cruising altitude shortly after takeoff, the pilot smelled an acrid smell of smoke in the cockpit, and the warning light on the instrument panel also showed a battery failure. The plane immediately made an emergency landing at Takamatsu Airport, and the 129 passengers and 8 crew members on board successfully escaped safely through emergency exits and inflatable slides. Later inspections revealed that the main battery in the electronic compartment under the cockpit of the forward fuselage had overheated and burned out, and the casing was seriously damaged.
Boeing has never produced batteries and has always sourced electrical systems for all its jets from outside suppliers. What's different about the 787 is the outsourced structure. Boeing contracts with about 50 Tier 1 suppliers to give them full control over the design of the aircraft's components. These key partners must make the upfront investment, share the risk, and own the design. Tier 1 suppliers are responsible for managing their own subcontractors. The newly designed 787 faces a major challenge with many parts suppliers. It is very difficult for Boeing to track every supplier.
After the Boeing 787 was completely grounded, Boeing urgently mobilized more than 300 engineers, divided into 10 teams, working day and night to focus on solving the battery problem as soon as possible. In three months, 200,000 hours of work were invested. Ground testing was concentrated over six weeks, totaling 60,000 hours. On March 13 of that year, the FAA approved Boeing’s preliminary modification plan. On April 5, Boeing used the 86th Boeing 787 scheduled to be delivered to Polish LOT Airlines to verify the final revised plan. The plan and test results were approved by the FAA, and the FAA has just approved the return of the Boeing 787.
In May 2020, Boeing admitted that two 737MAX crashes in 2018 and 2019 were related to flaws in the series flight simulator software. The Maneuvering Characteristics Augmentation System (MCAS) is an automated system for Boeing's 737 MAX aircraft designed to prevent stalls during certain conditions such as takeoff climb, flap retraction or low-speed flight.
On April 4, 2019, Boeing admitted that the MCAS system was activated due to incorrect angle-of-attack information in two crashes and promised to eliminate this risk. Boeing's CEO claimed at a press conference after the annual investor meeting that there were no problems with the overall design of the 737 MAX. On May 6 of that year, Boeing admitted that it had known about the error more than a year before the two accidents occurred: the angle-of-attack sensor failure warning system originally planned as standard equipment on the Boeing 737 MAX was mistakenly configured as a value-added option when it was delivered to customers.
What’s shocking behind Boeing’s admission that there are problems with the 737 MAX software is that Boeing and its suppliers outsourced part of the 737 Max software development and testing to two Indian technology companies. They strongly deny being involved in the development of Boeing’s 737 MAX MCAS, but they certainly have close ties with Boeing. Boeing has not disclosed the cause of the MCAS defect. To eliminate hidden dangers, Boeing decided to use a flight control software fix called MCAS on its 737 MAX aircraft.
The door falling off incident on Alaska Airlines' 737 MAX9 aircraft is related to the listed company called Spirit AeroSystems. Spirit, the sole supplier of fuselages for many Boeing aircraft, is based in Wichita, Kan., and is responsible for assembling the entire fuselage of the MAX jet. The entire fuselage then arrives by train at Boeing's Renton plant. There, Boeing mechanics and quality inspectors finish the cabin interior—adding wiring, insulation, sidewalls, seats, galleys and bathrooms.
For more than a decade, Spirit and Boeing have been at loggerheads over cost, quality and production speed. Boeing's demand for price cuts has strained the company's cash and left managers anxious to meet increasingly demanding deadlines. Boeing regularly sends employees to the Wichita site and monitors the supplier. The result is that workers at Spirit factories are rushed to meet unrealistic quotas, and those who point out problems are discouraged or even punished. They say more and more planes are coming out of Wichita with so-called "misses," defects that go undetected.
On January 17, Jennifer Homendy, chairman of the U.S. National Transportation Safety Board (NTSB), said that the door that fell off the 737 MAX9 aircraft was manufactured in Malaysia. The door is manufactured by Spirit in Malaysia and then shipped to the supplier's plant in Wichita before being shipped by train to Boeing's plant in Renton. Homendy said the NTSB investigation will delve into the production, transportation, installation and use of the hatch, as well as quality inspections during the process. The door's origin highlights the complexity of its supply chain and points to problems with Boeing's management.
On January 9, Boeing CEO Calhoun admitted his mistake after the January 5 accident and stated that he would solve the problem with 100% and complete transparency at every step. He also said Boeing would work with the NTSB to find out the cause. U.S. regulators have grounded about 170 Boeing 737 MAX 9 aircraft since January 13.
Calhoun also said the airline was shocked by the incident. “Moments like this shake them to their core as much as it shakes me.” Boeing engineers are poring over the information, looking for clues that something went wrong. Calhoun, a former General Electric Co. executive, took over as Boeing CEO in early 2020 as the company was mired in crisis after two crashes in 2018 and 2019 that killed 346 people and grounded the MAX8 for two years.
On January 15, Boeing Commercial Airplanes CEO Stan Deere said in a memo to employees: "The AS1282 accident and recent customer investigation results clearly indicate that we are not yet where we need to be." Boeing also said it has sent a team to inspect the installation of the door plugs and obtain approval from Boeing before each fuselage is shipped to Boeing. Boeing is also inspecting 50 other work points during the Spirit's construction process.
Boeing's board of directors paid a massive $246 million fine in 2021 to settle a shareholder lawsuit that accused the company of failing to meet its fiduciary duty to monitor safety and initially lying about two fatal 737 MAX 8 crashes. Boeing's strategy to keep overall aircraft costs low is based on unrealistic expectations that pilots can correct MCAS system failures within four seconds. Shareholders suing Boeing argue the board could have prevented the matter.
Nell Minow, vice chairman of ValueEdge Advisors and a well-known authority on corporate governance, told the media that Boeing's board also deserves review. The board is a "serial offender" and has not learned from past mistakes.
Part of the problem, Minow explained, is that boards don't feel enough pressure to change. Boeing, one half of the duopoly, has only one competitor, Airbus. It also holds government and commercial airline contracts that guarantee its business. "We saw the inevitable consequences" of the board allowing Boeing to prioritize financial engineering, rather than aerospace engineering, given the company's market dominance.
Others criticized Boeing for not adequately overhauling its board and leadership immediately after the 737 Max 8 accident. Calhoun's predecessor, Dennis Muilenburg, was fired four years ago and accused of leading a culture that prioritized production deadlines and profits over safety. But Calhoun, a former senior GE executive who also served as lead director on Boeing's board and oversaw Muilenburg's tenure, was a close ally of Muilenburg as he led the company's hasty development of the 737 MAX 8.
In October 2023, Calhoun said that the American aircraft manufacturer was working to improve the quality of its aircraft. He told analysts that the company has become more rigorous about its quality processes in recent years.
Now, as Calhoun faces the latest blow to Boeing's reputation, the comments amount to a slap in the face. Boeing's quality control has been widely questioned, and the halo Boeing once enjoyed no longer exists. Whenever new issues arise, Boeing insists safety and quality are the company's top priorities. Boeing said after the Alaska Airlines accident: "Safety is our top priority and we deeply regret the impact this incident had on our customers and their passengers."
However, Boeing has repeatedly revealed scandals about aircraft quality, making it difficult for the market to believe whether Boeing has truly learned its lessons from January 2024. Boeing's quality control problems were not limited to commercial aircraft, but also affected many military aircraft, resulting in Boeing incurring huge costs. For example, Boeing lost more than $2 billion on resetting two next-generation Air Force One presidential planes.
Boeing's stock price closed down 8% on January 8, its worst trading day since October 2022, and Spirit's stock price fell by about 11%. Boeing shares fell 4.1% on January 16 and were set to extend last week's losses as the United States grounded some of its 737 MAX 9 jets and the company's commitment to further quality inspections raised concerns about increased costs.
When is it safe to buy Boeing stock? Considering all the problems Boeing has had over the years, it's difficult to view this incident in isolation. Boeing's biggest challenge now is restoring credibility with investors, which will take time. The market is demanding that Boeing eliminate these recurring quality control issues. Until Boeing can prove it can get its act together, investors don't have much reason to get excited.