Pushing It to the Max Boeing's Crashes Expose Systemic Failings
Part 2: How Fierce Competition with Airbus Fueled the Current Crisis
The Boeing 737 is the most successful commercial jet ever produced. Since 1968, more than 10,500 of them have been delivered and on average, a 737 takes off or lands somewhere in the world every 1.5 seconds. There are around 2,900 of the short- and medium-haul aircraft in the air at all times.
But the plane was never part of the technical avantgarde. When Boeing first designed the 737 in the mid-1960s, the company took over as many parts as possible from existing plane models. The nose, fuselage and the long, narrow turbines were almost identical with those of the three-engine 727. Boeing did develop all-new wings, but essentially, the technology inside the 737 was straight out of the 1950s when it took off for its first test flight in 1967.
Even then, the development of the plane was a hectic response to the competition. Boeing's main rival at the time wasn't Airbus, but Douglas, with its new DC-9. Boeing itself figured it was about 17 months behind and threw everything into catching up to MacDac, as the industry rival was known. And it worked, but initially, most airlines showed no interest in the new, smaller passenger jet from Boeing. Indeed, the project was almost abandoned, despite Lufthansa becoming Boeing's first 737 customer and ordering 21 of the planes.
Success only came in the 1970s. Boeing introduced a slightly elongated version, the 737-200, and over the years was able to sell 1,114 of them. The plane was then modernized in the 1980s and outfitted with more fuel-efficient engines -- and that change laid bare a problem that all later versions of the 737, in particular the Max, would suffer from.
Modern jet engines use less fuel the larger their diameter. But the CFM56 engine, which is still in production today and is used on numerous different aircraft models, has such a large diameter that it doesn't fit under the wings of the 737, with its low undercarriage. In the 1980s, engineers came up with the solution of ordering a smaller, customized version of the engine with the underside of the cowling flattened. Now, the engines were oval shaped instead of perfectly round, giving the plane its unique appearance, but nobody seemed to mind. Almost 2,000 of the new-and-improved 737 Classics were sold.
Its successor, the 737NG (with NG standing for "next generation") hit the market around a decade later. It was larger, more fuel efficient and could cover greater distances. Furthermore, the cockpit offered a full array of modern instruments, but it was still so similar to the 737 from the 1960s that pilots didn't need any additional training. That was, and still is, an important factor in airplane construction because airlines are eager to avoid having to send their pilots in for comprehensive retraining. Time in the simulator is time when pilots aren't flying.
Another 7,000 of the 737NGs were sold and Boeing turned its attention to developing a brand new short- and medium-haul plane. In the early 2000s, teams of engineers in Seattle began thinking about how they could replace or revamp the 737NG, with the primary objective of achieving even greater fuel efficiency. Boeing lost a lot of time trying to transfer technologies developed for the 787 Dreamliner to a 737 successor, but the project, called Yellowstone 1, made little headway, primarily because of the vastly different parameters of the two aircraft. The 737 is narrower and production is much quicker to meet higher demand. The 787, meanwhile, is a widebody aircraft, with two aisles and a third section of seats down the middle. It proved impossible to transfer technologies, materials and production procedures.
Ultimately two camps developed within the company: those who wanted to completely redesign the plane and those who simply wanted to make improvements to the existing design. And the latter camp won out, using purely economic arguments. Both camps were fully aware that the 737 was technically outdated, and even in the latest version, the modern-day industry standard technology "fly by wire" isn't completely introduced. Some of the 737 controls still depend on cables and hydraulics. In fly-by-wire planes, by contrast, computers translate the pilot's yoke movements into electronic signals and electric motors then adjust the relevant flaps accordingly. The comprehensive introduction of fly-by-wire technology into all aspects of flying would have required a complete redesign and the end of the 737. That, though, was too expensive for Boeing and the company feared it would lose too much time. Its competitor Airbus, after all, was far ahead.
It is impossible to tell the story of the 737 Max -- indeed, the story of Boeing's entire recent history -- without taking a closer look at Airbus. The self-confident Americans underestimated their European competitor's strength, not wanting to believe that Airbus's ascent to become the world's second-largest aircraft manufacturer was the kind of economic miracle that changed the entire game. Founded in 1970, massively subsidized by European governments and heavily promoted by an industry that was deeply invested in its success, Airbus was able to revolutionize the global passenger jet market in the course of just three decades. And then came the wonder of 1999, when Airbus received significantly more orders for its aircraft than did its American rival, despite the fact that Boeing had just merged with erstwhile competitor McDonnel Douglas a few years before.
Boeing's War Against Airbus
In response to this humiliation, Boeing executives adopted an aggressive approach instead of laying solid foundations for the future. There was a possibility for peaceful coexistence, a comfortable, global duopoly of two companies that didn't need to get in each other's way on pricing, delivery schedules and services. Such a situation would not have been good for airplane buyers, but Boeing and Airbus would certainly have benefited.
Instead, Boeing went to war against Airbus in the hopes that its sheer size and market share, combined with pricing and discounts -- and complaints filed with the World Trade Organization about improper subsidies -- would be enough to overpower Airbus. The last element of that strategy came back to bite Boeing, and at the same time, a costly competition developed between the two companies that ultimately hurt airplane construction more than it helped. Delivery and order statistics became something of a fetish to which more important issues were forced to take a back seat -- such as safety and environmental issues.
The air shows at Farnborough near London and the Paris Air Show in Le Bourget, each held in alternate years, have become the focus of the two companies' obsession with getting a leg up on their competitor. Both Airbus and Boeing save up orders throughout the year so they can suddenly announce them with great fanfare at hastily arranged press conferences with snacks and champagne.
At the 2017 Paris Air Show, Boeing took the lead, primarily with the brand new 737 Max. The company was able to announce an astonishing 571 orders for the aircraft worth around $75 billion, according to the plane's list price. One year later, Boeing was again far ahead of Airbus, and 2018 proved to be a particularly successful year for the Americans: For the first time, Boeing was able to ratchet up sales to above $100 billion, fully $25 billion more than Airbus. The company also celebrated the delivery of a record 806 aircraft in a single year. And Boeing's order books were full for the next seven years.
The crash of the Lion Air flight in late October 2018? Hardly an issue for Boeing. Economically, it was a mere pinprick and Boeing's stock quickly recovered, soaring to the historical high of $446.01 per share on March 1, 2019. But nine days later, Ethiopian Airlines Flight 302 crashed near Ejere.
At this year's Paris Air Show in June, Boeing had little choice but to tread softly, but the company wasn't terribly convincing in that role. CEO Dennis Muilenburg had made a number of television appearances in the week ahead of the show, during which he repeatedly insisted that safety was the company's top priority, and he also penned an open letter. And the initial handwringing slowly yielded to formulations that were clearly developed by company lawyers with an eye toward the coming lawsuits. The lives lost in the two crashes "continue to weigh heavily on our hearts and minds," Muilenburg wrote, but he "remains confident in the fundamental safety of the 737 Max." When it came time for the Paris Air Show, he was no longer talking about the past at all, focusing instead on the future and on the progress that had been made toward the recertification of the 737 Max.
An interview DER SPIEGEL conducted with Boeing spokesman Paul Bergman on the sidelines of the Paris Air Show ended abruptly after around five minutes because Bergman refused to answer any questions about the crashes and their consequences for the company. The mood in the company? "We don't comment on that." The Justice Department investigations pertaining to the recertification of the 737 Max? "Please understand that I am unable to comment on that." Why did the FBI get involved? "Unfortunately, I can say nothing about that." What about the approaching lawsuits? "Sorry," Paul Bergman said, "We have a policy of not speaking about liability proceedings."
There is a debate on the internet over whether Seattle's nickname "Rainy City" is accurate or not. When it comes to total precipitation, the moniker is definitely inaccurate, but if the reference is to the frequency with which rain falls from the sky, it is well earned. The city on the shores of Puget Sound -- basically just a gigantic fjord carved into America's northwest -- experiences rainfall on 152 days each year. But mid-June saw an extended period of high temperatures and no rain, with people crowding into outdoor cafés. Local newspapers were full of stories about the surprisingly good weather.
The area in the far northwestern corner of the United States, a densely populated urban area that was only carved out of the wilderness at the end of the 19th century, enjoys an extremely strong economy. Microsoft employs 47,000 people here and Amazon pays another 45,000 salaries. Lewis-McChord just down the highway, one of the biggest military bases in the world, provides jobs for 56,000 people and Sea-Tac airport is another major employer in the area. The city and its surroundings exude prosperity and wealth, much of which comes thanks to Boeing and its 80,000 employees in the Puget Sound area -- in Seattle, Everett, Renton, Frederickson and Auburn.
Boeing Field is just a short drive north from Sea-Tac Airport along Interstate 5 and its -- in some places -- 14 lanes of traffic. Plant 2 at the Boeing site is where thousands of bombers were assembled in World War II and is also where initial 737 prototypes were built. When Boeing clients pick up their new jets from Seattle, the handover takes place at Boeing Field.
Twenty-first century airplane construction is meticulously synchronized. In Everett, about half an hour north of downtown Seattle, Boeing "wide bodies" -- the large, long-haul aircraft -- are built in what is allegedly the largest factory building in the world by volume. A couple final models of the legendary 747 are still being built here, a legendary aircraft that is comprised of 6 million individual parts. Fuselages of the 767 move slowly through the production lines, referred to in the factory as "bays." The 787 "Dreamliner," plagued by a series of growing pains and glitches, can also be seen from the gallery.
On a Wednesday in mid-June, the 879th 787 was nearing completion, on order from Turkish Airlines. Planes number 881 and 883 were right behind it, a numbering system that results from the fact that only every second Dreamliner is produced in Everett. The even-numbered planes have been built since 2011 on the other side of the continent in North Charleston, South Carolina.
Following the second 737 Max crash within just five months, rumors began making the rounds in April that the South Carolina factory continually turned out subpar planes and there was talk of material defects. Then, in late June, it was revealed that the investigations launched by the Justice Department after the two crashes had been expanded to include 787 production. DER SPIEGEL has also learned of additional accusations leveled against Boeing and lodged with the Cologne-based European Union Aviation Safety Agency (EASA).
In June, EASA received a written complaint from a high-ranking Boeing engineer originally from Germany named Martin Bickeböller. In the development of the 787, Bickeböller was responsible for evaluating the production process. A trip to the factory in Everett provides visitors with a pretty good idea of the efforts being made to continually optimize the airplane construction process. But that same logic had also led to a situation in which the Dreamliner was essentially only assembled by Boeing, with the individual parts and sections delivered by suppliers located across the U.S. and the rest of the world. Things like the mid-fuselage section or the wings.
Bickeböller was responsible for the oversight of the production of these two components -- and he must have been deeply unsettled by some of the things he saw. As early as five years ago, in spring 2014, he sent an initial complaint to the American supervisory authority, the Federal Aviation Administration (FAA). In doing so, he invoked stipulations designed to protect whistleblowers from punishment from their employers. Bickeböller also filed a lawsuit with a labor court. The magazine was able to examine other relevant documents by applying for their release via the Freedom of Information Act. Bickeböller declined to speak with DER SPIEGEL, but the case files document the accusations he has made against Boeing.
The documents note, for example, that: "Safety issues were notifications of the Complainant with respect to the inability of 787 main section suppliers to establish part configuration of their airplane sections." Apparently, components were delivered that had never been checked to see if they met the required quality standards and parameters. They could, in other words, have been defective, yet installed into a jet anyway. Bickeböller informed the FAA that the planes that received the components in question were likely still in service.
The FAA appears to have investigated at least some of Bickeböller's accusations. In one document from Feb. 22, 2016, investigators wrote to Bickeböller: "The investigation substantiated that a violation of an order, regulation or standard of the FAA related to air carrier safety occurred." But as Bickeböller complained to EASA, other allegations were not investigated by the FAA. And instead of receiving praise from his employer for his conscientiousness, he received poor evaluations and, after 20 years as a top engineer, was demoted to a less important position.
Bickeböller's complaint endangered the planned inauguration of the 787, which had already been delayed due to technical difficulties. The problems identified by the engineer, however, weren't addressed by Boeing, which is why he turned to EASA in June. In parallel, Bickeböller and his attorney, the Berlin-based aviation lawyer Elmar Giemulla, approached the U.S. Congress in Washington, D.C. There, DER SPIEGEL was also able to examine documents pertaining to his complaint. In those papers, it states that management and top executives at Boeing had ordered that the coordination problems with the company's suppliers be "closed." The reason: "to get the 787 production certificate."
When contacted for comment about these accusations, a press spokesman for Boeing stated: "Boeing and the FAA investigated the allegations, and Boeing addressed all concerns raised. The FAA closed their letter of investigation in 2016."
At the Boeing factory in Renton, located on the shores of Lake Washington about 20 minutes south of downtown Seattle, the company culture likely wasn't much different. Some 12,000 engineers and mechanics work there building the 737 Max in two, vast factory halls. It is the only site where the model is produced. Before the crisis, the facility was able to turn out 52 planes per month, but the production rate has since been lowered to 42 per month -- two per day, with 21 workdays per month.
Like at all Boeing facilities, the runway is right next to the factory. In Renton, it is called Clayton Scott Field, named after the "personal pilot" of company founder William Boeing. The area surrounding the airfield is used these days primarily as a vast parking lot, with 14 completed, yet unpainted, 737 planes visible, most of them from Generation Max along with a few NGs. Since flights without passengers are still permitted, the 737 Max planes are being gradually transferred from Renton to other airports around the U.S. for storage until reapproval.
The costs associated with the flight ban are immense, and not just for Boeing. The grounding of the 737 Max is also a huge burden for the airlines that fly them.
Deep-Seated and Fundamental Problems
Seattle is home to a man who could recite all aspects of the Boeing crisis in his sleep because he was often the one who learned and wrote about them first. Dominic Gates, a gaunt, friendly man in his mid-60s, works as the aerospace reporter for the Seattle Times, and if you want to keep up to date on what's going on at Boeing, you need to read his articles. For the past several months, Gates has been writing about almost nothing else, with one investigative story following the next. Taken together, they combine to create a rather staggering image: Namely that there are deep-seated and fundamental problems with the company culture at Boeing.
Seattle Times journalist Dominic Gates says that critics or whistleblowers inside Boeing "are discriminated against, demoted or thrown out of the company entirely."
It is not a theory that Gates developed while sitting at his desk. It is one that has formed over the course of several years in discussions with insiders, observations of his own and combing through reports and industry literature. He has the contacts he needs to report in depth on the aerospace giant but also the information he needs to make important connections over time. And that proved extremely helpful in his reporting on the current Boeing crisis. At a time when the entire world was still scratching their heads over what could possibly have led to the Max crash in Ethiopia, Gates wrote a story that Boeing isn't likely to forget any time soon.
On the basis of interviews with engineers who had been involved, he described how the new software for in-flight adjustments to a flap on the tail of the aircraft, the likely cause of the crashes, was developed extremely quickly and then changed -- and that these critical changes were kept from the safety and certification agencies.
Gates had collected most of the information pertaining to the software development prior to the second crash in Ethiopia because he had become deeply involved in investigating the cause of the Lion Air crash in Indonesia. His report, which was followed by further revelations dug up by the New York Times, hit Boeing just as the company was rolling out a PR strategy that sought to place all blame on the pilots' shoulders. But thanks to Gates, this disinformation strategy failed. Overnight, he became one of the aerospace giant's most dangerous enemies.
Gates would never say such a thing himself. Perhaps his own personal history gives him the distance he needs to take a sober look at the goings on around him. He is originally from Northern Ireland and journalism, he says, is his second career. He used to teach mathematics in Africa, where he met his wife, a journalist from Seattle. She was the reason he ended up in the far northwestern corner of the United States.
He has since developed a network of dozens of informants -- "very helpful people," he says. They live throughout area, in Seattle, Renton and Everett, in the typical wooden houses the region is known for or in one of the huge developments that have grown up around Boeing's factories. Gates has to meet his sources in secret or communicate with them using encrypted channels. Boeing employees who report safety concerns either internally or to government agencies are taking a significant risk. "They are discriminated against, demoted or thrown out of the company entirely," the Seattle Times reporter says. Boeing denies the charge, saying that the company has strict policies in place to protect employees who turn to the authorities with safety concerns and that those policies are rigorously adhered to.
Estrangement Between Management and Employees
Yet despite the self-confident image the company strives to project externally, the company tends to be less self-assured when it comes to dealing with whistleblowers within its ranks. They are generally considered to be traitors, and traitors cannot expect mercy. Recently, Gates has begun to suspect that the mood has turned sour behind the factory gates, a conclusion he has arrived at based on the number of people who are interested in talking to him despite the significant personal risks that entails. "For many decades of Boeing's history, most employees were immensely proud of where they worked," Gates says. "In the ensuing years, many mechanics and engineers at Boeing have lost this pride." There has been a gradual estrangement between company leadership and its employees.
Production at the Boeing factory in Renton, Washington: A costly competition has developed between Boeing and Airbus that ultimately hurt airplane construction more than it helped.
The alienation began with the merger of Boeing and McDonnell Douglas in 1997 and the increasing amount of attention being paid to the company's share price, Gates says. Longtime CEO James McNerney, the predecessor of current company head Muilenburg, charted a course aimed at drastically increasing profits. He sought out conflict with the unions, which had until then been an important part of company culture and a point of pride among employees. Even senior company managers were union members, though that didn't stop McNerney. On the contrary.
Even one of McNerney's predecessors, Philip Condit, was apparently unhappy with the tradition-rich site on the shores of Puget Sound and wanted to escape the Seattle culture. Condit hit the city with a symbolic blow below the belt by moving company headquarters to Chicago in 2001 after holding a kind of competition to determine where Boeing executives would end up. Only 500 company employees moved into the gray office tower there, but the gesture was a painful one for many back in Seattle. McNerney continued Condit's bull-in-a-china-shop act by moving part of 787 production to Charleston, despite the fact that there were no qualified mechanics and engineers in the region. Why? Because is South Carolina, Gates says, the level of union membership is the lowest in the entire country.
Until the end of the 1990s, the Boeing company was heavily reliant on engineers. But then, CEOs like Harry Stonecipher and his successor Condit aimed to streamline airplane construction to improve profit margins. As an investor, you would rather put your money into companies that grow up to 20 percent a year rather than just 4 to 6 percent, Stonecipher told DER SPIEGEL in a 2001 interview. Profitability and stock market performance became the company's most important goals. Philip Condit before him also emphasized the creation of shareholder value. It is, he said in 1998, "the principle measure of our success." Such priorities were, of course, a sign of the times, but they led to an estrangement between company executives and employees on the factory floor.
And the company continued to have a problem with its home. Company leaders continued to speak publicly about their desire to take large production facilities out of the Northwest, with the question arising when it came to choosing a site for the production of the 737 Max and against with the new 777x, the next-generation long-haul jumbo. There was a constant stream of blackmail attempts that almost led to a complete falling out between the company and the city. The relationship of locals to Boeing has become extremely complicated, says Gates. "Many Seattleites who don't work for Boeing have had enough of the corporation's demands for tax relief and concessions from labor unions, laced with threats of building future planes elsewhere if the demands aren't met."
When Dennis Muilenburg took over as CEO in 2015, he had hoped to return Boeing to its core strengths, a hope shared by company employees. After all, as Gates points out, Muilenburg is an engineer himself. But the farmer's son from Iowa narrowed the company's focus on profit to a greater degree than ever before, even as he constantly repeated lofty aphorisms about the kind of management strategies he hoped to avoid. When he was chosen Person of the Year in 2018 by the magazine Aviation Week, he told the publication: "We're a tough competitor. But there's no occasion where we want our employees to be faced with a choice of competing or values. That's a false choice."
Boeing CEO Dennis Muilenburg together with President Donald Trump at the debut event of the new Boeing 787-10 aircraft in 2017.
Gates has been keeping an eye on Muilenburg for several years now. The Boeing CEO has frequently claimed that "the cyclical nature of the airplane business is over," says Gates, apparently believing that the aircraft market will continue to grow forever, with no interruptions or slow periods. The message Muilenburg wants to send, Gates says, is that "Boeing is the global industrial champion." It might sound absurd, Gates says, but the most amazing thing is that "investors bought Muilenburg's story" and since then, the share price has been up to three times what it was then.
A Millstone Around Boeing's Neck
Now, Muilenburg finds himself mired in his first large crisis. The crashes, the grounding of the 737 Max, the damaging report from the Charleston factory, the dissatisfaction of workers in Seattle, the attacks led by pilots and in-flight service personnel, the investigations by the Justice Department: All of that has led to an unprecedented drop in sales. At the end of July, Boeing announced record second quarter losses of $2.6 billion. And Muilenburg can no longer completely exclude the possibility of 737 Max production being halted altogether. The company's cash cow has transformed into a millstone around its neck and Boeing has become vulnerable.
And this all comes at a time when the Airbus-Boeing duopoly has been developing cracks. The two may still be the world's undisputed aerospace leaders, but companies in China, Russia and Japan are in the process of grabbing a bigger piece of the pie. Furthermore, it has become easier to build airplanes because a highly specialized global market of suppliers has developed that can deliver almost any part in the desired quality at the desired moment in time. The times when airplane construction was a calling card of unattainable technological excellence are coming to an end. Things are becoming more difficult, especially for Boeing.
- Part 1: Boeing's Crashes Expose Systemic Failings
- Part 2: How Fierce Competition with Airbus Fueled the Current Crisis
- Part 3: How Did the 737 Max Get Approved in the First Place?