Too dumb to fly, too big to fail

Boeing’s disastrous 737 Max plane is the result of decades of craven business decisions.

Too dumb to fly, too big to fail

Boeing’s disastrous 737 Max plane is the result of decades of craven business decisions.

The ongoing scandal of Boeing’s 737 Max has resulted in two crashes, hundreds of deaths, and the revelation of a company mired in an elaborate mess of its own creation. But the scandal may in fact be the end point of the company’s preference for financial rather than its actual engineering: this is not a shocking, one-off crisis, but rather the inevitable outcome of an economy that views the actual business of business — paying people to design and build things which you then sell to customers, for instance — as a kind of annoying accounting problem to be overcome.

First, some historical context. In 1996, in a private room in the Four Seasons Hotel in Seattle, Boeing CEO Phil Condit and McDonnell Douglas CEO Harry Stonecipher engineered a $13 billion merger of their aerospace two companies. Boeing was by far the larger company, but it was Stonecipher who drove the advantage. “McDonnell Douglas in effect acquired Boeing with Boeing’s money,” Richard Aboulafia, a prominent industry analyst, would later tell the New Yorker.

McDonnell Douglas executives slotted quickly into key positions of influence, and Condit, who remained in the CEO role, took advantage of the new corporate structure to push the company in a new direction, away from its stolid roots in manufacturing and toward an “integrated systems” model, more Wall Street or Silicon Valley than mechanical engineers and assembly lines. The company began to pursue more aggressively than ever what America’s favorite corporate business guru, Jack Welch, once called “the dumbest idea in the world”: maximizing shareholder value.

The DNA of one more grand institution of American industry was rewritten in the final form of stupid, end-times capitalism.

Condit moved the company to Chicago, embraced outsourcing with an almost maniacal fervor, and sidelined the designers and engineers who had long been at the core of the enterprise... at least until he was forced to resign following a military procurement scandal that sent his CFO and his vice president to prison. Stonecipher then stepped in until he too was forced to resign after it was revealed that he had been having an affair with an underling at the company. Between the two CEOs, though, the DNA of one more grand institution of American industry was rewritten in the final form of stupid, end-times capitalism: unaccountable, unethical, corrupt, and finally deadly.

Such incompetence spread to the conglomerate’s manufacturing. As early as 2001, L. J. Hart-Smith, a Boeing aerospace engineer, wrote a paper for his employer  full of prescient warnings about the company’s overreliance on outsourcing and increased preference for the sorts of trendy but inaccurate financial performance metrics that Wall Street continuously invents and reinvents in an ever-more-fantastical flight from the dull and stodgy truths of basic accountancy.

In complex manufacturing, outsourcing imposes as many costs as it saves, imposes barriers to communication and collaboration, and hides responsibility. And even those “savings” that can be realized through labor cost arbitrage — the politely obfuscating business-speaking for hiring poor foreigners to work for shitty wages — are temporary, illusory, and dangerous. As Hart-Smith wrote:

Experience in the electronics industry has shown that out-sourcing work to regions of low labor rate is only a transitory phenomenon. The reason why the rates were low was that there had previously been no work there. Once the work became available, hourly rates increased, so that the primary electronic companies kept moving the work to yet another as-yet-under-developed area, and the cycle was repeated. This may be cost-effective for small items, with production lives of only a few years at most, but it is inappropriate for large aircraft that may need spare parts throughout a service live in excess of 50 years (80 or more for some military aircraft) and for which the manufacturing program itself may last 40 or 50 years.

That it required an aerospace expert with a doctoral degree to point this out to C-suite would be merely embarrassing if they had listened. They did not. Hart-Smith was writing prophetically about Boeing’s last costly, avoidable catastrophe, the grounding of the 787 fleet after it was discovered that their lithium-ion batteries had a tendency to burst into flame. In 2003, just two years after he presented the paper the company embarked upon a rushed, cheapened development process on the new plane, operating on orders to bring it in at a fraction of the cost of their last major new product, the 777, and to foist as much of the cost of development and production onto subcontractors as possible. When the FAA grounded all 787s in 2013, it was the first time the agency had issued such an order in more than 30 years. It would not take another 30.

But in fact, despite these high-profile groundings, recent reporting on the 737 Max has revealed a deeply scummy hand-in-glove relationship between America’s premier aviation safety agency and its main domestic industry partner, which had for years effectively ceded safety testing and certification to Boeing itself (the FAA was the last major safety organization in the world to issue the ground order on the 737 Max, by the way, unbelievably claiming it was simply waiting for all the data).

Boeing continues to promise the 737 Max’s return to the sky, as if anyone would willingly choose to fly on it.

This, combined with Boeing’s rushed production schedule, the company’s continued reliance on outsourced, non-union labor, and the original sin of hastily reengineering the existing 737 airframe to accommodate — badly, it turned out, hence the computerized kludge — new and more powerful engines, resulted in a linked chain of disastrous decisions and evasions that could only lead to catastrophe.

Even now, the company continues to find ways to pressure the FAA and its employees, and it has pursued an aggressive and apparently misleading communications campaign, publicly claiming that the 737 Max would return to flight next month attempt to goose its stock price.

Meanwhile, while Boeing scrambles to fix the 737 Max — steadfastly promising the plane’s return to the sky, as if anyone would willingly choose to fly on it — the company continues its misguided and expensive quest to rip off NASA with a costly and unsafe Starliner spacecraft, part of the space agency’s simmering and so-far unsuccessful attempt to return America to manned space flight, which it abandoned with the mothballing of the space shuttle. (American astronauts who currently travel to the International Space Station must hitch a ride on Russian craft.) And what company would not want to follow up a couple of deadly airplane crashes with a few astronauts tumbling in flames back to earth in a capsule whose parachutes fail to deploy?

In a more rational economy that was as vibrant and dynamic as the fictional one, Boeing could just go out of business. But this is an inevitable, tragic incidence of real capitalism, and while there are a number of companies that do make small jets and other commercial aircraft, there is only one left in America that makes midsize and large commercial airliners. And it is too big to fail; too dumb to fly.

Jacob Bacharach is a contributing writer at The Outline.