Crucial business lessons from the Boeing debacle
Monday, January 13th, 2020
Boeing, the world’s leading aircraft manufacturer, is in the throes of a crisis that threatens its very existence.
The genesis of the crisis is two fatal crashes of its latest and fastest selling commercial airliner ever, the 737 Max , which has been literally flying off the shelves (pun intended).
The first crash was that of an Indonesian carrier, Lion Air, that crashed in Indonesia in October 2018 after take off from Jakarta, killing all 189 people aboard.
The cause of the crash was suspected to be faulty design of the aircraft systems that countermanded pilots’ orders, forcing them to lose control of the plane.
The second crash was an Ethiopian Airlines plane that took off from Addis Ababa Airport headed to Nairobi.
It crashed seven minutes later, killing all 157 people on board last March. The crash was also blamed on malfunctioning systems.
Panicked airlines and countries pulled down the 737 Max from the skies and grounded them.
The US aviation regulator, the Federal Aviation Administration (FAA), reluctantly followed suit, and grounded all 737 Max aircraft in operation.
It was a devastating blow. But what went wrong? The 737 Max was an upgraded version of the Boeing 737 that has been the manufacturer’s workhorse, and preferred by many airlines.
Boeing’s key competitor, Airbus Industries launched a new generation jet that seemed to excite the market. Some customers of Boeing started to defect. Boeing panicked.
To firefight, Boeing reconfigured the 737, and put it on the market as an upgrade that was quicker, more fuel efficient, and required no expensive and time-consuming retraining of pilots already trained on the older 737 model.
Apparently, the airlines liked what they heard, and orders started streaming in.
What has now become clear is that Boeing cut too many corners to get the 737 Max into operation, as it was racing against time.
The regulator, FAA, indulged Boeing in this chicanery, and gave it the green light to fly an aircraft that had too many shortcomings as a result of insufficient research, design and testing before certification.
It was just a matter of time before the skies were full of death traps with smart systems countermanding pilots.
This debacle has come with some very harsh lessons for Boeing and business in general.
First is the amount in damages Boeing is facing. The aircraft is no longer moving from the shelves, and all the planes that were already in production or awaiting delivery will now have to chill it out in the “stores.” More than 400 ready planes cannot be delivered.
Billions of dollars will be lost in this delay. Boeing stands to lose more money from the inevitable cancellation of orders from airlines that needed planes quickly.
The new orders from those airlines are unlikely to come from the troubled airline. Indeed, Boeing has now suspended the production of the 737 Max.
Court cases for compensation for deaths and other damages are already being compiled. In the US, class action suits are usually devastating for companies.
At this point, it is impossible to quantify what the final damages quotient looks like. If it was any company other than one the size of Boeing, it would be bankrupted by the damages and associated legal costs.
Secondly, Boeing must go back to the basics. All the steps that it sidestepped or overlooked or explained away as unnecessary, it must now go through them thoroughly—research, design, testing and certification.
By the time this process is over, it will have lost five years in sales. Worse, the FAA is in no hurry to recertify the plane.
Airbus, in the meantime, is having Boeing’s lunch. One can just hear the smacking of lips over at Airbus Industrie’s French headquarters in Tolouse, France.
Thirdly, the retribution has been harsh. The chief executive who oversees the development and launch of the 737 Max, Mr Dennis Muilenberg has been fired.
In the credibility-driven corporate ecosystem of the West, leaving a company in disgrace is like the kiss of death. His career is probably damaged forever. Nobody will touch him again.
The other hurdle for Boeing is rebuilding its credibility as its reputation is now in tatters. It will have to undertake an intensive and expensive campaign globally to restore confidence in its products.
Five years after this whole debacle is over, executives at Boeing will probably wonder what the rush was all about, why company mandarins flew into a panic and rushed into the market a hurriedly contrived upgraded plane that brought the company to the brink of disaster. These are lessons all businesses need to learn. —[email protected]