Boeing’s Rise, Fall and Painful Public Reckoning

Bloomberg Audio Studios, podcasts, radio news. Hey it's David Gerra, and today we're bringing you an episode from Salaiah Mosen and The Big Take DC podcast. As Boeing navigates a busy week with two hearings on Capitol Hill and an upcoming earnings report, Seleia takestock of its recent fall from grace and digs into what's next for a company the US government can't let fail.

Yesterday, two different Senate committees convened to bring the country's biggest planemaker down to earth.

Boeing.

Is it a moment of reckoning. It's a moment many years in the making.

That Senator Richard Blumenthal, who chairs one of those subcommittees Boeing, he reminded the public had promised to make big changes after a series of tragic accidents over five years ago.

That led Boeing to promise.

That it would overhaul its safety practices and culture, and promise proved empty.

Whistleblowers and critics from inside Boeing are now saying that the company has ignored employees who have highlighted shortcuts in the manufacturing process. It's quite the fall from grace for a company that was long known as a trusted plane maker.

People always felt this is the safest plane you know. There's that saying if it's not Boeing, I'm not going now, is sort of turn into well, if it's Boeing, then I'm not going.

Benedict Camel overseas Bloomberg's global aviation coverage, and for the.

Past three months it's turned into the everything Boeing beat because.

Boeing has serious problems on its hands, from doors and tires falling off aircraft mid flight, to the US Secretary of State getting stranded overseas.

It was scheduled to fly back from Zurich.

There's a mechanical issue with his plane.

These incidents happen all the time, in the way that a car can break down a plane can break down. The problem for Boeing is that it adds to that narrative that Boeing is producing planes that can no longer be trusted.

And trouble at Boeing ripples through the entire airline industry. As Senator Ron Johnson pointed out at yesterday's hearing.

In the end, I want the public to be confident in getting out of an airplane and experiencing your travel, but I have to admit this testimony is more than troubling.

Today on the show, how did Bowing get here? And what can the company and the US government do to turn things around and make flying feel safe.

There's one company that's too big to fail. It's Boeing. They make the presidential jet, that they are an integral part of the US economy, that the biggest exporter in the country. There's nobody suggesting that Boeing is going to go out of business.

But the road ahead is sure to be turbulent. From Bloomberg's Washington bureau, this is the Big Take DC podcast. I'm Salaiah Mosen to understand just how remarkable this is. With Boeing's problems being dragged in front of Congress. You have to remember this is the company that, for more than a century had a reputation that centered on safety and reliability.

The phrase that keeps coming to mind is the Great Unraveling.

Bloomberg's lead Boeing reporter, Julie Johnson, has been watching that unraveling. It's a story that starts back around twenty ten.

Just for context, Boeing was cranking out enormous amounts of cash. It was just really really riding high.

It was the go to carrier for the US government from the Postal service to air Force one, and its seven thirty seven jets, which were first introduced in the sixties, were the aircraft of choice for commercial airlines.

Being a professional pilot, the absolutely most important part of it is the safe operation of the aircraft.

Captain John Cox spent thirty years as a commercial in corporate pilot, for many of those years Boeing jets, including the seven thirty seven.

And I really enjoyed the airplane. It's what pilots call an honest airplane. It does things the same way every time, very reliable, it's a workhorse. It was a good challenging weather airplane, meaning high cross winds, low visibility, so my time with the seven thirty seven was one of the high points.

Of my career.

In twenty ten, Boeing's main competitor, Airbus, upgraded a line of its planes with new engines that left the seven thirty seven looking dusty and outdated.

Air Bus got a big jump on the market and Boeing decided they had to do something, and that's where the seven thirty seven Max was brought to live pretty quickly.

The seven thirty seven Max, Boeing's next iteration of the beloved series, came out in twenty eleven, but it would end up spelling disaster.

This is just like every fable you know you've ever heard over history. This company brought to its knees through a series of terrible tragedies.

In October twenty eighteen, a Boeing seven thirty seven Max plane took off in Indonesia just thirteen minutes into the flight.

The issue was.

A system that forces the nose of the plane down. It's supposed to be a safety feature, but it resulted in, obviously, that tragic crash and airline pilots saying we weren't No.

One on board survived. Boeing assured the public and its regulator, the Federal Aviation Administration, that the plane model wasn't at fault, But then just five months later, another seven thirty seven Max crashed, this one taking off from Ethiopia.

The Ethiopia crash that killed one hundred and fifty seven people in.

The first official words, and the fallout from that was swift and brutal for the company. Obviously, far more brutal for the people involved in these crashes, but on the corporate side, it was sort of a reckoning for Boeing and its products, which previously had a styllar record.

The company's biggest source of revenue was grounded globally after the second crash, and that's when people started really questioning Boeing's processes and whether the company's priorities had drifted over.

Time, the thinking and that this is a company that actually has not put safety first. It's a company that's put profit first. It's been caught up in the competition with our bus and all of these things led to a toxic cocktail that ultimately led to them producing planes that weren't properly built, certified, and had the errors that contributed to the crashes.

All seven thirty seven Max planes were pulled from runways and Dennis Mullenberg, Boeing CEO at the time, was brought in front of Congress.

He was really flogged by both parties publicly over a couple of days of hearings, and within a couple of months was forced out by the board.

A new CEO, Dave Calhoun, came in with a fresh mandate.

To clean the company up to put safety first. That was a thinking that indeed they had cut some corners, that they had been too quick with the way that they produced some of these planes, and that the company felt, we need to sort of rethink how we do things, slow things down.

So Calhoun steps into the job in January twenty twenty, and then COVID happens.

Suddenly nobody's really flying on any planes, not just Boeings, And.

In some ways that was a chance for Boeing because this took a lot of the pressure off the business and the company, and it gave them the time to rethink, to reset, to revisit their aircraft from their operations.

Boeing was still not making a profit, but was gradually starting to head in the right direction as they try to get their factories and their supply chain figured out post COVID and you know, win back trust of their customers and regulators, and the narrative seemed to be changing.

There was this expectation that now would be the year where Boeing would truly come back. Everyone thought twenty twenty four, they've left all the baggage behind, They've left the previous crises behind. You know, orders were pumping. They were really winning amazing business all around the world. And then January fifth happened.

January fifth, twenty twenty four.

Uh seven thirty seven. Next you know, takes off out of Portland and a few minutes into flight, there's just this enormous bang and a panel flies out of the plane.

This is a fortified door that is normally locked, so for that to sort of burst open gives you a sense of what could have gone horribly wrong.

Turns out there was a mishap at the factory. Some Boeing employees had been fixing an error with a door panel, and.

Then the panel was put back in. What didn't happen. The four bolts that should have kept it in place were just not put back in. Somebody clumsily left those bolts lying around somewhere on the factory floor that probably in a trash can at this point.

Here's what Boeing said in a recent statement to Bloomberg News. Since twenty twenty, Boeing has taken important steps to foster a safety culture that empowers and encourages all employees to raise their voice. We know we have more work to do, and we are taking action across our company we continue to put safety and quality above all else and share

First start by saying that we continue to be fully committed to transparency and accountability with our regulators. The FA is deeply involved and undertaking a tougher audit than anything we've ever been through before, and as they do their important work, we're undertaking comprehensive actions so that we can move forward to strengthen quality and build confidence.

Fortunately, nobody was killed. I mean, it's just like unbelievably miraculous that nobody was sitting next to the section that failed, But that moment flashed around the globe and in videos that just went viral within a matter of minutes, and I was watching it happen. But the confidence that Boeing had been trying to reap bill just collapsed within minutes.

Captain Cox, the pilot that we heard from earlier, has investigated crashes with the National Transportation Safety Board. He says that when he first heard about Boeing's tragic crashes in twenty eighteen and twenty nineteen, His sense of how they could have happened was blurry.

I've been an accident investigator for thirty five years, and when you look at those accidents, there are some of the more complex ones I've ever seen.

But as he's followed the news about Boeing seven thirty seven jets over the past few months and years, he says a different image has come into focus. He runs an aviation safety consultancy and says it's all left him more than surprised.

I think shocked would be a better word. It was very disappointing to me as we began to understand the contributing factors for the Max accidents, of how the culture at Boeing had changed from when I was working very closely with them in the eighties and ninety The focus really shifted from building the highest quality airplane that they could to shareholder value.

The twenty nineteen tragedies, we knew, okay, there were a series of things that went wrong, but at the route was this flawed design. But when you don't have confidence in a company's ability to install literal nuts and bolts, in its aircraft. I think that's far more damaging.

Coming up. Where does Boeing go from here and will the US government's intervention help move the needle. After Boeing's plane door incident in January, the FAA came down on the company hard.

I think for the FAA, this is a moment of reckoning where they've understood we need to be much tougher on this company. We need to keep a much closer on what they do do we need to slow them down.

The regulator can bened an expert panel to investigate safety practices at Boeing, and the results it published in February were pretty damning.

They said there was a disconnect between sort of the message from the top about safety culture and what actually arrived down on the shop floors. There was a sense that profitability was taking precedent over process.

I'm trying to think how we got here. Isn't it up to the US government or the Federal Aviation Authority to make sure that this doesn't happen in the first place.

Part of the accusation leveled against the FAA after these two crashes was that they had too cozy a relationship with Boeing. That they let Boeing almost self regulate, and they put too much faith into a trust in Boeing, and we all know how that ended.

It's worth noting that Boeing has over one hundred lobbyists on his payroll. It's been over fourteen million dollars on lobbying in twenty twenty three. Now the government is sending examiners into Boeing's factories. It's forcing them to slow things down, mandating that the company limit the number of planes it produces each month. It gave the company until late May to address the issues the FAA audit identified. At one of yesterday's hearings, Senator Tammy Duckworth put it this way.

We need to judge Boing by what it does, not by what it says it's doing.

Because Boeing's problems are the government's problems. Boeing isn't a company that can just be replaced. It's America's flagship aircraft maker, providing planes for everyday people to fly on and also supporting US defense and military operations. Plus there are only two major players in the airplane production industry. The government can't just ditch Boeing and replace its fleet with Airbus. Neither can commercial airlines.

If you go to Airbus, you're joining the back of the queue, a queue that stretches into the twenty thirties. Airbus is basically sold out through twenty two twenty nine, and the airlines feed airplanes right now.

Benedict told me he's spoken with Airbus executives about all of this, and they don't view Boeing's problems as a win for them.

They say, look, we take no pleasure in the other side's misfortunes here because we know whatever happens to one side could as easily happen to the other side. And frankly, this is bad for the global aviation industry. People have second thoughts about flying. But it also means that if Boeing slows down, it sends a shiver through the entire industry.

Benedict says, it's a problem of supply and demand. Fewer planes overall mean airlines have to limit their flights and the routes that they serve, and that would mean demand outpaces supply.

So there are the fewer seats as it were, that means higher prices. So all these things are ripple effects that go from the factory floor at Boeing all the way back to the pockets of the consumer.

If you ask Captain John Cox, we should keep things in perspective.

If you look at him, twenty twenty three, worldwide, we flew about thirty five million flights without a single accident or a single fatality. It's one of the safest years in aviation's history.

That's encouraging to him, even though clearly doors should not be falling off planes midflight.

I think day by day will begin to rebuild the confidence in the quality of the airplanes coming off the Boeing assembly line. I'm comfortable with them today I fly on a Max without a second thought.

But right now Boeing is still managing a bumpy landing. On Wednesday, the company will report it's earnings from the first quarter of twenty twenty four, and things are not looking good.

They've burned through just an enormous amount of cash. I mean, they've had to pay hundreds of millions of dollars to the airlines whose planes were grounded, slowing your factories, taking days off to encourage employees to speak up about you know what, They've seen all of that. So it's going to be a big cash outflow.

Investors are expecting the company to report burning through four to four and a half billion dollars in cash for the first quarter.

So at some point they need to start ramping up their production again, but they can't do that until the FAA is convinced that their processes of change.

If Boeing wants to rebuild trust, it's going to need a new plane. Consumers do not trust the seven thirty seven Max anymore.

Boeing planes right now are like just one giant bad meme.

But new planes cost money, money that Boeing does not have. All this leaves Boeing in a spot not unlike the one it found itself in in twenty nineteen crisis management mode. A few days after that plane door flew off. This past January, Dave Calhoun, the CEO who took over during the last crisis, addressed the company's employees and told them we're taking responsibility for this. Something needs to change.

Dave Calhoun held an almost tearful speech to employees, saying, look, I get this, we need to get this right.

I got kids, I got grandkids, and so do you.

This stuff matters.

This is a watershed moment for the company. Safety is our guiding principle, always has been. But if anyone didn't get the message, this is our north star.

The last thing I wanted to ask you about, adict is where does Boeing go from here?

Well, Boeing, wherever they go, they're going to go with a new CEO. So a couple of weeks ago they announced a leadership change that was fairly comprehensive. The chairman stepped down at the head of the aircraft manufacturing business step down, and Dave Calhoun, who had taken the role in the wake of these twin crashes, also said that he would leave. And a lot of people are saying Boeing needs an engineering mind again, you know, forget the

Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm Salaia Mosen. This episode was produced by Julia Press. It was mixed by Ben O'Brien. It was fact checked by Audrianna Tapia. It was edited by Aaron Edwards and Benedicte Cammel. Naomi Shaven is our senior producer. Michael Shephard, Wendy Benjaminson, and Elizabeth Ponso provide editorial direction. Nicole Beemster Bower is our executive producer, and Sage Bowman