What Caused Boeing's Downfall?
How defense culture brought down a once-great company.
Another Side to the Downfall of Boeing
Downfall, Rory Kennedy's film about the decline and fall of the Boeing Corporation, does a terrific job of laying out the culture of greed and irresponsibility that spawned the 737 Max and killed 346 people. Wall Street's demand that "shareholder value" should trump any concern for passenger safety, not to mention loyalty to employees, is exposed in all its vicious criminality, especially when juxtaposed with the anguish and quiet outrage of the Max-victims' families. But there is another side to the story that deserves greater attention: the corrosive infection of Boeing's once superlative civil aircraft business by the customs and practices of the defense business.
Kennedy's film highlights the culture of integrity and overriding concern for safety that prevailed at Boeing prior to its 1997 merger with the McDonnell Douglas corporation. But that culture applied only to one part of Boeing, the part that made the vaunted civil aircraft. Over on the defense side, integrity and other virtues have long been at less of a premium. I've already discussed one egregious example of a Boeing defense program (The Worst Defense Program of All.) Further examples abound, such as those that emerged from the FBI's massive Operation Ill Wind defense corruption investigation during the 1990s, as vividly chronicled in Andy Pasztor's book When the Pentagon Was for Sale. But in former times, senior Boeing management maintained a rigid tradition of separating their civil and defense divisions, with no managerial cross-postings, for fear that the defense team might infect the civilians with their culture, common across the industry, of cost overruns, schedule slippages, and risky or unfeasible technical initiatives. Such habits might be all very well when the Pentagon was blithely paying up for cost-plus contracts that might or might not result in a useful product, but they could obviously prove disastrous when it came to competing with the company’s own money in a free-enterprise market. Hence the policy of separation.
Why Defense Loves Political Engineering
That sensible precaution came to an end following the merger with McDonnell, a pure defense company that had long since failed in the civil market. Following the merger McDonnell Douglas alumnae — most importantly CEO Henry Stonecipher — emerged in command of the combined company. Among the practices that arrived with Stonecipher and his colleagues from St. Louis was extensive outsourcing. The defense industry loves to outsource the manufacture of minor and major components to outside companies, because such dispersal buys support in Congress — a practice known as “political engineering.” Parts for the Lockheed Martin F-35, for example, are supplied from across forty-five states and eight countries, thereby cementing the fealty of ninety U.S. senators and seven governments overseas to a disastrous project. Of course outsourcing drives up costs in a variety of ways, for example by requiring the transportation of components to the ultimate manufacturer for final assembly. It also ensures delays, quality-control problems, and serious safety consequences, given the complexity of assembling parts produced under different management hundreds or thousands of miles apart.
Friends Don’t Let Friends Fly Plastic Airplanes
The first major Boeing airliner initiative under the merged regime, the 787 Dreamliner, was outsourced to an unprecedented degree, with foreseeable effects on schedule (the plane entered service three years late) and cost (it exceeded an initial development estimate of $5 billion by at least $12 billion — an impressive overrun, even by defense standards). Other deleterious features of defense manufacturing deployed on the plane included questionable technologies, such as a plastic hull and wings, dangerous because structural weaknesses caused by collision with ground vehicles (frequent at airports) are almost impossible to detect, and all-electric controls powered by a highly flammable lithium-ion battery via dangerously overloaded extra-thin (to save weight and thus fuel consumption) copper wires. The tragic consequences for 346 passengers and crew following the post-merger management's next foray in civil aircraft design and production, the 737 Max, are well known. The two Max crashes, and their cause, may have come as little surprise for the families of those killed on board Boeing's V-22 Osprey troop-carrying aircraft in which a design flaw, long denied, led to multiple crashes that killed thirty-nine soldiers and Marines. (The cause of the most recent Osprey crash that killed four Marines in Norway on March 18 is so far not publicly known.)
More Boeings To Come
The war in Ukraine has ensured surging defense budgets for years to come. I'll be writing more in future posts about what the lure of Pentagon contracts with built-in profits will do for what's left of U.S. commercial manufacturing. In the meantime, recall what Seymour Melman had to say about it a generation ago. Melman, a professor of industrial engineering at Columbia, devoted much of his career to analyzing the issue. He concluded that the impact of defense spending on the broader economy was wholly harmful, a consequence of the bad habits injected into the bloodstream of American manufacturing management by a defense culture indifferent to cost control and productivity. The US machine-tool industry, for example, had powered postwar US manufacturing dominance thanks to its cost-effective productivity that in turn allowed high wage rates for workers. But, wrote Melman , as more and more of its output shifted to defense contracts, the industry’s relationship with the Pentagon "was an invitation to avoid all the hard work. For now it was possible to cater to a new client, for whom cost and price increase was acceptable—even desirable." And so the U.S. machine-tool industry withered in the face of German and Japanese (and now Chinese) competition.
Talk of the defense budget shooting past $800 billion in the near future is already common. With such rich rewards in prospect, there will be more Boeings in our future.
If you like my newsletter, do share it with friends, and encourage them to subscribe.