Evolution is a slow process, mostly invisible to our senses, except when it speeds up and becomes catastrophic. We now understand that this is how it really works, more than the slow adaptation that Darwin discovered, although it still plays a role, it is sudden events breaking down the status quo, which spur bursts of accelerated transformation to adapt as fast as possible to a changed environment that really define evolution. Most often the result is the elimination of the not so fit, the not so flexible, and sometimes just the plain unlucky.
The laws of evolution apply likewise to our societies and civilizations. They rise with new resources, new technologies and stable climates to later fall with wars and pestilences while rigidities accrued over the years play a role in their demise. And so it goes with corporations and their endless cycle of creation and destruction, just faster, which makes the process easier to understand, and sometimes act upon.
Boeing is to the airline sector what Ford is to the car industry and General Electric to manufacturing, not just the symbol of the rise of corporate America in the 20th century but the full display of birth, rise to dominance and decay as slowly financial engineering started replacing manufacturing excellence to finally explode in a fireworks of dismaying products while maintaining a sky-high market capitalization.
The 737 "MAX" may have been built by "clowns supervised by monkeys" but it is still a well built, competitive airline which would not have had any problems if the company did not try to sell it for what it is not: a 737! For this is where everything went wrong.
When Boeing launched the 737 in 1967, they had only two larger body planes in the air, the 707 and the 727, and consequently, the plane quickly found not just a niche, but created the short haul mass air transport market to become Boeing best seller plane over the next 40 years with over 10,000 jets produced. The first plane to reach this milestone.
The plane was followed by the hugely successful super jumbo-jet 747, the 757, the 767, then the equally successful 777 and finally the 787. And then nothing.
In between, the airline industry had changed tremendously. With the birth of Airbus and the arrival of cheap mass transportation, pressure on prices and deliveries had grown beyond the ability of the company to respond. But it is the 2008 financial crisis which put a nail on new projects as by then all "new" planes were just redesigned older models, the 737x (Future MAX), the 747x which failed and finally the 777x just being launched.
The advantages were obvious, faster certification, faster deliveries, no need to train pilots for a new configuration, and cheaper "new" planes...
At least this was true on paper. In reality, the planes were mostly new with major changes including for the 737Max the position of the much bigger engines which necessitated a major software adjustment called MCAS to help the pilot stabilize the plane. This should have been dealt with seriously including added training for the pilots to master this new feature. Cost savings said otherwise and the software was proactively hidden to avoid expensive hours of simulator and accelerate the transition from the old to the new models.
This strategy was successful at first. As sales grew arithmetically from $ 68 billion in 2009 to $ 101 billion in 2018, net income was multiplied by 10, and so was the share price of the company (see below). Although this was more a miracle of financial engineering than of airplane manufacturing as the debt of the company also exploded in the meantime, with over $ 48 billion of share buybacks during the period, with total liabilities at $ 136 billion finally exceeding total assets at $ 132 billion now.
In retrospect, it is obvious that the company's management found it more efficient to prop up the company's shares by directly buying those shares than by developing new planes. Boeing ended up with planes which were half new, masquerading as older models to lower the cost of acquisition while not fully implementing redesign ideas which would have solved technical issues while costing more to develop.
The result, with liabilities exceeding total assets, the need for another $ 10 billion of emergency funding just to paper over the current fiasco and no new planes on the drawing board, is that technically Boeing is bankrupt. (The 747x has failed and it looks more and more likely that nobody will accept the 777x as an old 777 which means another 2 or 3 years of certification for a plane which is only an upgrade of the older 777!)
Because Boeing is so important to the American economy, including its military arm, it is very unlikely the the government will let the company go under. Still, putting the giant corporation back on its feet will be complex and probably extremely expensive. The recent failure, this past December, of its Starliner spacecraft to reach the space station only illustrates the challenge ahead.
Software and financial engineering are important aspects of modern management but they are not palliatives to engineering and product development. Boeing employees will have time to think about it while traveling on Airbus planes which are expected to take a growing share of the market in the coming years.
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