SHAUN READ: Boeing crashed as company culture nosedived

For Boeing Aircraft Corporation the hits keep coming. In recent weeks the 737 MAX manufacturer agreed to plead guilty to a criminal charge of conspiring to defraud the US federal government relating to two fatal crashes of the 737 MAX in 2018 and 2019.

The plea deal follows mounting pressure on Boeing arising from a series of manufacturing safety concerns that were reignited after an Alaskan Airlines Boeing 737 MAX lost a door plug in mid-flight. Boeing also recently announced it was investigating manufacturing defects in its 787 Dreamliner.   

Most recently, two astronauts have become stranded aboard the International Space Station after their Boeing-manufactured Starliner spacecraft developed helium leaks and thruster issues, requiring them to wait for a rival SpaceX flight in February 2025 to return them to Earth.  A few weeks ago Boeing said it was suspending test flights of its new Boeing 777X variant after technicians discovered a structural issue during a post-flight inspection. 

How did Boeing go from the touchstone of aeronautical safety to facing criminal prosecution for its manufacturing safety compliance and a series of public relations disasters? The story starts in 1916 when company founder Bill Boeing is said to have noticed an improperly manufactured component of his first aircraft. He broke it, saying he would rather shut down his company than send out inferior work. Building on this foundation of engineering excellence, in the years that followed Boeing recruited the best and brightest engineering talent, bragging that “we hire engineers and others”. 

Further enhancing the culture of engineering excellence was that all this talent was situated in-house and under one roof at Boeing’s headquarters at Everard, near Seattle in Washington state. The proximity of Boeing engineers, test pilots and management allowed for rapid solutions to engineering problems, with the result that the Boeing 747, and later the Boeing 777 aircraft variants, were designed and ready to fly within an incredibly short period.

Outsource competencies    

According to journalist Peter Robinson in his recent book Flying Blind, by the mid-1990s increased competition from Airbus and costs in developing the new Boeing 777 aircraft were having a negative effect on the Boeing share price, which lagged behind that of McDonnell Douglas, its far smaller US rival. Many of the executives at McDonnell Douglas were alumni of General Electric and disciples of the once legendary Jack Welsh, who believed firmly in the concepts of maximising the return on assets and share buybacks to drive the share price of General Electric.  

Enamoured with the financial engineering skills of McDonnell Douglas management, the board of Boeing agreed to merge with McDonnell Douglas and ceded the executive management of the merged entity to the McDonnell Douglas executive team. Horrified at the bloated cost structures within Boeing, the McDonnell Douglas executives embarked on a programme to outsource key competencies and shut down many of the Boeing facilities, in line with their cost-saving approach. Management also moved Boeing’s headquarters to Chicago, far from its main assembly plant in Seattle. 

As Boeing outsourced more of its design, engineering, manufacturing and testing capabilities, the pressure to prioritise profits was felt throughout Boeing’s supply chain, including at its former subsidiary, Spirit Aerosystems, which manufactures the 737 MAX fuselage. Being a supplier to Boeing meant producing the same product at increasingly cheaper prices. The result was often the employment of less costly and less skilled employees. 

According to Robinson, over time financial targets began to drive engineering decisions. As profits increased, Boeing paid out billions of dollars in dividends and through share buybacks rather than investing in design and development. Boeing thus became the darling of the investor community. Employees were also rewarded based on cost savings. 

Reversed strategy

The negative effects of this change in culture were embodied in the development of the 787 Dreamliner. Determined that the costs of developing the Dreamliner be contained, Boeing set a budget and outsourced almost every aspect of the manufacture of the aircraft to third parties, with parts designed to “snap together” on the Boeing assembly line. However, the result was a disaster, with many components not fitting together and having to be re-engineered on the assembly line. Problems that could have been solved in a short period by co-located teams took weeks to resolve. The net result was an aircraft that was three years behind schedule and billions of dollars over budget.   

Boeing was not planning on a further version of the 737, which had been updated a number of times since its introduction to service in 1967. However, when in 2011 one of Boeing’s largest customers announced its intention to purchase the more fuel-efficient Airbus A320, Boeing reversed its strategy and announced the more fuel-efficient 737 MAX variant, resulting in orders for hundreds of the new variant. 

During testing it was found that the new, larger engines of the 737 MAX changed the aerodynamics of the 737 at certain speeds, resulting in a tendency for the aircraft to enter an uncontrolled nose-up angle of attack, leading to a potential stall. To counter this Boeing designed a flight stabilisation system known as manoeuvring characteristics automated system (MCAS), designed to automatically, without pilot input, push the nose of the aircraft down in response to an uncommanded nose-up attitude detected by an angle of attack sensor. 

Federal Aviation Administration (FAA) regulations require that any new system on an aircraft go through a lengthy certification process and possibly also require flight simulator training for pilots. This would have resulted in significant delays to the commercial introduction of the 737 MAX and added to its cost.   

According to evidence presented at the later US congressional hearings, Boeing employees spent a great deal of time and effort persuading the FAA that MCAS was merely an upgrade to the 737’s existing trim system and did not require anything more than an hour’s iPad training for pilots. In a now infamous internal email, a Boeing employee bragged about using “Jedi mind tricks” on FAA regulators to persuade them to approve the MCAS system on this basis, which the FAA did. The rest is unfortunate history.

The Boeing case is a salient lesson for companies that corporate culture matters. The true culture of a company is dictated by how senior management behave rather than the wording on posters in the canteen or what is stated in the annual report. Employees will behave and take decisions based on what they know will please senior management. In the case of Boeing, its cultural “secret sauce” was its engineering prowess, coupled with its approach to employees as being part of the family. By chipping away at this culture in the name of increased profits, Boeing management arguably sowed the seeds of its current misfortunes. 

• Read is founder and CEO of Read Advisory Services.