A Year After The Second MAX Crashed Boeing Is Faced With Ruin

DISPATCHES FROM MOON OF ALABAMA, BY "B"
This article is part of an ongoing series of dispatches from Moon of Alabama
With selected comments

Unchecked capitalist culture engenders its own implosion
[dropcap]O[/dropcap]n top of the damage that misguided shareholder value policy caused to Boeing will now come the effects of an unprecedented pandemic. Together they may well signal the end of a once great company.

On March 10 2019 Ethiopian Airlines Flight 302 crashed shortly after taking off in Addis Adaba. All 157 people on board died. It was the second crash of a Boeing 737 MAX airplane six months after Lion Air Flight 610 had crashed and killed all 189 people on board.

Boeing 737 MAX airplanes parked at Grant County International Airport October 23, 2019 in Moses Lake, Washington. The fate of this aircraft and its manufacturer are now in question as a result of putting profits over safety—a criminal decision. (David Ryder | Getty Images)

Exactly a year ago Moon of Alabama published its first piece about the MAX. At that time all MAX planes were grounded except in the United States. We described Boeing's shoddy implementation of the plane's maneuvering characteristics augmentation system (MCAS) and concluded:

Today Boeing's share price dropped some 7.5%. I doubt that it is enough to reflect the liability issues at hand. Every airline that now had to ground its planes will ask for compensation. More than 330 people died and their families deserve redress. Orders for 737 MAX will be canceled as passengers will avoid that type.

Boeing will fix the MCAS problem by using more sensors or by otherwise changing the procedures. But the bigger issue for the U.S. aircraft industry might be the damage done to the FAA's reputation. If the FAA is internationally seen as a lobbying agency for the U.S. airline industry it will no longer be trusted and the industry will suffer from it. It will have to run future certification processes through a jungle of foreign agencies.

Congress should take up the FAA issue and ask why it failed.

The MAX was developed and built as cheap as possible and not as safe as possible. Boeing cut corners and deceived its customers and  regulators. Its management had only one thing in mind - the stock price of Boeing and its so called shareholder value.

All MAX planes, the 400 that existed at that time plus the 400 Boeing has since built are still grounded. The accident investigation reports for the Lion Air flight and the Ethiopian jet (pdf) make it clear that Boeing's penny wise but pound foolish MCAS implementation was the root cause of both accidents.

Boeing's Calhoun

A reasonable fix for MCAS, which was first promised for April 2019, is still not working. A re-certification of the type is still months away. After pressure from the European regulator EASA additional fixes will have to be applied to wire bundles under the cockpit which in case of a short circuit could cause another crash of a plane.

There are still dozens of open court cases and criminal investigations against Boeing. It will have to pay more billions of dollars for compensations.

During the first two months of this year total orders for Boeing commercial planes were negative. There were 25 more cancellation, or conversions of multiple MAX orders to fewer 787 order, than total new orders. During the same time its competitor Airbus won net orders for 274 commercial jets.

Since a year ago Boeing's share price has dropped from $440 in February 2019 to today's opening price of $160 per share. The company has developed a serious cash flow problem. It is now drawing down all credit lines it has with its banks. It is cutting all noncritical spending, instituted a hiring freeze and limits overtime.

The commercial airline business is not the only part of Boeing which is in deep trouble. Its military and space programs have similar problems.

The root cause for all this is Boeing's shareholder value mentality:

This mad scramble for cash and the existential urge to “preserve cash in challenging periods” comes after this master of financial engineering – instead of aircraft engineering – blew, wasted, and incinerated $43.4 billion on buying back its own shares, from June 2013 until the financial consequences of the two 737 MAX crashes finally forced the company to end the practice. That $43.3 billion would come in really handy right now.

The sole purpose of share buybacks is to inflate the stock price because they make the company itself the biggest buyer of its own shares. But those $43 billion of share buybacks cost the company $43 billion in cash. Now those buybacks have stopped because Boeing needs every dime of cash to stay liquid and alive, and shareholders, who’d been so fond of those share buybacks, are now getting crushed by the damage those share buybacks have done to Boeing’s financial position.

Boeing's new CEO David Calhoun, who had been on Boeing's board for ten years before taking up his new position, still does not get it. In a January media call he demonstrated no change of mind:

Calhoun said that nothing was wrong at Boeing. It is just that foreign pilots are incompetent, that Boeing workers lack practice and that its customers have no idea what they are talking about. Safety, he says, is just a prerequisite for shareholder value, not an inherent value in itself. Dividends must continue to flow, even when that requires the company to take on more debt. Boeing should not develop new airplanes as its derivatives of old ones can beat the competition. Calhoun also wants to stay in his new positions as long as possible even though he lacks the competence to fill it.

In short - Calhoun said all the wrong things he possibly could have said.

In a recent interview with the New York Times Calhoun blamed his predecessor for Boeing's trouble:

In a wide-ranging interview this week, Mr. Calhoun criticized his predecessor in blunt terms and said he was focused on transforming the internal culture of a company mired in crisis after two crashes killed 346 people.
...
Before becoming the chief executive, he vigorously defended Mr. Muilenburg, saying in a CNBC appearance in November that Mr. Muilenburg “has done everything right” and should not resign. One month later, the board ousted Mr. Muilenburg and announced Mr. Calhoun as his replacement.

Calhoun was forced to apologize after his attack on his predecessor. He has still to apologize for again blaming foreign pilots for crashing Boeing's badly engineered planes:

When designing the Max, the company made a “fatal mistake” by assuming pilots would immediately counteract a failure of new software on the plane that played a role in the Lion Air and Ethiopian Airlines accidents. But he implied that the pilots from Indonesia and Ethiopia, “where pilots don’t have anywhere near the experience that they have here in the U.S.,” were part of the problem, too.

Asked whether he believed American pilots would have been able to handle a malfunction of the software, Mr. Calhoun asked to speak off the record. The New York Times declined to do so.

“Forget it,” Mr. Calhoun then said. “You can guess the answer.”

The stop of air travel due to the Coronavirus pandemic will cause many airlines to go bankrupt. Many more Boeing and Airbus orders will get canceled. Global air travel and orders for new airplanes will take several years to crawl back to the pre-pandemic level. Five workers at Boeing's widebody production line in Everett have come down with the Coronavirus disease and the production may have to be stopped.

The greedy mismanagement of previous years at Boeing brought the once leading company to the border of ruin. The pandemic, and the global depression it will cause, now make it certain that Boeing will have to ask for a gigantic government bailout or go into bankruptcy.

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Previous Moon of Alabama posts on Boeing 737 MAX issues:

• Boeing, The FAA, And Why Two 737 MAX Planes Crashed - March 12 2019
• Flawed Safety Analysis, Failed Oversight - Why Two 737 MAX Planes Crashed - March 17 2019
• Regulators Knew Of 737 MAX Trim Problems - Certification Demanded Training That Boeing Failed To Deliver - March 29 2019
• Ethiopian Airline Crash - Boeing Advice To 737 MAX Pilots Was Flawed - April 9 2019
• Boeing 737 MAX Crash Reveals Severe Problem With Older Boeing 737 NGs- May 25 2019
• Boeing's Software Fix For The 737 MAX Problem Overwhelms The Plane's Computer - June 27 2019
• EASA Tells Boeing To Fix 5 Major 737 MAX Issues - July 7 2019
• The New Delay Of Boeing's 737 MAX Return Will Not Be The Last One - July 15 2019
• 737 MAX Rudder Control Does Not Meet Safety Guidelines - It Was Still Certified - July 28 2019
• 737 MAX - Boeing Insults International Safety Regulators As New Problems Cause Longer Grounding - September 3 2019
• Boeing Foresees Return Of The 737 MAX In November - But Not Everywhere - September 12 2019
• 14,000 Words Of "Blame The Pilots" That Whitewash Boeing Of 737 MAX Failure - September 18 2019
• Boeing Failed To Consider Pilot Workload When It Designed and Tested The 737 MAX - September 29 2019
• Boeing's New Problems Reach Beyond The 737 MAX - October 12 2019
• 737 MAX Produces More Bad News For Boeing - October 21 2019
• It Is True That Corruption Caused The 737 MAX Accidents. But It Was Not Foreign. - November 25 2019
• Boeing Will Have To Stop Its 737 MAX Production Line. What will Trump Do To Avoid It? - December 13 2019
• Can Boeing Survive Its MAX Problems? - January 22 2020
• New Boeing CEO Insists On Moving The Company Towards Irrelevance - January 24 2020

Posted by b on March 12, 2020 at 18:00 UTC | Permalink

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