Boeing’s culture needs an overhaul; take it from its customers

By Brooke Sutherland

Boeing Co. executives seem to be about the only ones who don’t think the company has a culture problem.

Some 171 of the company’s 737 Max 9 jets remain grounded while the Federal Aviation Administration assesses how an auxiliary exit door that was meant to be sealed shut blew open on an Alaska Airlines flight.

While Boeing Chief Executive Officer Dave Calhoun has committed to full transparency so that such safety incidents “can never happen again” and has acknowledged the company’s “mistake” on the Max, he has framed the issue as a serious but isolated quality oversight rather than a symptom of deeper-rooted problems.

The company’s customers have a different opinion: “I’m disappointed that the manufacturing challenges do keep happening at Boeing. This isn’t new,” United Airlines Holdings Inc. CEO Scott Kirby said Tuesday in an interview on CNBC.

“My own assessment is that this goes all the way back to the McDonnell Douglas merger, and it started a change in culture”, he added.

Boeing acquired St. Louis, Missouri-based McDonnell Douglas Corp. in 1997 for about $16.3 billion, having purchased the aerospace and defense business of the former Rockwell International Corp. the previous year. The acquisitions effectively created the plane manufacturing duopoly that has persisted to this day, with Airbus SE serving as Boeing’s only true competitor.

For many former Boeing employees, the McDonnell Douglas deal marked the beginning of the end for the company’s vaunted engineering culture as managers promoted from the smaller company ushered in an overly myopic focus on the bottom line. Others say the cultural shift was sealed in 2001, when Boeing decided to move its headquarters to Chicago, away from the Seattle-area factories responsible for churning out its airplanes.

The company’s current challenges may have a more recent origin story: Boeing’s infamous “partnering for success” efficiency program, initially launched in 2012, squeezed its supply chain for cost cuts in the pursuit of profit margins, leaving parts-makers such as fuselage manufacturer Spirit AeroSystems Holdings Inc. strained and vulnerable. Partnering for success “was a naked exercise in extracting price from suppliers in exchange for pretty much nothing,” Vertical Research Partners analyst Rob Stallard said in an e-mail. “You can’t do that and not expect consequences.”

Whether there was one specific turning point or a slow burn of bad decisions, something in Boeing’s culture is clearly broken. There’s no other conclusion to draw when a company whose primary purpose is manufacturing and delivering high-quality aircraft can’t do either of those things consistently. Kirby credited Calhoun with making some “really positive changes” at Boeing even as he called for the company to move faster.

The Boeing CEO has toughened up internal accountability safeguards and safety reporting protocols in the engineering ranks in the wake of the Max crisis. But it remains far from clear that Boeing has properly reckoned with the missteps of its past. For example, Calhoun elected in 2022 to once again move the Boeing headquarters even farther from Seattle, this time to an Arlington, Virginia, office complex that neither he nor Chief Financial Officer Brian West reportedly frequent.

Airline customers and supply-chain partners aren’t going to be the ones to ultimately restore Boeing’s central nervous system and manufacturing mindset. But when so many of them are willing to call for meaningful overhauls, Boeing needs to listen — or risk handing even more market share over to Airbus.

“They’ve had quality-control problems for a long time now, and this is just another manifestation of that,” Emirates President Tim Clark said in an interview with Bloomberg News. While “Boeing has always produced very good airplanes,” Clark said the decisions to move the headquarters and aggressively outsource production of the 787 Dreamliner to curb costs reflected a "plot loss." Wizz Air Holdings Plc CEO Jozsef Varadi has criticized the “fairly cozy” relationship between aircraft manufacturers and their regulators and called for greater oversight, saying that it “almost feels like the manufacturers got married to the regulators.”

Boeing has faced a chorus of critics in high places before: Michael O’Leary, CEO of budget carrier Ryanair Holdings Plc, in 2022 compared Boeing executives to “headless chickens,” while Domhnal Slattery, the former CEO of lessor Avolon Holdings Ltd., reportedly lamented that Boeing had “lost its way” and likely requires “fresh vision, maybe fresh leadership.”

But this time feels different. United is Boeing’s biggest customer, with large outstanding orders for both the 787 Dreamliner and the 737 family of jets, including the grounded Max 9 variant and the yet-to-be certified Max 10 model. The best case scenario is that United takes its first delivery of a Max 10 jet five years later than the timeline the airline was initially promised, so the company had already started thinking about backup plans before the Alaska Airlines incident, Kirby said.

“The Max 9 grounding is probably the straw that broke the camel’s back for us,” he said. “We’ll hope that Boeing gets it certified at some point, but we’re going to build an alternative plan that just doesn’t have the Max 10 in it.” That likely means a change to its order book, and there’s only one other aircraft supplier: Airbus.

That’s a notable shift from United’s past comments on the Max 10. In April 2022, the company was “confident” it would take delivery of the jet sometime in 2023, a sentiment Kirby reiterated as recently as December of that year as the airline added to its order of the model. Ryanair’s O’Leary said earlier this month that he now isn’t sure if the FAA will certify the Max 10 by the end of this year.

“I don’t know if anyone really knows” when either the Max 10 or the smaller Max 7 variant that’s also still awaiting approval will be certified for service, General Electric Co. CEO Larry Culp said in an interview on Tuesday. The Leap engine that GE manufactures with Safran SA through their CFM International joint venture powers all models of the Max. “We have tremendous confidence in Boeing,” Culp said. “I think if you look at the 737 Max family at large, there is demand for each variant — both those approved and in production and those that are undergoing review.”

To that end, Delta Air Lines Inc. CEO Ed Bastian said last week that his airline was still planning to move forward with an order for 100 of the Max 10 model that was announced in 2022. But that was Delta’s first large purchase of Boeing planes in more than a decade, and the Airbus-weighted nature of its fleet means it has largely been spared the financial repercussions of the US manufacturer’s myriad manufacturing issues. Put another way, its patience hasn’t been tested in the way that United’s has.

“How many times can ‘won’t happen again’ happen again?” Bank of America Corp. analyst Ron Epstein wrote in a report this month. “Both Boeing and Spirit need a drastic cultural overhaul. This cultural change won’t come from FAA mandates, congressional hearings, internal memos, or one-hour all hands meetings. For culture to move from corporate jargon to being embodied in the habits and minds of both workforces, we see it as necessary for Boeing and Spirit to drastically rethink the ways they have operated.”

Boeing may choose not to care what analysts have to say, but it shouldn’t brush off its customers.