Turbulence In the Air

Boeing is among the world's largest aerospace companies and the largest defense contractor in the world. The firm designs and manufactures airplanes, rotocraft (helicopter-type aircraft), rockets, satellites, telecommunications equipment, and missiles worldwide. Boeing is also the largest U.S. exporter based on dollar value. Most members of the general public, though, know Boeing primarily and simply as a large manufacturer of commercial airplanes. In a good year Boeing generates over $95 billion in revenue and $9-10 billion in profits.

Boeing planes that are popular today include the 737, 767, 777, and 787. These planes are sold to airlines around the world and are used by dozens of major airlines. Boeing is also known for the iconic 747, once the world's largest passenger plane. Today, though, the 747 has been taken out of service by most passenger airlines and is primarily used for cargo. The 737 is the firm's best-selling plane d among the top-selling commercial jets in aviation history. In 2010, however, Boeing's primary competitor, Airbus, announced a major new product, the A320 family of planes, designed to be much more fuel and operationally efficient than existing planes. Boeing quickly realized that the A320 posed a significant threat and felt a strong competitive urgency to follow suit. And indeed, it was with great fanfare that Boeing announced the latest (fourth) version of the 737 in 2011. The appeal of the new generation of 737s was to be a combination of increased passenger capacity and much lower fuel costs. The firm initially budgeted $3 billion for research and development costs.

Dubbed the 737 MAX, the new plane took its maiden voyage in 2016 and received final Federal Aviation Administration (FAA) certification in 2017. Interestingly, during the plane's development Boeing had pushed the FAA for quick approvals and the government regulatory agency actually delegated some of the review processes to Boeing itself, effectively allowing the firm to review its own products. The plane was an instant hit and Boeing quickly secured orders for almost 5,000 of the new planes. The first two planes were delivered to overseas airlines and then the next batch was delivered to Southwest Airlines in 2017. After one year Boeing had delivered 137 737 MAXs to 28 airlines in several countries. (In keeping with standard practice, the 737 MAX is available in three configurations, the 7, 8, and 9, each with different seating capacities.)

Unfortunately, though, disaster soon struck. A MAX 8 crashed in October 2018 and another crashed in March 2019, resulting in 346 deaths. Aviation authorities around the world quickly grounded all 737 MAXs while investigations were conducted into the cause(s) of these two crashes.

The initial problem was soon discovered. The new 737 series planes were built with a new enhanced navigation system. One part of this system was programmed to take control of the plane and force it into a nosedive under certain emergency conditions. However, details about this part of the enhanced navigation system were omitted from both technical flight manuals and flight crew training programs. Complicating things even more, the system could be unnecessarily activated if a single sensor failed and pilots were not informed of how to override it if it was activated. As Boeing and the FAA investigated more fully, however, it was also learned that there were other technical, mechanical, and electronic problems with the 737 MAX series and production of new planes was halted until these problems could be fixed. In December 2019 Boeing fired its CEO because of his handling of the crisis and estimated that it would incur costs of nearly $20 billion for litigation and compensation for the crashes, reworking the planes, and penalty payments to airlines for not being able to meet delivery schedules. Boeing also announced that no new 737s would be produced until at least late 2020. As all of these events unfolded, other problems began to surface. For one thing, there seemed to be some evidence that Boeing was aware of the problems with the new planes for at least a year before the first crash. Boeing's board of directors was also criticized for lack of oversight and ineffective corporate governance. Further compounding the problem, Boeing was forced to release documents that showed numerous derogatory emails sent between Boeing employees about the design of the MAX series, about the FAA, and about poor training being provided to pilots. All things considered, these events have painted Boeing in a very poor light and public relations experts suggest it may take the firm years to improve its image and reputation. History, unfortunately, provides an unflattering view of Boeing and its ethical context. Over the past few decades the firm has pled guilty to numerous instances of questionable conduct. These include:

1989: pled guilty and paid a fine for corporate espionage

1994: paid a fine to settle charges for overcharging the government

2000: paid a fine to settle two whistleblower complaints about using defective components in helicopters

2003: paid a fine for corporate espionage

2004-2020: paid several fines for overcharging the government

Boeing has also been fined numerous times for environmental damages, for improper labor practices, and for violating numerous export rules and laws.

Looking ahead, as noted earlier, Boeing fired its CEO in December 2019. His departure package included around $62 million in compensation and pension benefits. The new CEO, David Calhoun, received a $10 million signing bonus, a base salary of $1.4 million, another $2.5 million in bonuses tied to various financial tar-gets, and additional potential bonuses tied to getting the 737 MAX back on track and fixing other problems. One industry expert said, "Putting in place a world-class leader like Dave at the helm of Boeing is good for the company and important to the country." Not everyone was impressed, though. Another industry expert noted, "He seems like a capable manager, but he was on the board when all the decisions [about the 737 MAX] were made." To state the obvious, going forward many people will be paying close attention to what happens next at Boeing.

Boeing and the Boeing Foundation donate upward of a quarter billion dollars each year to social and community causes. How do you reconcile this with the behaviors described previously?