This video strives to be simply the most accurate assessment of Boeing’s troubles to fit within twenty minutes. To achieve this, its script was written in collaboration with and based on reporting by Jon Ostrower and his team of journalists at The Air Current, although any conclusions are our own. They’re some of the most respected names in the space and recent weeks have been an extremely busy and opportune time for aviation journalists, so we are immensely grateful for their contributions. It wasn’t always this bad. Long before a door plug rocked Boeing, and long before two nosediving 737 MAXs shook the iconic American aerospace giant to its very core, it was an earthquake of the most literal variety.
It was right about here, at 10:55 in the morning, February 28, 2001, that a magnitude 6.8 quake sent shockwaves rolling across the Pacific Northwest; and they didn’t spare the facilities of one of the region’s most prized institutions, either. For a full minute, it shook nerves and structures alike across Boeing’s various Washington locations, cracking runways, destabilizing foundations, and ruining, in particular, this building: 10-85, home to a host of engineers working on the heavily in-demand 737. In this case, though, a ground shaking event didn’t prove a catastrophe, but a catalyst—an opportunity for Boeing to be its best Boeing. Rather than move staff to office space farther afield, or rebuild offices, Boeing Commercial Airplanes’ leadership boldly innovated—they moved to the lake. The company’s Renton campus has been the home of 737 assembly since the 1970s.
By the ‘90s, the location had sprawled to nearly 300-acres, and the facilities had never been busier. Trying to keep up with the seemingly insatiable demand for ever cheaper domestic human haulers, trying to match the A320’s technological advances, and trying to streamline construction and assembly, Boeing launched the 737 Next Generation in 1993. On top of the now more efficient, higher capacity, fully digitally designed 737 NG, Boeing also sought to reinvent how they built planes in the first place.
Visiting Toyota and other Japanese companies throughout the 1990s, executives sought to simplify the supply chain, adopting the 5S's of lean methodology and Just in Time principles as means to catch up on their back orders and reduce idle inventory. By 2000, such C-suite ideas had matriculated down to the factory floor. In Renton, Boeing had swept, simplified, sorted, and sold off so much unneeded stock and general clutter, that it now had acres of newly unspoken-for floor space and storage. Rather than expand to meet demand, they shrank. Then, when the earthquake shook the region, and then 9/11 shook the world, the company took advantage of upheaval and slowdown by moving the entire 737 team—from ground floor machinists to high-ranking engineers—into the same building.
By effectively decluttering, Boeing moved engineering and business offices into the three buildings running the floor’s east and west boundaries and its center. By closing the distance between machinist, engineer, and management, difficulties in assembly, pain points, and slowdowns were trimmed away one by one. By closing the distance between plane and parts, placing the assembly on a moving line transporting the plane from one station to the next at a rate of two inches an hour, the factory was clearing an output of more than 30 planes a month by 2010, and eventually halved individual production time from 22 days to just 11. With the move to the lake complete, nearly 8,000 NGs would take to the sky in the following twenty years, making this third generation 737 the best selling generation of what was then the best selling commercial aircraft in the world. Producing a safe, reliable product through a quick, efficient, stable model that provided ample room for collaboration, communication from leadership, and continuous improvement through engineers and on-the-floor machinists, Boeing by the mid-2000s had reached peak Boeing. Alongside the successful 777 launch in ‘95—which is still the most popular wide body plane the world over, the 737 NG development, the proactive restructuring of its Renton factory, and the sound maneuvering to maintain an upperhand in its competition with Airbus, Boeing was increasingly dependable, Boeing was revered, Boeing was an American institution that Americans were proud of.
Of course, while reaching a peak is difficult, so too is maintaining a peak, as the potential to slip is never too far off. At about the same time, the company also decided to take a stab at a bolder project with an even bolder business model not so far up the road. 36 miles or 58 kilometers north on highway 405 from Boeing’s Renton factory is Boeing's Everett factory—the single largest building in the world. And it’s here where its troubles first appeared. Of course, when developing brand new planes for brand new purposes there’s bound to be a few swings and misses. But it’s less the miss and more the style of the swing that illustrates how far and how quick Boeing fell.
In 2003, Boeing decided they were going to make a new plane—it’d come to be called the 787 Dreamliner. But the board and CEO and ultimately investors were tired of the cycle of spending huge sums to design a plane then spending years upon years for them to finally turn a profit—they wanted returns faster. In fact, they said they’d do it for less than half of what they’d spent on the 777 a decade ago. And then, to cap off the challenge, they were going to introduce a litany of new technologies including, most importantly, the first majority composite airframe of any commercial aircraft, ever—a wholesale revolution in how jetliners had always been built. But Boeing had a solution. A decade before, McDonnell Douglas was the last great American commercial aircraft manufacturer that wasn’t Boeing, yet like all others in this category eventually did, in the 1990s, as the Cold War ended and Airbus strengthened, it was struggling financially.
It needed a new aircraft to have any shot of survival, yet it didn’t have the cash to design a new aircraft, so rather it aggregated a collection of suppliers to take on the design risk themselves. They’d each pay to design their respective parts, McDonnell Douglas would put it all together, and they’d all profit based on the sales. Ultimately unable to turn around its fortunes, McDonnell Douglas merged with Boeing in 1997 and the new, larger Boeing rebranded the beleaguered MD-95 the 717 and committed to bringing it to market. This went… ok—there were some major hiccups that they ultimately overcame—although it’s hard to really tell because the aircraft was a complete flop financially and Boeing preferred to sell the 737. Only 155 were sold meaning the risk that the suppliers took on was never truly rewarded. Yet also now part of the new, larger Boeing were all the former McDonnell Douglas executives.
When faced with the challenge of how to make a new aircraft for less, they felt they already had the solution: they’d do the 717 strategy. They’d collect together subcontractors—Japan’s Heavy Industrial conglomerates, Alenia Aeronautica, Vought Aircraft Industries—assign them parts, and not only ask them to produce the parts, but to design them too. And most crucially, Boeing wouldn’t pay for the development—at least not nearly to the extent they had previously. Once again, in order to win the contracts, the suppliers had to foot the bulk of the upfront development costs and make it back long-term through what Boeing and airlines paid for the parts, spares, and maintenance—or at least try to. Clearly, this was a disadvantageous deal for the subcontractors, but what the process proved out was that it did not matter.
Boeing had enormous negotiating leverage. Holding half of the commercial aircraft market, any Boeing contract was better than no Boeing contract so subcontractors agreed and Boeing’s plan to build its most advanced aircraft in history at a fraction of previous development costs marched forward. The utopian vision to speed up development and cut the cost of a new airplane had collided with an increasingly transactional approach of the new Boeing. This went poorly.
The plane was three years delayed. When rolling the first 787 out to reporters, dignitaries, and employees on 7/8/7, observers on-hand noticed that if you looked up through the wheel, you could see daylight from the cabin, if you looked through the cockpit’s front windows, you could see the passenger cabin. As suppliers and employees alike would later outline, the plane was less plane and more shell.
Inside it had no floor, no wiring, no systems, nor plumbing—it was prepared for far-away photos, but certainly not flight. And it wouldn’t be for another two and a half years. Even once finally flying with airlines, the expected production cost benefits from the new technologies never fully came and it had a rough start to commercial service with a series of thermal runaway incidents in its lithium-ion batteries that led to a months-long grounding in 2013. The 787, on the surface, has been an unabashed success for Boeing—2023 saw more than 300 new orders and the delivery of its 1,100th version—but despite that, it still hasn’t come close, financially, to delivering on its original promise for Boeing or its suppliers—ultimately the inevitable outcome of an overly compartmentalized development and manufacturing process.
So they didn’t do that again. Coming out of the global financial crisis, consumer demand for air travel was beginning to boom again; and with the fresh memory of record fuel prices, Airbus had just launched its new generation of fuel-efficient, re-engined A320 narrowbody aircraft. Combined, that meant Boeing hardly had a choice—Airbus was winning once Boeing-exclusive buyers. Boeing had to launch a corresponding fuel-efficient narrowbody aircraft or risk losing market share of its most popular product—its core profit-center—to its competitor. Yet, Boeing’s top engineers and finances were still tied up in getting the beleaguered 787 flying, and they certainly were not going to set up an all-new production system quickly enough or try the outsourcing strategy again. That meant that practically they just couldn’t build a new aircraft—the only way they could get a fuel-efficient narrowbody to market soon enough to respond to Airbus with the resources they had was to make yet another iteration to their almost five decade-old 737 design.
So, backed into a corner, that’s what they did. Continuing their response to the 787 difficulties, the company returned to a more traditional development and manufacturing process. It’s not that Boeing would do everything, but rather they’d do more and subcontract out to a smaller selection of suppliers with which they could work more closely.
Perhaps the most important relationship of all was with this company: Spirit Aerosystems. For decades, this Wichita, Kansas factory had been building Boeing fuselages then shipping them across the country by rail for final assembly in Seattle. And there’s a good reason Spirit was entrusted to build the literal core of Boeing aircraft—they used to be Boeing. The company’s Wichita division was an integral part, building some of their most iconic aircraft like the B-29, B-47, and B-52.
But in the early 2000s, Boeing needed money in order to simultaneously build the 787, appease investors, and appease its new management, so divestiture was the strategy: they’d sold plants in St Louis and Spokane and Corinth and Irving and now it was Wichita and Tulsa’s turn. Upon their sale, Boeing and its shareholders cashed a $1.2 billion check and Spirit Aerosystems was born to do more or less what they always had, but now as an independent, autonomous company. This went poorly.
Again in response to the 787’s incredible cost overruns, Boeing launched the rather anachronistically named “Partnering for Success” program. The way Boeing would describe this was that the company was going from supplier to supplier to look for opportunities to ultimately create a stronger aircraft product for their end-customer. The way that suppliers would describe this was that they were getting screwed. Boeing would go to each—say, UTC, who made the 777 landing gear—and demand to pay about 15% less for the same part.
If the supplier didn’t agree, they’d lose the contract: when UTC refused, the landing gear contract went to Héroux-Devtek—a comparatively obscure manufacturer for which this would be a major coup. These were suppliers that had demonstrated their commitment to Boeing by paying to develop parts of an aircraft which was not theirs out of pure belief that Boeing would do the right thing for their mutual success who were now being told that they themselves weren’t doing enough for their mutual success and had to earn less. But no matter how Boeing might portray it, the dynamics in these relationships were hardly mutual—to the suppliers, Boeing was irreplaceable. As an aerospace supplier, there’s Boeing, there’s Airbus, there’s Embraer, and that’s it for major commercial aircraft component customers. If they want business, they have to work with Boeing—the imbalance of power is massive—so, rationally yet unfortunately, plenty agreed to those price cuts in exchange for yet another promise that it’ll lead to greater mutual success thanks to a higher volume of orders down the line. Boeing might’ve hoped that a bit of healthy supplier squeeze would lead to optimization and innovation, yet what at very least happened in tandem was a systemic increase in disruptive manufacturing issues.
After all, the mutual success that Boeing promised never really materialized. Boeing’s decision to iterate upon the 737 design, rather than build something new, proved catastrophic. The larger size of the more fuel-efficient engines on the MAX led to slightly different flight characteristics that likely would have necessitated greater, and costlier, training requirements to get a pilot certified on previous generations of the 737 able to fly the MAX. So, Boeing implemented a software fix called MCAS that essentially augmented the inputs of the pilots so that the aircraft would handle similarly to previous generations even when, without the software, it wouldn’t. It was a flaw in this system, tied to a single sensor, that was the key trigger in the fatal crashes of Lion Air Flight 610 in 2018 and Ethiopian Airlines Flight 302 in 2019, which in combination led to the 20-month grounding of the aircraft type.
This led to the loss of hundreds upon hundreds of orders, nearly $20 billion, but perhaps more crucially, it meant that Boeing completely shut down MAX production for months in 2020, then restarted production at a much-slowed rate in the middle of the COVID pandemic. Still today, MAX production has not recovered to what it was pre-shutdown. This has been brutal for suppliers—they had to make massive layoffs to conserve cash, they lost plenty of their most experienced workers, and their market caps have lost quite notable chunks. And today, it’s no surprise that suppliers like Spirit are a source of many of Boeing’s woes—the two companies have fought bitterly. Spirit Aerosystems, by itself, has been responsible for defect after defect that slipped past QA.
The relationship between Boeing and its former Kansas division has only just begun to right itself under new management and a new Boeing contract that lets Spirit finally earn money on its contribution on the 787 after losing more than $1 million on each one since 2007. Altogether, there’s this sequence and sum of issues occurring across an array of companies with little commonality between them—some are strategic failures, some are software bugs, some are production issues, some are an unresilient response to an outside force. Perhaps the only commonality is that they’re all occurring as a part of this incredible, global, multi-company machine that builds a Boeing aircraft.
That leads to one conclusion—the machine that builds the machine it's broken. It’s not the suppliers or the airlines or the pilots or the maintenance engineers, it's Boeing that’s broken. They are now unable to reliably convert the singular engineering marvel into a consistent product. Yet still, that leaves the question of why. These days, commercial aircraft are more or less a commodity. The 737 is more or less the same thing as an a320, the 787 is more or less the same thing as an a350—there are some differences, but ultimately orders come down to who’s offering more or less the same thing quicker or for less.
The two major aircraft manufacturers have responded to these commodity economics in slightly different ways. Both have focused intensively in their factories and Airbus itself had its own massive and costly blunder with the A380, but Airbus never pursued such an extractive strategy with its suppliers nor did it fight costly cultural battles with its own workforce. It not only talked about its desire for supply-chain stability, it actually sought it out by bringing back parts of the process under its own roof. That stability has enabled Airbus to push the younger A320 bit by bit into the best-selling airplane of all time.
In the world’s most entrenched duopoly, Boeing and Airbus know that they’re going to get orders regardless, since it’s a commodity market, and so ultimately their financial success is going to be about the combination of how fast they can build aircraft and how cheap they can build aircraft. Essentially, Boeing is just wholeheartedly embracing the realities of the market while fixating on the financial returns of free cash flows for investors. This isn’t working. Manufacturing is hard.
Manufacturing an aircraft is harder. Manufacturing an aircraft profitably is even harder. Manufacturing an aircraft capable of flying the majority of every single day for two or three decades designed to be safer than walking down the street in conditions ranging from forty below to 120 above during anything from a clear, sunny day to a hurricane profitably while simultaneously engaged in a perpetual chase of even greater profits through an endless fight between its constituent parts has perhaps proven too hard.
It’s a process so starkly removed from, say, manufacturing a toaster that it should hardly be thought of as a similar process. It’s perhaps the difference between assembling a hamburger and assembling an entree in a Michelin-starred kitchen. Assembling a hamburger can be systematized, segmented, optimized, and outsourced—there are plenty of ways that an experienced business-person can come into that process and find corners to cut yet still successfully create good products and better financial results, then scale and scale it to achieve yet greater financial returns. But you don’t see Michelin-starred franchises.
That’s because you don’t get the best food in the world by telling your cooks how to make the best food in the world. It is not something that can be systematized, segmented, optimized, or outsourced. You don’t just hand them a recipe and hope for the best.
You get the best food in the world through the sum of the small things: the best ingredients possible, the cleanest working environment, the best-designed kitchen, pay that attracts the best talent, a sustainable working schedule, mentorship between older and newer staff, and on and on and on into smaller and smaller minutia to chase margins of quality through people, not processes, and only then, when they’ve been given every opportunity to succeed, holding them to the absolute highest standards. Boeing is trying to be a Michelin-starred kitchen with a fast-food mindset, and it’s just not working. Boeing was that Michelin-starred kitchen—there was an era when they had an incredible, almost otherworldly ability to shepherd an entire industry and the world into a new era of modernity through the awe-inspiring machines it built.
Yet as the days of today's bleaker era accumulate, its ability to return to the old one grows weaker. Boeing’s best people are leaving—they’re retiring or growing tired of working for a company that stumbles, only to promise reform just before the next stumble. The company needs a new aircraft, yet the people with the knowhow from building the last one are growing scarce.
Consequences are mounting. Cost-consciousness led to cost overruns that led to further cost-consciousness and so on and so forth, so the very thing that the company focuses on most is where it’s failing most. The string of two-decades of issues has meant that, while Boeing is still plenty capable of building overwhelmingly-safe aircraft and attracting plenty of orders, its ability to actually financially succeed while selling the commodity at the price the market demands is waning. With that, they have less cash and more debt getting in the way of building that new aircraft they so desperately need, meaning they focus more on optimizing their existing programs, meaning more cost-consciousness, and the cycle continues. Boeing is at the bottom of a deep, dark hole. Their competitor is not.
There’s not some crucial difference between Boeing and Airbus, there’s not one quick fix the American manufacturer can make to reignite the fire, there’s just a fundamental way of doing things that simply is not working. That means the only way out of this hole is the long, boring, awful process that does not conclude a video about it well of just being better, in every way, on every day, from its leadership down to the factory floor. In an industry where a few missing bolts can blow open a door plug, ground a fleet, and tank a stock price, it’s the small things that matter, yet Boeing's big issue is its misguided belief that it can cut and squeeze those it needs most without it all falling apart. While Boeing is the US’ only commercial aircraft manufacturer, there are other aircraft manufacturers—in fact, there’s another aerospace company just as big as Boeing: Lockheed Martin.
Of course they specialize in military aircraft, whose design and manufacturing works in a very different way from commercial aircraft, perhaps most of all in how disproportionately focused on research and development it is. For example, the company’s B-2 bomber cost, inflation adjusted, about $2 billion each and only 21 were built, largely because of how many new technologies were incorporated. I think it’s a fascinating aircraft which is why I was so excited when my friends over at Mustard put out a whole Nebula Original specifically about it. If you like videos about planes, you’ve almost certainly seen a Mustard video so you know they have some of the most amazing production quality out there, and when you combine it with the story of one of the most interesting aircraft out there it makes for a simply great video. If you want to give it a watch, just head over to Nebula.
The reason why creators like Mustard and myself put big, exclusive projects over on Nebula is because they offer a funding model that allows for that amount of time-investment into a single thing in a way that ad-supported platforms like YouTube just can’t. So, that means there’s loads more Original content like Neo’s fascinating episode of his Nebula-exclusive series Under Exposure breaking down the Tenerife Disaster—the deadliest air accident in history. Or we did an episode of our Nebula-exclusive series the Logistics of X about how arms manufacturing works. In all, Nebula is the place to go if you enjoy the type of stuff that independent creators put out and want to see what happens when the same creators put more budget and time into their work.
You can also, of course, watch their normal videos early and ad-free. So altogether, it’s a better viewing experience for what you already watch, higher-budget versions of what you already enjoy, and it helps support the creators you already follow, and all of this goes for far less than the price of basically any mainstream streaming site—when you sign up at Nebula.tv/Wendover, you’ll get 40% off which brings the cost of an annual membership down to just $2.50 a month. Signing up there will help support us at Wendover, so thank you in advance.
2024-02-16