
Boeing Sales and Profits Plummet as 737 Max Crisis Continues - ciconia
https://www.nytimes.com/2019/10/23/business/boeing-earnings-737-max.html
======
johngalt
Boeing is going to be _the_ case study of what happens when you let 'business
people' take over an engineering company. A bunch of MBAs deciding to move
numbers around on paper and losing sight of the bigger picture.

The 737 MAX and all the issues with the 787 isn't what happens when engineers
are in charge, it's what happens at the end of a long line of non-technical
people saying "well we can just do ______ right?" Cutting corners and working
on influence rather than excellence.

Article detailing the debacle with the 787. From which zero was learned.

[https://www.forbes.com/sites/stevedenning/2013/01/17/the-
boe...](https://www.forbes.com/sites/stevedenning/2013/01/17/the-boeing-
debacle-seven-lessons-every-ceo-must-learn/)

In 2001 there was an engineer that carefully analyzed the path Boeing was
taking and detailed why it would cause nothing but increased risks and costs.
A bunch of business guys outsourcing everything and not understanding why they
don't have a working plane underneath all the contract language.

[http://seattletimes.nwsource.com/ABPub/2011/02/04/2014130646...](http://seattletimes.nwsource.com/ABPub/2011/02/04/2014130646.pdf)

They had a goose laying golden eggs and they killed it to save the money on
feeding it this quarter.

~~~
munk-a
Maybe? But that case study has already happened time and again, yet these
sorts of folks are allowed to slowly creep into working systems and break them
still.

I think it's just the classic aging business problems, most people are
averagely competent, many companies fail, a company that happens to have an
over abundance of particularly skilled people will succeed, but over time the
average skill of those people will decrease and the company will flounder.

There are ways to keep standards moderately high, and there are ways to tank
it by allowing nepotism, encouraging CYOAism & turf wars, cutting salaries on
highly skilled individuals relative to market rates (or laying them off to
replace them with college grads)... I think companies (in line with the larger
market) are just naturally cyclic and that incredibly long lived companies are
quite the exception to the standard life cycle.

~~~
TeMPOraL
I understand GP to be talking about something different - about consequences
of putting behind the wheel people who don't care whether the company is
making planes or toilet paper, but view it as a vehicle to turn money into
more money.

Goodhart's law states that "when a measure becomes a target, it ceases to be a
good measure" \- because people then start optimizing for the value of the
measure, instead of what it's a proxy for. It seems that we've created a class
of specialists, whose entire job is to do such optimizations. And we let them
run companies, leading to predictable results.

~~~
munk-a
Oh I agree, but I think that that factor has been obvious and evident in the
US economy since the 80's. Management people work to maximize their take home,
their take home is highly bonus dependent, their bonus is highly dependent on
quarterly performance (not long term investment or good foundational
decisions)... thus our stock driven economy is maximizing for people who can
sell two dollars tomorrow for a dollar today.

I thought the other point (about the luck of selecting high skill employees
early in a company lifetime) was also pretty interesting though.

~~~
TeMPOraL
> _I thought the other point (about the luck of selecting high skill employees
> early in a company lifetime) was also pretty interesting though._

It was. I never thought about regression to the mean in context of employees
of a company before. So thanks for bringing that up.

------
campfireveteran
I was just watching the blancolirio channel (a 777 pilot), who previously
brought up the 737NG pickle fork crisis that the mainstream media isn't
reporting on. Combined with the 737 Max and 2010 737NG Ducommun critical
structural parts deficiencies and burying of the internal Boeing blue-ribbon
panel's findings, it's only cognitive dissonance and profiteering that keeps a
rational person from concluding extensive and pervasive regulatory capture
hasn't damaged the quality and fitness of Boeing's products and services
designed, manufactured, overhauled or repaired in the past 20-25 years to an
unknowably broad and deep systemic level that is fundamental uncertain to know
the extent of the risk that lurks because of "self-certification" and other
lax practices. Kicking out a couple of managers isn't going to fix much of
anything that is already happened, like substandard spars lurking in 737NG's
waiting to fail on hard landings, runway overruns and possibly heavy
turbulence, leading to fuselage breakups.

I also think there's a bit of the Upton Sinclair effect in play where some
Boeing pilot Youtubers including blancolirio and MentourPilot are
overconfident and overestimate the quality and reliability of the equipment
they fly out of sunk costs and income dependence biases.

Boeing is too big to fail, too big to jail and too big to derail. One or two
products may have some minor software patches applied, but they won't ever be
told to recall unsafe or defective products because they own the regulators
and have outsized influence based on national strategic interests, and lots of
lobbyists and campaign contributions.

~~~
TylerE
Hyperbole much?

We have ample evidence...there are thousands of the things flying every day.

The 737NG has one of the best safety records of any airliner in service, EVER.

~~~
bkor
4.7% percent with structural cracks seems awfully high. I thought planes were
regularly and thoroughly inspected.

Source
[https://en.wikipedia.org/wiki/Boeing_737_Next_Generation#Str...](https://en.wikipedia.org/wiki/Boeing_737_Next_Generation#Structural_defects)

~~~
stouset
They are, and now this is just an additional thing that's inspected for and
dealt with as part of the regular service life. Every plane you've ever flown
in has had an unexpectedly high failure rate of some component that wasn't
discovered until it was in service, which resulted in a modification to the
published inspection/maintenance/replacement routine.

------
CivBase
2002 - Goodrich Corporation acquires TRW Aeronautical Systems.

2005 - United Technologies Corporation (UTC) acquires Rocketdyne from Boeing
and merges it with subsidiary Pratt & Whitney.

2007 - Raytheon acquires Sarcos.

2008 - Rockwell Collins acquires Athena Technologies.

2009 - Raytheon acquires BBM Technologies.

2010 - Raytheon acquires Applied Signal Technology.

2012 - UTC acquires Goodrich Corporation and merges it with subsidiary
Hamilton Sundstrand to form UTC Aerospace Systems (UTAS).

2013 - Rockwell Collins acquires ARINC.

2015 - Raytheon acquires Websense and Foreground Security.

2016 - Raytheon acquires Stonesoft from Intel.

2017 - Rockwell Collins acquires B/E Aerospace.

2018 - UTC (51 in the Fortune 500) acquires Rockwell Collins (415 in the
Fortune 500) and merges it with UTAS to form Collins Aerospace.

2019 - UTC (46 in the Fortune 500) and Raytheon (114 in the Fortune 500)
announce an intent to merge, forming Raytheon Technologies Corporation (RTC).

\--- Speculation time ---

2020 - UTC and Raytheon merge to form RTC.

2022 - RTC acquires Boeing.

------
soared
Its good that a company is hurt because of its negligence.

Its bad when an industry dominated by two players has one of those players
hurt and the market can't replace them.

You can't start a competitor to Boeing because it would cost over $100Bn, so
the larger outcome is bad for aviation.

~~~
disordinary
There's quite a few competitors in the narrow body space like the 737: Airbus,
Bombadier, Embraer, Irkut, COMAC, etc. The lack of competition is in wide body
aircraft (With Airbus and Boeing being the only players although there will be
the Craic at some point in the next couple of years).

~~~
CaptainZapp
> Bombadier

If you're refering to the C series, that's now essentially a product provided
by Airbus (under the A220 monikker).

> COMAC

Not viable. Not for the next couple decades. The reason is not that the
Chinese are not able to build an airworthy plane in a few years time. The main
problem will be the service offerings to an international clientele. Let's
just say that China's pencheant for cutting corners is not conductive to trust
into their service offerings, including the provision of critical spare parts.

------
frozenlettuce
Poor Embraer - they were bought by Boing recently, their private jets are some
of the best. I hate seeing decaying big players buying smaller "fresher"
companies just to see them squeezing any profit/value until the acquired
company is ruined.

------
tzs
My understanding is that one of the major selling points of this plane was
that pilots of previous 737 models would need very little additional training
for the 737 MAX. I think it was something like an hour of reading and they
were then considered good to go.

It is also my understanding that _IF_ pilots were fully informed of everything
MCAS does and its failure modes, and were trained in how to recognize and
handle those failures, and maybe also if the plane has the optional AoA
features (display from both sensors, AoA disagree light) which could help
recognize when MCAS is using faulty data, then the MAX would be fine.

Question: doesn't there come a point where it is cheaper for Boeing to give up
on the very little additional training thing, and go ahead and eat the costs
of retraining all the pilots to fully understand MCAS and installing the
optional AoA features on all 737 MAXs?

~~~
phire
All the pilots needed to do was identify the problem as MCAS, use manual
electric trim buttons to neutral and then turn electric trim off.

But Boeing never trained pilots how to identify the problem, and told them the
old procedure was the correct way of dealing with it. The old procedure told
pilots to turn electric trim off, never turn it back on and return stabilizes
to neutral with manual control, which turns out to be impossible.

That's not one, but two pilot training issues with Boeing's official training
materials.

A related problem is that because of the no extra training requirements,
Boeing explicitly designed MCAS to be near impossible to disable, because if
it was disabled then the plane now had different flight characteristics, which
the pilots weren't trained to handle.

And this is also the reason why MCAS only used data from one sensor. If the
sensors disagreed and MCAS disabled itself, then that would require pilot
training.

The whole system would have been designed differently, and more safely if it
wasn't for the "no extra training" requirement.

~~~
idoubtit
It was much worse than a lack of training.

Prior to the first crash in Indonesia, MCAS was not mentioned in the formation
to the pilots. Boeing has asked the FAA to remove it from the documentation.
The FAA did not know that the MCAS was totally different from what Boeing had
initially planed, so they agreed.

After the crash, Boeing published new instructions that mentioned MCAS. But
they were of no use for the Ethiopian crash. As you wrote, turning off MCAS
also turned off stabilisation, and manual control was not possible because of
the excessive speed. The pilots did understand that, so they enabled the
electric trim again. Unfortunately, this activated the MCAS which send the
plane downside 10 seconds later. They had no way out.

~~~
phire
I have a personal theory (based on the graphs from the reports from both
crashes) that once the stabilisers go far enough out of trim at high enough
speeds, that the even electric trim motor isn't powerful enough to move the
stabiliser.

In both crashes, after repeated activations of MCAS has pushed the stabiliser
almost fully down, we see the pilots do two quick presses of the trim up
button. The graph shows the stabiliser barely moving (much less than a press
of the same length earlier in the flight).

I suspect the pilots pressed the trim up button, heard a loud noise from the
electric motor straining, or a fuse popping, or something? So they stopped
pressing trim up.

Even worse, only trim up was failing, MCAS was still able to command more trim
down.

------
meddlepal
Boeing stock feels like a great buy if the bottom falls out. There is simply
no way the US Government is going to let the only major domestic commercial
aircraft business go under.

On the other hand this fiasco has not really hurt the stock price too much so
perhaps investors already have decided this is true as well.

~~~
starpilot
Yeah, this seems like it could be a great buying opportunity. Reminds me of
Toyota's unintended acceleration debacle which led to the largest auto recall
in history. Very similar emotional feel. I had a coworker saying she would
never ride in a Toyota again. How's Toyota doing today? Just fine.

~~~
aggie
Not sure how widely this is known, and thus how much it impacted stock prices,
but the unintended acceleration panic was not a real mechanical issue, and
thus Toyota was not at fault [1]. The 737 Max is/was a real problem and is/was
Boeing's fault.

1 -
[https://en.wikipedia.org/wiki/Sudden_unintended_acceleration...](https://en.wikipedia.org/wiki/Sudden_unintended_acceleration#Sudden_acceleration_in_Toyota_vehicles)

~~~
Redoubts
> the unintended acceleration panic was not a real mechanical issue

Wasn't it software? Isn't that just as "real"?

> Toyota was not at fault

Uh...

 _A subsequent investigation[47] by Safety Research[48] of the NTHSA /NASA
report along with information from Barrs report[49] and Koopmans report[50]
revealed that bad software design, antiquated ECU hardware fueled by a poor
company culture were the likely cause of the SUA in the Toyota Camry
incidents._

 _In April 2013, Betsy Benjaminson, a freelance translator working for Toyota
to translate internal documents, released a personal statement about Toyota
covering up facts about the sudden unintended acceleration problem._

 _This leak of internal documents fueled a criminal investigation by the FBI
and the Justice Department that had been ongoing since 2010,[52] and on March
19, 2014, the DOJ issued a deferred prosecution agreement with a $1.2 billion
criminal penalty for issuing misleading and deceptive statements to its
consumers and federal regulators, as well as hiding another cause of
unintended acceleration, the sticky pedal, from the NHTSA.[41] This fine was
separate from the $1.2 billion settlement of a class action suit paid to the
drivers of Toyota cars who claimed that their cars had lost value as a result
of the SUA problems gaining publicity in 2012, and was at the time the largest
criminal fine against an automaker in US history.[53] Toyota was also forced
to pay a total of $66.2 million in fines to the Department of Transportation
for failing to handle recalls properly and $25.5 million to Toyota
shareholders whose stock lost value due to recalls. Nearly 400 wrongful-death
and personal injury cases were also privately settled by Toyota as a result of
unintended acceleration.[53]_

------
rdiddly
The company has an opportunity to revamp their culture in a way that makes
safety a core tenet again. Seems like that's the only way to not only survive
the fallout but someday look back on this as the costly lesson that it is.
"Back when we were that, we used to do that, which is how we learned this, and
now instead we're this, and we do this."

~~~
alexis_fr
...we’ve learnt that his manager commits fraud, that manager commits
perjury”... 5xWhy leads to the question “Why are managers under such
pressure”, the answer is two-fold: “They want to have a family and a cost of
living is high, and they’re ready to die themselves at their desk to make
enough money, so they actually care more about the lives of others than their
own, which is ironic”, the other is “Because Boeing is fundamentally on older
tech than Airbus, so no matter how they press the lemon, they can only squeeze
that much.”

See, Boeing was built before Airbus. Airbus benefited from starting at the
electronics age, with lessons learnt from Boeing. It had an impact on the
design: Airbus is fly-by-wire, Boeing isn’t. Probably all the tech stack of
Airbus slightly newer, with slightly newer management methods too (legacy is a
curse to get rid of) and easier for them to iterate and upgrade. That alone
could explain why each generation of Boeing plane was rushed to the market,
including the explosive batteries circa 2010, the broken airframes by Ducommon
for 4.7% planes, helped by FAA delegating self-certification of their planes
to Boeing itself, and the coup de grace, planes that literally want to aim for
the ground in 2019, all of that in 8 years. Ironically they’ve bought
McDonnell 20 years ago which was pro at sneaking past FAA regulations. Maybe
they’ve “learnt” from MD.

But there are so many others in hiding that we have to throw away the last 20
years of engineering: For example the MCAS had only 1 processor, when all
other systems are required to have 2 to 3. We can’t risk 100 lives for each
lie Boeing did in the past 20 years.

I’m not sure there is actually a lot to learn that we didn’t know: The FAA
shouldn’t delegate Boeing certification to Boeing, managers should not ask
employees to drill new holes when the original holes were drilled 3 inches
apart and don’t fit, because it endangers the structural integrity, one should
not use a hammer to change the shape of the airframe by a full inch,
collapsing the I-beam by folding it, compromising the structural integrity,
they shouldn’t have lied about changing the features of the MCAS, and the
market should have been nicer with their revenue.

Every bankruptcy is sad and unfair. It’s disheartening to fire people who
certainly have given all they could to compete with a better competitor. But
it’s time to cut the loss, because their failure is ingrained in their
engineering and management, and is costing real deaths in real world.

------
dwoozle
This doesn’t affect the game theoretic optimal decision making for other
companies, since the executives who made these decisions were paid a long time
ago and rode off into the sunset. We need to punish individuals for the
decisions they make. Create a legal framework to claw back 10x the money they
were paid, leaving them in a studio apartment eating ramen noodles. You don’t
have to burn people at the stake to create a deterrent level of punishment,
but the company suffering doesn’t matter since the execs responsible have long
since fled.

~~~
JohnFen
> the company suffering doesn’t matter since the execs responsible have long
> since fled.

Yes, it does matter. If the company suffers enough, perhaps they will be more
cautious about this sort of thing in the future, even if the individuals
directly responsible are gone.

~~~
dwoozle
How? Paying by stock price ten years after the CEO leaves? Having the board
make operational decisions about flight control systems?

~~~
JohnFen
By being more cautious about who they hire, by putting in effective oversight
and controls, and so forth.

------
CryoLogic
Good. Corporations should be punished when corporate greed leads to negligence
which leads to the loss of human life en masse in exchange for short term
profit.

I don’t see how this is a bad thing for the market, if anything there will be
more pressure to make safe aircraft.

~~~
nolta
Shareholders, the board, and upper management should be punished. But the
company should not.

In a horse race, if the jockey is terrible you don't shoot the horse.

~~~
magduf
What are you talking about? The shareholders, the board, and the upper
management collectively _are_ the company. The rest is just employees and
assets. Employees don't own the company, they just work there for money and
can be let go at any time (subject to employment law). Assets are owned by the
company.

Your analogy makes no sense at all.

The company should die. Its assets of course are still worth a lot of money,
and I'm sure some other aircraft manufacturer might like to buy those assets
for pennies on the dollar, and also hire the employees right away to get
production up to speed as quickly as possible (but on a different design).

~~~
bobbylarrybobby
As one of only two real airplane manufacturing companies (the other being
AirBus), I don't see how getting rid of Boeing would help consumers. If
anything, AirBus would have latitude to let its own quality control slip, but
now their planes would comprise 100% of fleets instead of 50%.

~~~
CivBase
Boeing's assets would be sold and someone else would use them to service a
market in need of competition. I can think of a few parties who I suspect
would be interested. All you have to do is bar AirBus from purchasing those
assets.

I doubt AirBus would _want_ those assets anyways. It would make them an
obvious monopoly and invite even more regulation than they're already facing.

Companies rarely outright disappear. They get absorbed and operate under new
management.

------
adrr
Can’t believe they left the CEO in charge and just removed him from the chair
of the board. Ultimately it’s his culture that made it possible for this
issue.

~~~
fsh
He became CEO only half a year before the first flight of the 737 max.

------
TazeTSchnitzel
How long until US government state aid?

~~~
duaoebg
Defense spending is a perpetual state aid to Boeing

~~~
baddox
True, but that doesn't mean they wouldn't be happy to get more.

------
viburnum
Boeing stock has done incredibly well over the years. Shareholders didn’t care
about engineering and financialization then but maybe now they will.

~~~
meddlepal
Doubtful. Boeing stock has barely been hurt by this MAX crisis. It also cannot
be replaced and the US government is not going to let it go under or be bought
by a non-US company.

~~~
asdfman123
Yeah, the stock looks like it's just bounced around for the last year and is
about where it was this time in 2018.

That's not exactly punishing. It looks like any potential government bailout
has already been priced into the stock.

------
loulouxiv
Is it possible for a company like Boeing to go bankrupt because of such a
crisis ?

~~~
lotsofpulp
No, it’s too big to fail. Might be worth buying some stock while it’s back
down to near recent lows.

~~~
phire
I think it's more accurate to say it's too important to fail.

Not only does Boeing produce a large number of military aircraft for the US
armed forces, but their commercial arm also allows the US to project power
world wide.

~~~
dredmorbius
TBTF _is_ "too important to fail".

 _" Too big to fail" describes a concept in which the government will
intervene in situations where a business has become so deeply ingrained in the
functionality of an economy that its failure would be disastrous to the
economy at large. If such a company fails, it would likely have a catastrophic
ripple effect throughout the economy._

[https://www.investopedia.com/terms/t/too-big-to-
fail.asp](https://www.investopedia.com/terms/t/too-big-to-fail.asp)

 _The "too big to (let) fail" theory asserts that certain corporations,
particularly financial institutions, are so large and so interconnected that
their failure would be disastrous to the greater economic system, and that
they therefore must be supported by government when they face potential
failure.[1] The colloquial term "too big to fail" was popularized by U.S.
Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the
Federal Deposit Insurance Corporation's intervention with Continental
Illinois.[2] The term had previously been used occasionally in the press.[3]_

[https://en.wikipedia.org/wiki/Too_big_to_fail](https://en.wikipedia.org/wiki/Too_big_to_fail)

~~~
TheOtherHobbes
It's not an economic TBTF - it's political and strategic.

Boeing in Chapter 7 wouldn't kill the US economy. It would just dent it badly,
and give competitors from other countries (China? India?) an in to a large
market.

But the US military machine would be very badly damaged if Boeing failed. And
there would be spectacular political fall out, both internally and
internationally - some of which is already happening with the tarnished
reputation of the FAA.

Aerospace is one of those prestige industries that is as much about promoting
national status as about making money. A major failure would be very bad
indeed for America Inc - survivable in practical terms, but a disfiguring and
ugly wart on the face of the mythology.

~~~
dredmorbius
There's little effective distinction between "political" and "economic" here.

------
gandalfian
Yet a cursory glance suggests the share price is up 300% in three years?

------
geophile
It should. And I hope it continues to hurt them.

We keep hearing how bad corporate behavior happens because the cost/benefit
analysis simply views bad outcomes as costing a certain number of dollars, and
then you throw in the probabilities, and you can justify pretty much any
appalling decision.

The best possible outcome of the 737 Max disaster would be a legendary
business school case study showing management of technical endeavours by bean
counters is a terrible idea.

~~~
ISL
That case study should come along with case studies like the Superconducting
Super Collider [1], where insufficient counting of beans may have led to the
demise of an important scientific instrument. The Higgs could have been
discovered in ~2000 had the instrument simply turned on.

[1]
[https://en.wikipedia.org/wiki/Superconducting_Super_Collider](https://en.wikipedia.org/wiki/Superconducting_Super_Collider)

~~~
dwoozle
What are the implications of the Higgs being discovered in 2000?

~~~
ISL
High-energy particle physics would be more than a decade ahead of where it is
now.

Moreover, as SSC was planned as a 40 TeV machine, and LHC reaches 14 TeV now
(at presumably much higher luminosity), SSC might have discovered something
that still has not been observed.

~~~
jchallis
There is also an excellent chance that the standard model is the story up to
100TeV and these expensive programs take away attention from better science
endeavors.

------
thefounder
Remember when the CEO, and many others (FAA, some on HN as well) were saying
Max is safe and should not be grounded?

~~~
asenk
Worse than that: Even after the plane was basically grounded by all other
significant regulators, FAA was made to take a show flight on board the
aircraft, and Trump directly discussed the matter with the company. Grounding
was then announced by Trump. Didn't exactly give confidence of FAA acting
independently.

------
cyberferret
I can't read the article because of the paywall, but have they also factored
in the future cost of lawsuits and compensation payouts to airline operators
of the 737 MAX for loss of revenue from the grounded jets?

The loss of passenger seat revenue, along with long term storage fees for the
grounded fleets, plus the costs of getting those aircraft airworthy again, not
to mention costs of leasing alternative aircraft to fill route demand... the
costs would be staggering, and Boeing will have to foot some, if not all, of
it.

------
neonate
[http://archive.is/dNYHa](http://archive.is/dNYHa)

------
_bxg1
There's a little bit of justice in the world.

------
droithomme
They won't stop playing games which doesn't inspire confidence.

Sociopaths in control is a common dark pattern for big companies. Once
entrenched generally impossible to get rid of them, any more than one easily
deposes a tyrannical dictator who has acquired the power to silence and quash
all internal dissent.

~~~
campfireveteran
Maintaining corporate capture of the political and socio-economic structures
requires management capture by talented jerks to continuously deliver for
stockholders short-term results that forsake everything else. However, like
most anarcho-capitalist utopian failures since time immemorial, large risks
will not be mitigated for the least long-term harm to the public because
unlimited greed and consequences of externalities "will solve everything in
the markets." Maximizing profit apart from all else and lacking functional
public protections that have been co-opted by the trough of corporate
influence pedaling will inevitably lead to omnicidal and suicidal outcomes if
nothing is done to intervene.

------
BitwiseFool
I don't know about you, but I never want to fly on a 737 Max -Even after they
re-certify it.

~~~
semiotagonal
I've already figured out which airlines to avoid to prevent ever getting on
one of those planes.

~~~
adam12
Please tell.

~~~
ithinkinstereo
[https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_...](https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries)

In the US, you'll want to avoid Southwest, American, and United.

~~~
erobbins
Unfortunate about SWA, but united is and for 20 years now has been trash
anyway.

------
snow_mac
I hope the stock crashes, so I can buy some

------
jwildeboer
#ouch

------
nautilus12
This is how capitalism is supposed to work in this type of situation.
Companies getting around this result is been a big source of pain for our
economy.

