A Lion Air Boeing 737 crashed into the sea this morning. Rescuers have located debris, but they do not expect
to find any survivors. Some of the warning signs, in retrospect were there all along. Some of the decisions, or changes, were so subtle that people
might not even have realized the importance, as they were taking place. And Ethiopian Airlines flight has crashed shortly after takeoff from Addis Ababa, killing
all 157 passengers and crew thought to be on board. Boeing's best-selling plane is coming under increased scrutiny after another deadly accident. We'll do everything
possible to earn and re-earn that trust and confidence from our customers and the flying public in the weeks and months ahead. Boeing is an American icon, revered around the world for
its engineering innovation. But with two crashes in under six months, critics have asked if Boeing is straying from its original mission. The SEC is investigating whether Boeing properly disclosed issues
tied to the grounding of its 737 Max Airliners. One message described the 737 Max as a plane designed by
clowns, overseen by monkeys. The safety culture at Boeing was corrupted under pressure from Wall Street, and executives, and board members who were lookin' more at their bonuses than they were at the
integrity of the organization. Boeing was playing a
game, to a certain extent. It was a game of numbers. They were meeting Wall
Street's expectations, but unfortunately, that came at the expense of the end
customer, and the flying public. The failures that happened at Boeing are really complicated,
and involve subtle forces and cultural changes
that have been underway for decades at the company. This is a story of how an American icon lost its way, and whether or not it can find it again. 2019 was not the best year for Boeing. Just five months apart, two
Boeing 737 Max planes crashed, and the planes have been
grounded since March of 2019. There's simply no precedent, in aviation, for a plane this important
to be grounded this long. In the first crash, Lion air flight 610, something was discovered with
the technology on the plane. Investigators believe the plane's sensors or its computers, had bad data
suggesting a potential stall. There was this software system, known as MCAST, that stands for maneuvering characteristics
augmentation system. This obscure flight control software was created so the Max handled
the same way for pilots as the previous generation of 737s. Black box data indicated that a bad sensor had triggered MCAST, which automatically pushed the plane down. Within probably 24 hours
of them discovering this, Boeing and the FAA put out a warning, indicating that this could occur, and then also telling
them how to counteract it. There is a fix, simply flipping a switch should have turned the
automatic system off. The second crash,
however, the same failure. I've covered dozens and
dozens of plane crashes, and one of my mantras has always been that crashes don't occur
for the same cause. China grounded the plane, and it just set off a ripple effect. Any plane currently in the air will go to its destination,
and thereafter be grounded. Boeing is an incredible company, and hopefully they'll very
quickly come up with the answer. What had been billed as a relatively simple software
fix proved not to be so simple. Every time it seemed like Boeing
was just around the corner, then a new issue cropped up. MCAST wasn't the only
issue on this airplane, you had issues where the computers were getting overloaded with information, now there's a new issue that the computers don't start up properly, when you want them to. And then, the first batch of really embarrassing
employee emails leaked. The FAA is demanding answers from Boeing after they waited months
to disclose to the agency internal messages between test pilots who were working in the
737 Max flight simulator. "It's running rampant in the sim on me." One pilot, referencing
the flight simulator. "The plane is trimming itself like crazy." The emails came out two weeks before Boeing's Chief Executive,
Dennis Muilenburg, was due to testify before Congress, and it was a bipartisan shellacking. 346 people are dead because what these chief
pilots describe as egregious. You're the CEO, the buck stops with you, did you read this document, and how did your team not
put it in front of you, run in with their hair on fire, sayin' 'We got a real problem here.' Ultimately, we don't quite know exactly what caused the MCAST design, just like we don't know all
the causes of the crash, we don't quite know, but it's very clear that the one big cultural change at Boeing had been a disruption in the communication between engineers and top management. But this kind of cultural change for a company as old as
Boeing happens slowly, over the course of not years, but decades. Boeing's history goes back over a century, and while its early sea
planes weren't iconic, by World War Two, their
military aircraft were. When news of the successful raid by the Flying Fortresses comes in, these are the people who
get the biggest thrill, the thousands of Boeing
workers who build them. Boeing's an American manufacturing icon. It was churning out bombers that were critical to the
allied defense effort, and gave us Rosie the Riveter. Sort of a symbol for
American can-do culture. Employers find that women can do many jobs as well as
men, some jobs better. They were the great survivors
of the post-World War Two shakedown in aircraft design, and the most successful new entrant in the new jetliner
market of the late 1950s. The company gambled
everything on a prototype of what became its first
jetliner, the Boeing 707. Nearing completion in the Boeing plant at Seattle, America's first jet transport is a unit of glistening beauty. And that was followed by the 727, and built this revolutionary
behemoth, the 747, you probably know it for
the hump behind the nose, and at the same time, they
came up with what became Boeing's greatest commercial success, and that was the 737. The 737 wasn't immediately successful. It took several design
and engineering iterations to turn it into the
plane that we see today. It became a work horse for
airlines like Southwest, that fly primarily shorter routes, and really brought travel
to every day people. And even as more and more travelers flew on these aircraft, the aviation safety
record during this time made flying one of the
statistically safest ways to travel. We've been the technology
leader in aviation in the world. Boeing was a magnificent company, who made, in my opinion, the
best airplanes in the world, until some of these
recent cultural changes, which all came from
pressure to Wall Street, and bad management. You know, over the years, Boeing was this tremendously important and innovative company, but it wasn't necessarily a great stock. In 1997, Boeing merged
with McDonnell Douglas, another aerospace and defense giant. Boeing said 'let's do a merger, we'll
continue with the innovation, 'and maybe McDonnell Douglas will help us 'in terms of our structure 'and telling our story to Wall Street.' Almost immediately you began to hear kind of a bitter joke
coming out of Seattle, that McDonnell Douglas had used Boeing's money to buy Boeing, and certainly, in terms
of management structure, it began to look that way. Harry Stonecipher, a former GE executive and McDonnell Douglas CEO, becomes COO of the combined companies. And more and more of the
company's style and culture began to be more of a McDonnell
Douglas sort of picture. He almost immediately signaled there was a new sheriff in town, and he was gonna bring
financial disciple to Boeing. Stonecipher would eventually become CEO, and continued his emphasis on controlling costs within the company. A culture that engineers
within the company would begin to feel. We had breakfast with
the president of the-- This is Stan Sorscher, he was a physicist at
Boeing for over 20 years, and felt these changes firsthand. And he said he was so proud of cutting his capital expenditure budgets by 60%. Capital expenditures, for us, were improvements in the
factory, in our shop floor, in processes and materials
and things like that. By 2000, there was a great
deal of dissatisfaction with the way our problem solving culture
was being displaced, and we thought it was
just much more difficult for us to do our job. And that's when a lot of people trace this sort of fundamental shift in thinking in terms of what you prioritize, whether that be profits, or
whether that be engineering. Further evidence of a move away from engineering prowess and innovation, to profit,
was Boeing's decision to move company headquarters to Chicago, when Boeing's jet manufacturing and airplane designers were in Seattle. Probably the biggest motivation was to send a message to the Street that this was a company
that was not going to make investment decisions
on the basis of legacy, or heritage, or anything like that, but rather, purely make
investment decisions on the basis of returns, and by moving to a place
where there were no legacy loyalties, no heritage
production facilities, they were sending that message. And it also started to shape how Boeing viewed its own internal investments in things like airplane programs, tremendously important as the company started planning for what
became the 787 Dreamliner. Ladies and gentlemen, your 787 Dreamliner. For this event, it was held
on July 8, 2007, so 787, Tom Brokaw was there, I was there just sitting in the audience, just trying to soak it all in. I think they raised the factory door, and there was the plane. But at the time, it was
just, it was an empty shell. We didn't know it, but it
was all for appearances. For the 787, Boeing attempted a new system for designing the aircraft. Instead of doing everything in house, it would outsource much of the plane's design and manufacturing
to its biggest suppliers. It was gonna be about outsourcing, outsourcing to the places where we could produce things more cheaply, as opposed to the finest, best, safest airplanes in the world, which is what Boeing made for decades. This works for running
shoes, ladies garments, cell phones, hard drives,
integrated circuits, it works for everybody, it'll
work for you, and I thought 'No, it won't.' Boeing had never done a plane
using the system before, this was very different from Boeing controlling the processes itself, and it did not go well. We launched the 787, the
worst I could think of was that we'd be three months late, which is a shooting offense at Boeing. It wasn't three months late,
it was three years late, it wasn't 5 billion dollars over budget, it was 30 or 40 or 50
billion dollars over budget. Grounded the fleet for three months. The suppliers were just
in over their heads, most of them, we had years of issues, there was an engine
explosion at one point, there was an electrical fire
on flight test aircraft. And I thought 'Okay, this experiment is done.' This didn't work. And the executive said 'The business model is fine,
we just didn't execute it.' Every new airplane has growing pains, especially those that kind of push the edge of the
envelope in technology. Eventually, Boeing would fix many of the 787's issues, and the Dreamliner slowly
started to bring in big returns, and with a profitable plane, Boeing looked at other measures to boost its returns to shareholders. There's different ways of
getting your profit up, so one is just that you make
the best product imaginable, and everybody wants to buy it, and so your sales go up, and you make more money on that plane. The other is that you do
financial engineering. One common technique for companies to boost their stock price is a practice known as stock buybacks, where a company uses its capital to buy back its own stock
from the marketplace. And the math is really
simple to understand, if you have fewer shares
trading, absent all else, the price goes up, the shares worth more, they get a nice return
on their investment. Boeing's stock was on the rise, and by 2015, new CEO Dennis Muilenburg would ramp the program up even more. From 2014 to 2019,
Boeing would re-purchase about 38 billion of its own shares. They went from a relatively
normal percentage, something like 30%, to over 90% of cash being returned to investors. And the contrast to pensions being cut was really shocking, and sort of a bitter
moment for some people. Buying back shares, and
paying huge dividends, while you're laying off senior engineers to hire cheap labor in
India, that's a sickness. But while long time employees at Boeing may have been frustrated, at the time, this was viewed as a huge success. In less than a decade, the
company's stock price tripled. Wall Street just loved this
company, its stock shot up. I see a new Boeing, I just
see just straight line growth. And Muilenburg was getting
the rockstar treatment. You're obviously a very
accomplished executive, you've done a great job for
Boeing and its shareholders, I wish I had bought the
stock when you took over. It's still a good deal.
Still a good deal. Around the same time all
of this was happening, Boeing was selling record
numbers of its newest plane, the 737 Max. The 737 Max was born out of
a competition with Airbus. The aviation industry is a duopoly between Boeing and Airbus, with the two giants controlling almost all of the jetliner market. For both companies, it's
beating commercial heart is an enormously profitable
family of single-aisle jets, the Boeing 737, and Airbus A320. While Boeing had planned
to build an all-new jet to replace the 737, it was sidetracked by
the Dreamliner debacle. Airbus shocked everyone by
announcing a simple upgrade to its A320 family of planes, in what became known as the A320 Neo. Since the new planes had engines that increased fuel efficiency and required no lengthy
training for pilots to fly, it became a huge cost saver for airlines, and a big hit for Airbus. So Boeing had to do the same thing, if Boeing didn't act, or waited too long, they could lose significant market share. American Airlines called Boeing and said 'We're gonna buy 400 planes, 'and they will all be Airbus 'unless you can match their fuel economy, 'and the fact that no
pilot training is required, 'it's identical to their
other Airbus models.' And the Boeing CEO said 'No no no no, we'll match that, 'we want half that order.' With the Max, Boeing
was also trying to shake the image of incompetence
that had followed the 787 debacle, so there was a lot of pressure there, to show that the, 'Hey, look, we can design planes, 'and we can meet deadlines with the Max.' And to their credit,
with the Max, they did. Unfortunately for Boeing, some of the critical engineering
decisions that were made came back to haunt them. In late 2015, Boeing's first 737 Max takes
shape, right on schedule. Flight testing begins in early 2016, and in 2017, the Max enters
the commercial market, months early, and it is, in fact, that fastest selling
aircraft in company history. You saw huge orders
coming for both companies, airlines seemed generally pleased with it, and to be honest, they still are. Even after the crisis, some
of the biggest customers say 'You know what, this is a good airplane.' But internal emails, made public from investigators, revealed that Boeing had gone
to extraordinary measures to get the Max into the air, including some employees lying to the FAA. The Chief Technical Pilot on the plane described how he used Jedi
mind tricks on regulators. In one exchange, a Boeing employee says "I still haven't been forgiven by God "for the covering up I did last year." The most disturbing thing we've found is, there was a 2013 meeting, and they conspired to conceal the system. MCAST was created so that the larger, more
fuel-efficient engines on the Max wouldn't make the plane
handle any differently than the previous generation of 737s. At that meeting, they said 'Well wait a minute, wait a minute, 'if we tell anybody about this system, 'then they might require that 'pilots have additional training, 'and our bosses, from the top, in Boeing, 'and our contracts with the airlines say 'no additional training required, 'so we have to conceal this, 'no one outside Boeing can know 'that this safety-critical system exists.' Another week, another shakeup at Boeing. The company's former
CEO, Dennis Muilenburg, forced out after 35
years with the company, and four years as CEO. After firing Muilenburg, Boeing would close their books on one of the worst financial
performances in history, estimating 18.6 billion in total costs for the grounded 737 Max, and it would report its
first annual loss since 1997. Dave Calhoun, a member of Boeing's board, was tapped as the next CEO, and immediately starts to make sweeping changes within the company. The first couple of weeks on the job, he moved very quickly to get
any embarrassing overhang from the last year, just
clean out the cobwebs, get all the bad news out there right now. Trying to be more transparent, Calhoun dumped even
more damning documents, and holds a conference
call with reporters. When boards reach a
conclusion to change a CEO, they expect change. And they recognize the arguments that have been presented from
the outside world as legit, and they're gonna experience a different style of leadership, a different way of doin' things. But it's unclear whether or not Calhoun will shift Boeing's priority
away from pleasing Wall Street, and return the company
to its engineering roots and heritage of creating
top flight planes. We believe this airplane's safer than the safest airplane flying today. Every next airplane has to be that way, it has to be that way for Boeing, it has to be that way for our competitors. He's been on the board since mid-2009, and also one of the, well, almost all of the board members that do not have an engineering degrees, from a purely accounting background, private equity, hedge
funds, that kind of thing. This is a bit strange,
because on one level a company really needs to change. On the other hand, other
than a shareholder emergency, I'm not really sure what would be the
instigator of that change. We are gonna have the most open book the world's ever seen, on this subject. Transparency is what we lost for a moment, and it's something we have to regain, because it speaks to the trust
that the world has in us. I am very hopeful that he can restore the safety culture there, so that they can focus
on making safe airplanes. The old days of simply harvesting cash from legacy programs, and returning it to
shareholders, needs to stop, and the idea of engineers
being some sort of a commodity that you can rely upon
to come through for you, that needs to stop, too. The bigger issue of setting the tone, changing culture, which,
these things happen gradually, bit by bit, he's saying all
the right things right now, about correcting course, but we won't know for awhile as to whether Boeing's on the right course.
