(Jan 31): Last March, six minutes after taking off an Ethiopian Airlines Boeing 737 Max 8 aircraft nosedived killing 157 people. That crash followed the plunging of a similar aircraft belonging to Indonesia’s Lion Air four and half months later into Java Sea just 12 minutes after takeoff killing 189 people.
Fifteen months on, the Chicago-based aeronautics and defence giant faces an existential crisis. The entire 737 Max 8 fleet remains grounded including 390 planes that were delivered to airlines before the crash and over 400 planes that have rolled off Boeing production lines since. Late last month, Boeing which has over 5,000 orders for the Max from over 100 airlines worldwide, including Singapore’s SilkAir, Thailand’s NokAir and Vietnam’s VietJet, suspended production of the controversial aircraft. Over 2,800 workers have been laid off by Boeing’s suppliers and more redundancies are expected across its vast supply chain. Unless the Max is airborne soon, the production shut off could shave up to 0.5% of US GDP in the current quarter alone.
Boeing is in a duopoly with Europe’s Airbus SE. The two firms sell about US$ 50 billion worth of commercial aircraft every year and compete fiercely, though with its higher margins Boeing has traditionally been more profitable than Airbus which has long relied on European state subsidies.
Boeing is about 40% bigger than Airbus chalking up US$ 100 billion in total revenues in 2018 compared to Airbus US$ 71 billion. Due to the grounding of 737 Max, Boeing delivered just 380 planes last year. Over 400 undelivered Max planes are parked outside its Seattle factory or nearby airports. In comparison, Airbus delivered 863 aircrafts last year. It was the first time, that Boeing had lagged behind its European rival in deliveries. In 2018, Boeing had delivered 806 jets while Airbus delivered 802 planes.
It is the hardware, stupid
Boeing’s original line was that there was really nothing wrong with the 737 Max aircraft. The whole thing was a minor software issue. A tweak to software would have the plane in the air within weeks, the management argued. And oh, that was back in March 2019. Yet, if you speak with aviation experts or pilots as I have over the past few months, you begin to understand that crisis surrounding Max 8 is basically a lot more than just a software problem.
Here is what’s really wrong with Max 8: The body of the aircraft that Boeing designed for 737 Max was dynamically unstable. 737 Max was Boeing’s response to Airbus A320neo which the European firm first launched in 2010. Originally, Boeing was supposed to develop its rival to A320neo from the ground-up as a completely new aircraft. Yet as Airbus’ lead in that segment of the market grew, Boeing rushed to cut corners and come up with something quick. So, it just expanded its best-selling 737 jet that has been in service for 53 years. Boeing just made the old 737 longer and added larger engines, mounted those engines further ahead on the airframe and slightly higher, and rebranded it 737 Max 8.
There was just one small thing: The bigger aircraft and larger engines as well as their position made the plane more unstable. Its larger engines and their placement meant that it had the tendency to push its own nose higher. What we have learnt so far from the two crashes as well as other pilots who have flown the Max and have since spoken out about the plane, is that in certain flying modes, particular soon after it takes off, the Max had the tendency to pitch up in potentially catastrophic way. As it suddenly pitched up, the pilots fought to stabilize it but the software forced it to head down.
Boeing’s problem wasn’t just that it basically built an unsound plane. It compounded the issue by trying to patch what was fundamentally a hardware problem with MCAS, or Maneuvering Characteristics Augmentation System, an automated flight-control software that it designed to run on the 737 Max flight control computer to help stabilize the aircraft at slow speeds and high angles of attack. Having made that mistake, Boeing made another, much bigger and potentially fatal error. It believed that its MCAS software bandaid was so good that it forgot to even tell the pilots that it had patched some critical hardware problems with a software. Moreover, Boeing successfully lobbied regulators at the Federal Aviation Authority or FAA to keep any mention of MCAS off the Max 8 flying manuals. Essentially, the pilots thought they were flying a mechanical plane which was actually been flown by software.
MCAS software pushed the plane down if one of the two sensors located on either sides of the plane’s nose indicated that it was in danger of going into a stall. If it did, the software would attempt to push the nose down by forcing the angle of plane’s horizontal stabilizer up. In both crashes, data from just one of the sensors was enough to push the nose downwards to disaster.
Had the pilots known that there was a major hardware issue with Max which had been patched up with the software, as well as just what that software did, they would have been able to better respond to any malfunctions. But they were deliberately left in the dark. They were effectively flying blind. Indeed, when Lion Air asked for additional simulator training for its pilots, Boeing employees mocked the Indonesian airlines. “Now friggin Lion Air might need a sim to fly the MAX, and maybe because of their own stupidity,” one Boeing employee wrote in June 2017 text messages released by the US House Transportation and Infrastructure Committee.
Designing a bad aircraft isn’t necessarily the end of the world, specially if you can patch it with some kind of software that helps the plane do what a better designed one is supposed to do. The real problem with 737 Max was that MCAS, or the bandaid software, in the end turned out to be deadly. How so? It actually took control of the aircraft itself and pitched the plane downward, until it crashed.
When planes take off they climb to certain altitude, then stabilize and continue moving forward. When the software took over control the aircraft and pointed its nose downwards, there was nothing the pilots could do to pitch the aircraft up again because the software didn’t allow them to. We still don’t know what the Lion Air and Ethiopian Airlines pilots did or did not inside the cockpit because investigations into those crashes are ongoing but whatever they did is really irrelevant because we now know the software was in total control of the two aircrafts when they went down.
On Jan 21 Boeing's stock plunged 5% after it announced that Max probably won’t fly until July. Indeed it is now unclear if it will ever fly again. MCAS isn’t the only software that needs fixing. Boeing recently said it had discovered another software “glitch” that prevented the Max’s flight-control computers from powering up and verifying they are ready for flight. Last March, Boeing was confident that the plane might be airborne again in weeks. At 52 planes a month that Boeing was producing, it would have taken nearly ten years to deliver the last of 5,000 737 Max it has on its order book. The fact that Boeing decided to suspend the entire production of the Max and its eagerness to reach generous settlement packages with airlines impacted by delivery delays is a sign that Boeing itself has no idea when the plane might fly again. Many aviation experts have argued that instead of software patches, Boeing might want to redesign the plane and address the underlying hardware issue. The problem is that any hardware solution at this stage would be very costly.
Despite the Max crisis, Boeing remains the biggest and one of the most successful industrial firms in the world. Though in recent years instead putting more money in R&D, building better and cheaper aircraft that speedily get us to our destination, Boeing’s management has been obsessed with maximizing shareholder returns and getting its stock price airborne rather than building the safest aircraft. It systematically de-emphasized aerospace engineering and focused more on financial engineering, bought back US$46 billion of its own shares, more than three times that it spent on R&D and steadily increased dividend payouts, cutting back on things like pilot training or plane safety or things that helped it become an aviation behemoth.
To get its mojo back, Boeing must become the innovative, engineering-focused company that it once was. That means being obsessed with next generation of planes rather than just coming up with a new iteration of a 50 year old plane like 737. Even though the aviation industry now accounts for up to 3% of the total global greenhouse emissions, Boeing hasn’t yet taken the lead in hybrid electric aviation. Boeing also needs to focus on new materials and technology to bring down overall costs instead of cutting corners to maximize profits margins.
Catherine Wood, Chief Investment Officer of ARK Invest, a tech-focused asset management firm in New York, cites the emergence of 3D printing that could help Boeing lift its margins in the new decade. “With gross profit margins in the 15 to 20% range, aerospace companies like Boeing and Airbus are attracted to the 25 to 75% drop in weight and manufacturing costs enabled by 3D printing technologies,” she says. That will help lead to decline in manufacturing costs over time and better margins for Boeing and ultimately lower cost for airlines and flyers, like you and me. In area of space, it needs to more effectively compete with emerging new champions like Elon Musk’s SpaceX and Jeff Bezos’ Blue Ocean. In drones, it needs to play catch up with Chinese competitors.
But most of all Boeing needs to realize that trust is probably the most essential commodity when it comes to air travel. Trust has allowed Boeing to become world leader in ferrying passengers around the world. Passengers trust that pilots will get the aircraft to their destination without a hitch. Pilots trust Boeing to design aircrafts that fly safely. Boeing needs to earn the trust back — the trust of airlines, pilots as well as increasingly jittery passengers.