The Boeing 737 Max tragedy is a cautionary tale of cost-cutting corporate hubris

Bob Kustra

Sun, February 6, 2022, 

In 2018 in Indonesia and in 2019 in Ethiopia, pilots of two brand new Boeing 737 Max jet planes lost complete control of their planes and crashed, killing a total of 346 passengers and crew.

The Max was to be the latest version of the 737, often the workhorse of airlines. Tragically, the new 737 Max was built to fail. An important piece of its software would override pilots’ efforts to stabilize the plane, causing the two crashes with no survivors.

How could this happen to a corporation so steeped in the successful engineering and building of iconic airplanes like the 757 jumbo jet?

That’s what I asked author Peter Robison recently when I interviewed him at Reader’s Corner for his book, “Flying Blind: The 737 Max Tragedy and the Fall of Boeing.” His answer: corporate hubris that blew up a culture focused on engineering excellence and replaced it with a bottom-line culture where the focus included cutting budgets on traditional Boeing priorities like pilot training, flight simulators to train pilots, an electronic checklist for pilots and research to improve safety.

It started with Harry Stonecipher, the McDonnell Douglas CEO, a defense contractor expert at cutting budgets to win contracts, who took the reins at Boeing when the two companies merged.

Stonecipher and CEOs who followed him from General Electric’s Jack Welch school of management applied what author Peter Robison calls Welch’s standard corporate playbook: ”anti-union, regulation-light, outsourcing heavy.”

Later, Boeing decided to move its corporate headquarters to Chicago, encouraged by tax incentives from the state of Illinois and the city of Chicago. Critics claimed Boeing’s corporate chieftains place short-term profits ahead of engineering excellence as they left behind in Seattle the daily operations of Boeing and the accountability that accompanies a proximity to manufacturing. It also moved some of its manufacturing to South Carolina, a non-union state.

As usual in corporate America, those in the executive suites of Boeing were spared the cutbacks that research, safety protocols and employees suffered at the hands of these modern-day Scrooges. Boeing CEOs made out like bandits, and Boeing shareholders did, as well.

While engineers were forced to cut back, Boeing executives bought back its company stock, thereby increasing its price and enriching shareholders. According to Robison, Boeing spent $41.5 billion on stock buybacks from 2013 to 2018. Its CEOs walked away with millions in cash the buybacks generated.

Boeing’s board members didn’t do badly either, considering that the board caught none of this steady cultural drift toward deadly blunders. Board member Caroline Kennedy, the daughter of President John F. Kennedy, made a cool $800,000 from 2017 to 2019, while Kenneth Duberstein, onetime chief of staff to President Ronald Reagan, pulled down $5.3 million.

Boeing built a lobbying team in Washington second to none. According to Open Secrets, a comprehensive resource for campaign contributions, lobbying data and analysis, in 2019 alone, Boeing spent $13 million and employed more than 106 lobbyists including some of the most politically connected law firms in D.C.

The passengers of those two deadly flights didn’t have a chance, given heavy lobbying by Boeing in D.C.

Boeing “captured” the agency charged with regulating the company and the airlines. The Federal Aviation Administration not only loosened its rules that would ultimately impact a safety focus at the company, but it also stripped the agency of some of its regulatory authority and transferred it to Boeing personnel. (It would be like the FDA handing over its meat inspection to pork producers.)

This most egregious and blatant misuse of regulation would cost loss of lives, the airline’s reputation and its bottom-line on which it was so focused. In 2020 alone, Boeing lost $11.9 billion, according to Robison.

The immediate cause of the two crashes was software more powerful than what Boeing claimed in documents submitted to win the plane’s approval by the FAA. In underestimating the software’s ability to move the horizontal stabilizer, the small stabilizer on the plane’s tail, Boeing’s supposed processes to catch issues like this failed. Airlines and pilots in the industry claimed that Boeing had hidden the existence of the potentially deadly software.

After the two crashes, the FAA, sometimes referred to it as the “tombstone” agency because it only acts when people are dead, delivered on its loyalty to Boeing by deferring the decision to ground the 737 Max.

First, it was China that grounded the Max, followed by other nations, but the FAA took its time, waiting three days after the two crashes before ordering the 737 Max from the skies. Since these two crashes occurred in other countries, there were initial charges that foreign pilot error was to blame. When the 737 Max was finally grounded, investigations showed that pilot error was not the problem. Boeing software was!

Boeing did show just how quickly it can act when its self-interest is at stake.

After the Indonesian crash, agents of Boeing and Lion Air, the Indonesian carrier, were there at the Jakarta airport offering families “blood money” of $91,600 in exchange for the release of liability in any global court — a mere pittance to what could be awarded for the wrongful death of a loved one. Seventy of the victims’ families signed the settlement offer. In contrast, just last November, Boeing agreed to a settlement in a lawsuit filed against the company and its board for more than $230 million. The lawsuit accused Boeing and its board of failure to address safety warning signs before the two Max jetliners crashed.

The aftermath of the crashes produced a mixed bag of results.

Congress did return to the FAA the authority to regulate Boeing that those expensive lobbyists and legislators shifted to the company. The company corrected the software issues, but the 737 Max remains the only large commercial airliner without an electronic checklist in the cockpit to guide pilots. Eventually the FAA returned the 737 Max to the skies. Boeing also called a halt to those generous stock buybacks that ate up cash that could have been used to build planes, catch software errors and invest in research.

Who was ultimately held responsible for the deaths of 346 passengers and crew?

As is too often the case, criminal liability skated past Boeing’s executive offices and boardroom and landed down the chain of command on Boeing’s chief technical pilot who was indicted for lying about the flight control software that claimed so many lives. One lawsuit filed by shareholders against current and former Boeing directors was settled for $225M and Boeing agreed to a legal settlement with the Justice Department for $2.5 billion, thereby resolving a criminal charge that Boeing conspired to defraud the FAA.

After reading Flying Blind, the reader would expect some form of criminal liability like manslaughter to be imposed on CEOs at the controls as Boeing veered off course. No such thing happened, but two months after the Indonesian crash, the Boeing board would award the CEO on duty at the time, Dennis Muilenburg, a record-breaking salary of $31M including $13M bonus for performance.

The CEOs before Muilenburg who changed the culture and downplayed safety concerns also got off scot free. Robison reports on their post-Boeing lives of luxury thanks to their generous salaries and stock options. After learning of the Justice Department’s settlement of Boeing’s fraud conspiracy, Robison quotes one Boeing pilot as concluding, “Boeing got away with murder.”

Bob Kustra served as president of Boise State University from 2003 to 2018. He is host of Reader’s Corner on Boise State Public Radio and is a regular columnist for the Idaho Statesman. He served two terms as Illinois lieutenant governor and 10 years as a state legislator.