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Boeing's Organizational Problems Date Back Two Decades

Feb. 8, 2024
The aerospace giant began outsourcing 70% of its design, engineering and manufacturing in the early 2000s.

Boeing has been a beacon of American aviation leadership for over a century, weathering numerous storms. Following a Jan. 5 incident where a fuselage panel of its 737 Max 9 detached during an Alaskan Airlines flight, Boeing’s stock price only dipped by 10%. But there have been more incidents since, including the discovery of missing bolts and mis-drilled holes on some fuselages of its 737 Max jets in late January.

In the commercial aircraft industry, Boeing and Airbus are the primary competitors. Unless significant sanctions are imposed due to Boeing’s design and production-quality issues, it is likely that business will continue as usual. This is because the current crisis is not unprecedented.

Two decades ago, Boeing faced similar issues during the development of its 787 Dreamliner. The company’s approach to managing development and production has remained unchanged since then. It is unlikely to alter unless there is substantial pressure from the government and the public.

Boeing’s 787 Dreamline Development Odyssey

The development of the 787 Dreamliner was a challenging period for Boeing. The company aimed to develop the aircraft quickly and inexpensively to compete with the Airbus A380. Instead of developing the aircraft in-house and sourcing parts from suppliers, however, Boeing decided to outsource 70% of the design, engineering and manufacturing of entire modules to over 50 strategic partners. These partners, in turn, could outsource various parts to their suppliers.

This strategy of leveraging suppliers for rapid and frugal product development can be effective if one follows the Toyota development process, which involves deep supplier relationships. In addition to close communication and coordination with suppliers, Toyota shares information with suppliers and conducts joint improvement activities, making these key suppliers an extension of Toyota.

However, Boeing failed to establish the close supplier relationships that took Toyota decades of effort and commitment to develop. Without close communication and coordination among the partners, Boeing was unable to manage its external development process effectively. As a result, the 787 development program, initially budgeted at $5.5 billion and scheduled for 5 years, ended up being three years late and costing over $32 billion.

Aside from the cost and time overruns, there are ongoing safety concerns with the 787 about the epoxy tape used to connect the wings and the middle-fuselage, and the inspection and maintenance of the 787’s composite structure. 

Boeing’s 737 Max 8 Design Problems

While the development problems of the 787 may fade into the past, the two fatal crashes of the 737 Max 8 in 2018 and 2019—which claimed a total of 346 lives and led to a 20-month grounding of the aircraft—have renewed public safety concerns.

The 737 Max series, the fourth generation of the Boeing 737 family, was designed to be a fuel-efficient marvel to rival the Airbus A320neo. However, investigations following the two fatal crashes revealed a flaw in its automated anti-stall system, known as the Maneuvering Characteristics Augmentation System (MCAS). This system, which relied on a single sensor, triggered unintended nosedives due to faulty data. Despite Boeing’s development of a software update, the image of the 737 Max was tarnished, leading some to suggest that the 737 Max should be scrapped.

Boeing’s 737 Max 9 Production Problems

Recent investigations into a door plug that detached from a brand new 737 Max 9 mid-flight have revealed serious production control problems within Boeing’s supply chain operations. On January 30, Boeing, along with other industry representatives, indicated that the bolts required to fasten the fuselage panel of an Alaskan Airlines aircraft appeared to be missing when the plane left Boeing’s facility. This incident could potentially be attributed to oversights in documentation and procedures at Boeing’s Renton factory in Washington.

While this may seem like a simple lapse in in-house production procedures that can be easily rectified, it exposes a fundamental failure in managing quality control within the Boeing facility. If Boeing struggles with managing its in-house production processes, it is likely that similar issues will arise in managing its suppliers.

This suspicion was confirmed when Boeing supplier Spirit AeroSystems, which manufactures the fuselages of the 737 Max jets, notified Boeing that two holes may not have been drilled exactly to Boeing’s specifications. On February 5, Boeing announced plans to rework about 50 737 Max jets that have not yet been delivered.

Although these jets have not been delivered and therefore do not pose an immediate flight safety issue, this series of production quality issues has prompted legal actions. On February 1, passengers filed class-action lawsuits against Boeing, while shareholders sued Boeing for being misled about its potential safety lapses.

In light of Boeing’s production quality problems, some airlines, such as United Airlines, might cancel some of their orders with Boeing. Furthermore, the Federal Aviation Administration may indefinitely halt Boeing’s ambitious plans to increase production of Max planes.

Christopher Tang is a distinguished professor at the UCLA Anderson School of Management. 


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