Muilenburg Forced Out of Boeing, But 737 Max No Closer to Flying. What Happens If It Stays Grounded?

Dennis Muilenburg, the Boeing CEO who from the outset of the Max 737 crisis relied on blame-shifting and spin as his first line of response, is gone. But as we’ll discuss, getting rid of Muilenburg doesn’t address the mess the giant manufacturer is in. The FAA’s body language is that Boeing isn’t close to getting a green light on the 737 Max.

If Boeing and the FAA are still at loggerheads in six months, with still no date for the 737 Max going into service, it isn’t just that pressure on Boeing’s suppliers and customers will become acute, perhaps catastrophic for some. Boeing’s practice of booking future, yet to be earned, profits as current income means persistent negative cash flow could lead to an unraveling. The last time we saw similar accounting was how supposedly risk free future income from CDOs was discounted and included in the current earnings of banks. Remember how that movie ended?1

Now hopefully we are just being unduly worried, since the downside of the 737 Max remaining grounded with no date as to when it will go into service is more considerable than the press seems to appreciate.

But a big red flag is the lack of any specifics about where the FAA and Boeing are, and I don’t mean just dates. For instance, if the FAA and Boeing were not all that far apart on a remedy and the FAA just needed Boeing to satisfy the agency on a few more issues, you’d expect both sides to be making cautiously positive noises. The absence of anything like that is a bad sign.

Muilenburg Ouster: Too Little, Too Late

Muilenburg left under duress. It appears that the shock of Boeing needing to suspend 737 Max production to conserve cash flow roused the board out of its complacency.

Even though Boeing issued a tart statement showing an intent to chart a better course, and Mr. Market obligingly gave the stock a 3% pop, there’s every reason to regard the shift as too little, too late.2 We were hardly alone in saying early on that Boeing was totally botching how it was handling the grounding. From a March post:

Boeing is breaking the rules of crisis management and making what may well prove to be a bad “bet the company” wager….

It is important to recognize that the global grounding of the 737 Max is the result of trying to compensate for questionable, profit-driven engineering choices by adding a safety feature (the MCAS software system) and then going cheap on that, in terms of selling planes not kitted out fully and acting as if it was perfectly fine to install software that could take control of the plane and barely tell pilots about it. Two paragraphs more than 700 pages into a manual does not qualify as anything approaching adequate disclosure.

Boeing is taking steps that look designed to appear adequate, when given the damage done to the 737 Max and its brand generally, this isn’t adequate. No one has any reason to give Boeing the benefit of the doubt. The scale of this failure is so large that it’s called the adequacy of FAA certifications into question. Until this fiasco, aviation regulators deferred to the judgment of regulator in the country where the manufacturer was headquartered. But with China embarrassing the FAA by (correctly) being the first to ground the 737 Max, foreign regulators will make their own checks of Boeing’s 737 Max fixes….and that practice may continue with other US-origin planes unless Boeing and the FAA both look to have learned a big lesson. So far, Boeing’s behavior says not.

Some other posts explained the need for a Muilenburg defenestration, starting in March:

Boeing Crapification: 737 MAX Play-by-Play, Regulatory Capture, and When Will CEO Muilenburg Become the Sacrificial Victim?

Ralph Nader Calls Out Boeing for 737 MAX Lack of Airworthiness, Stock Buybacks, and Demands Muilenburg Resign

737 Max May Stay Grounded into 2020; Why Does Boeing CEO Muilenburg Still Have a Job?

The fact that Muilenburg remained long past his sell by date is a sign of how deeply disconnected the Boeing board is. It seemed reminiscent of the way Wells Fargo chairman and CEO John Stumpf held on, trying to maintain the pretense that institutionalized unrealistic sales goals that virtually required employees to cheat customers were the doing of ‘a few bad apples”. The Wells directors may have rationalized their head-in-the-sand posture by the fact that Stumpf had long been a key driver of Norwest Bank and later Wells’ acquisition and growth strategies, which then became his downfall. After Stumpf left, the bank was caught out in even more abuses, such as unwarranted car repossessions and force placing home insurance.

Even the complacent Boeing board should have been jolted out of its stupor in November. Then, FAA director Steve Dickson pushed back on Boeing pressure to recertify the 737 Max by year end via his weekly video to the troops, which was guaranteed to be picked up by the press. The bit about the 737 Max starts at 0:59:

This message should have alarmed the Boeing board, since Dickson made clear he was not committing to any timetable. But apparently Boeing continued to pressure the FAA privately, leading Dickson to make an even more pointed statement earlier this month. Even so, the Boeing top brass seemed incapable of recognizing that it wasn’t anywhere near having the plane back in business until Muilenburg initiated the production halt, sending shock waves through Boeing’s supply chain.

Boeing Still Not Taking the Crisis Seriously Enough

There isn’t much reason to be optimistic about the installation of the Boeing chairman David Calhoun as CEO effective January 13. On paper, he looks credible: former executive from GE’s jet engine operation; a seasoned “corporate fixer,” according to the Wall Street Journal, with a turnaround at Nielsen to his credit; and a Blackstone executive.

But being an executive at a top parts maker isn’t the same as leading a regulated business…and one in deep trouble. And the depiction of Calhoun as a fixer suggests that his strong suit is behind-the-scenes cleanups and talking customers and money people out of trees.

Consider the Journal’s take on Calhoun’s job priorities, which presumably reflect how he and the board see them:

Mr. Calhoun and Boeing finance chief Greg Smith, who will serve as interim CEO, face the same challenges as Mr. Muilenburg: winning back the confidence of government officials, suppliers, airlines and the traveling public. Mr. Calhoun spent much of Monday phoning some of those constituents, including lawmakers, a Boeing spokesman said.

This is completely and utterly backwards. Yes, as a matter of ritual, a new CEO calls key constituents ASAP and he needs to call more people and do more listening if he’s inheriting a big mess.

But Boeing has a massive immediate and longer-term problem and they are reality problems, not perception, aka “confidence” problems.

The 737 Max needs to be fixed. The fact that the FAA hasn’t accepted the software patches that Boeing has attempted and that the FAA is having to tell Boeing to drop its pressure is a strong tell that whatever Boeing-submitted remedies the agency is looking at now may not do either, or at best, they will require simulator training, something Boeing has fiercely resisted.

If our reading of the tea leaves is correct, and Boeing is still not close to satisfying the FAA and foreign regulators, who have no reason to cut the US manufacturer any slack, all of this confidence building is besides the point.

In fact, as a gander through the Wall Street Journal’s comment section shows, even more readers are saying they won’t get on the plane until it has been in the air for quite a while. Now those sentiments may not translate into action. If you are coming home and you find to your surprise that your plane is a 737 Max, will you really refuse to board and go on a later flight? The flip side is serious refusniks can make a point of booking as often as possible on 737 Max-free Delta. And the longer the plane’s grounding continues, the more the bad press will feed passenger fears.

Boeing needs a fundamental turnaround. Quite a few journalists have described how Boeing’s once vaunted engineering prowess went out the window as a result of the reverse takeover by McDonnell Douglas. The decision to go cheap and expedient with a 737 product extension in the form of the Max, as opposed to biting the bullet and building a new fuel-efficient narrow-body that would presumably be the first in a new long-lived model family, typifies the short-termism that has brought Boeing to this sorry juncture. Its bean-counters-masquerading-as-leaders have bizarrely shed what even MBAs ought to recognize as its core competence, namely its engineering prowess. The production problems with the 787 Dreamliner and the embarrassment of an aborted “Starliner” space capsule demo are further evidence of institutional rot.

Troublingly, Calhoun has been a Boeing director since 2009, so he participated in the board approval of the 737 Max in August 2011. In other words, he’s never had a problem with the long-term gutting of Boeing’s engineering chops; there’s no reason to think he has adequate perspective on how bad things have gotten.

The Seattle Times confirms that experts see Calhoun as incapable of rebuilding Boeing:

A former Boeing senior leader, who asked for anonymity to speak freely, admitted doubts about whether Calhoun is the one to revive the company’s historic culture of engineering prowess that’s been eclipsed for years by a focus on financial performance.

“If it’s just more cost cutting, that’s not what we need,” he said. “We have to restore the culture of engineering excellence that has served us so well for over a century.”

In an interview, Richard Aboulafia, vice president of analysis at aviation consulting firm Teal Group, offered similar concern that Calhoun may have “the wrong skill-set to change Boeing.”

“He’s been on Boeing’s board for 10 years, coming from the private equity industry and from GE in the Jack Welch era,” Aboulafia said. “This is the kind of résumé that Boeing has not been lacking and it’s not as if he’s bringing a fresh perspective.”

He said Boeing needs a leader now with not only a firm grip of the jetliner market but also with “a strong understanding and appreciation for engineering.”

“That’s what’s been lacking at Boeing, and that’s what this company really needs,” he said.

Analyst Rob Stallard at Vertical Research Partners argued that Calhoun won’t be at the helm all that long, that his job will be to get the 737 Max flying and choose a successor. But as we suggested, our sense remains that Boeing is not all that close to having the 737 Max approved as safe. It’s not clear what happens if the crisis were to drag on, say, for another six months, and still have no timetable for resolution. And given how much of an overhaul Boeing needs, a more engineering-minded CEO, even in the unlikely event Calhoun would recommend one to the board, would only be a first step on the airplane maker’s road to recovery. The company needs an executive-level housecleaning, but Calhoun and this board are unlikely to back a radical course change.

We thought our take on Boeing’s managerial rot was grim, but a fresh edition of the highly regarded industry newsletter Leeham News if anything says we haven’t been caustic enough. From yesterday’s release:

Boeing needs to take bold steps—and I mean, really bold steps—to recover from the worst crisis in its 103 year history.

I outlined in an Oct. 7 column why the top executives and half the Board of Directors need to go. This was limited to the MAX crisis.

Things only got worse since then…

As noted in the Oct. 7 column, the Boeing board is entrenched.

It also fails to include a pilot of high stature—someone like a Chesley Sullenburger or the late Al Haynes. Given what’s happened, a former investigator from the National Transportation Safety Board or a former member of the EASA regulatory agency might be a good addition.

The GE cost-cutting culture in the executive ranks and the Board that’s been prevalent for 20 years needs to go.

Crucial is a Board that has fresh perspective and is not married to “shareholder value” as the No. 1, 2 and 3 priorities.

Shareholder value is important, of course. But not at the expense of safety and investing in new airplanes rather than derivatives of a 50-year old design (the 737) or a band aid (the 777X).

While I agree wholeheartedly that Boeing needs to get rid of most of its C-Suite and a lot of its board, I don’t see how this happens any time soon. Board directors have staggered terms. It is hard to see what deus ex machina could force half of the board out in short order. And only a new board would be sufficiently ruthless about the current executives.

The entire Leeham newsletter is very much worth reading. It also argues that Boeing needs to launch a new plane.

As with Wells Fargo, the most likely source for root and branch reform at Boeing will be outside pressure, but absent a bona fide crisis, again it is hard to see big enough changes soon. Even so, Boeing’s suppliers and its 737 Max customers are already at their wits’ end. Many of them are powerful companies in their own right, either nationally or in Congressional districts. If Boeing does not get its act together on the 737 Max in relatively short order, the knock-on effects will only get worse.

Matt Stoller highlighted a critical point we confess we’d missed about Boeing’s misleading accounting, which he lifted from a 2016 Wall Street Journal article (emphasis his):

Boeing is one of the few companies that uses a technique called program accounting. Rather than booking the huge costs of building the advanced 787 or other aircraft as it pays the bills, Boeing—with the blessing of its auditors and regulators and in line with accounting rules—defers those costs, spreading them out over the number of planes it expects to sell years into the future. That allows the company to include anticipated future profits in its current earnings. The idea is to give investors a read on the health of the company’s long-term investments.

As we indicated above, the last time we saw anything remotely like this…booking not-yet-earned future profits on a current basis was with CDOs, and that very abuse was a major driver of the financial crisis. The idea that Boeing could unravel seems far fetched. But the idea that AIG could fail would have been dismissed as fantastical in 2006.

Again, it’s easy to dismiss these concerns as a tail risk. But those tails are fatter than you think.


1 We have way more detail on how this scheme worked in ECONNED and past posts, but here is the short version: The links between the demand for CDOs and the “negative basis trade” that was arguably a widespread form of bonus fraud. When a AAA instrument, in this case the AAA tranche of CDOs, was insured by an AAA guarantor (think AIG or the monolines), internal reports typically treated it as if all the expected income in future years was discounted to the present. As we know now, in the overwhelming majority of cases, bonuses were paid on income that was never earned. This mechanism was THE reason many banks would up holding so much AAA CDO inventory – it was more lucrative for the traders to retain and “hedge” it than sell it.

2 We see via Leeham News that this appears to be a widely-shared take; for instance, Lion Air used the same expression in a letter commemorating the Muilenburg exit.

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  1. John A

    Low cost European airline Ryanair, that has over 100 Max on order, has said, if and when they take delivery, that they simply will not tell passengers they will be flying on a Max, and anyone who refuses, won’t get a refund. Will be interesting to see how that plays out, if the Max ever does return to service.
    Ryanair has always stuck two fingers up at regulators and is notorious for not paying out on mandatory delay payments, arguing about which country’s employment laws should apply to personnel in other countries, or arranging transport when a flight is diverted etc.
    On the other hand, they are cheap, very punctual (time very much is money to them) and often the only choice if you want to fly to smaller, regional airports, rather than a big city.

    1. PlutoniumKun

      Ryanair are in serious trouble if the Max doesn’t get the green light soon, they’ve tied themselves to the 737 petard very firmly. They have an additional problem in that even if the FAA gives the go-ahead, there is no guarantee European regulators will follow obediently. Their financial model is based on a very high turnover of aircraft (they run them new, then sell on quite quickly to Asian discount airlines before they start needing more intensive maintenance), so they might have no choice but to hang on to older aircraft much longer – which is a huge issue for them as they don’t have the depth of aircraft maintenance facilities of other airlines.

      I doubt the number of MAX refusenik passengers would be significant, but you can only give the finger to your customers for so long before they start to rebel. For unrelated reasons, I swore off using Ryanair years ago, I doubt I’ll be alone in that for long.

      1. Tinky

        “For unrelated reasons, I swore off using Ryanair years ago, I doubt I’ll be alone in that for long.”

        I’m with you, PK. In my experience, the easyJet experience is vastly superior to RyanAir, and I haven’t flown the latter in over four years. The fact that EJ has a nice fleet of Airbus is just icing on the cake.

        1. Ignacio

          Another question arising about subsidised low-cost airlines is that, well, those subsidies may or at least should end if one day authoritites become real about fighting climate change.

  2. Samuel Conner

    Re: Boeing’s fierce resistance to simulator training:

    This has been portrayed, no doubt correctly, as a cost-containment agenda to make the Max-8 more appealing to customers.

    The thought occurs that avoiding simulator training might also have a “conceal the behavior” agenda, in that if the simulator were to actually train pilots on the new “features”, they would have the privilege of memorable experiences of trying to override MCAS and correct the stabilizer trim (with the ‘too-small’ manual trim wheel) while plummeting toward earth.

    Simulator training for MCAS would IMO have been “anti-marketing” for this aircraft.

    Which suggests a marketing chicken-and-egg catastrophe, in that MCAS was supposed to avoid the need for retraining, but having implemented MCAS, retraining remains undesirable as it might disincentivize customers whose pilots, having experienced simulated MCAS emergencies, might be, quite reasonably, chary of flying this craft.

    It looks very ugly for Boeing, IMO.

    1. Darius

      Boeing was selling the MAX as requiring almost no retraining to save airlines expense and lost pilot time. Southwest in particular insisted on it.

      Canada has called for removing MCAS, the trigger of this whole problem, from the MAX. Am I correct that modifications required to get the MAX back in the air at some point void common-type recertification and lead to the need for a ground up certification like a clean sheet design? It seems in that case Boeing would be truly screwed.

      1. Yves Smith Post author

        The comment from the Canadian source was the view of someone at the regulator, and not a formal position. So it isn’t clear how widely his opinion is shared.

        No MCAS = permanent grounding of the plane. The hardware would have to be redesigned, which would take the better part of a decade.

        1. Johan Telstad

          “No MCAS = permanent grounding of the plane.”

          I’m not sure that’s correct. Without the MCAS system, the type certification would not be compatible with the NG 737, which would require pilots to certify on the new sub-type designation. I don’t think it would trigger an entirely new certification process, which the 737 – because of all the grandfathered certifications – would not be able to pass.

          But I welcome corrections to my understanding of the issue. I am just an air plane nerd, without qualifications of any sort.

          And as a software developer, I am surprised that there hasn’t been more attention paid to the fact that the MCAS system seems to do no sanity check on the input from the AoA sensor. How on earth does it accept a value of 75 degrees pitch-up at a few hundred feet of altitude as valid data?

          1. Yves Smith Post author

            The 737 Max is an entirely different plane aerodynamically than the other 737s. The 737 Max has been grounded with no ramification whatsoever for other 737s. There’s a strong case that the FAA should never have allowed the 737 Max to be treated as just another 737.

            It has been explained repeatedly in the press how moving the larger, more energy efficient engines forward and up on the wing makes the 737 Max aerodynamically unstable to a degree unparalleled in any passenger jet. MCAS was a software fix intended to counter that instability and make it reasonable to expect commercial pilots to be able to fly it safely.

            Now it is fair to say this instability can occur only during takeoff…but takeoff and landing are the two riskiest parts of a flight. And Lambert has cited a section of the FAA fundamental requirements that the 737 Max appears to violate.

            It isn’t a matter of “new certification”. The 737 Max is too unstable to fly as a passenger plane absent getting MCAS to work to the FAA’s satisfaction. That is why it is grounded. If the plane were OK without MCAS or some other fairly simple fix, it would not have been grounded so long.

            Absent a software remedy, we are talking “new plane” and a new certification would be a function of HARDWARE redesign.

            Other plane experts have described at length how the chips for the AOA sensors are also maxed out, severely limiting what could be done having more AOA sensors and more “agree/disagree” tests. Upgrading to a more powerful chip would take years; this is a monster task. Other kludges, like using more chips, would require a cockpit redesign, which means a recertification. And the FAA has already raised an issue with the current cockpit design, that the manual trim wheel may be too small (it can require a lot of strength to operate it in certain circumstances).

      2. Samuel Conner

        Have no idea about the issue of re- versus de novo certification.

        I have the impression that without MCAS, the 737 Max-8 cannot safely ascend steeply on takeoff; the AoA is too high and the tendency is to pitch up, risking a stall. I think that means a significantly shallower and slower ascent to cruising altitude.

        The cynic in me wonders if the retirement fund should be short the parent company, rather than long.

  3. Synoia

    I posited previously that the MCAS solution, with dual AoA sensors was the best design Boeing could find for the bad flight characteristics, a hardware problem, for the 727 Max.

    And that now Boeing is trying to invent a better than best solution.

    Software cannot compensate for bad hardware. Or one cannot fix a hardware problem with software.

    One did wonder about the wisdom, the risk, of continuing to build a flawed plane for inventory when it could not fly safely.

    It appears to be throwing good money after bad with a plan based on “then a miracle occurs.”

    1. Hayek's Heelbiter

      Nowhere have I read how much money Boeing saved by using single AOA sensors rather than dual sensors. Not sure that the polling would have corrected the MCAS software, but supposing it did:

      If x = cost savings / plane, y = # of planes, and -$7bn equals return on the investment, then wouldn’t ROI = -$7bn / (x*y) * 100%.

      Which whatever figures x and y represent, this decision would seem to me to result in one of the most astonishing ROIs in history. Operation Barbarossa probably doesn’t even come close.

      An aside, interesting how many people are treating the 737 Max crashes as Black Swans when in fact they are the inevitable result of allowing MBAs to make engineering (and many other) decisions.

      1. Samuel Conner

        From a number of sources (my first notice of this was at the Moon of Alabama ‘blog), the 737 flight control computer, which is based on a 286-class CPU, is at the thresh-hold of overburdened with the current software.

        It’s conceivable to me that the single-AoA data input was related to limitations on how much additional number crunching the FCC could deal with.

        It seems likely that improvements to the software or the cockpit user interfaces, if possible, would add to the computing burden, and if the FCCs are already near their limit, the fix may be very difficult to realize.

        Those tens of billions of dollars spent on share buy-backs are looking very poorly spent.

        1. Jos Oskam


          My thoughts exactly.

          I’ve spent (wasted?) years of my early IT career developing real-time software in 286-based environments. These things are not really processing powerhouses, but there is more. When you design hardware around them, the options for channeling interrupts, I/O, accessing memory etcetera are limited. In short, the whole hardware package puts severe constraints on what you can do.

          If the developers effectively did run into FCC capacity problems forcing them to oversimplify MCAS implementation, the only ways out that I can see are either leaving out MCAS completely (the “Canadian option”) or replacing the 286-based FCC with something significantly more powerful, with the latter option probably required in the future anyway.

          If the FCC indeed needs to be redone and replaced on all 737max planes, don’t expect them to fly anytime soon. I would wager a rough guess of a few years at least… not to speak of what’s needed to re-certify the thing, or the plane.

          1. John Zelnicker

            @Jos Oskam
            December 24, 2019 at 1:49 pm

            From what I have seen elsewhere, mainly Moon of Alabama, replacing the FCC would be such a major change as to require re-certifying the entire aircraft. There are also issues of the existing software being written within the limitations of 286-based CPU’s as another commentator has mentioned. Boeing really has boxed themselves in.

            Apparently, it would also be hugely expensive.

          2. Thor's Hammer

            The fundamental flaw with the Boeing 737 MAX is not a software problem. It cannot be “fixed” by adding additional sensors to the MCAS or by requiring pilot training in the simulator so that pilots understand the work-arounds necessary to regain control of their aircraft when the MCAS fails.

            Even a child can see that the emperor has no clothes. The 737 air frame configured with oversize engines mounted forward of the wing is fundamentally unbalanced aerodynamically. It is a problem created by the greed of the Boeing management as they tried to compete with Aerobus by cobbling together a “new” plane from their aging design. Those same executives should be wearing orange suits and breaking rocks rather than collecting golden parachutes.

            As for the 737 MAX aircraft cluttering the storage tarmac, I doubt if retrofitting as standard 737’s is economically feasible. So they should be broken up for scrap aluminum and whatever value recoverable from their engines.

            The expense of scrapping the 737 MAX should be no problem for Boeing. The Pentagon can just double the price on all the Predators and AWAX’s they buy from the Lazy B and make it whole again.

        2. Lambert Strether

          > Those tens of billions of dollars spent on share buy-backs are looking very poorly spent.

          Well, that depends on your point of view. If you’re looting the company, they were very well spent.

      2. Shiloh1

        Fired? No way. He and the rest of the directors officers C-suiters current and former and their family members should be in the jump seats on every flight.

        Same goes for GM’s coverup delay on Cobalt ignition switches and Ford Focus locking transmission in drive.

    2. XXYY

      one cannot fix a hardware problem with software.

      As a software engineer with many decades experience I can say that (a) this is generally true, but (b) it doesn’t stop people from trying it on every project!

      “We’ll fix it in software” is a punch line at almost every tech company.

      1. John Wright

        From my experience in embedded software controlling hardware, fixing hardware “problems” depends on what the hardware issues (problems) are.

        For example stable and predictable non-linear behavior in a sensor may appear to be a problem, but may it be easily compensated for by software that compensates for the sensor’s behavior.

        If the hardware “problem” does not have stable and predictable behavior, then one can’t fix it in software. For example, one can’t compensate for a completely failed or unstable sensor.

        One can view data corrupting noise in information channels as a “hardware problem” that has been extremely well compensated for by software for many years in computer networks and hardware.

        The success of the computer hard drive depends on recorded cyclic redundancy codes that are used to verify that data read back is indeed “good”, otherwise a re-reading of the drive is launched.

        Effectively this software compensation for noise in communications channels traces back to Claude Shannon’s 1948 work on information theory.

      2. Thomas P

        The masters of fixing hardware problems with software have to be in NASA, the people who care for space probes that develop glitches over the years. It’s amazing how they can work around one device after another breaking down, using computers with the processor power of a microwave oven.

        Not that those fixes would pass FAA, but when you don’t have a choice you can do a lot with software.

      3. none

        I’m still unclear about why the MAX hardware is “bad”, other than it doesn’t respond to pilot input the same way the earlier 737 hardware did. They therefore added MCAS as a type of compatibility layer. That seems like a reasonable idea to me except that 1) the pilots should know that it is there, and 2) there has to be a way to turn it off if things get weird! And of course 3) Both 1 and 2 require additional pilot training which was a no-go the way the MAX program was sold.

        Now that everyone knows about MCAS though, the above all seem fixable. The MAX has other problems as well that might further delay re-certification. I see mention of the FAA pushing back at Boeing, so I guess we will see whether the FAA is really out of Boeing’s pocket this time.

        1. rowlf

          MCAS was not well documented and past flight envelope protection systems had less authority and could be physically overidden as the flight crew went through the process to turn off the system. In the past main trim and autopilot stabilizer trim had cutout switches.

        2. Fred from Balroy

          An analogy:
          If you try balancing a marble on a beach ball, any deflection from perfect causes an increasing unbalanced condition. A positive feedback loop. It is inherently unstable.

          If you put your marble in a bowl, any deflection causes a return to center effect. A negative feedback loop. It is inherently stable.

          The changes from New Gen to Max engine placement engendered a positive feedback loop in certain conditions and was inherently unstable.

          Correct me if I am wrong, but the military has planes that are inherently unstable, and with proper REDUNT soft and hard ware and EXTENSIVE PILOT TRAINING those planes fly somewhat safely.

          Boeing declined to pursue either remedy seeking profit over safety.

          1. Carey

            I think that’s a nifty analogy, and an accurate one.
            Similar to ‘oversteer’ in a car, as with the Corvair.
            Nasty at the margins, just when you’re not ready..

        3. harry

          From memory there is a particular standard airworthiness test which the 737 max would fail without MCAS software.

    3. John k

      Airbus uses three sensors, each feeding a different make computer. The three results are compared, consensus among at least two determine the truth. So to equal this, Boeing needs two more sensors, not one more. But as noted, their ancient computer chip might be maxed out. IMO they need to emulate airbus, but maybe that costs too much takes too long? How costly to retrofit the existing fleet?
      At least it would avoid activating the Frankenstein Mcas unnecessarily.

      1. rowlf

        Almost. For an A320 series aircraft there are three Angle Of Attack (AOA) sensors and three Air Data Inertial Reference Units (ADIRU). The sensors and the ADIRUs come from the same vendor and no intermix is allowed between vendors or often even mod level. Each ADIRU gets AOA information from channels in two AOA sensors and information is compared internally between the two channels in the ADIRU and then also cross checked with the other two ADIRUs calculations. With three units each flight crew display has two sources to choose from as well as a standby fourth system with limited functions. Also, all systems using ADIRU data, such as the two Flight Augmentation Computers (FAC), will fault mismatched inputs. All of these systems have been refined over the thirty years of service of this type of aircraft.

        One of the features of the 1980/90s Airbus A320 avionics architecture is that trend monitoring of air data systems (Pitot, Static, AOA) and inertial systems is on the horizon. This will speed up the refinement process of the systems. In the past flight test aircraft and operator’s aircraft equipped with special add on data logging equipment was needed to refine the systems.

        I wouldn’t be surprised if Boeing either went back to a SMYD type computer with two AOA channels to remove the MCAS function from the FCC or added a boat-load of aerodynamic add-ons to correct the pitch fault.

        (See the Beechcraft 1900 airliner or a McDonnell Douglas MD-90 as an example of aerodynamic patches.)

        1. Yves Smith Post author

          I understand that Airbus even had independent teams program the software for each AOA sensor so as to make it impossible for a software bug to be replicated across sensors.

          1. rowlf

            I don’t believe that is true. An airframe manufacturer (Airbus) will often offer several vendor supplied units that meet specifications. So there may be two or three AOA sensor suppliers to choose from and two or three ADIRU suppliers. The AOA vane only supplies position information, the ADIRU then takes the input and determines how to use the position information while also comparing the calculations the other two ADIRUs come up with. Some tolerance between inputs is allowable and wild information such as when airspeed is too low it make the AOA track correctly (Take off and landing roll) is a function located inside the ADIRU. A few years ago an A320 operator reported problems from the three AOA sensors freezing due to water in the bearing area which led to the ADIRUs not being able to discriminate between bad inputs so a Service Bulletin was issued to replace that model/mod level units. (It’s a very dynamic environment and depending on what regulating authority an operator is under controls how the operator updates their aircraft. FAA and EASA are usually very strict.)

            The independent team approach is usually used in flight control and flight guidance, where you would want one team to determine flight command and the other team to determine monitoring due to the same input. The two systems have different architecture and if a disagree occurs the computer drops out and the next in the chain of control takes over. Early on control would be Intel architecture and monitoring would be Motorola, which led to a lot of “I’m a PC/I’m a MAC” jokes when troubleshooting in service faults.

            1. Yves Smith Post author

              You are utterly straw manning my point and are also incorrect, which is quite striking given your pretense of expertise. I notice an influx of newbies trying to muddy the discussion. That’s called agnotology. It’s a classic trick devised by the tobacco industry, now used by climate change denialists, and what sure looks like “Boeing is in deep shit” denialists.

              Airbus has independent teams develop the software for each AOA sensor to prevent a common error leading to a replication of a bug. And it does its development in house (this is according to the Sun Herald). I spoke to Lambert, he quoted a source on this specific issue but I can’t locate it in Google, or in a search of posts, which says it was in a comment and we can only search on single words in the backstage on comments. Hopefully we will be able to find this soon…

              1. Carolinian

                He/she sounds pretty expert to me.

                While as a machine geek I do know a bit about airplanes, my own expertise is confined to news reports like nearly everyone else here. And that’s a problem because newspaper articles try to boil down complicated technical issues for the general reader with subtle points often lost in the process. If we are going to get down into the engineering weeds then bring on the experts I say.

                By contrast Boeing’s management failure is easy to understand, All you need is common sense.

              2. rowlf

                Let me try again before we have our seconds arrange things as I think we are talking about two different functions. The AOA sensors send analog position information to the ADIRUs, one sensor per ADIRU, then the ADIRU computes the AOA value and compares digital values from the other two ADIRUs. The ADIRUs also send the computed AOA information to Flight Control and Flight Guidance computers on databuses. The Flight Control and the Flight Guidance computers are where the Airbus Design Office used parallel teams and architectures. The AOA sensors and ADIRUs were near off the shelf units. The Flight Control and Flight Guidance computers were specific to Airbus’s A320 design.

                Currently Thales and UTAS are the vendors for the AOA sensors, and Northrop Grumman and Honeywell make the ADIRUs. I don’t have access to the original parts catalogs to see if there were other options that may have dropped out of the market since the aircraft started flying in 1989 as the parts catalogs were film tapes then.

                Over the years after incidents have occurred Airbus has updated the specifications for the AOA sensors and ADIRUs for reliability. The Airbus software improvements to the FC/FG computers have been to better discriminate from bad inputs, such as pitot/static/AOA data not being realistic for inertial attitude signals, aircraft configuration and engine thrust. The FC/FG computers have also gotten better with dealing with multiple bad inputs.

                The article below gives a good overview of the systems and software design practices in the 1980/90 period outside of technical material Airbus provides directly to operators. The mention in the article about use of Intel and Motorola processors is probably more accurate than the verbal information I received from maintenance instructors and Airbus field representatives.

                Electrical Flight Controls, From Airbus A320/330/340 to Future Military Transport Aircraft: A Family of Fault-Tolerant Systems

                1. Yves Smith Post author

                  I am not talking about the sensors and the attempt to make a comment about the software that interprets the AOA readings for the the “agree/disagree” tests IS a straw man. It bothers me no end that you are choosing to defend a clear and obvious misrepresentation of what I said.

                  Airbus has independent teams develop the software for each AOA sensor to prevent the possibility of software error being replicated across all the sensors. How hard is this to understand?????

        2. Carey

          >added a boat-load of aerodynamic add-ons to correct the pitch fault.

          Thanks *very much* for this full comment. From this lookie-loo’s seat the above really seems to be the least-bad option, but it’ll be interesting to see what shakes out from the OEM, the FAA, and other regulators.

          Quite a climb-down involved with that proposed solution, though.

          1. Carey

            Adding: aerodynamic fixes for the MAX’s issues would almost certainly
            reduce fuel efficiency, and airlines would not be happy with that.
            That could be partly why that approach (which the MAX’s first
            chief test pilot recommended, IIRC) was not approved by

    4. Vichy Chicago

      This reminds me of the apocryphal quote attributed to a Spanish admiral before the Armada sailed “we have the confident hope of a miracle (to beat the English).”

    1. Dean

      What I’m wondering about is the current administration is (correctly) letting the FAA put safety first in this instance at the expense of business and growth.

      Or am I missing something?

      1. curious euro

        They cannot do otherwise since the EU and China, especially China, keeps them honest.
        If it were a purely inside-US problem, the plane would already be in the air again is my guess. However, they cannot sign off on Boeing when China has legitimate reasons not to.

        As for the article’s outlook of a possible AIG-type disaster, I sort of agree this is likely. Tho it will more be a GM like disaster and rescue plan since Boeing is in manufacturing. There is no way in gehenna (family blog) Boeing will fail. Boeing is certainly much more too big to fail than any other manufacturing business in the US. The US government must and certainly will step in when, probably not if, Boeing’s C-suite is incapable. This kind of rescue is also the only realistic way imho, how this totally incapable board can be fired for incompetence and a back to engineering roots leadership installed. If the US government has the will to do this of course. In the name of national security even, which this is, for once, actually sort of, is. Boeing has a military business side as well, which needs the civilian one and vice versa.

        So I see a “it has to get a lot worse before it can better” scenario for Boeing, since there have obvious problems at the whole Boeing board-level, not just with Muilenburg. The govenment on the other side will only be allowed to step in if actual bankruptcy looms, which is still quite a bit away.

        1. Briny

          Well, on the Pentagon side, Boeing isn’t winning any adulation as a result of the continuing KC-46A fiasco.

    2. The Historian

      Having worked for the gov and seen many directors come and go, I ask that too! He doesn’t fit in any of the categories that the pols usually pick for those positions, i.e., politically well connected, good looking, yes men with MBA’s and with little knowledge of the agency they are supposed to direct.

      And how is he keeping that job – the pressures on him must be enormous. He must have a backbone of steel.

      1. Typing Monkey

        Re: “How is he keeping that job”

        Isn’t it obvious? The FAA is well and truly screwed if they don’t improve their credibility with their foreign counterparts as quickly as possible. That credibility will not come from being acquiescent–it will come from visibly demonstrating that they are willing to cause severe pain to the industry they regulate when it is necessary to act in such a manner.

        I would be absolutely astonished if it turns out that the FAA was not significantly responsible for Muilenburg’s very justified firing. And whatever Calhoun’s shortfalls, I suspect that he has learned the lesson and will not be stupid enough to pressure the FAA going forward (at least not publically).

      2. Yves Smith Post author

        He was appointed in August. Someone in the Trump Administration must have been uncharacteristically alert enough to realize that getting the FAA seen to be credible again with other regulators was a necessary if not sufficient condition for saving Boeing’s hide. The US losing its ability to have its certifications accepted by other regulations is deadly to US aviation.

        We said in our November post we thought Dickson was the real deal. Glad you agree.

    3. Carey

      You could easily be right, but I didn’t see it similarly.

      “Straight talk from Steve” sounds like more PR-concocted spin to me, from the title on down. Telling staff to take their time (privately) is good, for sure, but publicly pointing it up feels like “Reassure Investors™ 101”, to me.

      One POV.

      1. rowlf

        Dickson came from Delta Airlines where he had experienced the transition to good management, leadership and the development of a strong safety culture. He also has experience with flying Airbus and Boeing aircraft.

      2. Lambert Strether

        It could be. What impressed me was that he told the FAA worker bees directly that he “had their back.” If you say that, you had better mean it, because people will be watching. And it’s a big political risk for him if it all goes sour.

        1. Carey

          >What impressed me was that he told the FAA worker bees directly that he “had their back.”

          Yes, and if the FAA top-down pushback is genuine and organic, that’s a very good thing. I am *really curious* to see how this plays out, because as goes
          Boeing.. finally they need paying passengers willing to fly on their planes.
          Will, or will not, “like it, proles!” work, yet again? Glad the EASA and China
          have to be satisfied now.

  4. DHG

    Either Boeing scraps the Max and creates a new design for this size of airplane or they will fail and be out of existence.

    1. California Bob

      Boeing will never ‘fail.’ If worse comes to worse, the Pentagon will order 10,000 F-15Xes the Air Force doesn’t want, to keep the factories going,

      1. Yves Smith Post author

        That isn’t a fix. Military sales are only 30% of Boeing’s total revenues.

        Plus I can guarantee the supply chains are completely different and the objective would be as much to save the supply chain as Boeing proper.

        1. harry

          Still, California Bob does have a point. The company is “systemically” important to the US. Won’t be allowed to fall, but unclear how it can be rescued.

          1. Portlander

            True, Boeing can’t be allowed to go “out of existence”, but its current governance (e.g. Board and executive management) can be quickly transformed through bankruptcy, yes? This allows it to continue to function while transitioning to new management. The “fat tail risk” that Yves raises is so immense that this could be a real possibility…?

            1. MyLessThanPrimeBeef

              When Capital Cities bought ABC in 1985, the former was a smaller company.

              I wonder if Tesla will want to buy Boeing cheap, and get into military spaceship*/starfleet procurement.

              *equipped with teleporting trasnporters. .

  5. Hmsdaley

    I think they’re pretty well hosed. My understanding is they tried to fix a physics (or physical) problem with software. The engine is simply too big for the plane. Until they replace the engine or resize the plane, the Max is a no-fly for me. It’s hard enough to accept fly by wire when the plane is engineered correctly. To make it so the plane doesn’t want to stay aloft by design and then patch with a single, non-redundant sensor/system is lunacy.

    I could see Boeing splitting into three parts: defense, commercial air, and parts/service. Much like when the financial services guys were caught, they will attempt to “bad bank” the commercial air division.

    This will be a case study one day. Hopefully the MBA/managerial class will learn the right lesson from this. Absolute tragedy.

    Seems like an opportunity for an Airbus only Southwest knock-off…

    1. inode_buddha

      If they were capable of learning this wouldn’t have happened in the first place. The reason they are not capable is pride and arrogance. It isn’t the first time in history that a company was endangered or destroyed by short-sightedness and hubris. Examples abound:

      Bethlehem Steel
      Sears Roebuck

      The list goes on and on and on….

      In each case, the downfall happens after the “financialization” of the makeup of the board of directors. Simply put, when they make [money] instead of [product], they whole thing eventually tanks. The best years at Bethlehem was when it was run by steel men. The best years at GM was when it was ran by car people. The best years at HP was when it was run by engineers.

      Failure is an easily observable and repeatable, historic pattern of activity.

      1. Dirk77

        I am wondering if this fiasco along with the others exposes some psychological fault of humans. It’s like taking a moderately intelligent person -> modern business school education -> functional idiot that couldn’t find his way out of a paper bag -> company is destroyed.

        Boeing seems to be merely collateral damage of the particular path the American Empire has chosen to take to die. Is there anything that can arrest this trajectory? Anyone, anyone? Making stock buybacks illegal would certainly help – if done ten years ago. But now? And I found out recently that in 2017 Boeing had its own employee pension plan invest in its own stock. No one could possibly think that was anything than a stock buyback. A board that does that might as well be in private equity. But then they are. Jesus.

      2. Typing Monkey

        > If they were capable of learning this wouldn’t have happened in the first place. The reason they are not capable is pride and arrogance.

        I am not sympathetic to Boeing’s plight (and in fact very much hope that criminal charges will be laid in this instance, which in fact may be required for credibility reasons), but if you want to understand the situation rather than polemize, you need to understand the double-bind that “they” are in. Arrogance (especially to pre-conceived political views) was likely a factor, but the point is that if they did not choose to prioritize short-term earnings, they would have likely lost their jobs in favour of someone who pursued more or less the same strategies that was eventually followed.

        The system-wide incentives/penalties cannot be emphasised enough–this is not limited to Boeing.

        1. inode_buddha

          “The system-wide incentives/penalties cannot be emphasised enough–this is not limited to Boeing.”

          Indeed, as I said, there is a long list of failure..

          However, I do not buy the argument of “The competition made me do it”. Dong something provably wrong and risking everything because of what competition *might* do is flawed logic at best.

          The game is dirty because the payers are dirty, and that is an individual choice that they make. These are the same class of people who have been lecturing us all for decades about “personal responsibility” while concurrently doing everything possible to evade said responsibility. See: regulatory capture, FAA.

          “Waah waahh mommy the market made me do it!!” is BS, and those who disclaim responsibility should not have any, nor should they have the rewards when things go right.

        2. Yves Smith Post author

          That is not true. Costco has for two decades stared down analyst pressure to pay their store employees less. Costco understands that having well paid employees (by retail standards) is important and in the end helps insure better margins by:

          1. Making affluent people feel better about shopping at Costco, since they get cheap prices without abusing the help. The guilt reduction factor is apparently non-trivial in where they choose to shop

          2. Reducing shrinkage. Way less employee theft at Costco

          3. More motivated and cheerful employees, which pays off per #1 (making Costco less unpleasant as a big box crowded store) and probably other ways.

          Boeing is vastly more powerful than Costco. It is in a much better position to sell a “we need to focus on engineering to compete with Airbus” story than Costco to make an analogous pitch in retail.

          1. harry

            All true, except Costco isn’t cheap. Or not as cheap as it should be. Very well run business but a poor value proposition for shoppers.

            1. harrync

              Yes, Costco has two big failings: 1) their employees are too well paid to qualify for welfare [unlike Walmart/Sam’s Club employees, who collect billions in welfare per year]; 2) there are no multi-billionaire Costco heirs.

            2. drumlin woodchuckles

              If CostCo workers were pay-cutted down to Walmart levels, how much welfare would they require to survive? How much would that welfare cost? Would the taxmoney spent by CostCo shoppers on Walmart welfare for Walmartized Costco employees be as much or more than the money saved by Costco shoppers finding Walmart prices at Costco?

              And if it would, where is the value proposition in that?

          1. Carey

            Should any Corporation’s workforce be cheap? To my eye, that solution *always* means externalizing costs onto the many.. I’m glad Airbus production-humans have a decent(er) life, and wish the same for
            the humans who work at Boeing.

            “Labor Force” issues will be coming to the fore, and soon.
            That term admits of multiple meanings, of course..

      3. California Bob

        Former proud HP employee here. I left the company before the fiasco that was Carly Fiorina–why do the ‘business’ TV shows still trot her out?–but my BFF was there and saw how the reverse takeover by Compaq she engineered nearly destroyed the company. The collegial HP employees were no match for the hardened Compaq infighters.

      4. Typing Monkey

        > Failure is an easily observable and repeatable, historic pattern of activity.

        Oops–this comment was actually what originally had me wanting to reply.

        Failure in *any* system is actually the norm, which is why it is so “easily observabel and repeatable” and so historic. Competitive advantages are difficult to come by and tend to be very fleeting, and complex systems (e.g. current sociological, business, economic, political, etc. environment and the interactions between them) are inherently hazardous and failure prone **by their very nature**.

        There is no way to remove thie failure-prone aspect of the system indefinitely–it is endemic to the nature of the system itself. Any organization (or human, for that matter) almost always has to ride the line between profits (revenues and costs) and other factors such as safety. Inevitably, they eventually make the wrong decisions, but it is statistically inevitable that they eventually do so.

        The trick is to structure things such that failure on a single decision or two does not threaten survival of the individual or entity. That requires truly understanding the key aspects of the system and the impacts of any decision, which is probably impossible…

  6. The Historian

    Happy Holidays to every one! And especially to Jules for rescuing so many of my comments from spam. This new laptop has the world’s worst mousepad – I never know if I am left-clicking or right clicking or double clicking – so it’s no surprise that Skynet thinks I’m spamming.

  7. The Rev Kev

    ‘Boeing’s practice of booking future, yet to be earned, profits as current income means persistent negative cash flow could lead to an unraveling.’

    Is it to late to re-adopt that old maxim again that it is not a profit until it goes into the bank? After reading this excellent article, I am betting for sure that there will be not return to the skies for this bird in 2020 and it is Boeing’s fault. Will Trump be persuaded to bail out Boeing down the track? Hard to say.

    Came across an article a long time ago which talked about Boeing having so much of the plane built under contract. I think that Japan got a lot of these contradicts. But Boeing was even willing to have the wings built by foreign countries which was a good as giving their technology away which would be a long-term disaster for Boeing but excellent for short -term executive bonuses.

    Bonus points too for PK in pointing out that for Ryanair, that this plane is as good as a petard.

    1. nn

      The problem is that aviation is long term affair. So if Boeing starts new plane now and even if everything goes more or less accordig to plan, it will be more than decade before they will be selling the pieces for more than it costs them to manufacture. And if the plane is success, it will become reliable cash cow somewhere in its second decade.

      You can count profit only after the money is in your bank, but that means it’s like first ten years you are digging multibilion hole, next ten years you are trying to get out of it and after that you start to show profit.

      I don’t think it’s possible to make any sense of such programs without guessing into far future.

  8. Summer

    What if the process of building a new plane would reveal yet another deep problem within the company? What if that is a bigger part of their reluctance, even bigger than the brain dead greed?

    1. Briny

      Interesting point. Do they even have the capabilities in designing, testing, and certifying an entirely new plane anymore? Looking at the other botches in engineering, not just the MAX. one wonders.

  9. TG

    Many excellent points.

    A small but still important issue may be that, even though Boeing seems to have ‘captured’ the regulators, consider the pressure on any regulator that recertifies the 737 max. There has been so much publicity, that if ANYTHING happens to a 737 max in the year after it restarts flying, the government employee that signed off on it will be toast… there is likely a very powerful administrative conservatism at this point that may be very hard to overcome. These are planes, remember, and flying at 560 mph at 35,000 feet is a very difficult regime and things can go wrong even on ‘perfect’ planes… Who wants to bet their career and reputation that NOTHING will happen to any 737 MAX?

    As regards the comment by “Summer,” yes, another thing to consider. What if Boeing is no longer capable of competently designing a modern cutting-edge airliner? What if it has outsourced and downsized its core engineering capacity so much that it just can’t do it any more? That’s the sort of ability you can’t rebuild by just hiring another 100,000 foreign nationals on H1B visas – talented though they may be as individuals, they don’t have the collective experience needed. Look at how hard it has been for other countries to make competitive jetliners, not even Japan has succeeded yet.

    1. Arthur Dent

      Boeing has captured the FAA but not necessarily Canadian and European regulators. The Canadians are still pissed about the forced sale of Bombardier to Airbus while the Europeans have Airbus. Then there are the Asian regulators….

      I think Boeing has pushed the 737 one plane model too far. They should have bit the bullet several years ago and designed a new plane. By now they would probably be getting it certified by the FAA with glowing comments from the airlines.

      With regards to revamping an existing plane vs. designing a new plane from scratch, from my experience as a design engineer retrofitting something is almost always header to get right than something purpose built from the start, as long as the specifications and wish list are rational (the F-35 had too many competing wishes to be an efficient program and would have been better as 2-3 separate planes) . Retrofits sound good at the beginning (especially to accountants), but you are always end up trying to shoehorn something into somewhere where it doesn’t fit, which is what happened to the 737 MAX.

      1. Yves Smith Post author

        You missed that the FAA under new director Steve Dickson is standing up to Boeing. He and they realize the worst thing for the FAA (and US aviation) would be for other regulators to reject its certification if and when it approves the 737 Max. The Chinese may do so out of cussedness. but they need the Europeans and the Canadians to agree pretty pronto for credibility’s sake and to reassure passengers.

    2. California Bob

      All of our regulators–FAA, FTC, SEC, etc.–have to feel under siege after more than 50 years of the GOP convincing everybody that ‘government is the problem’ and regulations, ALL OF THEM, are bad*. The loyal civil servants who hang in there and do their level best in spite of declining funding and morale have my gratitude and respect.

      * Unless, of course, a ‘conservative’ is harmed, then it’s “Why didn’t the government DO SOMETHING?!”

      1. Yves Smith Post author

        With the SEC, it wasn’t the GOP.

        Clinton appointee Arthur Levitt had only modest regulatory goals, that of protecting retail investors. He was nevertheless under almost constant attack from the Senator from Hedgistan, Joe Lieberman, who threatened to and if memory serves correct, actually did cut the SEC’s budget to hamstring the agency.

  10. steven

    Anyone have any information on what Southwest intends to do about its Maxes? Is it likely to follow Ryanair’s lead?

    1. Carolinian

      Southwest is an all 737 airline. Apparently the decision to pretend retraining was not necessary was in order to please important customer Southwest.

      As for the board–they added Nikki Haley, nuff said.

      1. Carolinian

        Just to add that the fact that some regional airlines are heavily into the 737 is likely one reason Boeing didn’t make an all new airplane. With a largely similar plane parts can be shared, mechanic retraining less necessary etc.

  11. Carter Williams

    Boeing and Airbus have systematically improved flight safety significantly over the last 40 years. The industry is facing a serious challenge with degrading pilot skills, globalization and the demand for more automation to further improve safety. These are the most complex vehicles made by mortals. The best engineers use to go into aerospace, now they go into other industries. So, increased demands as we take safety from 5 sigma to 6 sigma, and increased competition for the best engineers.

    People are simply wrong to attribute this to MBAs, McDonnell Douglas, accounting and the like. It is frankly laughable to call McDonnell an MBA culture. The challenge is to engineer better in a tougher competitive market. Boeing has the capacity to continue doing great things. People in the cheap seats maybe need to change their view on how they value these markets.

    A fair question to ask is why did Boeing use its free cash flow to buy back stock, rather than invest in 737 replacement? The answer to that question is important to the Boeing story and US innovation generally. Answer that question, and we can fashion a better strategy for US technology competitiveness.

    1. eg

      Isn’t that decision to use free cash flow for stock buybacks rather than investing in product or processes itself evidence of financialization and “an MBA culture?”

    2. Anon

      If there are degrading pilot skills, why did Boeing skimp on pilot training, obscure the MCAS system in the pilot manual, and focus more on “shareholder value” than passenger safety? Talented engineers (like most talent) are attracted to pay and working conditions and a challenge: Boeing offered none of that. It seems an MBA culture pushed the talented engineers aside.

      Boeing chose not to challenge its engineers to build a truly modern aircraft to drive profits into the future. It chose to jury-rig an old air-frame to maximize current profits; at the expense of 346 living souls.

      1. Ken

        In large part the degrading of pilot skills is in the developing countries. There is a vast difference between a trained-by-rote pilot and an airman. The earlier flight of the Lion air MAX had a pilot that brought it in with a defective angle of attack sensor. Subsequently the airline installed a junky rebuilt angle of attack sensor, then a much less capable pilot took off and crashed the same plane.

        The developed countries have their own concerns with adequate pilot training and a generation of experienced pilots nearing retirement age as the industry grows.

        1. Carey

          >The earlier flight of the Lion air MAX had a pilot that brought it in with a defective angle of attack sensor.

          Let’s be accurate, here: they had a *third, non-flying pilot in the jumpseat*
          on that earlier Lion Air flight. Correct me if I’m wrong.

          Maybe we should go back, always, to three-man crews; so as to safely trouble-shoot the planemaker’s MCAS-like mistakes?

      2. harrync

        I can’t believe the cost of pilot training would be even a tiny percentage of what the groundings and fixes are going to cost. Back around 1960, an Inter-Mountain airline lost two planes to total electrical failure. My late uncle, an accomplished aircraft electrical engineer, was hired to investigate. Turned out that the pilots were ignoring the manual that said immediately disconnect a failed generator from the system. If you didn’t, it would cause the good generator to fail. [Yeh, probably not good design, but would cost a fortune to correct.] His recommendation: better pilot training, better training manuals. They never lost another plane. Oh, his fee: $8,000.

    3. Yves Smith Post author

      “It is laughable to call McDonnell an MBA culture.” Make shit up much?

      What planet are you from? Numerous press accounts based on insider views say the reverse. Start with Moe Tkacik’s widely lauded report at the New Republic:

      This New Yorker account similarly provided specific incidents from after the reverse takeover of how Boeing prioritized its financials over engineering, and how its executives abandoned practices like process improvement that were both pro-safety and pro-long term profits:

    4. Alain

      Boeing and Airbus have systematically improved flight safety significantly over the last 40 years. The industry is facing a serious challenge with degrading pilot skills

      This reasoning, which is strongly related to Boeing’s blame the pilot pr blitz, leaves an extremely sour taste in my mouth.

      How many planes, especially modern planes, exactly crashed in Asia in the last few years? Sure, it happened. I recall an AirAsia plane crashing a few years ago. But it’s not that modern jetliners crash left and right, since theyre not flown by well trained and military hardened ‘Murican professionals.

      Yves poined out that there’s suddenly an influx of “experts” trying to prove that it’s the inadequacy of those damn furriner airlines that crashes planes and not Boeing’s massive engineering mistakes.

      I wouldn’t go so far to call you a shill, but let’s just say that your reasoning about McDonnell taking over Boeing and killing its vaunted engineering culture is not true (a fact well established and well sourced) does not really help your credibility here.

  12. Ignacio

    Very good article, IMO. The board is still invested in the beast that might turn the giant company to its knees. I foresee the application of MMT ideas to the rescue of both shale oil drillers and Boeing. B-bonds and Oily-bonds combined make Boiled Bonds.

  13. Edward

    One aspect of this fiasco is that it is a systemic problem rather then an isolated one; the bad practices that led to this situation are supposed to be due to importing the business practices of the military side of the company to the civilian side. This means that the same practices that led to the 737 MAX are operating elsewhere– in the military side, and likely causing problems there as well. Of course, the existence of bad practices in the MIC isn’t exactly news, which may be why little is said about it, because everyone already knows this.

    The same can be said about the FAA role in this mess.

  14. JTMcPhee

    Yah, let’s see if “we” can parse what went wrong with the 737MAX as supposedly being the next dependable (safe and profit-generating — discounting externalities) Boeing aircraft wafting millions of people off on vacations or junkets or to those terribly important business meetings. Got to be a fix in there somewhere, right? Some combination of change of leadership and re-institution of some set of corporate values, maybe undoing some of the outsourcing (though there you have another set of claimants for bailouts,) whatever.

    I see only one bit of notice given to a really much bigger failure here: It takes a huge amount of petroleum extraction and combustion, with those “knock-on effects” like what is happening in Australia. Looks to me that people are so wedded to their own immediate gratification that a big swath of the planet will eventually be stripped of most species, including our own, as ambient conditions become “untenable.”

    Of course the French and Chinese and even the evil Russians are going to keep building their jet fleets to use or sell on to lesser places, all aiming at “growth” and profit. Fun to project and speculate what might or will be happening to the seeming juggernaut known as Boeing. Also perversely fun to project and speculate on the fate of the biosphere, which suffers because of MCAS-class and MBA thinking. But the PR tells us that Boeing is indispensable to life as we know it, having settled parasitically into its niches in commerce and war.

    “Fix” Boeing? That’s like nursing back to health the sociopathic guy who has sworn to rob and kill you.

  15. Helios

    Is there any analysis, or perhaps it was included in Congress questioning that never made it on air, that shows whether the performance of the MAX in the conditions that MCAS was designed to counteract (i.e. increased likelihood of stalls while turning during a steep climb vs. other 737-rated designs) was objectively not allowed (meaning the flight envelope can’t pass even under a new type certification) or just relatively not allowed in order to keep the 737 type cert?

    This to me is the key to understanding how the FAA is proceeding. If it’s just an issue relative to keeping the 737 certification, then seems like there are more paths forward here to get the plane back in the air, albeit still painful for Boeing. Just take out MCAS and call the plane a Boeing 740 or something under a certification different than the 737. That seems to be what that Canadian engineer is implying can be done when he asked about whether it makes sense to just remove MCAS.

    But if the FAA would never approve the performance of any plane, even under a new type cert, that operates like the MAX would without MCAS, then this is a more severe problem. It really seems like the hardware and cockpit design issues raised as Boeing iterates their “software solution” overwhelm the baseline design, and there is no way to certify this airframe.

    1. RMO

      This blog, by an engineer who has worked for Boeing in the past is the best source I have found on the matter. As yet I have not found any source definitively stating the extent of the handling characteristics of the MAX without the MCAS active. Without the MCAS the documents I have been able to find say only that the sick force/g does not progressively increase in two flight regimes (the higher speed range wind up turn and at lower speed with the flaps retracted) but I haven’t seen any statement about whether it meets the certification requirements for handling characteristics of a transport category aircraft if the MCAS is not installed. We do know that without the MCAS it couldn’t be sold as requiring very little in the way of type specific training for pilots of earlier versions of the 737 and this was the main driving force behind the design. I have also read that implementing input from multiple AOA sources and giving a disagree warning when they don’t say the same thing would have required enough type specific training that this would have resulted in the aircraft failing to meet the guarantees Boeing had made to customers about transition training needs and associated costs.

      1. Carey

        Agreed- for authoritative, nuts-and-bolts reporting on the 737 MAX, Peter Lemme’s work is not to be missed.

    2. Yves Smith Post author

      We have posted repeatedly that the 737 Max is dynamically unstable to a degree that is unprecedented in a passenger airplane. MCAS was intended to compensate for that. No MCAS or fix that accomplishes the same end, no recertification.

      And a recertification of the 737 Max a new model would take even longer even if that were possible.

      We are saying this looks like a serious problem. If Boeing were able to fix MCAS sufficiently to satisfy the FAA and other regulators, it probably would have happened by now. At least the FAA and Boeing would be making more positive noises about making progress.

  16. Carey

    Great middle paragraph, there.

    If one more of these things goes down for anything remotely related to its
    flight characteristics, software-augmented or no ..

  17. VietnamVet

    Boeing could well be the next AIG. If the 737 Max is not certified to carry passengers in four or five months, the negative cash flow will hit the fan. The only way it can fly safely in the near term without a new flight control system is to require extensive training and washing out pilots who can’t stay out of high angle of attack stall conditions and resolution of the confusing cockpit warnings. It will cost lots of money.

    Everything is coming together. Neoliberalism and neutering government do not work. Worse the media propaganda avoids mentioning that the world has changed and has gone multi-polar. Russia has cut itself off of the internet. Donald Trump has wandered off into impeachment anger and know nothingness. Professionals are required to design, build, maintain and fly the 737 Max safely. Boeing profited from short changing them. If this is finally the start of the “haute” middle-class revolt against the profit driven exploitative aristocracy, not just Boeing will be restructured.

    1. Carey

      “..A senior Boeing executive, speaking on condition of anonymity, said the new Forkner documents contain the same kind of “trash talking” about the FAA as in the October messages.

      He said he doesn’t think they will be explosive but that they will generate headlines and continue to be a problem for Boeing. He added that there might be additional documents he is unaware of.

      Forkner poses a continuing problem for the company, because he hired his own high-powered criminal defense attorney instead of lawyers retained by Boeing, and the company doesn’t know what he’s doing, the executive said.

      While Forkner invoked his Fifth Amendment right against self-incrimination to avoid turning over records to DOJ, Boeing doesn’t know if he might cut a deal with prosecutors in exchange for his cooperation, he said..”

      Interesting phrasing in this Seattle Times piece on this Christmas Eve docu-dump.

  18. Jessica

    Placing financials over engineering at Boeing has put one of the crown jewels of US capitalism at risk. This affects the entire economy. A functional ruling class would not have let this happen or at least would be moving fast to correct it if it had happened.

  19. howseth

    “Still, Muilenburg, 55, is in line to receive $26.5m in cash and stock as part of his exit package.
    His payout could reach as high as $58.5m, depending on how it is structured, according to an SEC filing, including a pension of $807,000 annually and Boeing stock worth another $13.3m” – Reported in The Guardian

    Cult of The CEO – a strange cult to me. As a regular schnook reading about this mess, I can’t fathom these friggin contracts given to corporate executives. This guy signed off on what was a fatal disaster. The bucks evidently don’t stop here…

    Why is there no sward to impale himself on? Instead, this crazily opulent goodbye gift, pre-arranged, in a no-skin-in-the-game world… $58.5 million. Something to do with Capitalism?

    1. Felix_47

      His single decision to not ground the max after the first crash and reassess was so bad. Had I done that in my business I would be looking at losing my license. Don’t these contracts have clawbacks for reckless poor decisions? And if they do should he not be fired for cause?

  20. Neil Roberts

    All well and good .. but I have faith that recently appointed and vastly experienced in all matters airline board member Nikki Haley will resolve any difficulties going forward (sarc)

  21. JSquared

    Boeing has MAX problems beyond what has been noted in this thread. If the MAX returns to flight, Boeing not only has to ensure the safety of new production but the safety of those aircraft that have been parked for some time. It has hundreds of parked MAX aircraft, starting from the Spring of 2019 and more added as they were built between then and now. Bringing an out-of-service aircraft back into service is not like starting a car after it has been sitting for a while. This list of things that can go wrong is long and includes seals that dry up, lubricants that congeal, oxidation, and little critters making their home in electronics.

    Here is an informal description of the general issue (apparently written by a Boeing engineer in 2004):

  22. Portlander

    From a previous NC link comes this apt observation, in this case, on WAPO’s Afghanistan papers’ revelation of a decade of lying by the U.S. about that war:

    “The real problem is not that bureaucrats and politicians lied to the public, but that the institutional incentives of our foreign policy often encouraged them to lie to themselves.”

    In this case, it would appear that Boeing executive management is, similarly, hobbled by self-delusion on a massive scale. How does one correct a problem of blindness when everyone has an incentive to wear blinders?

    1. Portlander

      As a person who works in enterprise risk management for a big electric utility near Boeing, it is clear that Boeing is not following, in good faith, the Post Sarbanes-Oxley requirement for good risk management per COSO and ISO 31000 standards. They are supposed to have, at the least, a risk management function that reports directly to the Board. Risk Management’s explicit purpose is to help all levels of management “take off the blinders” of excessive optimism and groupthink.

      Apparently, Boeing engineers rated the risk of a single AOA sensor’s input to the FCC as “Severe” but not “Catastrophic” because they assumed that the pilots would be able to regain control of the aircraft. But the faulty assumption, here, is that the pilots would know about the MCAS and would have adequate training to deal with this situation. And, of course, a cockpit indicator that the AOA was faulty was optional equipment. This is pretty flawed risk management in that it allowed a chain reaction of inter-dependent risks to effectively render the plane too risky to fly. Only now, with more attention to these interdependencies with a better simulator, are they coming to grips with the full range of problems needing to be fixed.

      The upshot is that the post-Enron Sarbanes Oxley should be vastly toughened, particularly as regards “too big to fail” companies like Boeing.

  23. Wukchumni

    ‘Twas the day after Christmas, when all through the house
    Not a creature was stirring, not using a mouse;
    The firing of the Boeing CEO was done with care,
    In hopes that circumspection wouldn’t be there.

    Max the jet was snug in it’s hundreds of beds
    While visions of not being grounded
    Danced in airlines dependent on making bread
    Not to happen, the chief of the FAA said.

  24. Gary Groot

    “Done with care”? Calhoun has publicly asserted that Muhlenberg “did everything right” with the MAX problem. Replacing one with the other made no sense even cosmetically.

    1. Yves Smith Post author

      Please do not attribute to us things we never said. We’re not responsible for Boeing’s PR.

      The post made very clear we are very skeptical of Calhoun. Among other things, he was on the board when it approved the Max.

      I’ve told Lambert, and he agrees that this is very plausible, that Muilenburg’s now-criticized actions could have been the only course he had given his alternatives. Could he really tell this board, if this were the case “We are fucked, we can’t come up with a MCAS fix that foreign regulators will accept, and the FAA may not buy it as a result of that”? The board would have fired him and put in a toady who would have tried muscling the FAA.

      Mind you, we’ll know in a few months if Boeing can pull a rabbit out of the hat, but the signs so far are not encouraging.

      1. Kurt Zumdieck

        Thanks Yves for all you have done on this issue.

        What we have coming in 2020 is the Boeing-led manufacturing depression, and it will kick off here in Seattle / King County. I have Boeing in my bloodlines with my Dad having worked as a subcontractor and other relatives who once worked at the “Lazy Bee”. Followed this enterprise in my background closely over the last four decades and it was not surprising Boeing got where it was.

        Culturally, they are slow to change (engineers aren’t exactly visionary) so it was not surprising that they went with the duopoly/Southwest thinking on the 737 Max cuz really, they didn’t have any better ideas than strapping a bigger more efficient engine on it. They also took a dim view of the cyclical nature of the commercial airline business. Like every manufacturer, they wanted nothing more than to be a defense contractor.

        Back when they were competing for the F35, ALL the talent and the money were spent on getting that contract, no planning was done on the commercial side. I swore that if Boeing had gotten that contract, they would have padlocked the Renton and Everett plants the next day. In secret, they were in negotiations at the time to sell the commercial business to SPEEA, their engineers, probably hoping to get out from under their pension obligations to them in one sweet clever move.

        So when they were blindsided by not getting the contract, Boeing had no idea what to do next. Initially, they dusted off plans for a supersonic jet they had worked on in the 60’s. After that one went down in flames, they scribbled on the back of restaurant napkin and came up with the 777.

        We keep talking round and round about AOA this and FCC that, but all this comes down to three things-
        – Weight
        – Thrust
        – Wing length

        737 Max is really based on the 707 design from the early 1950’s. This airplane was set to carry just over 100 passengers. As the demands of the Southwest cattle cars over the years needed more aisles to pretend they are a profitable enterprise, we went through all the variations of the 737 until now the same airframe is suppose to carry more than 200 passengers. (My pilot uncle sagely pointed this out to me. He flies Airbus btw for continental/United)

        What we have now, especially with engines in front of the wings, is an un-air-worthy frame that is prone to high-speed stalls on takeoff. The 737 Max is a low-altitude rocket with huge engines completely dependent on thrust to get it off the ground, when it probably needs longer wings, to have a semblance of air-worthiness.

        I live just north of Boeing’s field and we are in the take-off path. I happened to be home from work on the day that Mullenberg flew an unmarked 737 over our house a week or so after the worldwide grounding. I had read everything on the Max I could find. Standing out our porch with a cup of coffee, it is apparent that at takeoff, the nose is up higher than other planes and it struggles to get to altitude, going faster than other planes. because it is getting no lift.

        They HAD to bring in the MCAS to deal with this defect and there is no going back.

        We should now call it what it is – low-altitude rocket travel.

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