Boeing Must Emerge Smarter From 737 MAX Grounding

 Boeing Must Emerge Smarter From 737 MAX Grounding

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The Federal Aviation Administration approved the Boeing 737 MAX jet for passenger flights on Wednesday, more than 20 months after grounding it.

The Federal Aviation Administration approved the Boeing 737 MAX jet for passenger flights on Wednesday, more than 20 months after grounding it.

Photo: lindsey wasson/Reuters

A dark chapter in
Boeing’s
history can finally be closed. The moral is that business works best when finance and technology are in creative tension.

On Wednesday, the Federal Aviation Administration approved the Boeing 737 MAX jet for passenger flights, more than 20 months after grounding it. Shares of the company initially rose, but later gave up their gains in a sign that many investors cashed in after the announcement—though the stock is still up 45% in November. The plane maker now faces an uphill battle to deliver the 450 MAX jets it has in storage. Chief Executive David Calhoun has admitted that plans to ship most of them within a year of the “ungrounding” have been upset by Covid-19. This in turn puts the MAX’s scheduled production rates at risk.

What can investors and analysts learn from this fiasco, now that industry leadership has been ceded to European rival
Airbus
?

First, the initial impression in 2019 that the plane crashes involving the MAX were only a minor setback for Boeing was mistaken. It failed to take into account that the aviation industry is exposed to unpredictable disasters, like Covid-19 and 9/11 before it. It also missed that the accidents involving the MAX were a sign of deep-seated problems, such as the increasing power of bean counters over engineers at Boeing and the dangerous lack of oversight of regulators like the FAA.

But doomsayers who claimed the MAX would never fly again also were wrong. Many analysts lambasted the decision to update the 53-year-old 737, rather than launch an all-new model, as an example of the company’s excessive financial focus. This also is questionable.

The call to build the MAX in 2011 had a lot more to do with excessive haste: Airbus had suddenly come out with the re-engineered A320neo and pressure from
American Airlines
forced Boeing to respond quickly. Even so, the MAX could have been an efficient way to temporarily meet the challenge, especially if the extra resources had been dedicated to a new midsize jet.

This is where a culture that gave priority to meeting targets over safety did real harm: It fast-tracked a flawed plane. This was likely unrelated to whether the aircraft was a clean-sheet model or not: The obsession with lowering development costs also plagued projects such as the now-successful 787 Dreamliner, and probably delayed the announcement of a much-needed new midsize aircraft—now indefinitely postponed.

Yet excessive focus on developing new technology also can be problematic. In the late 1960s,
Lockheed Martin
and McDonnell Douglas bet the house on large trijet planes that delighted aerodynamicists but missed where the market was going. Both ended up exiting the commercial-jet business. Another example is the unsuccessful Airbus A380 superjumbo.

The lesson for Chicago-based Boeing is that financial and engineering rationales each need to play their proper role. The MAX will remain popular but still lose out against its Airbus peer. It would be a mistake for an indebted Boeing to stretch itself too thinly to challenge this supremacy. At the same time, the firm needs to regain its engineering focus to look ahead to the mid-2030s: The potential for hybrid propulsion and even hydrogen to revolutionize aircraft is hanging over the aerospace industry. Boeing will need a new model that beats the competition in both short-haul and medium-haul flights.

Boeing’s recent history has been one of struggle between the engineers in Seattle and the executives in Chicago. It is time they find common ground.

From the Archives

Boeing’s two 737 MAX 8 crashes and the investigation that followed ruined not just the aircraft manufacturer’s reputation but also its bottom line. WSJ’s aviation reporters break down how the scandal unfolded and explain what the flying public can expect in the future. Photo: Gary He/EPA-EFE (Originally published March 9, 2020)