Boeing’s Latest Crisis: MBA Professors Weigh In

Once again, another management crisis at Boeing is the hottest business story in the United States. Following the January 2024 blowout of a door plug on a new 737 jetliner carrying 177 passengers and crew at 16,000 feet over Portland, a top management shakeout at Boeing grabbed headlines late in March.

But this time, could a three-point plan be sufficient to resolve the crisis? One such plan proposed by a team of researchers at the Yale School of Management appears to align with recent actions and statements by the Federal Administration Administration and several of Boeing’s largest airline customers.

The January 2024 proposal published in Fortune by Dr. Jeffrey Sonnenfeld and Steven Tian from the Yale Chief Executive Leadership Institute recommends three steps Boeing needs to accomplish to restore trust among government regulators, the airline customers who buy Boeing’s products, and the flying public. But before we take a closer look at the Yale proposal in our fourth BSchools article covering Boeing since 2020, here’s a summary of key developments during this fast-moving story.

Boeing’s Issues So Far in 2024

The widely-reported January 5 midair blowout during Flight 1282 required Alaska Airlines to perform an emergency landing of a 737 MAX 9 aircraft delivered as new only two months earlier. The day following the accident, the FAA grounded 171 of these airplanes operated by Alaska and United Airlines while the agency launched its investigation in conjunction with the National Transportation Safety Board.

Following inspections that found loose bolts within similar door plug assemblies on various MAX 9 aircraft, after repairs, the FAA cleared the planes to fly again later in January but put Boeing “on probation.” In other words, the FAA blocked Boeing from boosting its production of new MAX planes to slow down production lines and encourage better quality control. The agency also stopped new regulatory approvals for the forthcoming MAX 7 and MAX 10 configurations planned for airline customers like Southwest and United.

Spewing flames from an engine fire following takeoff, an eight-year-old Boeing 747 cargo plane was forced to make an emergency landing 15 minutes after departing from Miami in mid-January. The incident occurred amid fallout only 12 nights following the 737 MAX’s blowout and was only the first of a series of subsequent high-profile incidents involving Boeing’s airplanes.

These events included a sudden, un-commanded dive from cruising altitude by a LATAM Boeing 787 en route from Sydney to Auckland on March 11. That accident injured 50 passengers and crew, with 13 hospitalized and one admitted in serious condition. Ten more scary United Airlines incidents then occurred, fortunately without any injuries.

For example, during a departure out of San Francisco, a wheel fell off an Osaka-bound Boeing 777 and destroyed a new Tesla sedan parked in an airport lot. Another Boeing 777 bound for San Francisco returned to Sydney because of a fluid leak from one of the plane’s hydraulic systems; according to American Airlines Boeing 777 pilot and aviation industry analyst Juan Browne, those three redundant systems are used to control flaps and extend the landing gear. However, so far, authorities haven’t directly implicated Boeing in any of these incidents.

In February, the NTSB released its investigation’s preliminary report on Alaska Airlines’ blowout. The report disclosed that the door plug assembly blown away from the jetliner appeared to have been missing four bolts required to lock the door to the airframe.

In March, a six-week production examination conducted by 20 FAA inspectors working inside Boeing’s factories alleged that Boeing and Spirit AeroSystems had failed 33 of 89 audits. Spirit is the Kansas subcontractor spun off from Boeing in 2005 that builds the fuselage for the 737 MAX product line—including the Malaysian-produced door plug assemblies such as the one that failed. The examination had accounted for 97 instances of alleged noncompliance, according to a presentation reviewed by the New York Times.

On March 9, the Times had also reported that the U.S. Department of Justice had opened a criminal investigation into Boeing, according to “a person familiar with the matter.” In a statement, Alaska Airlines confirmed the inquiry, reported that the airline fully cooperated, and did not believe it was one of the investigation’s targets. Boeing offered no comment.

The DOJ was known to have already been reviewing whether the January 5 incident had violated a 2021 deferred prosecution agreement. In that deal, Boeing had paid the Department $2.5 billion to settle charges alleging criminal conspiracy to defraud the FAA. The charges arose from the two crashes of the company’s MAX 8 aircraft in Indonesia and Ethiopia that killed 376 people and grounded the MAX fleet worldwide in 2019, as we had covered extensively here on BSchools.

Also on March 9, 62-year-old former Boeing quality assurance manager John Barnett was found dead in his truck parked in a hotel parking lot in Charleston County, South Carolina. Barnett had worked for Boeing for 32 years, most recently at the North Charleston factory that manufactures the 787 Dreamliner aircraft. He had been scheduled that day to continue his deposition testimony at the adjacent hotel as a whistleblower plaintiff in his civil lawsuit against the company. After Boeing’s lawyers had deposed him for several days, he had been preparing to continue with his counsel’s cross-examination later that morning.

On March 13, NTSB Chair Jennifer Homendy reported to the Senate Committee on Commerce, Science, and Transportation that Boeing had failed to provide critical information the Board had specifically requested. After she had called and spoke directly with CEO Calhoun, in a letter she explained to the senators:

We still do not know who performed the work to open, reinstall, and close the door plug on the accident aircraft. Boeing has informed us that they are unable to find the records documenting this work. A verbal request was made by our investigators for security camera footage to help obtain this information; however, they were informed the footage was overwritten. The absence of those records will complicate the NTSB’s investigation moving forward.

On March 22, the Wall Street Journal and the Times both reported that passengers aboard Flight 1282 had started receiving letters from the FBI that identified them as potential crime victims. Although the letter doesn’t comment about the investigation’s progress, it tells recipients that “As a victim specialist with the Seattle division, I’m contacting you because we have identified you as a possible victim of a crime.”

Also on March 22, the CEOs of Boeing’s four largest United States airline customers asked to schedule meetings with members of the manufacturer’s board of directors to express their concerns about poor manufacturing quality and insufficient production schedules. However, the CEOs specifically asked that Calhoun not attend these meetings. According to The Air Current’s Jon Ostrower:

That plan was designed to seek reassurance of Boeing’s trajectory “to get back on track” by United’s Scott Kirby, Southwest’s Bob Jordan, American’s Robert Isom and Alaska’s Ben Minicucci with “no filter” of their views through Boeing’s CEO, according to interviews by The Air Current with multiple senior industry leaders and officials.

“They didn’t want to get the defensive bullshit. They wanted the board to hear it directly through them” and not filtered through Calhoun and Boeing Commercial Airplanes CEO Stan Deal, said one knowledgeable senior industry leader. This plan was solidified at an Airlines for America board meeting on March 7, according to three industry officials familiar with the meeting and the resulting plan. In seeking the meetings, which have not yet occurred and are planned for the coming weeks, they became a symbolic vote of no confidence in Boeing’s leadership.

Following private meetings with the NTSB’s Homendy, the four airline customer CEOs had essentially “fired” Boeing’s leadership, and on March 25, Boeing announced a top management shakeup. Calhoun will step down at the end of 2024, while board chair Larry Kellner—the former CEO of Continental Airlines—will leave at the company’s annual meeting in May. The former CEO of San Diego semiconductor giant Qualcomm, Steve Mollenkopf, will take over for Kellner.

Another change will take place even sooner. Stan Deal, the president and CEO of the Boeing Commercial Airplanes Division, left Boeing immediately, a “firing publicly couched as a decision to retire after 38 years with the company,” according to Ostrower. Stephanie Pope, the firm’s former leader of the Global Services Division and, most recently, its chief operating officer, will replace Deal. Some speculate that her new position may be intended to groom her to take over as CEO in 2025 after Calhoun leaves.

In a statement, Calhoun wrote to employees:

As you all know, the Alaska Airlines Flight 1282 accident was a watershed moment for Boeing. We must continue to respond to this accident with humility and complete transparency. We also must inculcate a total commitment to safety and quality at every level of our company.

The eyes of the world are on us, and I know we will come through this moment a better company, building on all the learnings we accumulated as we worked together to rebuild Boeing over the last number of years.

The Yale Team’s Recommendations for Boeing

Dr. Sonnenfeld and his team have been careful not to understate the magnitude of Boeing’s challenges. They believe that the FAA is running out of patience with the firm. They want systemic changes to fix the company’s persistent quality control problems that weren’t addressed following the Ethiopia and Indonesia disasters.

Meanwhile, the Yale team also recognizes the pressure on Boeing’s leadership from the open revolt among the firm’s airline customers that was pivotal in driving the management shakeup. For example, United Airlines CEO Scott Kirby launched talks as far back as January with Airbus to replace the carrier’s planned 277 new 737 MAX-10 purchases with A321 models and recently asked United’s pilots to take unpaid leave because of delayed aircraft orders. CEOs at other 737 operators, including Southwest, Ryanair, and Alaska, have publicly voiced similar concerns about reduced capacity.

Here are the Yale team’s three specific recommendations:

1. Change governance and internal quality control processes to empower and embed safety more deeply across the organization

2. Clean up Boeing’s broken supply chain

3. Fortify public trust instead of deferring to regulators in communicating with the public

We simplify those recommendations as quality and safety, supply chain, and public trust. Then we briefly summarize the team’s advice for Boeing.

Quality and Safety

First, the Yale team argues that quality control and safety advocates within Boeing’s factories lack sufficient influence. The experts cite whistleblower reports leaked online and later confirmed by the Seattle Times that production line inspectors who were rushed or under pressure routinely ignored Boeing’s quality control procedures and would sometimes type incorrect data into assembly tracking software systems.

Assuming those reports are accurate, it wouldn’t seem like a surprise that the FAA would want quality and safety monitors working for third parties—or the FAA itself—to continually observe work in process at Boeing and within key subcontractors. That approach seems reasonable after Boeing and Spirit failed 37 percent of the FAA’s safety audits.

As the Yale team also points out, it might be true that following the 2019 MAX crashes, Boeing’s board of directors set up a five-member aerospace safety subcommittee and appointed a chief aerospace safety officer (CASO). Nevertheless, as long as a disconnect exists between top management’s quality and safety policies against the practices followed by assembly line employees working under pressure, Yale’s group suggests that policies set by the board and the CASO may not offer much benefit.

“Something is evidently getting lost in translation between the board and the manufacturing and assembly lines—and the challenge runs much deeper than any single incident,” writes the Yale team. “How deeply the new quality control processes have permeated into Boeing’s production plants is an open question.”

Supply Chain

Second, the Yale Institute criticizes Boeing for having lost control over its suppliers. That’s especially true of Spirit, the former Boeing division that builds almost all of Boeing’s fuselages and components for Airbus.

“Spirit should not be a standalone company, period,” writes the Yale group. They argue that it was an error for former Boeing CEO Harry Stonecipher to have sold off that division to a private equity firm in 2005, apparently motivated by “financial engineering.” Compared with the control Boeing had sacrificed over manufacturing so many critical components, the Yale team believes that Spirit’s sale doesn’t seem justifiable 20 years later. They also point out that it would require a sum roughly equivalent to only about three percent of Boeing’s market capitalization to buy Spirit back quickly.

Maybe that buyback isn’t such a bad idea, given two more media reports. The Seattle Times cited a whistleblower who claimed that Boeing engineers had uncovered 392 quality control failures during the previous 12 months that had “escaped” Spirit’s factory. Another story by The Lever recounts how Spirit discouraged their employees from reporting such defects by applying intimidation and fear.

Public Trust

Third, Yale’s team points out that Calhoun won praise early in the Flight 1282 crisis for his public relations skills. For example, he came across as reassuring during press interviews, and at all-hands meetings, he spoke personally as a father and grandfather about safety.

However, it remains unclear whether Boeing will continue to wield that kind of narrative control in the face of significant tradeoffs.

“Public safety and fortifying public trust must outweigh all short-term commercial impacts, no matter what investors or lawyers say,” Yale’s team writes. However, ensuring quality and safety under the close monitoring of inspectors from the FAA and airline customers could require a substantial slowdown in MAX deliveries for the time being. The Yale team nevertheless argues that winning back the public’s trust must be the top priority for Boeing—despite the massive costs the company may need to bear to accomplish that outcome during the upcoming months.

Finally, check out our extensive coverage of Boeing issues here at BSchools:

• Boeing’s Management Crisis | Part One: The Origin of the 737 MAX
• Boeing’s Management Crisis | Part Two: Catastrophe on the 737 MAX
• Boeing’s Management Crisis | Part Three: Business School Professors Weigh In