Boeing’s Management Crisis | Part One: The Origin of the 737 MAX

To appreciate the contributions business school faculty make to critical issues in the public interest, one only needs to review the research literature and articles citing the opinions of university professors about the Boeing 737 MAX’s grounding. Regulators grounded the self-sinking aircraft globally since March 2019 after the two disasters five months apart.

To that end, understanding the predicament Boeing faced after the disasters is essential. That predicament resulted from the 737’s history combined with the business objectives and tradeoffs that created the MAX.

Read on for part one of our three-part series on Boeing.

What is the Boeing 737?

Most of us have flown many times on the Boeing 737 family of twin engine aircraft. However, few outside the aviation industry understood the 737’s remarkable development history before the intense scrutiny of Boeing, starting with the Lion Air Flight 610 crash on October 29, 2018. These details are relevant because they’re essential to understanding the economic pressure that led Boeing to forego designing an entirely new airplane in favor of updating an ancient design.

In 1964, Boeing originally designed the 737 at the request of the model’s launch customer, Lufthansa. The carrier wanted an inexpensive to buy, economical to operate, short- to medium-range jet that could serve small airports with short runways within Germany and among other European markets.

Even though United States airlines in the mid-1960s initially refused to buy the 737, Boeing correctly predicted that airlines serving developing nations would also comprise a lucrative market segment. Today, China is Boeing’s second largest market for the plane.

The 737 shared the identical single aisle, six seat-across fuselage design as two other Boeing jets: the intercontinental four-engine 707 and the medium-range, three engine “T-tail” 727. But that’s where the similarities ended. For one thing, the 737 didn’t require a flight engineer. That meant a tremendous labor cost savings, requiring only two pilots instead of the three common for other jets of the time.

However, the differentiating feature of the 737 was its low-to-the-ground profile that Boeing designed to satisfy the explicit specifications of Lufthansa’s demanding top management. The short landing gear and minimal ground-to-engine vertical clearance under the wings greatly reduced needs for airport ramp infrastructure. The low-slung design made the 737 competitive in three key ways with another new jet that had already entered production in 1963. That was the McDonnell Douglas DC-9, which would win sales in the United States but fail to win over Lufthansa.

The first competitive feature was quick access to the cabin. Small airports in postwar Europe used stairways, not jetways. Standard equipment on the 737 was a retractable “airstair,” which reduced boarding and deplaning time.

The other two features promoted easy access for ramp agents and mechanics. Boeing’s 1960s-era interior predated overhead luggage compartments. Because carry-on luggage could only fit underneath seats, and because two bags were customarily included in ticket prices industry-wide, passengers checked most baggage. That meant ramp agents had to manually load each suitcase into the cargo hold. The low ground clearance made this back-breaking work easier and safer, and reduced the need for conveyor belts.

Third, unlike the DC-9’s engines which McDonnell Douglas mounted high on the tail to reduce runway debris ingestion, Boeing mounted the 737’s engines under the wings with only a 17-inch vertical ground clearance. That made engine access quick and easy for mechanics without the lift platforms they needed for the DC-9.

It’s also significant that Lufthansa’s management considered irrelevant certain features that have acquired critical significance today. These features include fuel economy, passenger capacity, range, and engine noise. In these respects, the original 737 was conceived by designers no longer alive to address a hierarchy of customer needs that’s long been obsolete. Nevertheless, modified versions of this jet—and it’s 1964-designed airframe—continue flying today.

What is the Boeing 737 MAX?

Lufthansa’s CEO was bitterly disappointed in the original 737 and at one point, considered canceling the entire 22-unit order. But through successive refinements, the 737 transformed into the most wildly successful aircraft product in history, generating sales at a magnitude never imagined by the original team at Boeing in the mid-1960s. As of late 2018, Boeing had delivered 10,000 737s. In October 2019, there were 4,600 more orders even after cancellations of several hundred orders following the two disasters. The 737 alone accounts for 40 percent of the company’s revenue.

Since its original design—at the time of this writing, 56 years ago—the four generations of the 737 have received fourteen updates that required amended type certifications from the United States Federal Aviation Administration. These updates have stretched the fuselage, allowing the 737 to carry more passengers and earn more revenue for each mile flown. The longer, heavier fuselage has required larger wings and more powerful engines. And during this time, the executives at customer airlines also pressed Boeing for better fuel efficiency. Yet the airplane as a whole—meaning the entire airframe—has not been certified by the FAA since 1967; the fourteen amendments were partial certifications that only approved the updated components.

This piecemeal process of updating the Boeing 737 has been likened to expanding a canoe into an ocean liner. Yet Boeing’s top management faced tremendous cost-saving incentives by designing and building incremental updates instead of an entirely new airframe.

The first incentive was that the cost of designing and building a new airframe could be enormous. Some experts estimated that cost alone at between $15 and $30 billion. By modifying the latest 737, Boeing could avoid those costs.

The second incentive involved the time and expense involved in winning approval for an entirely new airframe from the FAA and other regulatory agencies worldwide. That process could cost hundreds of millions of dollars and could take as long as eight to ten years.

There was also a third incentive. Boeing fought hard to avert an FAA-mandated requirement for airlines to retrain their flight crews in simulators to fly the latest 737 model.

Airlines balk at the costs of such retraining because it’s such a time-consuming and expensive proposition. The imposition of such a mandate by the FAA would knock out a major competitive advantage that Boeing could tout to sell the 737 against competing products: that no simulator training was necessary.

The FAA’s certification of a redesigned 737 as a completely new aircraft type would require customers to pay for as much as twenty days of classroom and flight simulator training for their pilots who were already certified to fly the latest 737 models. All other things equal, airlines would of course rather pay for their crews to be flying, not training. But that’s an urgent objective for budget airlines who built their business exclusively around the 737, like Southwest Airlines and the various international budget counterparts like Ireland’s Ryanair and Indonesia’s Lion Air. In fact, Boeing promised to rebate a million dollars off of the $89 million sticker price of each new 737 MAX bought by Southwest if the FAA required simulator training for the crews.

Fortunately for Boeing, the FAA agreed to “differences” training covering the new features that could be completed in two hours on an iPad. But that training would soon be shown to be critically incomplete.

Competitive Pressure: Rushing to Build the MAX

In December 2010, Boeing’s arch rival Airbus announced an updated model to compete with the 737. This A320 model, which the European firm called the Neo, included more fuel-efficient engines. Right away, the new plane sold briskly, in large measure because at the time, fuel prices had reached an all-time high.

Demonstrating that customers suddenly wanted fuel-efficient planes, the Neo’s initial sales caught Boeing off-guard. Traditionally, because of the economics of short-haul routes, airlines hadn’t shown much concern with jet fuel economy for their short-haul planes. In part, that’s because smaller planes fly fewer hours each day since they spend more time on the ground loading and unloading. For example, each day at American Airlines, short-haul planes average about eight hours airborne during 4.5 flights. But American’s wide body jets average about 11 hours in the air during 1.5 flights—almost a 40 percent difference.

But now, Boeing suddenly faced a crisis. The aforementioned American Airlines was one of their biggest customers, and didn’t fly rival Airbus’ equipment at all. But in July 2011 American put out a press release announcing an enormous order for 460 narrow-body planes. Of these, 57 percent were for Airbus jets. The release also stated that American intended to order 100 of the “expected” next generation of Boeing’s 737, equipped with a new engine that would afford more significant fuel economy gains over current models.

That release shocked Boeing’s management. American was saying that they suddenly wanted a new Boeing plane that didn’t yet exist. In other words, the airline was publicly demanding a non-existent product—and fast. American even specified the engine they wanted: the General Electric-designed LEAP 1X, one of the largest engines ever produced. And American was implicitly threatening that if Boeing didn’t deliver, Airbus would get all the business.

Essentially, American was using strong-arm tactics to force Boeing to re-engine their current 737 model, and scrap their existing plans for an entirely new model to replace the 737. But why would American do that?

That’s because during all fourteen type certificate updates spanning 55 years, the FAA has never required that pilots holding current certification on the latest 737 model complete any expensive simulator training to fly a brand-new 737 variant. American had thousands of these certified pilots, all previously trained. The airline didn’t want to pay the enormous cost of training all these pilots to fly a new Boeing plane.

However, repurposing a re-engined 737 for American cast Boeing into a dilemma because of design challenges that whipsawed engineers.

Since the introduction of high-bypass turbofan jet engines in the early 1970s, engineers believed that the only way to build better fuel efficiency into jet engines was to build bigger engines.

And in 2011, when Boeing started designing the MAX, the only way to use less jet fuel was to install goliath engines like the LEAP. But engineers had to hang those larger engines from the 737’s wing pylons while maintaining that critical 17-inch clearance above ground.

One way to do that would be to substantially raise the landing gear. In 2011, before American’s press release, Boeing considered that option. That choice would have mimicked the planes from Airbus, whose products had always afforded plenty of room for larger engines.

But Boeing concluded that a 737 with a tall landing gear would no longer be “just a 737” because it would no longer handle just like any of the 737s of the past. That move would change the aerodynamics of the aircraft so radically that it would probably require redesigns of other interrelated components, like the fuselage wheel wells and flight control surfaces. Boeing expected that a “tall gear” 737 would require a completely new type certificate from the Federal Aviation Administration and other aviation regulators worldwide, making expensive simulator training essential for pilots. And regulatory approval would entail considerable time—a luxury Boeing no longer had because Airbus planned to deliver their first A320 Neos in less than three years.

To compete with Airbus, Boeing would need to rush the MAX into production.

Pitch and Aerodynamic Stalling

If Boeing wanted to keep American Airlines’ business—an order on which the future of the manufacturer depended—Boeing would have to find a way to preserve the 737’s low-slung, half-century-old design. But on the MAX, the huge new LEAP engines couldn’t fit under the wings. So to minimize the landing gear height, Boeing decided to mount the engines in front of the wings, farther forward and higher than engines in all previous 737 designs.

Unfortunately, wind tunnel and flight testing soon showed that the MAX’s airframe, with the large forward-mounted engines, proved less stable in certain circumstances than other 737s. All jet aircraft with large wing-mounted engines tend to pitch up slightly when pilots apply thrust. But the goliath forward-mounted engines created additional lift that was substantial. And that lift was especially pronounced when pilots applied thrust at low speeds, like in aborted landing “go around” maneuvers. The airframe also performed in less stable ways than older 737 models during extreme banking maneuver tests that the FAA would require for certification.

In those circumstances, increased thrust caused the nose to pitch up more than a 737 pilot would typically expect under those circumstances. Boeing became concerned that under unusual conditions, the MAX might be more vulnerable than other 737 models to one of the most dangerous flight situations known to pilots: aerodynamic stalling. Here is an explanation of this phenomenon in the context of the 737:

Airplanes fly because their wings greet the oncoming air at a positive angle, known as an angle of attack. The faster an airplane flies, the lower the angle of attack needs to be to generate the necessary lift. Conversely, the slower an airplane flies, the greater the angle of attack needs to be.

But at some point, the angle of attack becomes too great for the oncoming air to negotiate smoothly. As the airplane approaches that critical angle, the first event is a stall warning in the cockpit. In the 737, it is a rattling “stick shaker” that vibrates the control columns and is meant as an urgent warning to lower the nose. If the pilot does not respond, the airflow starts to boil across the top of the wings, sometimes causing buffets that shake the airplane before separating from the wings conclusively at the moment of the stall. At that point, the wings’ effectiveness is hugely degraded, roll control becomes difficult and the nose drops unavoidably.

The nose drop can be drastic, typically about 30 degrees in a classic 737. Now fully stalled, the airplane enters into a precipitous, low-airspeed descent—a condition referred to as mushing and that if left unattended will lead to a catastrophic impact with the ground. The event does not take long. In June 2009, when an Air France crew stalled a twin-aisle Airbus 330 on a night flight from Rio de Janeiro to Paris, the descent required merely three minutes and 30 seconds from 38,000 feet to the ocean’s surface.

This brings up an important distinction. Many reports have described the MAX as “unstable” or that it is “stall-prone.” But some pilots with 737 experience believe those are inaccurate oversimplifications. They believe that the FAA never would have certified the MAX if the airplane was unstable. Boeing was not so concerned that the MAX was unstable, but instead concerned that the FAA might conclude that the MAX was not in compliance with the handling and performance characteristics specified by the 1967 type certificate for the original 737.

Changing Management: Boeing’s Reverse Takeover

The management team that ran the old Boeing—a company driven by the best aeronautical engineers in the world—may very well have elected to take a different course with the MAX to bring it into compliance. They might have taken more expensive steps—such as enlarging the horizontal stabilizer—believing the additional costs would pay off by enhancing performance and safety.

But the company building the MAX was no longer the old Boeing. This was a new Boeing, produced by the merger in 1997 with a financially troubled company widely criticized for shoddy engineering and terrible product safety. That was the DC-9’s manufacturer, McDonnell Douglas. Critics and former employees charge that the merger amounted to a de facto reverse takeover of Boeing by the leadership of a company with an incompatible approach to management.

Some believe that the emphasis on advances in engineering and aeronautics of the old Boeing’s leadership took a back seat to the emphasis on finance and marketing among McDonnell Douglas’ executives, who had somehow seized control of the consolidated company. And to use a computer industry analogy, this new Boeing was willing to engage in a strategy the old company had rarely applied: it was perfectly willing to apply software to salvage defective hardware—even by using dysfunctionally programmed and insufficiently tested software to do so.

Part two of this series will cover the 737 MAX disaster and part three will cover what business school professors think about this crisis in management.