Seattle has an identity crisis, as the Jet City fades. That was the implicit theme the other night at The Block Table discussion held at Folio Athenaeum Library in the Market. The guest speaker was the admired Boeing reporter for The Seattle Times, Dominic Gates, ably interviewed by Kenan Block (son of Bob Block, the affable founder honored by the name of The Block Table).
Gates traced in detail the fatal plunge of the company’s reputation, stock price, and market dominance, particularly “its disastrous last five years.” It was a sad requiem, to which Gates added two ways to regain the aerospace company’s stride — bring Boeing headquarters back to Seattle (cheers in the room), and announce plans to build a whole new jetliner here in Jet City, rebuilding morale in a once-proud company.
The last few years have been a stomach-churning air pocket for Boeing: a disastrous merger with McDonnell-Douglas, a drop in stock price from $440 a share at the top to today’s $167, and a squeezing of employees and suppliers that produced a sour morale. The once-dominant company, which had easily outpaced Airbus in sales, now lags the European manufacturer by 40-60.Â
In its ascendency, Boeing provided well-paying and stable employment for all levels of workers, thus creating the middle class affluence of Seattle and spreading the city’s name across the world. Unlike Amazon, Boeing played a strong role in local public affairs such as at the Seattle School Board and in funding local arts. The old Boeing shrewdly bet the company (and drew great engineers) by introducing new airliners, the 707, the 727, and the 747. Bill Allen, a Montana lawyer, was an internationally revered CEO of the company, 1945-69. The company rode high on the post-WW II boom years, selling airliners and Pentagon contracts.
Eventually the company veered off the runway. As Dominic Gates recounted the story, the fatal moment came when Harry Stonecipher convinced CEO Phil Condit that Boeing was not a broadly beneficial plough horse, but rather a laggard in growth and stock value. The siren song of modern finance had been heard, and Boeing was seduced.
The fatal advice of Jack Welch of GE to focus overwhelmingly on shareholder equity was underscored by installing a “GE Board” at Boeing and the absence of quality-engineering Seattle representatives. That led to a decision, disastrous in the long run, to outsource a lot of manufacturing to other companies and, by threatening to move manufacturing of new jets elsewhere, thereby squeezing employees on wages and pensions.
The result was resentment by employees (whose loyalty was once a great Boeing strength) and by suppliers (a fatal problem for safety and costs). Boeing decided to become “a large-scale systems integrator” to save money and shift risk to suppliers. In the process, Boeing and other American companies lost control over quality and its own fate.
Can Boeing correct course, now that it has replaced much of its top brass? Gates was skeptical about the chances, near term, saying the talk about greater plane safety is so far “topline statements only,” not matched by serious moves. The next CEO, Gates advised, must be able to inspire the troops, chart a path for digging out of the pit together, and plan to build, in Seattle, a whole new airplane (not just modifications of the existing line of jets) to motivate the return of experienced builders and engineers who have given up on the company. A dramatic move, Gates mused, would be to hire back some of the experienced whistleblowers who have been squeezed out by Chicago heavies.
That rebuilding will take years. It will endure losses of revenue from shutting down manufacture of faulty jetliners. One telling example of regaining trust that Gates discussed was the way Washington Sen. Maria Cantwell lobbied for Boeing’s request to have safety inspections done at the factory by Boeing and not by the FAA. The Senator soon felt “blindsided and betrayed” when Boeing’s fatal safety problems surfaced. Cantwell has now stopped accepting campaign contributions from Boeing brass.Â
There are some candles in this dark saga. Air travel is still very safe, thanks to the triple redundancies built into modern airliners, and Gates himself confidently boards Boeing MAX jets. Some of the problems hysterically attributed to Boeing are really the airlines’ fault or the result of neglect by maintenance crews. Now the market is speaking loudly to Boeing’s leadership. The inherent flaws in the outsourcing model are broadly apparent (costs of travel and of correcting mistakes at the assembly plants). Boeing, having spun off Wichita’s SpiritAerosystems in 2005, is now trying to buy it back, regaining quality control.
One of the interesting questions in the Block Table discussion: why doesn’t Airbus face these same dire consequences of modern, financialized capitalism? Gates’s answer was to cite labor cooperation built into governance of European companies like Airbus, government-funded social services that reduce the labor costs for companies, and easier cooperation in the less-far-flung network of suppliers.Â
The whole saga of being asleep at the alarm button may be the ultimate lesson of the Boeing nosedive. Seattle has not historically needed to correct course, merely waiting for the next Bill Gates to be born or Jeff Bezos to gallop into town. (Maybe the new galloping steed for our economic salvation will be AI?) Above all, we can feel relieved from being overly dependent as an undiversified company town, lashed to a boom-and-bust company in the Jet Age.
At any rate, the curtain has come down on the company that built modern, affluent Seattle, the Lazy-B.
I read that Gitlin is out of the running, and the top CEO choice is now thought to be Stephanie Pope, bean counter.
All of this is true and cannot be corrected by one person. A ceo can set tone and most of all create the values system that the company lives by. It’s going to take a team starting with a reworking of the whole board. There needs to be total alignment between executives, the board and the unions. If I were king I’d add at least two union board members to help build trust. Boeing has to start seeing itself as more of a national treasure. They need to seek optimization vs maximization. This cannot be a one year plan but a lifetime commitment. They need to make sure that THE PERSON WHI SWEEPS THE FLOOR CHOOSES THE BROOM. 🧹
Excellent David. Political , labor and business leaders should infiltrate outgoing Boeing high command. Moving back home and launching new plane will be heavy lifts and require enthusiastic statewide support.
Great piece, David. It explains how Boeing execs damaged their storied company while also pointing out the plane-building industry’s redundant safety features. It makes me a little less nervous about flying on MAX jets.
Hello David,
My dear sweet husband, who passed last January, who worked for Boeing 43 years and was a Technical Fellow, meaning he was at the top of the engineering scale and mentoring other engineers, would tell you Boeing went down hill with the merger of McDonald Douglas. The other thing he would tell you is the bean counters had more clout than the engineers, and would pink slip them willy nilly. Or more recently would pink slip the experienced engineers for cheaper ones just out of college.
Profit over good engineering.
Yes the outsourcing was a disaster too.
Cheers, Diane Pickrel
I’m a fan of these suggestions (and still getting on 737s…)
David;
Dominic Gates has done yeoman’s work covering the 737 Max travails of the past four years. He also takes the time to do research on issues related to Boeing and it’s current plant and subcontractor compliance issues. What he hasn’t done is listen to both sides of Boeing’s issues and seek input form the company or from individuals that he doesn’t agree with. Rather than be objective about the industrial undertaking of designing, building and delivering a complex piece of machinery such as a modern transport aircraft, he talks with disgruntled former employees almost always union members who have a ax to grind. This has led to Dominic being barred over the years from industry events due to his known anti management bias. While he has written very insightful pieces on Boeing’s problems of late, the balance of his work has been highly partial to Airbus. Turns out Airbus has succeeded in recent years where Boeing has failed due to the mistakes former GE management has made at Boeing over the past 15 years principally by it’s BOD’s management selections. This failure is about to be reversed in my opinion with new leadership from elsewhere at the top and corporate management’s return to Seattle. Having worked for Boeing for five years in the 70’s and provided consulting services at my company Cargo Facts/ Air Cargo Management Group to Boeing until my retirement and the sale of my business in 2011, I am by no means suggesting that I am impartial regarding Boeing. What I can say is that the company will survive and prosper in the years ahead under new management. The airlines and to a lesser extent the Defense Department do not want to lose Boeing as a supplier and the US’s largest exporter. Space and grace will be afforded the company over the next two years to get it’s industrial baseback on track for many good reasons in my view. Thanks for listening.
Ned
Thanks for your comments. It’s always important to have other points of view. As a lifelong resident of Seattle I have always taken pride in Boeing being a part of our community. Long before any of the tech companies arrived Boeing put us on the map.
This whole issue is not Airbus vs Boeing but rather about Boeings performance and I don’t mean economic. It really about values the company always stood for and the disregard of those values practiced by leadership including the board.
I agree with you that given the right commitment and focus Boeing will be back. It has to start with a serious dedication to returning to the values that built the company.
I know all Seattleites are rooting for its success.
Most of Boeing’s problems seem to be self inflicted. They went from a company built around quality manufacturing to one run by beam counters. They have poisoned relationships with suppliers by squeezing them to the bone. Their path forward must include a renewed commitment to quality, and not just lip service. Including Board members pulled from their union reps would be a good start. Pope will likely be named CEO, another in a long line of bean counters. This would send the wrong message to Boeings suppliers, union membership and customers. Unfortunately, with the current lockout of their union fire safety workers, Boeing seems intent on squeezing everyone affiliated with their name. They appear to be learning nothing from their current issues.