October 29th, 2018 and March 10th, 2019, two dates, two crashes , one aircraft type the New B737 Max 8, one system the MCAS, 346 Souls. What happened? How did matters get to this point? Did this happen overnight? The answers to these questions find their origins 50 years ago.
In his book ‘ Hit Refresh ‘ , Satya Nadella the CEO of Microsoft coins the term ‘afragile’. His definition of the term is that in a rapidly changing and uncertain world, leaders and organisations should be agile enough to pivot and adapt to new challenges, but also open to the idea that they may make mistakes along the way. Being “fragile” in this context means acknowledging and learning from failures, using them as an opportunity for growth and improvement.
This piece tries to trace the path that led to the incidents and their aftermath, more importantly the path to the future.
Boeing and Airbus mark what is effectively a duopoly in the Global Airframe manufacturing space and dominance in the global commercial aircraft market. A competition that has driven innovation, success…. and failures.
The Background
In 2001 Boeing announced the Yellowstone Project. The ambitious project aimed at replacing their entire civilian aircraft offerings and was further broken down into three segments. The Boeing Y1 ( 100-250 passengers), the Boeing Y2 (250-350 passengers) and the Boeing Y3 (350-600+ passengers ). The Boeing Y2 be realised as the B787 Dreamliner that entered service with ANA in 2011.
In direct competition to the Boeing Y2 announcement , Airbus announced the A350XWB.The 350XWB was essentially an A330 with upgraded wings and engines. However this cut little ice with Airlines already reeling under escalating oil prices. In 2004 Emirates CEO Tim Clark very publicly rebuffed Airbus for trying to sell a 20 old aircraft with neither the range, the efficiency or seating capacity up to scratch. Airbus went back to the drawing boards and pushed the A350 project back almost 9 years. When the A350 did come out the glowing reviews said it all. Today both the B787 and the A350 are mainstays of global airline fleets, their efficiencies proven.
Moral: If you fail…fail quick and cheap. In the long term game of Innovation v/s Cost, innovation generally trumps.
The Missed Opportunity
In the early 2000s Airbus had the 12 billion Euro A380 development program running. This program was launched to strengthen the needs of high density routes globally. Up until this point the Boeing 747 ‘ The Queen ‘ had ruled the skies for over 30 years. The rise of several future ‘ mega ‘ carriers had just commenced.
There were two schools of thought. One : the mega hub model , two : the hub network model. Each has merits and demerits in the fine balance of cost v/s capacity v/s demand.
The A380 program targeted at the mega hub model, promised unheard of capacities and Y2K efficiency. Capacity starved markets salivated.
Boeing which up until that point had an almost total domination of the ‘ Jumbo Jet ‘ market had a decision on hand, develop an aircraft for this market segment and defend the ageing B747-400 or continue with the Yellowstone projects, specifically the Boeing Y1 to replace their ageing narrow body offerings and B767. The full potential and effect of the B777 was unknown and yet to be realised. Eventually they decided to go with the B747-8, which first flew in 2010. Both the A380 and the B747-8 never achieved anything close to their promised potential and are today largely considered museum pieces, their arrivals at global airports attracting plane spotters in droves.
The wisdom of hindsight tells us, Boeing should have gone with the Y1 instead. Global Economic pressures made sure of that.
The Economic Shocks
Starting from the year 2000 when the average price of Oil was just over $30 a barrel upto the year 2008 when price of oil spiked sat over $145 a barrel and settled at an average cost of $99.67 a barrel, airlines had it rough. The events of 9/11 ensured the Global economy went into a shock recession, the dot com bust very real. The hooray 90s were over.
Airlines already operating on wafer thin margins ( 10% operating margin was considered a benchmark). Fuel cost accounting for approx 22% of global airline costs (the second highest cost after labour)was severely impacted by the fuel price increases. Airlines were in the ICU.
The 2008 subprime crisis further weakened airline balance sheets. The Airline Business needed a Micheal Burry to predict the storm they found themselves in.
This was the backdrop against which the airlines began clamouring for more fuel efficient planes.
Airbus responded first with the A320Neo.
The Neo Balance
In July 2011 the then American Airlines CEO Gerard Arpey announced what was called a ‘ Blockbuster Deal ‘ . Airbus won $11.5 Billion worth of orders for 260 A320neos ( the 320 family ) plus options on a further 365 aircraft of the same .
The Neo a re-engined A320 offered fuel efficiencies of upto 20% over aircraft then operating.In view of escalating fuel costs ( AA spent $500 Million more on fuel in the first quarter of 2011 than the year before ). The Neo offered efficiencies of upto 50% more than the oldest planes in the American Airlines fleet in 2011.
Boeing which won an order of 200 B737s plus options on a further 100 was left red faced as American Airlines until then had been a predominantly a Boeing customer.John Leahy the then ‘ Head of Sales ‘ at Airbus mentioned in an email , he would have been happy if Airbus sold 26 aircraft to American Airlines.
Jim Albaugh the Chief of Boeing Commercial Airplanes was forced to confront analyst suggestions Boeing’s product strategy was in tatters. On a day when Boeing had won a $10Billion deal , they received brickbats instead of bouquets.
The analyst community watched Boeing’s moves closely as the American order was to be followed by Delta and United later that year. Those results were a mixed bag for Boeing. Airbus was making inroads into the US aviation market.
Boeing, which lost the first mover advantage to Airbus in this market segment, proceeded to announce a re-engined B737…which would become the Max.
When announced in 2011, the required $2 Billion was yet to be approved by Boeing’s board in Chicago.
Moral: Airbus learnt it’s lessons well and heard what it’s customers needed and delivered…First
The Max
The B737 first flew in 1967, three years after the B727 that first flew in 1964.The 727 whose capacity was anywhere between 94 and 134 passengers depending on type and configuration was a trijet with amazing characteristics.
The three engines gave it additional power required to take off from short runways. The Trijet configuration set aft and high, near the tail of the aircraft allowed it to operate off gravel runways and yet avoid Foreign Object Damage(FOD). The clean wings provided for extra flaps to give the aircraft high manoeuvrability . The aircraft was set low, as a number of the airports it operated to did not have proper baggage handling facilities (it’s the 60s, remember!) and the cargo area needed to be easily accessible for baggage handlers . For airports that did not have aircraft stairs, the 727 had a ramp that dropped stairs below the tail. An amazing regional aircraft.
Boeing and the Airlines felt a need for an even smaller aircraft. Enter the 737-100. With a capacity of 85-100 passengers in a single class configuration, this was just the answer the market was looking for.
The 737 shared some design ethos as the 727 and the 707 before it. In fact all three aircraft share the same nose! There was landing gear similarity / commonality. The changes included moving the engines under the wing to maintain both aerodynamic and on ground stability. The original engines used were the JT8D-7 low bypass engines (same as the 727) and they sat under the wings with room to spare. Subsequent stretches to the Classic series continued to use the JT8D engines successfully.
When the Next Generation Series (NG) first appeared in 1984 as the B737-300 and later the 737-400, the engines had increased bypass and the front profile of the engines now sported an oblong shape . The engines were still underwing , the changed profile characteristics improved performance and efficiency.
The NGs operated successfully and profitably for over 25 years at the time of the American Airlines conference in 2011.
The B737 Family’s biggest strength was cockpit commonality, a B737 type rated pilot could fly any of the aircraft. This was the first time Boeing was confronted with having to make changes so radical on the ageing airframe there would be a need for Pilot retraining.Boeing wanted to avoid this to keep retraining costs down.
The High Bypass engines ( for fuel efficiency ) were proving too big to fit under the low wing of the aircraft and the engines needed to be moved forward, this in turn would change the aerodynamic characteristics of the aircraft , which in turn needed fresh certifications . The entire B737 Max certification process came under deep scrutiny following the fatal accidents. Suffice to say the process had several conflicts of interest.
The result of the sequence of events going back over 50 years led to Boeing finding itself where it was.
Moral: Change is the only constant. Manage it with conviction and vision
The Aftermath
Post the Lion Air crash there was confusion as the flight path on Flightradar24 showed an irregular altitude and speed until the final dive at 348mph considered a high speed for an aircraft in descent. Pilots had raised multiple concerns about MCAS (Manoeuvring Characteristics and Augmentation System) the need for training and the lack of information, however all objections prior to the crash were played down.The Ethiopian aircraft flight showed a very similar path on Flightradar24 as the Lion Air crash.
Boeing continued to produce 40 aircraft a month. They did cooperate with all investigations (mostly to the point on an ask for it basis ). Grounding the aircraft was upto the Civil Aviation Authorities of individual countries the airlines were registered in. The FAA grounded the Max three days after the second crash.
In these two battles between AI and Humans….AI won 2-0.
Monthly / Quarterly ERPs ( Emergency Response Plans ) desktop runs are standard operating procedure with most leading airlines of the World. During these desktop runs as frantic calls are simulated and normal trained airline employees man the various lines of communication (both off and online), the pressure builds quickly.
Volunteers on the frontline are rotated every 30 minutes. A visit to any leading airline’s ICC ( Incident Command Centre ) is a grim experience that sends shivers down a person’s spine as you imagine what a live situation will feel like.
Some of the crisis management training includes
- Every little bit of information gathering is extremely important
- Information can only be released once authorised by the Incident Command
- All speculation is to be avoided
- Every contact point to be handled with deep empathy and caring
Boeing was confronted by pilots , airlines, general passengers and Kin of Victims. In one particularly acrimonious meeting Boeing vice-president ( product strategy & future airplane development ) Mike Sinnett, claimed the Lion Air disaster was a once-in-a-lifetime accident.
He said: “I don’t know that understanding this system would’ve changed the outcome on this. In a million miles, you’re going to maybe fly this airplane, maybe once you’re going to see this, ever. So we try not to overload the crews with information that’s unnecessary so they actually know the information we believe is important.”
In another very public statement Boeing CEO Dennis Muilenburg declined to take any bonus for the year 2019. In 2018 He made $18 Million most of it from Bonuses, only $1.7 Million was made as salary. News such as this made Boeing look even worse as instead of showing sympathy for the victims, they came across an inward looking organisation (happens to many large organisations) that appeared out of touch with the real world. When Muilenburg did finally move out of Boeing , he did so with over $60Million in stock options.
Boeing did settle both the legal cases, and paid almost $3 Billion in compensation ( to the best of my knowledge ).
A reference Point : On May 26th 1991 a Lauda Air 767 had an uncommanded thrust reverser deployment on a flight that had just taken off from Bangkok headed for Vienna. The deployment resulted in the B767 breaking up and crashing into a mountain side nine minutes after take off at almost the speed of sound. Niki Lauda, a motorsport legend, a pilot and the Founder of Lauda Air, went to the crash site himself and spotted the issue of the deployed reverser only on the port engine while the starboard engine appeared to be normal. Niki, who felt the full weight of 223 souls on his shoulders, took the responsibility of getting to the bottom of the disaster and took on Boeing.
While Boeing agreed off the record about the deployment, it took almost 9 months to get them to agree publicly as they feared legal liability. Suffice to say Niki the Legend prevailed.
Moral: When something’s gone wrong, admit it sincerely and correct the fault and move ahead. The general public has a very short memory.
The Recovery
Once Boeing moved past the litigations and global grounding they realised the need to move with Sincerity and Vision. They needed to acknowledge the sequence of blunders that led to this state of affairs, and acknowledge their culpability.
They needed to recover lost ground and move into confidence rebuilding mode. The Max returned to service from late 2020 after the FAA completed the recertification process. The damage to the FAA’s reputation once it came to public knowledge that both Boeing & FAA enjoyed a cosy relationship was severe and this needed to be repaired too.
While returning the aircraft back to service, Boeing had to reassure the World on multiple fronts the aircraft was safe to fly. They needed to showcase the MCAS improvements made to the pilots fraternity & of course train them, goes to say the analysts and the public were watching these developments closely. Additionally they needed to repair lost confidence with airlines, and sweet deals were the order of the day.
Boeing appears to have had seven CEOs in the last 23 years , that comes to an average of just over three years per CEO, while the average tenure of Fortune 100 companies is 7.2 years. Is the issue here? Company Culture??
The Future
Current order books and deliveries show the A320Neo Family of aircraft have an advantage of over 80% v/s B737 Max orders and deliveries. This gap might only be closed with the launch of the long overdue Boeing Y1?
Boeing, a legendary company founded over 100 years ago has given several immortal aircraft to the World. Their place in the aviation hall of fame is reserved . For them to be truly ‘afragile’, they need to revisit their greatness under people like Bill Allen, Boeing CEO between 1945 – 1968. It was under his stewardship that Boeing created several legendary aircraft including the Boeing 737.
History is the greatest teacher and Boeing will do well to take a look at their past, as they regain lost glory.
346 ….Afragile…..
Disclaimer: The data used by the author are from open source.
Source List:
The Seattle Times
The Guardian
Forbes
Wikipedia
Boeing & Airbus websites
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