Boeing Corp. (BA) has been in the grip of a nigh-unprecedented crisis of confidence since it emerged that it had cut corners in the development of the 737 MAX, the next-generation replacement for the extremely popular -- but aging -- 737 passenger aircraft. Boeing’s quick-fix approach led to critical software failures that resulted in two devastating plane crashes before the model was grounded.
As we discussed in a recent note, Boeing has aimed to reset its relationship with the market and consumers, promising to swiftly address the failings of 737 MAX, while vowing to prevent similar failures from occurring in the future.
But it will take a whole lot more more than apologies to make things right.
Plenty of apologies
Boeing has groveled publicly on numerous occasions since the 737 MAX crisis began. In late May, CEO Dennis Muilenberg appeared on CBS Evening News to deliver a far-reaching apology, as well as a promise to do better going forward:
“I do personally apologize to the families. We feel terrible about these accidents. We apologize for what happened. We are sorry for the loss of lives in both accidents ... The implementation of that software, we did not do it correctly. We are fixing it now, and our communication on that was not what it should have been ... We know that the public’s confidence has been hurt by these accidents and that we have work to do to earn and re-earn the trust of the flying public, and we will do that ... We are taking all actions necessary to make sure that accidents like those two never happen again.”
Muilenberg is far from the only Boeing executive taking public ownership of the scandal. At the Paris Airshow last month, Boeing’s aircraft chief, Kevin McAllister, struck a similarly apologetic tone:
“We are very sorry for the loss of lives … It is a pivotal moment for all of us. It’s a time for us to make sure that accidents like this never happen again.”
Despite this profusion of apologies and promises, however, Boeing has done little to address the underlying pathologies that allowed the 737 MAX debacle to occur in the first place.
Not enough action
The sheer ]scale and scope of human error at Boeing with regard to the 737 MAX program has proven to be staggering. The company has admitted that the technical problems were well known before the planes were rolled out to customers. Meanwhile, Boeing’s board failed to conduct or oversee a detailed safety review ahead of the aircraft’s commercial debut.
Normally, when a company reveals systemic failures within its management and corporate oversight structure, it feels compelled to take radical action. The imperative to clean house ought to be even stronger when the company is part of a capital-intensive and low-margin industry that relies on both consumer and public confidence.
Given the hundreds of people who have died – in addition to the fact that the future of its next flagship aircraft is in doubt as a consequence of management decisions – one might well expect heads to be rolling at Boeing. Thus far, little has actually occurred. Sure, 900 inspectors have been replaced, but Messers Muilenberg and McAllister have kept their jobs.
Meanwhile, Boeing has offered an almost comically small financial recompense to the families of the victims of the two deadly crashes, setting aside just $100 million in a dedicated fund. The company will likely find itself on the hook for far more than that, thanks to class-action suits filed on behalf of victims and their families.
Fundamentally, Boeing appears to have failed to acknowledge the full extent of its problems. The 737 MAX disaster has laid bare Boeing’s corporate culture, revealing that it has deserted many of the covenants that have tacitly underlain the aerospace industry for many decades.
Verdict
Boeing is teetering on the brink, whether it knows it or not. If it does not do more to confront the stark reality of its situation, the company risks a permanent loss of market and consumer confidence that could devastate the long-term prospects for the capital-intensive aerospace company.
Boeing shareholders should take the company’s so-far anemic response to its catastrophic failure as a serious warning. They should demand real, convincing action – before it’s too late.
Disclosure: No positions.
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