Yesterday Boeing’s stock dropped about $25 in price. Over the last few months its stock has dropped from a high of about $444 to about $367 per share. I am looking at a chart which why I am giving general numbers. Investors are not happy with the company’s performance in dealing with the 737 Max fiasco, but they seem to recognize that Boeing will eventually do the right thing.
The May 5th Wall Street Journal reported that Boeing knew about the problem a year before the October 737 crash in Indonesia. Not only did Boeing know about the problem, but it gave “some airlines and pilots partial and inconsistent explanation.” This appears problematic, and it is, resulting in the drop in stock price, but this is part of the mechanism that ensures that big business does the right thing. Management cares about stock value. They will do was is necessary to repair negative events.
I am not worried about collusion between Boeing and the FAA. When I was a manager for the Quality department at Boeing Portland, I worked directly with the FAA. It was a professional relationship, but one needed to ensure we were able demonstrate our ability to do what we had told the FAA we were going to do when manufacturing airplane parts. Let me explain.
When an airplane goes through the design phase and then the build phase there are three certificates that are critical. The FAA is the agency in the United States that awards the three certificates to the airframe manufacturer. The first certificate is the Type Certificate. This certificate is the result of the company submitting an airplane design to the FAA and then the FAA determines that this design is safe to build prototypes for additional testing. This is an extensive process, and the process must be followed to ensure the planes will be airworthy.
The second certificate associated with building airframes is the Production Certificate. This certificate is awarded to a manufacturer when they have demonstrated that its production processes produce consistently high quality product. This means the design submitted to the FAA will be produced correctly. It is also awarded when the production process demonstrates that is meets the Codes of Federal Regulations. These codes require airplane manufacturers to have mechanisms in place to control manufacturing plans, engineering drawings, measurement equipment, and non-conforming material. The manufacturer then provides procedures to the FAA that describes how the manufacturing processes meet the CFR requirements. The FAA then visits various facilities of the manufacturer to determine is what the company really does matches what it said it does. I dealt with the FAA when they came to the Portland plant to audit us for compliance.
The third certificate the manufacturer deals with is the airworthiness certificate. Each airplane delivered to a customer must have an airworthiness certificate. After the plane is manufactured it goes through various tests and is inspected by an FAA representative at a Boeing facility. This could be an actual FAA employee or a Boeing employee certified by the FAA to represent the FAA. If all of the tests are good, all non-conforming material issues dealt with, and documentation complete, the airplane gets the airworthiness certificate and can be flown to its customer.
The process worked well when I worked there, and I am assuming it still does. However, the FAA was struggling a bit, and mind you this was twelve years ago, with understanding new technology. There was talk they did not have the needed expertise. I am sure they took the steps to up their skills, but I can’t say. I also cannot say that Boeing and the FAA was in cahoots to get the Max approved quicker that it should have. I really have a hard time believing that. I don’t believe that anyone at Boeing wants to put unsafe product in the air. I also cannot believe that the FAA would short cut the certification process.
However, here we are, and Boeing needs to repair its relationship with its customers. This will take some time, but its current CEO, it will be interesting to see how long he lasts, Dennis Muilenburg “said the company was focused on safety and the plane maker would look for ways to improve how it develops airplanes.” Knowing what I know about Boeing culture I believe this will happen. However, I think the company needs to work on its communication with its customers.
First, if Boeing did know about the problem with MCAs and different sensors a year before it came to light with the crashes, and told no one, then shame on them. The company needs to be more proactive with the Advanced Directive (AD) process. This will help the company restore some of its reputation. Second, it needs to be completely honest with issues, if there are some, at various locations. Union employees came forward saying there were production issues in the South Carolina. That particular plant mainly builds the 787, the 737 is built in Renton, Washington. However, if there are problems at any facility the company needs to address them quickly. Last, the company needs to spend a lot of time talking to their customers. But, talk is cheap. They need to talk and demonstrate through actions that it can be trusted.
Boeing and Airbus, the competitor, sell the majority of commercial airplanes. China is building a plane similar to the 737, Fokker, a Dutch airplane manufacturer, and Bombardier, a Canadian manufacturer, typically build small planes. With two main players, every order is highly contested. The stakes are extremely high, therefore cultivating strong relationships are critical for Boeing’s success. The company needs to work hard to repair its relationship with its customers. In the old days Boeing could get away with treating its customers badly. It is a new day, and customers have somewhere else to go. It is time for Boeing to do what it needs to do to stay number one. Oh, and make sure I keep getting my pension checks.
And that is my thought for the day.