Boeing: Reclaiming the lost ground?

Abstract

Boeing is a leading American aerospace and defense company that has a long history dating back to 1916. William Boeing, in Seattle, Washington, founded the company and focused initially on building seaplanes for commercial and military use. Throughout its history, Boeing has taken several risks that have helped to shape the company into the global powerhouse it is today. One of the earliest examples of this is the company's decision to shift its focus from building seaplanes to building land-based aircraft in the 1920s. This move was risky at the time, as the market for land-based aircraft was still relatively untested, but it ultimately paid off as the demand for air travel proliferated in the following years. Another significant risk that Boeing took was the development of the 747, which was the first wide-body commercial airliner. This massive project required a significant investment in time and money, which later proved to be a huge success and established Boeing as the leader in the commercial aircraft industry. Boeing has traditionally adopted this risky business strategy, popularly known as “bet the business strategy,” which is characterized by a high risk of product failure in every new product development cycle. So far, Boeing has successfully navigated each cycle, allowing the company to maintain its market leadership and generate good financial returns.

Keywords

Business intelligence and analytics ethics decision support systems learning and training IS management and governance time critical systems risk and failure

Boeing is a leading American aerospace and defense company that has a long history dating back to 1916¹. William Boeing, in Seattle, Washington, founded the company and focused initially on building seaplanes for commercial and military use². Throughout its history, Boeing has taken several risks that have helped to shape the company into the global powerhouse it is today³. One of the earliest examples of this is the company’s decision to shift its focus from building seaplanes to building land-based aircraft in the 1920s⁴. This move was risky at the time, as the market for land-based aircraft was still relatively untested, but it ultimately paid off as the demand for air travel proliferated in the following years. Another significant risk that Boeing took was the development of the 747, which was the first wide-body commercial airliner⁵. This massive project required a significant investment in time and money, which later proved to be a huge success and established Boeing as the leader in the commercial aircraft industry. Boeing has traditionally adopted this risky business strategy, popularly known as “bet the business strategy,” which is characterized by a high risk of product failure in every new product development cycle. So far, Boeing has successfully navigated each cycle, allowing the company to maintain its market leadership and generate good financial returns.

Boeing was confronted with the Airbus A320 Neo, a larger, more expensive, and fuel-efficient competitor aircraft, which necessitated the development of a more economical and fuel-efficient aircraft. In response, the 737 MAX model was introduced, maintaining the company’s business strategy. Boeing 737 Max had larger and more fuel-efficient engines on the aircraft. However, these modifications affected the aerodynamics and handling characteristics of the plane which posed potential safety risk as there seemed an increased tendency for the nose of the aircraft to pitch up which needed to be addressed⁶. To address the safety risk Boeing developed Maneuvering Characteristics Augmentation System (MCAS) to counteract the increased nose-up tendency of the aircraft. MCAS was intended to automatically adjust the horizontal stabilizer to prevent the aircraft from stalling. However, the system relied on data from a single angle of attack sensor, making it vulnerable to erroneous readings⁷.

Boeing’s reputation took a major hit due to the two deadly, unfortunate crashes of the 737 MAX passenger carrier, which later led to the global grounding of its whole fleet. This put the company’s product reliability in jeopardy, particularly in the commercial aviation categories. Against this background, the case attempts to unravel business strategies which were used by Boeing to address the crises while successfully competing with its key competitor, Airbus.

The Boeing 737 MAX problem refers to the fact that the 737 MAX aircraft type was temporarily grounded following two catastrophic disasters in 2018 and 2019. After 346 individuals were killed in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 crashes, there is concern regarding aviation security⁸. According to an investigation, the major cause of both events was a defective piece of software within the aircraft’s flight control system known as the Maneuvering Characteristics Augmentation System (MCAS)⁹. As a result, the Boeing 737 MAX has been grounded by several regulatory agencies and airlines worldwide. Subsequently, Boeing modified the MCAS system as well as other components of the plane. Even though it is not yet in service in many countries, the FAA and several other regulatory agencies have approved the Boeing 737 MAX for flying¹⁰. To address the situation, there was a slight change in the leadership at Boeing. Following Dennis Muilenburg’s departure on January 13, 2020, due to concerns with the 737 MAX aircraft, Boeing appointed David Calhoun as CEO, compounding the company’s ongoing problems. Calhoun took over an airline that was already dealing with the fallout from the 737 MAX disasters, widespread industry change, and the impact of the COVID-19 epidemic on demand for air travel. Despite applying cost-cutting measures and making production modifications, Boeing faced persistent financial difficulties. Calhoun’s primary goals were to recertify the 737 MAX and restore Boeing’s credibility. He tackled challenging challenges in the aircraft industry and concentrated on regaining stakeholder trust. Boeing is still facing hurdles on its route to recovery, highlighting the importance of strategic leadership and adaptability in the aerospace industry.

The Boeing company and the need for 737 max

Boeing, the world’s largest aviation corporation, was founded in 1916 by William E. Boeing. The company’s products include commercial aircraft, defense equipment, space items, and other equipment. The corporation, the industry leader and a top US exporter, provides airline services in over 150 countries, including commercial and military planes, launch systems, weaponry, and other communication systems¹¹. Boeing’s technology and innovation constantly cater to evolving client demands in the commercial aviation and military industries. The primary activities of Boeing include creating technological solutions, arranging finance and service options for their customers. Boeing’s headquarters are in Chicago, and it employs over 140,000 people globally. Apart from Boeing Capital Corporation, the company has three business units: commercial aircraft, military, space, and security¹². More than 50% of its revenue for Boeing comes from its commercial segment, and the company produces the 737, 767, 747, 777, and 787 family of aircraft along with the Boeing Business Jet range. They also manufacture a family of freighters, carrying 90% of the world’s cargo¹³.

The only competition for the 737 family was due to the variants of the Airbus A320 family. The introduction of the A320 Neo family as an ultra-fuel-efficient alternative got Boeing to launch a new variant for the 737 series¹⁴. The ground clearance for A320 was large so that they could accommodate large-diameter engines. This variant was well received, so Boeing wanted to replicate fuel efficiency in the 737 series. Moreover, the ground clearance for 737 planes was small. Hence, they had to push the engine nacelles even further, creating design inefficiency for a new variant named the 737 MAX¹⁵. Engine nacelles are a streamlined enclosure for the engine of an aircraft. The engines on the 737 Max were repositioned slightly forward and higher on the wings compared to previous 737 models. This change, known as the engine nacelle placement, was intended to optimize the aircraft’s aerodynamics and reduce drag.

However, the engines’ relocation had an unforeseen consequence. It changed the handling characteristics of the aircraft, forcing the nose to pitch up under certain situations, notably at AOA. To address this issue, Boeing introduced the MCAS, a software system designed to automatically adjust the horizontal stabilizer and counteract the pitch-up tendency.

In addition, Boeing marketed the 737 Max as a more fuel-efficient version of the previous aircraft 737 New generation (NG), and the pilots did not need considerable training for new aircraft. Boeing claimed that the 737 Max would offer approximately 14% better fuel efficiency compared to the previous 737 NG models. This improvement was primarily achieved through various design enhancements, including the repositioning of the engines, advanced aerodynamics, and the incorporation of new fuel-efficient engine technology¹⁶. The design inefficiency caused the planes to nose up at high engine power levels. To stabilize the aircraft in such a situation, Boeing added an MCAS instead of aerodynamic redesigning.¹⁷.

The factors contributing to the crisis

Lion Air Flight 610, a 737 MAX 8 flown by the Indonesian carrier Lion Air, crashed in the Java Sea on October 29, 2018, killing all 189 passengers and crew members on board¹⁸. The MCAS was triggered, forcing the nose of the aircraft to lean downward. The reason for the disaster was first unknown; however, analysis of data from the plane’s flight data recorder indicated that the MCAS had been triggered, causing the plane’s nose to descend¹⁹. On March 10, 2019, Ethiopian Airlines Flight 302, another Boeing 737 MAX 8, crashed shortly after departure from Addis Abeeba. The accident killed all 157 people on board. The major cause of the incident was revealed to be the MCAS system, which had activated in the same manner as in the Lion Air disaster²⁰.

Based on the investigation’s findings, the MCAS system, designed to prevent the aircraft from stalling, was activated by a single sensor tracking the angle of attack (AOA) and was not cross-checked with a second sensor.²¹. Even though the technology was intended to help prevent the plane from stalling, it did not. Resulting in the system to not function correctly and continue to push the plane’s nose down, even though there was no danger of the aircraft stalling²². Furthermore, the pilots needed adequate training on the correct protocols to follow if the MCAS system failed. However, the pilots were not informed about the MCAS system until after the first crash and Boeing blamed pilots for their inability to control the aircraft under stall conditions. Following the two incidents, Curtis Ewbank, a senior Boeing engineer, filed an internal ethics complaint in 2019 alleging management squelching of a system that may have revealed flaws in the AOA sensors. Ewbank has recently declared publicly, “I was ready to speak up for safety and quality… Boeing executives were more concerned with money and schedule than with safety or quality.”²³

Boeing’s and regulatory agencies’ responses

After the crash of the two planes, Boeing was heavily criticized for how it handled the situation. Boeing had neglected to warn airlines and pilots about the MCAS technology and provide the necessary training in the event of its failure²⁴. Loses incurred due to the accident were huge, most of which were in terms of settlements with the relatives of accident victims and reimbursement to airlines forced to cancel flights due to the grounding. Later, it was also revealed that the Federal Aviation Administration (FAA) had played a significant role in granting necessary approvals to 737, casting doubt on the agency’s credibility²⁵.

Over the years, the FAA had formed a close relationship with Boeing, resulting in a lack of independent monitoring. The FAA delegated some safety assessments to Boeing, allowing the company to perform certain certification tasks on its own. This approach is known as the Organization Designation Authorization (ODA) program. The article by USA today points out that this delegation of authority might have resulted in a conflict of interest, as Boeing had a vested interest in getting the 737 MAX certified quickly. This close relationship might have compromised the FAA’s ability to adequately assess the safety of the 737 MAX²⁶.

Furthermore, the FAA failed to detect and comprehend the hazards connected with the MCAS, a flight control system involved in the crashes. The FAA did not thoroughly evaluate Boeing’s safety culture during the certification process. It indicates that the FAA’s oversight did not adequately assess potential organizational pressures and influences that could have compromised safety decisions made by Boeing. FAA’s certification process failed to recognize the potential dangers of MCAS and underestimated its impact on the aircraft’s handling²⁷.

Boeing responded by releasing an updated version of the software that drives the MCAS system and providing additional training to pilots²⁸. Furthermore, the FAA issued an emergency airworthiness directive requiring the installation of the software update as well as further training. However, several different regulatory organizations and airlines have temporarily grounded all 737 MAX flights worldwide²⁹.

The impact

Grounding of 737 MAX aircraft had a huge financial impact on Boeing (Table 1). The corporation has incurred huge loss as a result of penalties paid in billions of dollars, been compelled to pay penalties in billions of dollars as a result of the disaster. These costs include settlements with the relatives of those killed in the crashes and compensation to airlines that have been forced to cancel flights due to the grounding³⁰. In addition, the issue has harmed the reputation of both Boeing and the FAA, and it has brought more general problems regarding the regulation and control of the air manufacturing industry to light³¹.

Table 1.

Boeing’s Earnings/Losses From Operations From 2012 to 2021(in Billion U.S. Dollars)³³.

The Boeing Company—operating earnings/loss 2012–2021	Boeing’s earnings/losses from operations from 2012 to 2021 (in billion US dollars)
2012	6.29
2013	6.56
2014	7.47
2015	7.44
2016	6.53
2017	10.34
2018	11.99
2019	−1.98
2020	−12.77
2021	−2.90

Although the FAA and several other regulatory bodies have recertified the 737 MAX, it still needs to be in service in several countries. It is expected to return to service in the coming months; however, it is still being determined how the issue will ultimately affect the 737 MAX and the aviation industry’s future³².

The effect on market leader position

Boeing’s position as the market leader in the commercial aviation industry has been badly affected due to the grounding of the 737 MAX and the inquiry that has followed in its wake. As a direct result of the crisis, consumers and airlines have lost faith in the firm and the products it provides, resulting in order cancellations and the hunt for other solutions. Report by Forbes indicated that even after 1 year from the date of last crash that happened with Boeing 737 Max, the customer sentiment and willingness to fly with Boeing has dramatically fallen to all time low with just 36% willing to fly with Boeing, also with names of other variants sounding similar to 737 Max there is confusion in the minds of the public and there are large group of people that are not familiar with the differences³⁴. The operating earnings and number of aircraft deliveries by Boeing are declining (see Tables 1 and 2).

Table 2.

From 1999 to 2021, the Number of Jets Added to the Worldwide Aviation Fleet by the Manufacturer (in Units)³⁵.

Aircraft deliveries by manufacturer—global aircraft fleet 1999–2021	Number of jets added to the global aircraft fleet from 1999 to 2021 by the manufacturer (in units)
	Boeing	Airbus	Bombardier	Embraer	Others
1999	620	294	82	97	38
2000	492	311	99	157	48
2001	527	325	147	154	39
2002	381	303	185	120	8
2003	281	305	222	88	11
2004	285	320	175	135	8
2005	290	378	99	121	4
2006	398	434	79	103	1
2007	441	453	60	133	0
2008	375	483	61	162	0
2009	481	498	59	122	0
2010	462	510	34	97	0
2011	477	534	47	108	5
2012	601	588	14	106	8
2013	648	626	26	90	15
2014	723	629	59	92	28
2015	762	635	44	101	22
2016	748	695	46	108	21
2017	763	735	26	101	26
2018	806	813	20	90	35
2019	380	863	26	89	19
2020	157	566	16	43	39
2021	340	611	3	41	41

Competition with airbus

As a result of the Boeing 737 MAX problem, Airbus, Boeing’s main competitor in the commercial air carrier industry, has been presented with an opportunity to increase its market share³⁶. Airbus has claimed an increase in orders for its A320neo series of aircraft, which it has actively marketed as an alternative to Boeing’s 737 MAX. Its size and capabilities are comparable to those of the 737 MAX. This is because of the similarities between the 737 MAX and the A320neo series³⁷.

Airbus has been able to capitalize on the current situation by drawing attention to the safety and dependability of their aircraft and by providing airlines and customers with an alternative to the Boeing 737 MAX³⁸. The A320neo series has been enthusiastically received by airlines and customers and has been certified by regulatory authorities without any significant issues. However, a cautious European union regulator who had earlier certified A320 Neo as safe to fly, gave directives to airlines after the Boeing 737 Max crisis to load the aircraft in such a manner that the tail end stays with lighter weight and after the directives British Airlines and Lufthansa airlines have started keeping the last rows empty³⁹. Furthermore, Airbus has been able to capitalize on the crisis by raising production to meet growing demand while offering attractive discounts and incentives to airlines and passengers. This has enabled the corporation to profit from the crisis. As a result, Airbus has grown its market share in key markets such as Europe, Asia, and North America, all of which had previously been dominated by Boeing⁴⁰. Details on aircraft orders can be seen in Table 3.

Table 3.

Number of Gross Orders for Airbus and Boeing Aircraft Between 2006 and 2021⁴¹.

	Airbus gross orders	Boeing gross orders
2006	824	1050
2007	1458	1423
2008	900	669
2009	310	263
2010	644	625
2011	1608	921
2012	914	1339
2013	1619	1531
2014	1796	1550
2015	1190	878
2016	949	848
2017	1229	1053
2018	831	1090
2019	1131	246
2020	383	184
2021	771	909

The major concerns

The entry of Airbus 320neo intensified the competition, leading to Boeing’s decision to bring a fuel-efficient and cost-effective aircraft to match their competitor. The case raises various questions on the decisions made by Boeing in this regard and looks for strategies to revive the old trust in the market. The first question revolves around the conflicting priorities of ensuring aircraft safety while maintaining profitability. Boeing faced pressure to compete with its rival, Airbus, and develop an upgraded aircraft that would be fuel-efficient and cost-effective, leading to the decision to modify the 737 Max.

Second, The FAA decided to grant Boeing significant control over the certification and testing process for the 737 Max. This decision raises questions about the effectiveness of regulatory body in preventing such future disasters, and the balance between industry expertise and independent validation. Third, Boeing’s decision not to inform airlines and pilots about the existence and functionality of the MCAS software created a dilemma regarding transparency and accountability. The case raises questions about the ethical responsibilities of Boeing in disclosing critical information to ensure pilot awareness and safety, and fourth, Boeing faced a significant dilemma in managing the crisis aftermath. Rebuilding trust among key stakeholders, including airlines, customers, and the general public, presents a complex challenge. The company must address the root causes of the crashes, implement corrective measures, and demonstrate a commitment to safety and transparency.

The decisions made by Boeing and the FAA have had far-reaching implications. The crashes caused major global governments to halt the entire Boeing 737 Max fleet, resulting in significant financial losses for Boeing, reputational harm, and a loss of consumer trust. In addition, these events prompted investigations, legal action, and heightened scrutiny of aviation safety legislation and procedures. By confronting these crucial challenges fully, Boeing can learn from its mistakes and emerge as a resilient and responsible industry leader, establishing a standard for safety, transparency, and ethical business practices.

Boeing is looking for strategies that can help them to regain their lost trust and competitive position ?

Transition in leadership: way forward with hope

The difficulties of Boeing, the aerospace manufacturer, is persistent till 2024. On January 13, 2020, David Calhoun became the CEO of Boeing⁴². Dennis Muilenburg quit because of the problems with the 737 MAX plane. When the company hired Calhoun, it was going through a tough time because of the 737 MAX crashes and the following grounding of the planes, as well as other problems facing the aerospace industry. Calhoun’s main job as CEO was to rebuild trust with officials, customers, and other important people, and to lead Boeing through the many problems it was facing. Additionally, the COVID-19 pandemic had a severe influence on the corporation, mirroring the industry’s troubles.⁴³. The dramatic drop in air travel demand resulted in a reduction in new aircraft orders and delayed deliveries⁴⁴. To weather the storm, Boeing slashed costs and modified production rates⁴⁵. Following two fatal crashes in 2018 and 2019 caused by a faulty flight control system, the MAX was grounded worldwide for nearly 2 years, resulting in significant financial losses and tarnishing Boeing’s reputation^46,47. The business made extensive efforts to address safety concerns and have the MAX recertified. Because of the decreasing demand, Boeing was compelled to announce production cuts and layoffs in order to align output with market realities and save costs⁴⁸. Financially, the corporation suffered significant losses as a result of the pandemic and the MAX grounding. Boeing acquired extra finance and decreased discretionary expenditure to improve its financial condition⁴⁹. Calhoun moved his focus to repairing trust with regulators, consumers, and the public while handling Boeing’s complex difficulties. While Boeing continues to work towards a full recovery, the business has taken steps to resolve safety concerns, strengthen financial stability, and restore trust. Boeing’s future prosperity depends on its ability to negotiate the continuous challenges of the aerospace sector.

Boeing has applied software patches and worked closely with aviation regulators to recertify the 737 MAX for flight as part of its efforts to overcome the 737 MAX concerns under Calhoun’s leadership⁵⁰. The corporation has also reduced expenses and adjusted production rates to deal with the post pandemic downturn in the aerospace industry⁵¹. But there are still obstacles that Boeing must overcome.

Key Questions

What were the underlying circumstances and decisions that led to the situation of downfall of Boeing?

Why did Boeing decide not to train pilots or let the carriers know about the software?

Why did the FAA let Boeing do much of testing despite FAA being the regulatory agency?

What can Boeing do to regain its market share and the lost consumer trust?

Discuss the competitive position of Boeing in relation to its major rival Airbus, using Porter’s five forces model.

Footnotes

Author Contributions

All authors whose names appear on the submission. (1) made substantial contributions to the conception or design of the work; (2) drafted the work or revised it critically for important intellectual content; (3) approved the version to be published; and (4) agree to be accountable for all aspects of the work in ensuring that questions related to the accuracy or integrity of any part of the work are appropriately investigated and resolved.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Ethical statement

ORCID iD

Manoj Kumar Kamila

Notes

Author biographies

Sahil Singh Jasrotia is an Assistant Professor in the Area of Marketing at International Management Institute Kolkata, India. His research interests include Consumer Behaviour, Retailing, Tourism Management, and Marketing Education. His research has been published in journals including International Journal of Bank Marketing, International Journal of Retail and Distribution Management, Society and Business Review, Social Responsibility Journal, Journal of Public Affairs and Journal of Quality Assurance in Hospitality and Tourism.

Manoj Kumar Kamila is currently pursuing Fellow Program in Management from Jaipuria Institute of Management, Indore, India. His research primarily focuses on ethics in marketing and corporate governance, with his work being published in publishers like Elsevier, Emerald Insight, Springer Nature, Sage, Taylor & Francis, and Inderscience, among others.

Priyank Sinha is an Assistant Professor in the School of Business, Indian Institute of Technology, Bombay, Maharashtra, India. His research interests include Supply chain management, Retailing, Operation research, Network optimization, Transportations and logistics network design. His research has featured in journals including European Journal of Operation research, Energy Policy, Journal of Retailing and Consumer Services.