Aircraft manufacturing giant Boeing is experiencing a sales winter.
On July 9th local time, Boeing released its latest report showing that in June of this year, it only sold three passenger planes. In the first half of the year, Boeing's total orders were 156, a sharp drop of 70% compared to the same period last year. As soon as the data was released, Boeing's intraday stock price plummeted significantly, with a daily decline of 1.4% and a year-on-year decline of 27.22%.
The decline in sales is largely due to Boeing's recent safety crisis. According to Xinhua News Agency, a document submitted by the US Department of Justice to the Federal Court of Texas on the evening of the 7th showed that Boeing has accepted a plea agreement previously filed by the US Department of Justice, admitting to conspiring fraud in two fatal air disasters. According to the plea agreement, Boeing will be required to pay a fine of approximately $200 million and may also be required to pay compensation to the families of the victims, while also subject to stricter government regulation.
In recent months, Boeing has been repeatedly pushed to the forefront. Since the beginning of the year, there have been numerous safety accidents such as cabin doors falling, engine fires, and damaged wings, followed by the sudden deaths of publicly speaking whistleblowers. Until recently, Boeing's first manned spacecraft, Starliner, was suspected to have been floating in space for a month due to fuel leaks, and both astronauts have yet to return.
Between 2018 and 2019, the Boeing 737MAX experienced two major air accidents, making this veteran aircraft manufacturer a target of criticism. But several years have passed, and Boeing has never been able to salvage its already shaky safety image. Recent frequent accidents have further raised questions from the outside world: why did Boeing come here?
Would it be better not to fly when encountering Boeing?
Just like "wherever there is a road, there must be a Toyota", Boeing also has a popular advertising slogan in the aviation industry - "It's not Boeing, it's better not to fly.". As a century old aircraft manufacturing giant that once monopolized more than 80% of global commercial aircraft production, Boeing shouted with confidence. But with news headlines such as "Boeing accident" and "security vulnerabilities" appearing one after another, people gradually remember "encountering Boeing, they would rather not fly".
In May 2017, in order to compete with Airbus's new model A320 NEO, Boeing also decided to upgrade its best-selling model 737 and launch the 737 MAX. However, this new aircraft model, which was hastily designed and delivered, ultimately cost Boeing a heavy price - in just six months, the plane suffered two fatal crashes in Indonesia and Ethiopia, resulting in 346 deaths.
Two major air accidents opened up software defects in the flight control of the 737 MAX, and multiple countries around the world immediately announced flight bans. The US Department of Justice has initiated criminal proceedings against Boeing, and in 2021, the two sides reached a suspension of prosecution agreement, provided that Boeing fully improves and meets compliance requirements.
However, two days before the suspension agreement expired, Boeing had another incident. In January of this year, an Alaska Airlines Boeing 737 MAX 9 aircraft, which had only been delivered for a few months, flew from Portland to Ontario, California. The cabin door fell off during the flight, causing the aircraft to make an emergency landing. According to an investigation by the National Transportation Safety Commission in the United States, the detachment of the hatch was caused by the absence of all four key bolts required to secure the hatch.
Soon, the Federal Aviation Administration of the United States ordered all American airlines to ground all Boeing 737 MAX 9 aircraft. Both United Airlines and Alaska Airlines have reported finding loose bolts on some of their Boeing 737 MAX 9 aircraft.
In the following months, Boeing aircraft continued to experience frequent accidents - wing damage, engine fires, severe body shaking, and tire drops. Although these accidents were somewhat related to factors such as aging, improper operation and maintenance, and poor weather, the "door drop" incident truly reflected Boeing's significant negligence in aircraft manufacturing and quality control.
Especially the voices and bizarre deaths of the two whistleblowers have plunged Boeing into a crisis of trust. After the "door drop" incident, a former employee of the inevitably sharp company came forward to testify that the 737 MAX was found to have quality control issues in the tail pressure chamber during the manufacturing process. The company did not take action and concealed it, and the inevitably sharp was an important supplier of Boeing. In May, the whistleblower suddenly passed away due to a bacterial infection. In March, another key whistleblower from Boeing was supposed to attend the lawsuit against Boeing to give a testimony, but just a few days before the trial, the whistleblower suddenly appeared to have died of a suicide.
At a time of deep security concerns, Boeing has once again been targeted by regulatory authorities. In March, the US Department of Justice launched an investigation into the "door drop" incident. In May, the Ministry of Justice determined that Boeing had a safety accident during its three-year regulatory period, violating the compliance provisions of the deferred prosecution agreement reached in early 2021. At the end of June, the Ministry of Justice issued an ultimatum to Boeing, charging them with criminal fraud. Companies must make a choice within a week, either accepting a plea agreement or appearing in court to defend against the Ministry of Justice's criminal charges.
Currently, Boeing has chosen the former to avoid further escalation and fermentation of the situation. But obviously, Boeing has found it difficult to reverse its public image of loopholes and poor management, especially in the aviation industry that emphasizes safety first. Many passengers and investors are already voting with their feet.
Boeing's financial report shows that in the first quarter of this year, the company's revenue declined by 8% year-on-year, marking the first loss in seven quarters. The delivery volume of aircraft was 83, nearly halving from 157 in the first quarter of last year. When capital sees financial reports and news, their face naturally won't look good. Since the beginning of the year, Boeing's market value has evaporated by a quarter.
Amidst numerous crises, Boeing's top executives have chosen to resign and step down. In March of this year, Boeing announced that Boeing President Dave Calhoun would resign at the end of this year, Chairman Larry Kellner would leave the board in May, and Commercial Aircraft Manager Stan Deal would also leave the company.
Beyond the loss of engineer culture
A few years ago, the catastrophic accident of the 737MAX had already raised safety concerns for Boeing, but recent incidents such as door drops, accidents of all sizes, and whistleblowers reflect that Boeing is still mired in quality control issues.
Boeing, why is it difficult to link safety and quality again?
A pilot working in a domestic airline told 21st Century Business Herald that he had been flying Airbus planes for a long time. Compared to other Airbus aircraft, Boeing's planes were generally designed earlier than their counterparts -737 before 320757/767 before 330747 before 380. Therefore, some of Boeing's aircraft designs do not have a latecomer advantage, and there is not enough room for improvement in the current development of aviation technology. Therefore, compared to the Airbus 320neo, the 737MAX is more difficult to design and manufacture to meet the needs of airlines in the new era. Boeing was forced by the airline's order deadline, resulting in some projects being completed on time without sufficient validation experiments, which was also one of the fatal hazards of the 737MAX later on.
At the same time, leaning towards traditional aircraft design also puts higher demands on pilot operations. The pilot stated that in his personal opinion, Boeing's design in aircraft automatic flight and flight management is relatively conservative, requiring more participation from pilots, similar to manual transmission in cars, while Airbus is more like an automatic transmission car. Of course, for Boeing and Airbus aircraft piloted by experienced flight crews, safety is the same.
The most criticized aspect of Boeing is still the change in corporate orientation, where the engineering culture gives way to the Wall Street culture that prioritizes profit and efficiency. After the 737MAX air crash, Netflix released a documentary titled "A Great Fall - Boeing Investigation", which cited many internal documents and employee interviews from Boeing. Some senior employees who have resigned have made statements, stating that quality control management personnel related to flight safety have been extensively laid off, and there are occasional omissions in aircraft component assembly. In order to reduce costs, the company has also launched a "shared value plan" internally, requiring every employee to pay attention to the company's stock price and strive to increase stock value in order to earn more money.
Many people attribute the loss of Boeing engineer culture to the acquisition of Boeing and McDonnell Douglas. At the end of 1996, McDonnell Douglas was already an aircraft manufacturer that had repeatedly faced safety crises. However, after Boeing completed its acquisition, McDonnell Douglas's CEO became Boeing's CEO, and Boeing embarked on the "McDonnell Douglas old path" of prioritizing quality over profit.
A scholar from the Civil Aviation College of a 985 university in China told 21st Century Business Herald that Boeing is actually facing a common problem among many large enterprises - under the professional manager system, the CEO is appointed from outside and is only responsible to the board of directors and shareholders. Even if employees discover problems, they may not be able to influence the decisions of senior management.
At the same time, the scholar also pointed out that aircraft manufacturing is different from large-scale automated production of automobiles. Aircraft are basically assembled by hand, so people are the most prone to problems in the production line. Once employees slack off or neglect, quality control will be difficult to guarantee.
In the aircraft manufacturing industry where skilled workers play a crucial role, Boeing has actually lost a large number of skilled technical personnel in recent years, which has become an important trigger for its quality control decline.
Civil aviation expert Li Hanming told 21st Century Business Herald reporters that the fatal design error of the 737MAX resulted in widespread grounding, which lasted from 2019 to 2021. Then came the COVID-19 epidemic from 2020 to 2022. The superposition of double dilemmas made the production line of 737 operate at a low level for four years. The contraction of demand naturally leads to layoffs and downsizing of the industrial workforce. However, for the aircraft manufacturing industry, experienced technical workers are the key to quality control. Layoffs and downsizing have led to a decrease in the number of skilled workers, which has resulted in a shortage of talent and lack of experience. Therefore, it is completely unexpected that Boeing has experienced manufacturing accidents.
Airbus in Europe, on the other hand, has survived the challenge of the epidemic by relying on Chinese factories. Li Hanming said that during the epidemic, global supply chains were hindered, especially aircraft manufacturing, which required millions of components, and was even more passive at that time. But Airbus has a complete machine assembly factory in Tianjin. During 2022 and 2023, China's supply chain was relatively smooth, and many Airbus orders were actually handed over to the Tianjin factory for completion, and then delivered to customers in Southeast Asia and Europe after being offline. By contrast, most of Boeing's final assembly plants are located in the United States, while Boeing's factory in Zhoushan is mainly responsible for interior decoration. Therefore, during the epidemic, Boeing's production and manufacturing will be more significantly affected.
According to media reports, in 2020, due to the impact of the epidemic, the demand for new aircraft declined, resulting in the loss of 28000 Boeing employees. Even if demand has rebounded in recent years, it will take several years for Boeing to train new skilled workers to complete complex assembly tasks. "Aircraft assembly requires proficiency, and Boeing will recall employees who were previously laid off. These workers will definitely lack technical accumulation and operation skills," said Li Hanming.
The problem of skilled worker turnover not only exists at Boeing, but also affects the entire supply chain. Ron Epstein, an analyst at Bank of America Securities, estimates that many Boeing suppliers have employee turnover rates exceeding 20%.
Boeing crash, global plane shortage?
On July 1st, as Boeing was deeply embroiled in a crisis of trust, Boeing announced the acquisition of its supplier, Airborne Systems, for $37.25 per share. This all stock transaction valued Airborne at $4.7 billion. Previously, Mobil was part of Boeing and was responsible for producing a significant portion of Boeing aircraft. However, in 2005, Boeing divested Mobil of its business in order to reduce costs.
Now, Boeing's decision to repurchase "dropped doors" is inevitable, aiming to strengthen quality control over suppliers. Li Hanming believes that Boeing's repurchase is bound to be sharp, and it should be improved through internal work to enhance quality control, because Boeing's quality control efforts towards suppliers and internal teams are definitely different.
Boeing needs to do more to regain the trust of the public and customers. According to Boeing's latest plea agreement, the US Department of Justice will appoint an independent prosecutor to oversee Boeing's safety and quality control procedures for the next three years.
Currently, Boeing's trust crisis has affected aircraft delivery. In March, Boeing executives stated that in order to improve quality control, the company is slowing down production speed and the monthly production of 737 aircraft will be reduced to less than 38. In fact, in the first half of this year, Boeing delivered a total of 175 aircraft, which is significantly less than the 266 aircraft delivered in the same period last year.
However, Boeing's production capacity has declined, and its competitor Airbus may not be able to handle the extra orders. On July 9th local time, Airbus released its latest announcement stating that the company delivered 323 aircraft in the first half of the year, but this is less than half of Airbus's 2024 annual delivery target, as the factory is facing supply chain challenges from a shortage of components such as engines, fuselage structures, and cabin interiors. Airbus is expected to be unable to meet its annual target of 800 aircraft.
The world's only two aircraft manufacturing giants have both slowed down delivery, coupled with the grounding of some 737MAX models, causing the airline's fleet to suddenly become compact. Major airlines such as Ryanair, Lufthansa, and KLM have lowered their passenger capacity targets for 2024, limiting the recovery and expansion of intercontinental routes.
The tight supply of new aircraft has ignited the business of aircraft leasing and maintenance of old aircraft. John Heimlich, Chief Economist of the American Air Transport Association A4A, estimates that airline spending on aircraft leasing has surged by 30% compared to before the pandemic. According to data from aviation data analysis company Cirium, the rent for the Airbus A320neo has risen to $455000 per month, a 30% increase compared to 2020.
Aircraft maintenance services have also become in short supply. Dubai Airways (DAE) is the largest aviation service company in the Middle East. In a recent media interview, it stated that due to global aircraft capacity shortages, airlines need to repair and maintain old aircraft, and DAE's maintenance facilities have been fully booked for the next 18 months.
The interviewed experts stated that from a global perspective, the delivery progress of aircraft is indeed slow, but domestic airlines have sufficient transportation capacity and are basically not constrained by insufficient aircraft production capacity.
For nearly half a century, global commercial aircraft manufacturing has been dominated by the two giants Boeing and Airbus, and any slowdown in supply from manufacturers will affect global aircraft supply.
Last May, the domestically produced large aircraft C919 completed its commercial maiden flight and entered the flight queue of domestic airlines. Last September, the C919 also received its first overseas order. Brunei Qiji Airlines signed a letter of intent with COMAC to purchase 30 aircraft, including 15 C919, at the China ASEAN Expo.
How far is it for domestically produced large aircraft to open up overseas markets and break the monopoly pattern of the dual market?
Li Hanming believes that it will take some time for the C919 to enter the overseas market on a large scale, because when new aircraft are put into use, the most difficult task is often not to train flight operations, but to build a dedicated maintenance team, because each model of aircraft uses different component designs and standard operating procedures, and requires an independent support system. Domestic large aircraft need to be sold to reliable overseas customers, and corresponding maintenance and repair capabilities need to be established, which may take at least two years.