Reviving Boeing: A New Approach to People and Supplier Partnerships
The current state of affairs at Boeing is far from ideal. The company’s reputation has taken a hit due to program execution issues and high-profile safety incidents, including the two tragic 737 MAX disasters in 2018 and 2019. Boeing’s road to recovery won’t begin until its leadership takes a hard look at the past and identifies the root causes of these challenges.
In the not-so-distant past, Boeing’s relentless focus on financial returns led the company to overlook two of its most valuable assets: its people and suppliers. During the 2010s, Boeing made a deliberate effort to weaken labor unions’ bargaining power. By relocating production sites and threatening to move work elsewhere, labor negotiations became more one-sided, resulting in minimal wage increases and terminated pension plans.
Moreover, Boeing’s former CEO Jim McNerney prioritized the promotion of non-technical individuals to executive positions, particularly on the board. This included both the commercial unit CEO and himself – neither of whom held a technical degree – during the development of the MAX. Current CEO Dave Calhoun has followed suit, favoring individuals with similar finance backgrounds.
Simultaneously, Boeing targeted suppliers’ profits through initiatives like Partnering For Success, which demanded consistent price reductions even as demand increased. The company also pursued suppliers’ product support business, further impacting their business models. Payment terms were extended to 120 days in many cases, up from around 30 days.
Boeing’s “no-fly list” threatened suppliers that didn’t comply with the company’s demands, and Boeing even attempted a misguided program of vertical integration to replicate systems and components provided by some specialized suppliers. Essentially, workers and suppliers were being squeezed to increase financial rewards for Boeing shareholders. Initially, this strategy was highly successful; in 2012, 19% of operating cash flow was returned to shareholders through dividends and buybacks. By 2015, this had increased dramatically to an astonishing 99%, and remained in the 90% range until the two MAX crashes and subsequent MAX line shutdown. Between 2014 and 2018, Boeing rewarded investors with a staggering $53 billion in returns. Senior executives, often compensated based on stock returns, also benefited handsomely.
The consequences of this strategy are apparent: an under-resourced supply chain and a demotivated, disengaged workforce. These factors have led to missed production targets, significant program delays, failed safety audits, and instances of shoddy workmanship. Regulatory and political scrutiny is intensifying, and will likely continue to do so.
Boeing’s brand has suffered as a result. Airlines are growing increasingly vocal in their anger and frustration, as delivery delays complicate their fleet plans and associated revenue forecasts. Technical issues and increased regulatory oversight have jeopardized certification timing for two new variants of the 737 MAX, the 737 MAX 7 and 737 MAX 10. Airlines like Southwest and United had built their fleet plans around these models, so the delays will undoubtedly impact the number of flights they can schedule. Even Boeing’s stock price has started to slide – a peculiar development for a management team accused of excessive financial focus.
There is hope for Boeing yet. The company still boasts talented people, cutting-edge technologies, and excellent jetliners in a duopoly with very high entry barriers, despite Airbus’ rapid market share growth. The solution lies in new leadership that values partnerships with both employees and suppliers.
New management should prioritize engaging directly with workers and suppliers, spending time on factory floors and talking with engineers, machinists, and other key personnel. Instead of denying the need for new products, as Calhoun did in November 2022 when he suggested Boeing might not introduce any new models until the 2030s, they should explore new opportunities to restore the company’s position as a leader in the industry.
Ultimately, this comes down to simply showing up. The current approach of remaining holed up in offices and focusing on financial abstractions has proven ineffective.
