Summary:
Boeing’s crisis following the 737 MAX crashes and Alaska Airlines door blowout traces to a decades-long strategic shift away from hands-on aviation manufacturing toward risky outsourcing models. This case study reveals how financial engineering replaced engineering rigor at America’s industrial icons, sacrificing quality oversight and operational control for short-term stock gains. The company’s potential reacquisition of Spirit AeroSystems signals a broader industrial reckoning as semiconductor and aerospace leaders confront the perils of disconnected management and hollowed-out production capabilities.
What This Means for You:
- Travel Safety Scrutiny – Verify aircraft maintenance records (FAA Registry lookup) and consider airline maintenance reputations when booking
- Supply Chain Due Diligence – Investors should analyze manufacturers’ supplier qualification processes and in-house technical retention
- Industrial Career Planning – Focus on roles blending digital twin expertise with hands-on production skills for reshoring opportunities
- Regulatory Watch – Anticipate stricter FAA “predictive compliance” mandates (per February 2024 NPRM) that may increase aircraft certification timelines
Original Post:
The sight of Bill Boeing was a familiar one on the factory floor. His office was in the building next to the converted boatyard where workers lathed the wood, sewed the fabric wings, and fixed the control wires of the Boeing Model C airplane. there is no authority except facts. facts are obtained by accurate observation read a plaque affixed outside the door. And what could need closer observation than the process of his aircraft being built? One day in 1916, Boeing spotted an imperfectly cut wing rib, dropped it to the floor, and slowly stomped it to bits. “I, for one, will close up shop rather than send out work of this kind,” he declared.
When David Calhoun, the soon-to-be-lame-duck CEO of the company Boeing founded, made a rare appearance on the shop floor in Seattle one day this past January, circumstances were decidedly different. Firmly a member of the CEO class, schooled at the knee of General Electric’s Jack Welch, Calhoun had not strolled over from next door but flown some 2,300 miles from Boeing’s headquarters in Arlington, Virginia. And he was not there to observe slipshod work before it found its way into the air—it already had. A few weeks earlier, the door of a Boeing 737 had fallen out mid-flight. In the days following his visit, Calhoun’s office admitted that it still didn’t know quite what had gone wrong, because it didn’t know how the plane had been put together in the first place. The door’s restraining bolts had either been screwed in wrong, or not at all. Boeing couldn’t say, because, as it told astonished regulators, the company had “no records of the work being performed.”
The two scenes tell us the peculiar story of a plane maker that, over 25 years, slowly but very deliberately extracted itself from the business of making planes. For nearly 40 years the company built the 737 fuselage itself in the same plant that turned out its B-29 and B-52 bombers. In 2005 it sold this facility to a private-investment firm, keeping the axle grease at arm’s length and notionally shifting risk, capital costs, and labor woes off its books onto its “supplier.” Offloading, Boeing called it. Meanwhile the tail, landing gear, flight controls, and other essentials were outsourced to factories around the world owned by others, and shipped to Boeing for final assembly, turning the company that created the Jet Age into something akin to a glorified gluer-together of precast model-airplane kits. Boeing’s latest screwups vividly dramatize a point often missed in laments of America’s manufacturing decline: that when global economic forces carried off some U.S. manufacturers for good, even the ones that stuck around lost interest in actually making stuff.
The past 30 years may well be remembered as a dark age of U.S. manufacturing. Boeing’s decline illustrates everything that went wrong to bring us here. Fortunately, it also offers a lesson in how to get back out.
In Bill Boeing’s day, the word manufactory had cachet. You could bank at the Manufacturers Trust. Philadelphia socialites golfed at the Manufacturers’ Club. Plans for the newly consecrated Harvard Business School called for a working factory on campus. The business heroes of the day—Ford, Edison, Firestone—had risen from the shop floor.
There, they had pioneered an entirely new way of making things. The American system of production—featuring interchangeable parts, specialized machine tools, moving assembly lines—was a huge leap beyond European methods of craft production. And it produced lopsided margins of victory for the likes of Ford, GM, and Boeing. To coordinate these complex new systems, two new occupations arose: the industrial engineer, who spoke the language of the shop floor, and the professional financial manager, who spoke the language of accounting.
At first the engineers held sway. In a 1930 article for Aviation News, a Boeing engineer explained how the company’s inspectors “continually supervise the fabrication of the many thousands of parts entering into the assemblage of a single plane.” Philip Johnson, an engineer, succeeded Bill Boeing as CEO; he then passed the company to yet another engineer, Clairmont Egtvedt, who not only managed production of the B-17 bomber from the executive suite, but personally helped design it.
After the Second World War, America enjoyed three decades of dominance by sticking with methods it had used to win it. At the same time, a successor was developing, largely unnoticed, amid the scarcities of defeated Japan. The upstart auto executive Eiji Toyoda had visited Ford’s works and found that, however much he admired the systems, they couldn’t be replicated in Japan. He couldn’t afford, for instance, the hundreds of machine tools specialized to punch out exactly one part at the touch of a button. Although his employees would have to make do with a few general-purpose stamping presses, he gave these skilled workers immense freedom to find the most efficient way to run them. The end result turned out to be radical: Costs fell and errors dropped in a renewable cycle of improvement, or kaizen.
What emerged was a different conception of the corporation. If the managerial bureaucrats in the other departments were to earn their keep, they needed a thorough understanding of the shop floor, or gemba (roughly “place of making value”). The so-called Gemba Walk required their routine presence at each step until they could comprehend the assembly of the whole. Otherwise they risked becoming muda—waste.
When the wave of Japanese competition finally crashed on corporate America, those best equipped to understand it—the engineers—were no longer in charge. American boardrooms had been handed over to the finance people. And they were hypnotized by the new doctrine of shareholder value, which provided a rationale for their ascendance but little incentive for pursuing long-term improvements or sustainable approaches to cost control. Their pay packages rewarded short-term spikes in stock price. There were lots of ways to produce those.
Which brings us to the hinge point of 1990, when a trio of MIT researchers published The Machine That Changed the World, which both named the Japanese system—“lean production”—and urged corporate America to learn from it. Just then, the Japanese economy crashed, easing the pressure on U.S. firms. In the years that followed, American manufacturers instead doubled down on outsourcing, offshoring, and financial engineering. This round of wounds was self-inflicted. Already infused with a stench of decay, manufacturing was written off as yesterday’s activity.
At GE, which produced three of Boeing’s last four CEOs, manufacturing came to be seen as “grunt work,” as the former GE executive David Cote recently told Fortune’s Shawn Tully. Motorola—founded as Galvin Manufacturing and famed for its religious focus on quality—lost its lead in mobile-phone making after it leaned into software and services. Intel’s bunny-suited fab workers were the face of high-tech manufacturing prowess until the company ceded hardware leadership to Asian rivals. “Having once pioneered the development of this extraordinary technology,” the current Intel CEO, Pat Gelsinger, wrote recently, “we now find ourselves at the mercy of the most fragile global supply chain in the world.”
Phil Condit, the talented engineer who had overseen design of the hugely successful 777, was atop Boeing when I visited the company in late 2000. He was no stranger to the shop floor. Traversing Boeing’s Everett plant in a golf cart, he pointed out the horizontal tail fin stretching above us. Hard to believe it was larger than the 737’s wing, he marveled. Waiting back in his office—still located on the bank of the Duwamish River but greatly swollen by the recent merger with McDonnell Douglas—was a different sort of glee. “Wow! Double wow!” his mother had emailed him, referring to Boeing’s closing stock price that day. And, it would soon emerge, he wanted to get some distance from what he described to the Puget Sound Business Journal as “how-do-you-design-an-airplane stuff.” The next year, he moved Boeing’s headquarters to Chicago, pulling the top brass away from the shop floor just as the company was embarking on a radically new approach to airplane assembly.
Its newest plane, the 787 Dreamliner, would not be an in-house production. Instead Boeing would farm out the designing and building to a network of “partner” companies—each effectively its own mini-Boeing with its own supply chain to manage. “It used to be you’d have some Boeing people develop the blueprints, then march over and say, ‘Hey, would you build this for me?’” Richard Safran, an analyst at Seaport Research Partners and a former aerospace engineer, told me. “Now, instead, you’re asking them to design it, to integrate it, to do the R&D.”
The allures of this “capital light” approach were many: Troublesome unions, costly machine shops, and development budgets would all become someone else’s problem. Key financial metrics would instantly improve as costs shifted to other firms’ balance sheets. With its emphasis on less, the approach bore a superficial resemblance to lean production. But where lean production pushed know-how back onto the shop floor, this pushed the shop floor and its know-how out the door altogether.
Beyond that were the problems that a Boeing engineer, L. J. Hart-Smith, had foreseen in a prescient
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