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but more than fifty years of version of Boeing, seven three seven aircraft to sail the skies when design began in nineteen sixty four Boeing was looking to build a smaller version of its seven twenty seven bottles. They decided on a plane around a half the size of its predecessor with seeding for around fifty to sixty people. German airlines of tonsure was the first to buy

the new model ordering twenty one planes in nineteen sixty five months later you s, airline, United, ordered forty yeah. It was the start of something big, and so it went for more than twenty years, the Boeing, seven three seven dominated the market for short range short haul domestic planes becoming the best selling commercial aircraft of all time, but that changed in the late nineteenth eighties. When a company called Airbus entered the market with its model, a three twenty, the corporate giants would duke it out for the biggest market share, but soon this competition but a cost, specifically the lives of three hundred forty six passengers. The battle between Boeing and Airbus has been the subject of our last six episode, and today we hear from aviation Safety expert Tom Anthony of the University of Southern California, about what went wrong and what Boeing's blunder means for the future of the company.

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Anthony welcome to business wars. Thank you glad to be here. I think it's important to start with some context year. Boeing, seven three seven has is really pretty amazing when you think about it. What a durable plain it's been in service for over fifty years. You know you ye go back, you think about when the seven three seven was released in the late nineteenth sixties, or is it supposed to do what was its niche in the in the aviation world was supposed to be a short haul aircraft to service regional airports. That role actually caused one major configuration or feature of the seven thirty seven that is, it is a very low to the ground aircraft. It was designed to be loaded with the baggage from the ground without equipment, and that design feature is stayed with it That's really fascinating. So the idea was presumably and correct me if I'm wrong here, maybe for regional care,

Here's that didn't have a whole lot of money. You can keep overhead down by not having to least expensive loading equipment does. That is as part of a concept. I think the concept is to sell. The aircraft major carriers, but to serve secondary markets markets. It presumably wouldn't have all of the equipment that some of the larger markets would that's exactly right. As I understand it, when Boeing release the seven three seven was Airbus anywhere in its peripheral vision. I mean was this something that that that Boeing was really considering a competition. With the European Consortium, Airbus, it was not in the picture. The DC nine of Douglas was in the picture, and so the competition that we see now did not enter the picture until eighteen, eighty eight, so the seven thirty seven a twenty one year head start, that's pretty amazing. What was Airbus up to at that time I mean I I you mention the DC

in some people still have found memories of of the DC nine, but compared to Boeing. Where was Airbus in all this? Airbus did not exist in nineteen sixty seven there, the competition was there. Southern manufacturers, other manufacturers, even convert Lockheed in the United States, were competitors with Boeing for commercial aviation market. That's kind of amazing I'd forgotten about. I mean like these were once yet the giants of the Skies giants of American Industry Lockheed Douglas and bowing, and you think about it. Today I mean I yes, Boeing is still the last. Who is it. I mean is it sort of considered to be those? Were the last man standing above all among all of those major aircraft builders? From the? U S? well in one way Boeing is the last

some standing, but in another, since its Douglas, that is the last man standing, because it is the heart and culture of Douglas aircraft that took over when these two companies merged the organizational culture of glass then really pervaded Boeing and the culture going forward became problematic and that's what we're seeing today. Oh, that is fascinating, and I want to get back to that. But I want to roll back the clock if we can to that point at which Airbus begins to move then on the scene, and it becomes an issue for for Boeing, we're talking about what the Nineteen eighties am I close with the eight three twenty or nineteen. Eighty eight was the eight three twenty, but before that before that the European Countries- and I should emphasize cut freeze didn't want to be dominated by Boeing. They wanted to have a a european competition to serve mainly the european market.

And so they merged together in the seventies and created the eight three hundred which Thea, which Eastern Airlines purchased Anne Frank Boy Norman, the the astronauts supported and YO. Basically, it was great Britain, France and Germany coming together, there to put together a european competition to the seven thirty, seven less think about that for just a moment, because Eastern, as I recall, was based in Miami back in the day, and they had. I think they had a pretty strong service to there shuttle. As I recall, between Boston and Washington DC, it strikes me as rather unusual that an airline with such a major- U S, presence like Eastern, would choose Airbus over Boeing was that I had a watershed moment: do you think you're? No, it was not the same. Watershed moment is

when American Airlines decided to buy the eight three twenty in two thousand and eleven. Let's talk a little bit more about the eighth three twenty you mentioned that it becomes a thing in the late Nineteenth Eightys was Airbus? Also thinking as Boeing had a couple of decades earlier that they wanted a shorter hall carrier, something that carried fewer passengers and sort of smaller Hobbs? That's worth it. I think Airbus, because was a consortium of companies. First, it had the organizational ability to listen to customers and reflect the needs of the market, and that is something that, if you think about it in classical terms, Boeing was like a heroic company, but classical hero heroes have hubris and, and that's what we see developing in in Boeing and the inability to listen, and so just to give you an idea in

teenage eight, when the three twenty was introduced, they sold fifteen of them in same here, Boeing sold two hundred and fifty two of the seven hundred and thirty seven. So it was one tenth of the market, and so they just really sort of did not think that they were a threat. What's up what was the deciding factor from the perspective of the airline companies? Once you had a choice between say, the seven hundred and thirty seven and a plane like the A320, what would have been the deciding factor? Price price is part of it, but also fuel efficiency is a big part and what's first thing is because that seven thirty seven was designed in nineteen sixty seven and the engines were a different type of. They did not have a high bypass engine. It burned lot more gas. And then every attempt to change that engine was difficult for Boeing so, for instance, that regional engine on the seven thirty seven

One hundred model was forfeit. The new engine is eight feet in ways. One thousand four hundred and seventy pounds more. So this really changes the array it all. Design and handling of the aircraft well over we go long on MAX. Let's talk about what took bowing to that point, to begin with, something happened in two thousand and six Boeing began to think about a successor for this very successful plain, the seven thirty seven- and I suppose Airbus was really thinking of doing the same thing with the eighth three. Twenty Boeing still haven't decide exactly how they revamp the seven thirty seven, but then Airbus showed its hand in twenty ten, with the launch of the eighth three twenty neo same frame, but it had an engine that was a whole lot more fuel efficient,

Four bowing to do something similar. Well, let me ask you this: could they do it with a frame designed back in the late sixties? No, they could not mess why the MAX had to be developed. If you look at an eight three twenty and you look at seven thirty, seven taxing on the ground you'll see that their seven thirty seven is hunkered down close to them. Around. But the eight three twenty looks sort of perched up on long legs and Long legs allowed the three twenty to have the new high bypass fuel efficient engine, and that became something that was really difficult for seven, thirty, seven to accommodate and therefore to move the engine Ford the only way they will be able to accommodate this new larger engine and heavier engine than before. This brings us to that watershed moment that you are talking about, doesn't it. This is where I guess it would have been. Her We're talking around twenty ten twenty eleven a m

and airlines makes a pretty big decision and goes with Airbus and in January two thousand and eleven there was an apocryphal incidents that occurred, and the CEO of Boeing Commercial announced that he didn't think that, even though bus was selling some aircraft and making good numbers that they need to design a new a net. Body single I I'll aircraft. For another decade that was Jane during two thousand and eleven and then in spring Two thousand eleven American Airlines announced that they were buying several hundred a three twenties and then that change the world. But the problem was. Is they had already absorbed since nineteen? Ninety seven and ninety nine They had already absorbed the Douglas aircraft, organizational culture of cost, cutting a whole organism,

culture. That was completely unlike the Boeing culture that existed before that Jimmy really important, and it's something that I haven't heard. A lot of discussion about certainly in coverage of the development of the seven hundred and thirty seven max it's a cultural thing within Bowen which it absorb Douglas, is that cause corners to be cut. Do I understand you correctly way more than that, David in nineteen? Ninety aid was announced that Harry Stone, cipher from Douglas Aircraft would be the head of Boeing Commercial Aircraft division and this caused a shock to those in Boeing, but also think about what resulted in hand in the organizational culture all those people from Boeing. All those leaders who had proven themselves are now thinking. Well, what am I, I chopped liver? A wise Harry Stone, Cipher, getting this job, and so that started in nineteen. Ninety eight sooner

you're end in two thousand and one they decide to move the headquarters from Seattle to Chicago and in the same move they say, and by the way, though, one thousand employees at headquarters, were only get to take five hundred of you to Chicago. How would those five hundred people react? It was a deep cut to the organizational culture and end of of Boeing. At the time this episode of business wars is brought to you by Dell New Year new budgets. Every small business has unique needs when you partner with Adele small business technology.

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you can study wherever you are and get started whenever you're ready, you M Gc advisers can help you at every step, but the first step is up to you get started today and you M gc DOT. Eddie, you slash, podcast, that's you m Gc Dot, Eu Slash, podcast,. Let us talk about some of the principles that were guiding Boeing, the old company compared with the company that it would later become after them,

was Boeing. I sort of an engineer company. If you will a mean that there are companies, especially you know- heavy equipment, manufacturers makers, transportation, transportation, products that have a distinct culture. You think in the car world, Chrysler was sort of the engineers company in a sense was Boeing that kind of company. It was that kind of company on steroids. It was the ultimate engineering company that took pride in its work and their product, but the fact that it was that kind of company organizational culture is is almost invisible to those people. All who are in it at the time and the norms become that's just the way we we do things. This is the way we see ourselves. We are so proud, but just because you have the culture, doesn't

mean that it will stay like that forever. That culture created the seven hundred and thirty seven, the seven hundred and twenty seven, the seven hundred and seven the amazing seven hundred and forty seven, but just because Invisible doesn't mean that it will continue on forever and by interjected. The Douglas team in ninety seven. Ninety, eight from the time it moved to Chicago was one mishap, but worse than mishaps, and two thousand and one there was a criminal indictment of allowing for stealing Lockheed Martin secrets and they then law, all the air force about one billion dollars worth of contracts because they were convicted stealing the Lockheed Martin secrets by hiring somebody and then the same thing,

or similar thing happen in two thousand and three, where the CFO of Boeing was convicted of subverting the government purchasing process by hiring a soon to retire defence department official. He went to prison and the Boeing company had to pay six hundred and fifty million dollars and civil penalties and criminal fines, and so what we see as we see an organization where there is a significant amount of dis, honesty in fact between ninety seven and I Ninety seven in two thousand and five fifteen vice presidents of

owing were either convicted or fired for on ethical conduct. So that's how the Boeing culture was change with the merger with Douglas. There are a lot of companies that have and and operate with, values that are probably not done sterling, I think, is probably safe to say it seems that the distinguishing feature here is that we talking about in industry, the airline industry, where the margins for error are exceedingly narrow and if what you're trying to do is generate a better looking bottom line, then something's gonna right. Well, there's a good story on this, and it is that in the year two thousand the CFO of Boeing,

I spoke to a management meeting and she said that we ve got to get the engineers not to focus so much on the box. What she meant by the box is the airplane. The aircraft. This route represents to me a fundamental ignorance of what that box really is that box was not just a box. It's something that carries people, but it carries the reputation of Boeing. In fact, Boeing carries the reputation of the United States with it so to consider the aircraft as just a box. Is really beyond my imagination, but it shows the focusing on just the bottom line and short term gains. Instead of

creating value by creating excellence, let's fast forward to wear this becomes a deadly issue. The seven thirty seven MAX wondered. They begin development on that. Do you recall Yes, a two thousand and eleven right after American Airlines decided by the three twenty there you go, and so they are trying to compete with Airbus by what retro fitting the seven three seven with a more efficient but larger and heavier engine. So what would happen trying

to fly Emmy, surely they were doing aerodynamic testing and that sort of thing before they actually tried to test the plain and in the real world? Oh sure, there's plenty of testing, but I think the important thing: it's not the scientists, not the aerodynamics that pervades the causes. The compromise that we see reflected in the in the max it is that culture of a lack of honesty, lack of transparency that you see reflected in emails and, in fact, let's just think about this thing. We ve already fired half of them. Berlin headquarters, we move headquarters to Chicago, and now we ve got to do a new project and we are asking the engineers in Seattle to produce their designs their drawings and their technical work in half the time as before, for, and that causes a compromise

eyes in their ability to pay attention to detail to specify exactly what's going on, so it also causes you to think well wait a minute. If I'm supposed to do it in half the time. Do they think that I was, you know just loafing for the other time you know twice as many drawings in the same amount of time, and so that lack of honesty and transparency is what we see coming out here. But I want to understand how this translates to the blueprints, because, as I gathers, I've read the placement of the engines on this new seven, thirty, seven max because of their weight. I gather in the way you had to position these engines it would at low speed would cause the nose of the plane to tear up right. Well, it's not just the weight David, it's the position on the air frame and its power, and so yes, it was to prevent the M Cas was to prevent the nose tipping up and cause

Install yes! So Boeing develops its system called the incapacity, their maneuvering control, augmentation system, a fly by wire system that would cause the nose to Tipp back down. Of course, one of the big questions is who's. Gonna review this. Presumably the f a is going to take a good, hard, close look at this new play in these seven three, seven max. How does he have a sign off on this? If it's, I blame or any new system is, got to have a functional hazard analysis and that has to be signed off by the affair. But what has happened in two thousand and three is that the Congress encourage the of aid to delegate more certification responsibilities to the aircraft manufacturers. This caused a major change in the delegation process. In that previously we had designated engine. Nearing reps within the manufactures D, ARS, and they would report too

The aid, the aggressor edification office. However, with this new- oh dear organizational designation authority. It was the organization who spoke to the of that is management of Boeing, and it was management of Boeing whose selected their designates to certify so the weight of the certification process than shifted, in fact, from the sound of it Tom. It shifted back to Boeing itself. Am I wrong? No you're absolutely right on this, and it shifted over to Boeing management. Wow would then choose what to tell the FDA about the tests and the functional hazard analysis

by now everyone has heard of of what happened next with Boeing, seven, thirty, seven max entering the market place, we begin to hear those news. Reports of the crash is the first one in October of twenty eight with Lion air flights extend from Jakarta crashing twelve minutes. After take off hundred eighty, nine people were killed in that crash in and yet crash number to the Ethiopian Airlines fly through two from Nairobi that plane crash just six minutes. After take off and a hundred fifty seven people were killed in cash is implicated in both at least up to this phase of the investigation Tom. I know you're aware there's this rule in aviation. The crashes don't happen for just one reason is that apply here. That applies not only to the crashes, but it applies to the overall, essentially catastrophe that Boeing is experiencing, right now, we have the FAA a delegating more responsibility. Then it is wise to buy.

Doing, but we also have training issue and we have a maintenance issues by the operators, but the lack of transparency by Boeing, which was approved by the affair on telling the operators about the M gas and how it works and how it doesn't and to essentially to make them aware of what happens if a worm malfunction that participates a great deal in this accident caused Jane will. The FDA, of course, is grounded the seven three seven max. I happened some time ago in March of last year, the Boeing CEO Dennis Mule and bird was fired in December of there being congressional investigation, said the production seven, three seven max has now been halted and you have basically a bunch of carcasses of planes sitting out there I empty. Where do you see this saga? Turning next, I dont see a way out from what

been discussing. Well, what we need with Boeing is: we need an organizational culture that reverses the change to the Douglas culture that happened in ninety seven. Ninety eight, the first thing that Boeing must do is that they must be respectful of these ratification authority, the and I believe that the Steve Dixon is teaching them this lesson, I think they were overconfident that they could continue to drive the train as far as certifying the max, and that just is not be it really will chair will require a change in the overall management perspective of Boeing. For this to occur. Anthony directs the aviation safety and security programme. The university of Southern California is Butterby School of Engineering Tom thanks for spending

a bit of time and ensuring your expertise with this on business. Worse glad to do a David, thank you. From wondering this is business wars. We certainly hope you enjoy this episode coming up on. Our next series you know Sonys play Station console is a giant the video gaming world having sold hundreds of millions of unit, but A little known fact about that play station brand. It was Originally a collaboration Wings Sony and another video game giant. You probably have heard out. Nintendo tried to companies worked in secret for years on the original playstation, but Just before the council was announced to the world intended mysteriously pulled out of that deal, leaving Sony executives to say we were stab in the back, join us next time or Sony persists. Nintendo, it's gonna be good.

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