Dhruv Moondra
October 5 2024

In today’s world, we look at Boeing as a dying company with countless defects and failures that keep making the headlines. From the two fatal aeroplane crashes 5 years back to fuel leaks, engine failures and battery fires being frequently reported, Boeing has become a dreaded name in the world of aviation. But it wasn’t always like this. 

Throughout the 20th century Boeing was one of the most reputable, innovative and trusted companies of the world. In fact people trusted it so much that it became a common catchphrase to say “If it ain’t Boeing, I ain’t going”. Additionally, the company’s blockbuster aircrafts such as the 737 and 787 led to Boeing becoming the largest exporter of the United States. However, it was only at the end of the century when one decision changed everything for the company. 

So what was this decision that made Boeing fall from triumph to tragedy?

To understand the whole thing, we need to have a background first.

You see, businesses have various objectives such as profit maximisation, growth in market share, and customer satisfaction. However, this creates a conflict of interest between business objectives like satisfying customer needs who want quality products at a cheap price and profit maximisation for shareholders.

To put this into context, the reason behind Boeing’s success for the first 80 years of its existence was because it was a company that was run by engineers that always had quality and innovation as their number one priority, even if that meant less profits and putting it at the verge of bankruptcy. 

The result of this distinction from its competitors was evidently seen with the launch of Boeing’s first US made commercial jetliner, the Boeing 707. This plane was so far ahead of its competition that while the Airbus A300 could take 247 passengers and travel 4600 miles, the Boeing 707 could carry 460 passengers and fly twice the range of 9200 miles. 

Then, in 1965 when Boeing generated a revenue of $2 billion, instead of registering their profits they poured in more than 1 billion dollars into building an aircraft called the Boeing 747. This was an enormous bet as the company poured in almost everything they had and the money could have been used for marketing, improving efficiency or rewarding shareholders and employees. Besides, even if you spend billions of dollars building a new aircraft, there is no guarantee that the project will be successful, making it a complete gamble. Ultimately the R&D costs ballooned so much that when the plane was finally ready, Boeing had to sell 1100 aircrafts just to break even.

Nevertheless, because of Boeing’s insane commitment to innovation, the result was outstanding and the Boeing 747 became the most recognised aircraft of the world that stretched technology to the limit. The project earned massive profits and the company’s stock price shot up by 4400% between 1975 and 1995. 

Things took a wrong turn in 1996 when Boeing was flying high. At the time, Boeing had a 53% market share whereas its other US competitor, McDonnell Douglas only had 19%. As a result, to eliminate competition, Boeing decided to acquire McDonnell Douglas for $13.3 billion dollars. However, the catch was that the top level management, including the role of President and Chief Operating Officer of Boeing was replaced with those from McDonnell Douglas. 

This created a fundamental shift in the core of the company that had maximising shareholder value and cost cutting at the top of their agenda. Suddenly, the entire production and design department was separated and  outsourced to countries like Japan, Malaysia and Italy. 

This was intended to cut costs and to gain customers in other countries like Japan, they would receive orders from Japanese airlines like ANA and JAL in return for manufacturing there. 

In the end, this structural change led to 70% of Boeing’s entire design, engineering and manufacturing process to be outsourced to over 50 strategic partners. Not only did this kill the morale of the workers but it created so many logistical complications and faults that the costs of the next Boeing 787 Dreamliner increased by $12 billion dollars.  Therefore, some stupid strategy to cut costs was a big compromise on quality and the lack of foresight of the stingy management resulted in a logistical nightmare.
At the same time, because of cost cutting and outsourcing, Boeing laid off 53000 employees which provoked massive strikes, adding to the incredible list of financial and operations headaches. 

All this had terrible ramifications on the company’s performance. Firstly, since Boeing’s entire headquarters and senior management was moved 2000 miles away from the commercial aircraft division, quality checks, innovation and research was restrained. There was also a huge distance between the management and the employees, creating a sense of alienation and distrust.
Consequently, Boeing started falling behind its competitors like Airbus as it was no longer innovative. 

What did Boeing do to solve this issue?
Absolutely nothing.
In fact, between 1998 and 2018, Boeing employed 81.8% of its profits just to buy back stock, simply because they wanted to increase their earnings per share to attract investors and increase shareholder value. 

And even if they did something, instead of pumping billions of dollars into making a new product which was what made them successful in the first place, they only invested around $2 billion dollars to tweak their existing design of 737, calling it the 737 Max. 

Furthermore, this process was even fast tracked and Boeing was found guilty of bribing quality inspectors to escape from environmental and safety laws.

In the end, the 737 Max was the biggest and most dangerous failure of the Aviation Industry and all 737 Max planes had to be grounded immediately, scarring Boeing’s reputation forever.
Not just that, in the past 10 years, Boeing has seen 970 cases of manufacturing defects being reported in all its other aircraft models as well which has been the outcome of its new logistical model. 

In conclusion, we have witnessed and analysed the fall of one of the greatest companies in history whose fortunes turned around with just one mistake. As a result of all these structural changes Boeing’s market cap has fallen to around $95 billion dollars today from its peak of $183 billion in 2018, ruining it for the unforeseeable future.

Boeing Market Capitalization Compared to U.S. Civilian AircraftVoronoi by Visual Capitalisthttps://www.voronoiapp.com › markets › 

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