Can Boeing come back?

Rob Armstrong (0:06)

Pushkin. When you think of great American companies, the names that come to mind are companies like Coca-Cola, IBM, General Motors, Apple, Microsoft. They've all had their ups and downs. One great American firm that is having its downs right now is Boeing. Today on the show, can Boeing make planes great again?

This is Unhedged, the markets and finance podcast from the Financial Times. I am Rob Armstrong, coming to you from fabulous New York City, which is the location of Unhedged World Headquarters. And I'm joined today by Claire Bushey, who is the Financial Times Chicago correspondent. Claire, how are you?

Claire Bushey (0:54)

Hi, thanks. How are you, Rob?

Rob Armstrong (0:56)

I'm really glad you're on the show. I'm really interested in this company because it has been a great company. It's been around for decades and decades. Returns to investors have been great. But now we have to ask a very rude question about them, which is, can they make and deliver airplanes to their customers?

Claire Bushey (1:17)

Well, that is definitely the question that the ratings agency analysts all want answered because their credit rating is kind of hanging on the balance.

Rob Armstrong (1:27)

If I remember correctly, they're the lowest rung of investment grade. So if one more thing goes wrong, they get knocked down to junk.

Claire Bushey (1:35)

Yeah, the thing that's really matters to Boeing fundamentally as a company is, can they make and deliver commercial planes? It sounds incredibly simple and dumb, but they're struggling to do it at the moment.

Rob Armstrong (1:49)

Are they delivering any planes this year? I mean, just give us the... What's the revenue picture look like for them?

Claire Bushey (1:56)

Certainly they have been delivering planes. They didn't mean to create the impression that, like, no planes are coming out of Washington state. That's not true. But at the moment, their factories in Washington state are stopped because their workers have walked off the job as they tried to improve their pay and benefits. And earlier in the year, they were slowing production because if you remember, they had this really high-profile quality failure earlier in the year, where a panel of the fuselage on a 737 MAX flew off the plane at 16,000 feet.

Rob Armstrong (2:31)

Now, I don't know a lot about planes, Claire, but my understanding is that sort of thing is not supposed to happen.

Claire Bushey (2:35)

It is frowned upon, yes. Particularly by the passengers and crew of the plane where it's happening.

Rob Armstrong (2:41)

Right. So there's a question about labor relations and there's a question about quality control, which actually goes back to the earlier, they had two MAX crashes and there was questions about that design as well.

Claire Bushey (2:54)

Yes. And it's actually two separate problems because the MAX crashes were a failure of engineering and what the door panel incident was, was a failure of manufacturing. Basically, you can break it down to the first time people followed the specifications and the planes crashed, the second time they didn't follow the specifications and the plane had a panel fly off.

Rob Armstrong (3:16)

The people who were building the plane did not follow the specifications for building the plane.

Claire Bushey (3:22)

Basically, you want your doors bolted on and this was not.

Rob Armstrong (3:25)

Okay. I mean, those issues have to be related at some level. The labor issue on the one hand and the quality control issue. You would think that this is a highly complex manufactured product. These two issues are related.

Claire Bushey (3:39)

Yes. I remember being on an earnings call after the crashes and one of the analysts who had been sort of doing this for a long time, and he simply asked, what happened? And I feel like the entire time I've been covering Boeing, that is the question to answer here. What has led to this diminution?

Rob Armstrong (4:00)

So if we pan out a little bit and look at the question historically, there's a certain story about Boeing that basically the bean counters, rather than the engineers, got in charge of this plane company. And that was the beginning of all the trouble. It was run by a bunch of Jack Welch acolytes, or whatever derogatory term you want to use. Do you think that is a fair analysis or a kind of caricature?

Claire Bushey (4:26)

I do think it's a fair analysis, although I think it glosses over, you know, there's a lot of excitement about the new CEO having an engineering background. And I just think it's worth pointing out that Dennis Muilenburg, who had the max crashes happen on his watch, was also an engineer. But overall, I think this idea that Boeing became more interested in presenting improved financial returns to its shareholders and that they did that by squeezing the workforce, squeezing their suppliers. You can only do that for so long before eventually you have problems.