Sleeping Lion, Manyeleti Game Reserve, Greater Kruger Park, South Africa, 2008

I was over for an after-action review at Boeing two weeks ago, for a shared project with my students called the Boeing AerosPACE program, where virtual teams of students follow a gated design process to produce a small UAV as part of their final, capstone class requirement.  The review was fine — it’s always great to participate in a project with other, talented educators.  But the real news that was confirmed by my Boeing partners was that Boeing is going through another major cutback — somewhere between 4,000 and 8,000 management and engineering employees will be laid off, mostly in Washington State, ostensibly because of fierce price competition from Airbus. Reading through the various pieces in the Seattle Times like this one indicate that the folks at the top of Boeing in Chicago don’t seem to have any problems with South Carolina, and no jobs are planned to be cut there.  It’s only in the Puget Sound and the recently relocated folks from the Puget Sound, to Long Beach, CA, that have worries.

It all sounds so familiar.  According to Boeing leadership, Airbus (an international competitor) is kicking Boeing’s butt in getting new orders, and Airbus’ planes are good enough now that there’s no edge for monopolistic competition.  Earnings per share, as well as market share, are going to go down unless Boeing ‘does something’, which always means hacking away at their knowledge and relational infrastructure of high-priced employees in Seattle.  Commercial aircraft are supposedly a low-margin business, and as such, will be subject to the same forces as Tinker Toys and consumer electronics — doomed to move to places where labor is cheap (like South Carolina or China).  These are jobs that would be lost anyway, and if the people in Seattle have any expectation of a higher quality of living through knowledge and practice, well, they better wake up and smell the global competitive coffee. It’s all the neoliberal mental model we’ve been programmed to believe over the years, so we just accept it at face value.

And who can pull apart all the dire financial predictions, anyway?  Not the person on the street — or even empathy-wonky-junkie me.  You just gotta believe.

Fortunately, I have an e-mail pen pal inside the financial analysis community — Richard Aboulafia, vice-president and analyst with the Teal Group, whose paying job is to pull apart these arguments put forward by the aerospace corporate group, and figure out if they’re telling the truth.  In this piece in Forbes, he argues that they’re not.  And there are plenty of knowledge structure signs that they’re either unaware, or fibbing.  BCA CEO Conner is making his persuasive argument for job cutbacks not on data — but anecdotes — which is a typical belief-based mode.  He pitches hard the story from EVA Airlines, the national Taiwanese airline prone to Hello Kitty paint jobs and pillows (I know about all of this because of my Taiwanese wife, who is a loyal customer), who were ready to bail from Boeing to Airbus, and tells the public in this article by Dominic Gates in the Seattle Times. “That’s our reality” says Conner.  The question is more simple than that — is Conner’s reality actually reality?

Hello Kitty Boeing 777-300ER, providing service between Taipei and Paris, credit EVA Airlines website.  Most of the Hello Kitty flights are between Taipei and Asian capitals.

Aboulafia lays out the data succinctly. From his piece,

The problem is that the plural of ‘anecdote’ is not ‘data.’ Conner’s notion of lost market share is simply not supported by reality.  Last year Boeing delivered 762 jets worth over $60 billion, while Airbus delivered just 635 jets worth $43 billion.  In terms of market share by value, that was BCA’s best performance since 2002.

Orders have been strong too, with 868 received last year. While Airbus scored 1,139, a higher percentage of Boeing’s orders are for more expensive twin aisle jets, meaning a much closer ratio. Also, so far this year Boeing has brought in 107 orders, while Airbus’s net total is just 11. While BCA’s profitability declined last year to a 7.8% operating margin from 10.7% in 2014, much of this was due to an $885 million pre-tax charge on the troubled 747-8 program.  And of course these margins are considerably higher than Airbus’s.

Best of all, as Muilenburg noted, the company’s backlog is extremely robust – 5,758 jetliners. This, too, undercuts Conner’s notion of price pressure as a chronic problem. 

Aboulafia goes on to destroy BCA’s Conner’s argument about aircraft orders, noting that the company has a backlog of orders out at least 7.5 years, at today’s pricing.  And what does that mean?  Last year, Boeing Commercial had the best year it’s had since 2002 as far as making money.  Why would Boeing want to spook investors with talk of a price war, when there really isn’t one?  There’s normal competition, and BCA will need to innovate.  But what about the long-term damage to the organization, from deleting managerial staff, needed to help transition product lines?  Why is Conner doing this, cherry-picking facts to support what could be a layoff of 10% of company staff in the Seattle area?

And what about the long-term damage to Boeing’s reputation in Washington State, that has consistently ponied up tax cut after tax cut just to keep these jobs?  How do you get to be Dennis Muilenburg, the current Boeing CEO of such a large part of our global economy and have that failure of vision?  You can track his career here.  One might point to signs that someone like Muilenburg might be untethered from the civil aviation sector. His career path went up through the defense ranks. But there’s lots of global developmental overlap with coordination with Boeing global services and such that Muilenburg oversaw. If anything, this shows that relying on understanding the mind of one individual in such a large organization — even if that person is the CEO — is a flawed path toward predicting what the person would do.  When Muilenburg replaced Jim McNerney, whose past career path had led up not through making planes, but making Sticky Notes at 3M, many people I knew breathed a sigh of relief.  Finally — a CEO that knew how to build planes.

Yet the path that Harry Stonecipher, former McDonnell Douglas CEO started, and followers like McNerney kept the company on still continues.  And to understand that, one must look for different understandings.  We’ve been raised here in the U.S. that the leader and the money are everything — that Conner, McNerney, and Muilenburg all must be doing whatever it is that they’re doing to maximize the bottom line.  But what does it mean if they’re not, on any time scale?  Boeing is simply too large for anyone to consider as an acquisition target, so the notion of gutting 8000 jobs to make the company more desirable to sell doesn’t make sense.  And no one’s talking about breaking up the megalith and selling off parts, a la Carl Icahn. Even if it were possible, Boeing itself demonstrated, with the 787 program, what happens when you de-verticalize your production chain.  You end up with disaster after disaster that pushed the 787 launch back by 3 years.

The only way you can understand what’s going on is through looking at the underlying social structure of the transition Boeing underwent when Boeing and McDonnell Douglas, merged with a stock swap in 1997. Up to that point in time, Boeing had mostly made airliners, and McDonnell Douglas had made fighter aircraft — two very different kinds of aircraft.  As we’ve discussed before on this blog, commercial aircraft have to maximize validity of multiple modes (design through construction through operation) of the company in order to perform. It’s a complex systems coordination problem — getting a couple of million parts to fly through the air over Greenland, land in Amsterdam, take on a tank of Jet-A kerosene, and turn around and do it over again.  No commercial aircraft makes money on the ground, and everything throughout the life cycle of the plane is designed to keep that $200M investment in the air.  Something gravity is not fond of.

In order to pull that off, Boeing (or at least the commercial division) had to evolve socially. Though Boeing Commercial is largely a Legalistic/Performance-based hierarchy, intertwined as it is with the FAA, its people are connected and interact with people all over the world.  There’s hardly a country on the planet with a national airline that doesn’t have a couple of Boeing airplanes.  I have former students who work in aircraft delivery, and that involves ingratiating yourself in whatever culture so that when you get in the plane and drop it off in Dubai, you do the right thing.  It’s a big deal. Boeing has multiple unions — even ones for engineers — that empathetically scaffold that global outlook (in a union, the folks on the floor have no problem talking up, as well as sideways, because of job protections,) and it’s no surprise that such a social/relational structure, and level of empathetic development, would create a very different problem-solving mindset than a defense company.

How would an aerospace company primarily dedicated to defense function?  Military aircraft are fundamentally different in scope than commercial aircraft.  Instead of validity across a broad system of concerns, military aircraft have really only one — the ability to not get shot down while executing whatever their respective  mission is. Not surprisingly, military aircraft adopt new technology far earlier than commercial aircraft (check out this Nazi flying wing if you don’t believe that) and are often poorly scaffolded when it comes to things like maintainability and such.  Getting 1% greater performance often relies on relatively rigid design hierarchies with algorithmic design processes.  And while there are examples of independently generated relational dynamics in military aircraft (I write about the SR-71 Blackbird here), this is usually the exception, not the rule.  It’s Authoritarian power structures all the way.

What happens when  Global Communitarians (the old Boeing Company) and old-school Authoritarians (McDonnell Douglas) combine?  We’re all engineers that love planes, right?  Though I’d argue that it’s not always the way the cookie crumbles, it IS the way the cookie crumbled this time.  The Power and Control group got the upper hand.  McDonnell Douglas was the Alien inside the host, with its corporate culture seizing control of the Boeing Company.  With an Authoritarian v-Meme sub-culture at the top, and a healthy demand for aircraft in the global market, there’s not much the communitarians COULD do — even if cooperating and collaborating would make more money for Boeing.  Because it’s not about the money.  It’s about power and control.  The  Authoritarians would honestly feel is likely be embarrassed if they were wrong and Boeing made more money by being kinder to its workforce.  That would be a major v-Meme violation.

The reality is that Boeing Commercial Aircraft (BCA) only has one real competitor for the near future — Airbus — though other companies like Bombardier and Embraer are attempting to nip at their heels. That’s a low competition market.  And as long as BCA can do better than Airbus in the short term, that’s good enough. Boeing also has enough higher-order social structures, like its unions, laid in so that its planes are unlikely to start falling out of the sky any time soon, which would also drive change from external societal pressures.

And the other problem is that BCA’s culture is emergent — it wasn’t designed with forethought to keep planes in the air at all times. It evolved.  That means that without major reflective exercise, there’s an ability to have consistent failure of understanding in leadership about what makes Boeing work — and that’s this complex, emergent social structure.  It’s not even a thought that is out there very often. Though I’d be happy to be proven wrong, no one writes about the larger collective intelligence/social dynamics in aircraft manufacture except me.

What was the critical stroke in the entire equation that really sent the Boeing Company down its path to current misery, besides its merger with McDonnell Douglas?  I’d argue it was the decision to relocate corporate headquarters to Chicago in 2001. Relational distancing was even stated by then-CEO as the reason!  Before 2001, there was the deeply grounding effect of having the corporate offices across from Boeing Field, and the overlap should not be underestimated.  Executives simply couldn’t cloister themselves from the reality of aircraft design, production and delivery.  You would run into the whole mix of people who built those planes, and the complexity would ground the executive corps on a daily basis.  They would have to be exposed to what made the company work, whether they liked it or not.  No Synergistic Stooge Effect — or at least one dramatically attenuated.

And when you put Authoritarians in charge of a Global Communitarian company, essentially people with fragmented, status-based thinking style in charge of a bunch of interconnected folks making highly sophisticated systems, relational destruction AND depletion of social capital has to happen.  First was the decision made in 787 construction to globally outsource important core components, like the main fuselage to Alenia, that resulted in the various rivet and rivet hole fiascos.  Relocation of facilities to South Carolina, all in the name of making more money followed, of course — that’s the mental model that sells in the U.S. Following that was the long attack on the various unions with pension replacement and such — shortening the empathetic timeline of what used to be a big vision company.  Deletion and cannibalization of research efforts have followed — McNerney, when CEO, even proudly trumpeted this.  And the latest attack on managers, largely the cohort who possess the social capital to facilitate the large-scale transitions that will be needed as Boeing phases in new product lines, like the 737-Max, or the 777-X, are exemplars of the Authoritarian overmind working to assure its v-Memes spread throughout the operation.  Even if it’s not the way you develop or build complex, integrated systems that can’t fail.  Those managers are a threat to the Authoritarian mind — even if the Authoritarians are unaware of it.  They feel it in their bones — or in their impulsive limbic systems.

It’s also no surprise that this comes on the heels of sending Boeing Services south to Long Beach.  I’ve worked with the people in that organization, and if there were ever a bunch of data-driven global thinkers, it rested there.  They’re the folks in charge of making sure any plane stuck on the ground, no matter where, is back in the air as quickly as possible.  On my tour of the command facility, filled with news streams from global news organizations filled multiple screens overhead.  It turns out the folks in Seattle were more likely to learn of an emergent problem by watching CNN than waiting for a phone call.  How’s that for pragmatic, data-driven decision making?

But the v-Memes said they had to go.  And so they went.

The problem with all of this relational disruption, which should deeply concern our national government, as well as investors, is they can’t keep this up and expect to make money, or innovative aircraft, over the long haul.

But that’s really a minor problem compared to the Big Enchilada.  The commercial aerospace industry has to innovate, or they’re going to destroy the planet. The number of passengers will double, according to the FAA, and that additional CO2 load has to be managed.  That will not happen without breakthrough innovation social organizations.  And the creativity to drive that innovation is going to depend more than ever on empathetic development.  I’ve had conversations with industry leaders, and they’ll all tell you they’re deeply worried.  Because that complex relational development/higher responsibility/empathetic connection thing really is true.

There are no easy answers here.  Boeing and Airbus are both large, transnational corporations — one through emergent dynamics, and the other through contracted agreement and design. As a transnational actor, Boeing has demonstrated over and over an impunity toward acting in good faith toward anyone at the state government level or below.  And even the federal government hasn’t done such a great job — the pervasive corrupting, influence of corporate money in politics in general, and defense contracts in particular, keeps getting demonstrated time and again.

But even though answers aren’t easy, they’re something that have to be sought, especially in the light of understanding how manufacturing, hooked with production, creates the larger empathetic mind.  Offshoring manufacturing, as we are realizing a bit too late in the U.S., besides creating economic dislocation, also disrupts the larger social/relational structures that manufacturing creates.  In any manufacturing operation, independent egalitarian relationships have to thrive, if only because of the Deming revolution that inverted the hierarchy of production and gave the individual on the shop floor the ability to stop the line when production went bad. That creates an information sharing culture that fuels empathy.  And those effects are felt far away from the source.  Donald Trump, anyone?  If there’s any solution for Boeing, though highly unlikely, it involves moving corporate back out of the boardroom and to proximity with manufacturing.  Marveling over the complexity of building commercial aircraft, as well as talking to the lunch bucket crowd, is good for the executive soul.  And we’ve got to hope it also rewires their brains.

Further reading:  One of my favorite Howard Kunstler books is ‘Home from Nowhere’, where he discusses the effects of built architecture on community development.  He makes a persuasive case that our current restrictive zoning, that disallows adjacency between the lower and upper classes, is a huge part of our collective empathy deficit in the U.S.

Others in the aircraft/airline industry also have concerns and recommend customer focus and empathy.  Read here for another two analysts’ perspective.