The reputation and cultural challenges facing Boeing

What was once a giant of the skies is today seen as an example of how to avoid running a company. Boeing needs to redesign its culture and deliver.

Here is an example of a failed management culture that focused blindly on shareholder value to the extent that design, innovation, and even safety have been compromised.

The 2019 tragedies involving the 737 Max raised serious questions about Boeing's commitment to safety, its design processes, and the initial certification of the 737 Max,

In January this year, the near tragedy of the Alaska Air flight, which lost a door-shaped panel mid-air, confirmed that for all the words and the strong PR and stakeholder engagement that was leveraged after the tragedies years back, nothing has changed.

One CEO left, and another one took over. Words were shared, but actions still need to be improved, impacting its reputation amongst multiple stakeholders.

So, let’s look at the issues and see what the airline can do to repair its crumbling reputation.

Safety Concerns

The two fatal crashes involving the 737 Max in Indonesia in 2018 and Ethiopia in 2019 led to the worldwide grounding of the aircraft.

Management worked hard to reassure airlines, regulators and passengers. But even its communications and engagement strategy, which former CEO Dennis Muilenburg deployed then, could have been better.

Boeing rolled out software updates and training enhancements for the 737 Max, hoping to help repair confidence in this aircraft. All this appeared to be paying off until the recent issue with Alaska Airlines, where the failure to install bolts to keep a door-shaped panel in place correctly highlighted more significant problems within the company.

Regulatory Scrutiny

The incidents from 2018/19 brought intense scrutiny from aviation regulators globally. The Federal Aviation Administration (FAA) in the United States and other international regulatory bodies undertook extensive reviews of the 737 Max, leading to significant delays in recertification.

The FAA, which initially certified the 737 MAX, came under fire for its oversight and relationship with Boeing. Investigations suggested that the FAA had delegated too much authority to Boeing for the certification process. This led to a re-evaluation of the certification process and increased oversight.

Meanwhile, the European Union Aviation Safety Agency (EASA) independently reviewed the 737 MAX before allowing it to return to European service. It marked a departure from generally following the FAA's lead and indicating a shift towards more autonomous regulatory action within the European Union.

Aviation regulators in countries like China, Canada, Brazil, and others also assessed the 737 MAX and Boeing's proposed fixes. This global response indicated a growing trend where national regulatory bodies assert more independence in aviation safety standards today.

Corporate Governance and Leadership Accountability

The recent crisis and comments about the culture within Boeing raised further concerns about the company’s internal governance and whether it had the management in place to make changes to deliver confidence to its various stakeholders.

Criticism was directed at Boeing's past and current leadership, including CEO Dave Calhoun, for handling the issues and the perceived initial lack of transparency. This has led to calls for improved oversight and changes in leadership approach.

With Boeing competing with Airbus, questions are being asked about the culture at the top of the company and if their priority was shareholder value and growth, leading them to cut investment in areas that impacted aircraft delivery.

Equally, in 2022, Boeing reported spending $2.6 billion on research and development. This was down from $3.4 billion spent in 2021. This is less than what the €3.49 ($3.78 billion) billion Airbus invested in the same year.

Boeing's level of investment is less than Airbus’s, partly due to the repercussions of the 737 Max tragedies and their impact on its order book. Yet, even taking that into account, Airbus is committed to elevating R&D spending in coming years to maintain its competitive edge, meet climate goals, and develop next-generation technologies in aerospace.

Financial Impact

Boeing suffered financially due to the grounding of the 737 Max, with costs running into billions of dollars due to compensation claims from airlines and suppliers, production halts, and delayed deliveries.

It’s worth pointing out that Boeing's stock is primarily owned by institutional shareholders, with major investment groups holding a significant portion of shares. As of late 2023 and early 2024, the top institutional shareholders include Vanguard Group Inc., BlackRock Inc., Newport Trust Company LLC, State Street Corp, FMR LLC, Capital World Investors, and Capital Research Global Investors. These organisations hold substantial stakes, ranging from around 1.7% to 7.87% of Boeing's shares.

In addition to these institutional investors, a smaller percentage of the stock is held by insiders within the company, and retail investors own a considerable portion. This diversified ownership structure is typical for large publicly traded companies like Boeing.

The issues from 2018/19 and now 2023/24 are affecting its order book, with many US and international airlines rethinking their orders or looking to renegotiate the existing relationship. Even United Airlines has cast doubt on the 737 Max 10 order after Boeing’s recent problems.

Customer and Stakeholder Trust

Restoring trust with airlines, passengers, and other stakeholders has been a major challenge. As Boeing's direct customers, airlines have had to manage disruptions and reassure their passengers about safety.

The reputational damage that Boeing is experiencing is not exclusive to themselves. Research from Morning Consult amongst US passengers highlights that trust amongst passengers has been hit, which, in return, impacts airlines that fly this and other Boeing aircraft. The analysis of this was featured on CNBC, highlighting the huge and bringing carriers into the mix.

Currently, 11 airlines operate the Boeing 737 Max 9s: Aeromexico, Air Tanzania, Alaska Airlines, Copa Airlines, Corendon Dutch Airlines, Flydubai, Icelandair, Lion Air, SCAT Airlines, Turkish Airlines and United Airlines.

Market Competition

The 737 Max crisis coincided with increased competition from other aircraft manufacturers, notably Airbus. This has put additional pressure on Boeing to resolve the 737 Max issues and maintain its market position.

Reputational Recovery Efforts

Under Calhoun’s leadership, Boeing has undertaken efforts to rebuild its reputation, focusing on transparency, safety improvements, and engaging with regulators, customers, and the public. This includes rigorous testing, software updates, and training enhancements for the 737 Max.

For Boeing, Dave Calhoun and his senior team, navigating these challenges requires a strategic approach that prioritises safety, transparency, and effective stakeholder communication.

The long-term impact on Boeing's reputation hinges on its ability to effectively address these issues and prevent future incidents. Above anything, the culture and the corporate focus need to be addressed.

However, the leadership needs to engage with stakeholders, not just those external to the organisation.

The firm has a lack of vision and focus. With a potential culture that focuses on delivering short-term returns to shareholders, conversations must be had with these stakeholders so that they can be aware of the transformational work needed to regain the trust of regulators, airlines and passengers. Because trust in Boeing is what helps Airlines operate.

Boeing is a great airline that, sadly, is lacking vision and focus. People need to trust the aircraft, the company, and everyone involved in the manufacturing and supply chain.

Strategic counsel can deliver trust, but after the recent issues, repairing Boeing's reputation will take time, a strategic refocus and investment.