How Boeing fell apart.

quote:

---

For the bulk of the 20th century, Boeing made miracles. Its engineers designed the B-52 in a weekend, bet the company on the 707, and built the 747 despite deep observer skepticism. The 737 started coming off the assembly line in 1967, and it was such a good design it was still the company’s top moneymaker thirty years later.

How did Boeing make miracles in civilian aircraft? In short, the the civilian engineers were in charge. And it fell apart because the company, due to a merger, killed its engineering-first culture.

In 1993, Clinton’s Deputy Secretary of Defense, Bill Perry, called defense contractor CEOs to a dinner, nicknamed “the last supper.” He told them to merge with each other so as, in the classic excuse used by monopolists, to find efficiencies in their businesses. The rationale was that post-Cold War era military spending reductions demanded a leaner defense base. In reality, Perry had been a long-time mergers and acquisitions investment banker working with industry ally Norm Augustine, the eventual CEO of Lockheed Martin.

Perry was so aggressive about encouraging mergers that he put together an accounting scheme to have the Pentagon itself pay merger costs, which resulted in a bevy of consolidation among contractors and subcontractors. In 1997, Boeing, with both a commercial and military division, ended up buying McDonnell Douglas, a major aerospace company and competitor. With this purchase, the airline market radically consolidated....

Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a “reverse takeover.” The joke in Seattle was, "McDonnell Douglas bought Boeing with Boeing's money."

The merger sparked a war between the engineers and the bean-counters; as one analyst put it, "Some of the board of directors would rather have spent money on a walk-in humidor for shareholders than on a new plane."...

The key corporate protection that had protected Boeing engineering culture was a wall inside the company between the civilian division and military divisions. This wall was designed to prevent the military procurement process from corrupting civilian aviation. As aerospace engineers Pierre Sprey and Chuck Spinney noted, military procurement and engineering created a corrupt design process, with unnecessary complexity, poor safety standards, “wishful thinking projections” on performance, and so forth. Military contractors subcontract based on political concerns, not engineering ones....

At any rate, when McDonnell Douglas took over Boeing, the military procurement guys took over aerospace production and design. The company began a radical outsourcing campaign, done for political purposes. In defense production, subcontractors were chosen to influence specific Senators and Congressmen; in civilian production, Boeing started moving production to different countries in return for airline purchases from the national airlines.

Engineers immediately recognized this offshoring as a disaster in the making. In 2001, a senior Boeing engineer named L. Hart Smith published a paper criticizing the business strategy behind offshoring production, noting that vital engineering tasks were being done in ways that seemed less costly but would end up destroying the company. He was quickly proved right.

---