what the next CEO needs to do to ensure quality and turn things around :: InvestMacro

By Bart MacCarthy, University of Nottingham 

The woes of Boeing show no sign of abating. CEO Dave Calhoun has announced he will step down at the end of the year. Board chair, Larry Kellner and the firm’s head of commercial planes, Stan Deal, are also quitting the aviation giant.

This follows an array of technical failures with Boeing aircraft, including the mid-air blowout of a door plug on an Alaska Airlines Boeing 737 Max 9 in January. It was recently confirmed that the manufacturer has paid US$160 million (£127 million) to the airline in compensation.

The diversity of issues indicates systemic failures in the management of quality in Boeing and its supply base. The Alaska Airlines incident represented a quality tipping point – the point at which fundamental changes in Boeing’s management of quality became imperative and unavoidable.

There were no serious injuries in the Alaska Airlines blowout incident – unlike the two crashes of Boeing’s 737 Max in 2018 and 2019, which killed a total of 346 people. But the aircraft was forced to make an emergency landing.

Among previous failures in design, manufacture and assembly were problems with an automated stabilising system on a new Southwest Airlines Boeing 737 Max in February 2023; a mid-air engine failure on a United 737 Max in November 2023; and Boeing having to ask all operators of the 737-Max a few weeks later to examine installation of a rudder following a loose bolt being reported on one aircraft.

In recent days a Southwest Airlines Boeing 737-800 needed to do an emergency landing shortly after takeoff from Denver because an engine cover came off. The blame here appears to lie with either the engine manufacturers or the airline rather than Boeing.

But the January failure has had severe, if not existential, consequences for Boeing. It has affected the company’s share price, harmed its competitive position with Airbus, and put the firm under intense scrutiny by media, regulators and airlines. Passengers are publicly wondering whether they should avoid flying on a 737 (or indeed any Boeing aircraft), while major airlines including Ryanair and United Airlines are facing uncertainty from delayed aircraft orders that were supposed to be due in time for summer.

The problem for Ryanair

The civil aircraft market in Europe is effectively a duopoly between Airbus and Boeing. For airlines, the costs of switching to another manufacturer are high and lead times from order to delivery are long. As such, there is mutual lock-in in the relationship between Boeing and Ryanair, one of the manufacturer’s largest customers.

Ryanair uses the 737 class across its extensive European fleet. This strategy brings many benefits in the lean business model Ryanair favours: operational flexibility, reduced maintenance costs and faster airport turnarounds. It gives Ryanair substantial leverage with Boeing, though as in many buyer-supplier relationships, there is strong interdependence.

Ryanair’s very vocal CEO, Michael O’Leary, has been outspoken in reporting increased quality issues in the airline’s inspections of Boeing aircraft delivered since the pandemic, including finding spanners under floor panels and missing seat handles. He has still expressed confidence in Boeing, but says it has to get quality right in future.

Reliable aircraft supply from Boeing is critical for Ryanair to take advantage of a resurgent post-pandemic passenger market. Delays to the 737 Max were already hampering Ryanair’s growth, to the extent that the airline offered back in January to take aircraft cancelled by other airlines. O’Leary warned in February that passengers could see a 10% hike in fares in 2024 due to gaps in the Ryanair fleet. Meanwhile, Chicago-based United Airlines has also reportedly asked pilots to take unpaid leave because of delayed aircraft deliveries from Boeing.

So why might ensuring quality be so challenging for an industrial giant such as Boeing?

Ensuring quality

A commercial aircraft is massively complex, with almost infinite potential for variations in component parts. Boeing has the resources and capabilities to tackle these issues. But the reported issue with the January blowout of missing bolts points to a basic quality failure that should never have occurred in a quality-focused organisation.

Many techniques can be deployed to improve quality in manufacturing and assembly operations. For instance, a well proven and commonly used approach is known as “six sigma”. This statistics-based methodology provides a set of steps to identify, investigate and resolve sources of variation to ensure a product or process conforms to specification. It strives for almost zero defects and can be applied with contemporary data science methods to identify root causes, target improvements, and ensure such an issue never recurs.

But viewing quality as just a set of technical, statistical problems misses the major challenges confronting Boeing. As statistician and pioneering business theorist W Edwards Deming argued, quality management has behavioural, organisational and cultural dimensions. Deming laid the responsibility for quality squarely in the hands of top management.

Reported issues in Boeing’s assembly operations include failure to follow procedures, workarounds and inexperienced staff recruited post-pandemic. Flaws in fuselages delivered from a major supplier were tolerated, to be corrected later, in order to maintain a production schedule. This all speaks to deep-seated organisational and cultural issues at Boeing.

Targeted improvement initiatives will help, but are not a panacea. Instilling a culture of quality excellence will need root-and-branch rethinking across the organisation and its massively complex supply base.

Crucially, Boeing needs to ensure that quality procedures are followed every time. In line with one of Deming’s key principles, this will require transformational quality leadership across the organisation, starting from the very top.

Organisations, whether product or service-based, ignore persistent quality issues at their peril. As Boeing demonstrates, if not addressed, they can have severe impacts at every level of an organisation.

---

A Boeing spokesperson said:

We are squarely focused on implementing changes to strengthen quality across our production system and taking the necessary time to deliver high quality airplanes that meet all regulatory requirements. We continue to stay in close contact with our customers about these issues and our actions to address them.

 

About the Author:

Bart MacCarthy, Professor of Operations Management, University of Nottingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.