McBoeing, 787′s insidious impact overwhelm product strategy
McBoeing is alive and well in Seattle.
“McBoeing” is the derisive moniker given the combined Boeing-McDonnell Douglas merger of 1997 in which legacy Boeing personnel say MDC bought Boeing with Boeing’s money. Key positions in Boeing’s C-level suite were assumed by McDonnell Douglas officers despite the weak market position MDC had reached–just 7% of the commercial airplane business and a declining defense side.
In what turned out to be the most notorious placements, MDC’s CEO Harry Stonecipher became Boeing’s COO and widely was perceived to overwhelm a weak Phil Condit, Boeing’s CEO. Mike Sears, later of KC-767-Darleen Drunyan tanker infamy, moved from MDC to become Boeing’s CFO.
John McDonnell and Stonecipher, the largest shareholders in Boeing after the merger, went on the Board of Directors and formed a powerhouse team. They and directors allied with them dominated the Board.
It was this MDC-dominated leadership and Board that sent Boeing into a downward spiral. MDC starved Douglas Aircraft for R&D money and relied on derivatives. During the period 1998-2003, Boeing’s R&D fell precipitously, drawing scathing criticism from the normally pro-Boeing consultant, Richard Aboulafia of The Teal Group. Boeing offered derivatives of in the form of the 737-900 (not today’s more successful ER), 757-300 and 767-400, all sales duds. Boeing talked and talked and talked about new airplanes but had no action. It talked about three different derivatives of the 747 and the fanciful Sonic Cruiser.
By the time the end of 2003 rolled around, serious analysts were questioning whether Boeing would withdraw from the commercial airplane business.
Then the 7E7 was given the Authority to Offer in December 2003. By this time, the weak Condit was gone, done in with Mike Sears in the tanker scandal. Stonecipher had become CEO and proudly launched the 7E7, later renamed the 787. But Stonecipher and the MDC-dominated Board demanded of Alan Mulally a new scheme as a condition of the 7E7 launch: a global production system to lower the financial risk to Boeing.
An April 2003 article in the Wall Street Journal by then-aerospace reporter Lynn Lunsford detailed the debate within the Board. Although today Boeing says the global outsourcing was necessary for strategic reasons to accommodate a changing global market and win sales, the debate then was all about financial risk. The MDC-dominated Board wanted Boeing to spend no more than $5bn on development of the 7E7, according to the article.
The irony, according to the article, is that one Board member worried that too much emphasis was being placed on cost savings and that Airbus would be able to benefit as a result. The name of this Board member: Jim McNerney.
The rest of the 787 story is well known. Less well known is the insidious effect the 787 development problems had on Boeing’s product strategy. We’ve written about this on a couple of occasions over the years but now is a timely reminder.
As our partners at AirInsight recently pointed out, Boeing originally planned to introduce a “new small airplane” next year–in 2012, on the assumption the 787 entered service in May 2008 as scheduled. A CFM power point document from 2006 obtained by AirInsight had the timeline, providing definitive proof of what we had been told years ago: the plan was to do the 787, follow it up with the 737 replacement and move on to a replacement for the 777.
This would have been a timeline Airbus would have been unlikely to match and would have sealed Boeing’s dominance in commercial aviation for decades to come.
But, having insisted on global outsourcing to spread the financial risk, and then fouling up the 787 program so badly, Boeing’s entire product development program of leadership has been reduced to being driven by Airbus’ A320neo family (which in turn was driven by Bombardier’s CSeries).
This is the legacy of McBoeing and Harry Stonecipher, and Boeing was reduced to a me-too response to the NEO.
Dominic Gates has this story that sums up Wall Street’s reaction.