The 737 has been in airline service since 1968. Thirteen years ago, Boeing was predicting that they would develop an all-new replacement:
Boeing's next big project will be to come up with a replacement for the 737; the new plane is expected to draw on Dreamliner technology.Instead, after struggling to deliver the 787, Boeing proceeded to bet the company again by deciding in 2011 to delay the all-new 737 replacement until the 2030s, and announced yet another stretch on the then 47-year-old 737, the 737 MAX. At the time it probably wasn't obvious that this was a "bet the company" decision.
On September 24th 2011 the Seattle Times's Dominic Gates reported that Boeing celebrates 787 delivery as program’s costs top $32 billion:
Boeing is set to deliver the first 787 Dreamliner to All Nippon Airways (ANA) of Japan on Sunday in Everett, but it’s far from the end of the journey for a jet that has reshaped the company.Last Wednesday, Chris Isidore reported that Boeing says it might have to shut down 737 Max production:
To reach this milestone, the company has spent a staggering amount: A conservative estimate by The Seattle Times puts Boeing’s total investment on the program so far at more than $32 billion.
That massive sum, half spent on development costs and half on manufacturing the jets already built, means profitability for the plane won’t come before well into the 2020s — if ever.
Boeing CEO Dennis Muilenburg warned investors Wednesday that the company might need to further slow or temporarily halt its 737 Max production.Fixing the software may not solve the problem. Even if and when the plane is re-certified it is likely that pilots will need to be re-trained to fly it, costing Boeing $1M/plane for Southwest alone. But the reason the software fix is taking forever is explained in Peter Robison's Boeing's 737 Max Software Outsourced to $9-an-Hour Engineers:
Boeing has continued to build the 737 Max, its bestselling jet, although at a slower pace. The plane has been grounded since mid-March because of two fatal crashes that killed more than 300 people. Boeing hopes to get approval for the plane to fly again sometime early in the fourth quarter. Muilenburg said any further delays in approval to fly the 737 Max again could jeopardize its production. A further slowdown or temporary shutdown of 737 Max production is "not something we want to do, but an alternative that we have to prepare for," Muilenburg told investors on a conference call. He said the company needs to prepare for that "to make sure we've covered all scenarios."
It is unclear when the 737 Max will be allowed to return to service. Boeing is working on a software fix to a safety system which is believed to have caused the two crashes. But it says it won't be able to present that fix to aviation authorities until September at the earliest, and it hopes to have a certification flight in October.
Increasingly, the iconic American planemaker and its subcontractors have relied on temporary workers making as little as $9 an hour to develop and test software, often from countries lacking a deep background in aerospace -- notably India.Boeing's cost-cutting means it lacks the necessary in-house software expertise to develop and QA the fix.
Rabin, the former software engineer, recalled one manager saying at an all-hands meeting that Boeing didn’t need senior engineers because its products were mature. “I was shocked that in a room full of a couple hundred mostly senior engineers we were being told that we weren’t needed,” said Rabin, who was laid off in 2015.
The same day in I Got it, Nothing Matters. Tesla, Boeing, Other Stocks: It’s Like the Whole Market Has Gone Nuts , Wolf Richter reported that:
Suppose instead of buying back stock, Boeing had invested in its future. Even assuming an entirely new replacement for the 737 series was as expensive as the 787 (the first of a new airframe technology), they could have delivered the first 737 replacement ($32B), and be almost 70% through developing another entirely new airframe ($11B/$16B). But executive bonuses and stock options mattered more than the future of the company's cash cow product. Instead:
Instead of spending the resources necessary to design a modern plane from ground up, Boeing kept basing its new models on versions of its many-decades-old 737 airframe that wasn’t designed at all for what it is being used for today. This was a decision Boeing made to save some money and pump up its share price.
But here we go: From 2013 through Q1 2019, Boeing has blown a mind-boggling $43 billion on share buybacks
Blowing these $43 billion on share buybacks has caused Boeing to have a “total equity” of a negative $5 billion. In other words, it has $5 billion more in liabilities than in assets. This company is out of wriggle room. If it can’t borrow enough money to make payroll, it’s over.Short-termism is a cancer that is eating US corporations, but the guys who took the decisions will suffer no consequences for killing the company, they'll retire rich.