Hello?-logoFeb. 20, 2013

BY SOLVEIG TORVIK

“The Dreamliner was supposed to become famous for its revolutionary design. Instead, it’s become an object lesson in how not to build an airplane.”

 – James Surowiecki, The New Yorker

Hate government regulation? Love outsourcing jobs? Boeing’s Dreamliner is the airplane for you.

This aircraft’s the hottest thing in aviation. It’s built of carbon-fiber composites, not aluminum, so it’s lighter. It uses 20 percent less fuel, thus it’s cheaper to operate and more environmentally friendly. It has large windows and high ceilings. What’s not to like?

This: the brakes, pressurization and air-conditioning are powered by lithium-ion batteries. This type of battery is notorious for overheating and catching fire. Despite Boeing’s assurances that a battery failure would occur less than once in every 10 million flight hours, two already have caught fire with fewer than 100,000 flight hours. So all 50 Dreamliners are grounded until further notice.

This fiasco has made Boeing’s Dreamliner a textbook case study of business failure. But Boeing didn’t get there alone. It had enablers, chiefly the Federal Aviation Administration, whose two-pronged, conflicted mission never has made any sense: promote commercial aviation while ensuring airline safety.

The FAA came down on the side of commercial aviation rather than safety in 2005 when it let Boeing in effect “self-certify” that its products meet FAA safety criteria. Airline passengers may harbor comforting visions of picky government regulators hovering over aircraft engineers and designers. Forgetaboutit.

Boeing engineers, not FAA inspectors, vouched for the safety of the Dreamliner’s batteries, the Seattle Times reported. The FAA has given Boeing in-house oversight authority for safety of planes in production as well as approval of major repairs and alterations.

Why, pray, are foxes designing the henhouse? Hello?

The National Transportation Safety Board chastised the FAA and Boeing for failing to uncover the battery hazards during the certification process and told them that the “assumptions used to certify the battery must be reconsidered.” Alas, the NTSB issues recommendations, not orders.

Boeing isn’t telling how many battery tests it conducted, but reportedly FAA inspectors watched some of them. The difficulty is that they seem to have settled for watching when we pay them to act.

The FAA’s decision to “contain a failure, not eliminate it,” doesn’t sit well with Mary Schiavo, either. The hard-nosed former inspector general for the Transportation Department says that rather than require Boeing to focus on eliminating the likelihood of fires, the FAA designed regulations meant to contain any fires that happen to start in batteries. “This regulation predicted that this would happen,” she argues.

The FAA has always relied on third-party engineers to ensure aircraft are built according to its regulations, but those engineers reported directly to the FAA. Now Boeing picks its own engineers to sign off on its work on behalf of the FAA, which has settled for the lame role of data recording and other administrative functions.

The FAA also allowed Boeing more than three dozen deviations from existing safety requirements for the 787’s composite plastics frame, the flammability of its fuel tank and for its auxiliary power units. Not a confidence builder, guys.

The back story of how the Dreamliner morphed into a nightmare began in 1997, when Boeing merged with McDonnell Douglas, according to an account by James Surowiecki in The New Yorker. Technically, Boeing bought McDonnell Douglas, but industry analyst Richard Aboulafia told Surowiecki: “McDonnell Douglas in effect acquired Boeing with Boeing’s money.” The McDonnell Douglas executives absorbed into Boeing brought their risk-averse, cost-cutting culture with them and a “battle royal” ensued over the company’s future, according to this account.

The upshot was that to get the Dreamliner built, its advocates had to resort to cheaper and quicker ways to do it, and that meant outsourcing not just the usual parts manufacturing but the design, engineering and manufacture of the plane to 50 companies. In this misbegotten arrangement, Boeing lost control of the project, and seemingly product safety, to its suppliers. Boeing built less than 40 percent of the plane, with final assembly in Everett and South Carolina.

Three years later, the Dreamliner went billions of dollars over budget. “We spent a lot more money in trying to recover than we ever would have spent if we’d tried to keep the key technologies closer to home” admitted Boeing’s Jim Albaugh, who took over the troubled program in 2009.

In its haste to have the planes in the pipeline ready for eager customers – more than 800 Dreamliners have been ordered – Boeing even kept building them without having obtained the FAA’s certification that the aircraft was airworthy. The company then had to retrofit the planes to meet FAA requirements before the aircraft could get off the ground. “If the saying is check twice and build once, this was more like build twice and check once,” says Aboulafia.

The Dreamliner was sabotaged not only by lax government safety regulation but also by Boeing’s supposedly independent board of directors, which is headed by The Boeing Company’s Chief Executive James McNerney, who’s paid more than $13 million a year. The botched Dreamliner project never seems to have spurred the board to get a grip on the unfolding crisis and certainly did not inspire them to reduce McNeary’s salary, as Seattle Times business/technology columnist Jon Talton has noted. Yet they’re accountable for overseeing management and protecting the interests of shareholders and the viability of the company.

“Boeing has poor corporate governance, most notably a board that repeatedly approves an executive compensation plan that fails to impose meaningful consequences for failure to perform,” Nell Minow of GMI Ratings told Talton.

“Boeing is in a business where the margin of error is small,” Surowiecki rightly observed. “It shouldn’t have chosen a business model where the chance of making a serious mistake was so large.”

 

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