Will Boeing soar again? Navigating a corporate recovery process
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Will Boeing soar again? Navigating a
corporate recovery process
James Welch
ith two major air disasters in the space of five months, crashes which resulted in James Welch is based at
W the deaths of 346 people, 2018 and 2019 were particularly bad years for
commercial aviation and, especially for, Boeing. Since then, Boeing, as the
the Department of
Management, University of
Tampa, Tampa, Florida,
manufacturer of the 737 Max aircraft involved in both of these disasters, has had to deal
USA.
with intense public and governmental scrutiny, resulting in the world-wide grounding of the
737 Max aircraft, with the first grounding coming within days of the second crash. After the
initial grounding by Ethiopian Airlines, other airlines and national regulators followed suit
and the entire 737 Max fleet was soon taken out of service around the world.
In 2020, the bad for Boeing became worse. Just a month into 2020, the spread of Covid-19
began to ground flights around the world, and the commercial aircraft manufacturing
industry was one of the early and most significant business casualties. Both Boeing and
Airbus saw their core businesses come to a halt overnight, and the companies suffered an
unprecedented loss of equity values, as Airbus dropped over 60% in value and Boeing
dropped over 70% at their respective lows on March 20, 2020.
Although the Covid-19 spread was certainly a black swan event, Boeing had already
inflicted a great deal of damage upon its business and reputation because of the 737 Max.
When reports indicated that Boeing had been well aware of the flaws inherent in the new
automated flight control system used in the 737 Max aircraft, the Maneuvering
Characteristics Augmentation System, regulators around the world began investigations
into the aircraft design and into the oversight of safety concerns with the 737 Max. The
damage to Boeing’s safety record and reputation because of these two air disasters was
heightened by the company’s slow response in addressing its own failings in overseeing
safety questions regarding the plane. Therefore, it is no wonder that now, well into 2020,
Boeing continues to be plagued by a public relations nightmare in large part because of the
company’s negligent handling of the aftermath. After over a year and a half dealing with the
public relations crisis, Boeing finally parted ways with CEO Dennis Muilenburg in December
2019. While some analysts said that the move was too little and too late (Bennett, 2019), at
least the company has finally recognized the true significance of the problem and began
the journey toward corporate recovery.
While Boeing faces a more drastic situation than previous corporate recoveries, considering
the death toll involved in the 2018 and 2019 crashes along with the grounding of most
global air travel because of the Covid-19 outbreak thus far in 2020, other companies have
been able to work through their own crisis moments. In recent years, Carnival, Papa John’s
and Volkswagen have all experienced very public credibility implosions. For Carnival Cruise
Line, it was the bungling of its public relations response following the infamous “poop
cruise” in 2015, when fire knocked out the ship’s power and toilets did not work for four
days. For Papa John’s, it was the long and drawn out battle with founder and former
DOI 10.1108/JBS-04-2020-0087 © Emerald Publishing Limited, ISSN 0275-6668 j JOURNAL OF BUSINESS STRATEGY j“The damage to Boeing’s safety record and reputation due to
these two air disasters was heightened by the company’s
slow response in addressing its own failings in overseeing
safety questions regarding the plane.”
CEO John Schnatter, following the public revelation that Schnatter had used racist
language during a corporate conference call. For Volkswagen, it was the organized and
involved emissions scandal which saw a company-wide effort to cheat emissions
standards. Volkswagen managed to turn its situation around quite rapidly and continues to
move well beyond its difficulties today, despite the more recent drop in sales due to the
current global health crisis. Carnival Cruise Line initially recovered to have some very
successful post-crisis years from 2016 through 2019, even though now the company is
fighting for survival because of Covid-19. After initially slow progress, the Papa John’s
recovery seems to be moving forward during the current global health crisis, as more
people have stayed home, and delivery pizza chains such as Papa John’s have fared well.
Four-step model for corporate recovery
When examining the recoveries of Volkswagen, Carnival and Papa John’s, we observe four
strategic elements that helped bring about the corporate turnarounds. To move beyond
reputational nightmare and regain market share, each company embarked on a four-step
process: replace, restructure, redevelop and rebrand. These companies achieved an
unprecedented turnaround by following a specific recovery model of replacing their
leadership, restructuring the organization, redeveloping the strategy and rebranding the
product. Implementing these four strategies helped these companies not only survive their
scandals but also pave the way to move forward and away from the reputational harm
(Welch, 2019).
While both Volkswagen and Carnival navigated successful journeys rather quickly through
the process of reputational recovery, other firms have faced reputational complications
which prolonged the recovery process. For Papa John’s, it took a while to push through the
recovery. Though the company made several strong strategic moves by pushing founder
and CEO John Schnatter to resign and bringing on Shaquille O’Neal as its first African-
American board member and corporate spokesperson (Bailey-Millado, 2019), the ongoing
connection to the founder and the related problems dealing with the legacy of the corporate
culture were difficult to overcome . Only this most recent global health crisis has seemed to
drive the pizza delivery company further away from corporate scandal, as more people
seek eat-at-home options.
While a pandemic may be good for the pizza delivery business, it is disastrous for the
aviation industry. Owing to the nature of and the risk involved in air travel, there are
significant complications with any potential Boeing recovery. While Boeing has only begun
to apply the four-step model, there are some continued concerns regarding a full
reputational and performance recovery, given the reputational damage and the ongoing
impact of the 737 Max aircraft grounding, as well as the Covid-19 pandemic. As financial
claims continue to mount (Reed, 2020) and damaging information continues to emerge
(Kitroeff, 2020), the company remains a long way from financial and reputational recovery.
In addition, as a necessary response to the Covid-19 situation, the company halted its
Washington state manufacturing operations in March 2020, as the first shelter-in-place
orders in the USA were enacted. Soon after, Boeing halted manufacturing in South Carolina.
The complete shutdown of operations and the 737 Max self-made crisis represent
j JOURNAL OF BUSINESS STRATEGY jhistorically unprecedented obstacles for Boeing to overcome and it will likely take several
years before the company’s survival is assured.
Replacement of leadership
Replacement of leadership, the first step toward corporate recovery, involves a change in
leadership at the highest levels of the company, and for Boeing, this represented a difficult
process. Initially, Boeing CEO Muilenburg refused any suggestions that he resigned and
insisted that the 737 Max would fly again soon, and that the corporate crisis would quickly
be resolved. For months, Muilenburg was able to hold on because of his continued
reassurance that the company would be able to maneuver through the regulatory
procedures swiftly, and that the 737 Max would fly again within a limited time frame. When it
finally became clear to the board of directors that the regulatory approval for the 737 Max
was going to take a lot longer than Muilenburg indicated, the embattled CEO finally
resigned in December 2019 (Tangel, 2020).
The company wasted no time in filling the senior vacancy following Muilenburg’s
resignation. The replacement, CEO Dennis Calhoun, a former member of the Boeing board
of directors, was familiar with the company and also brought executive experience from his
previous service as a senior managing director at the Blackstone Group, as former CEO of
Nielsen Holdings and in executive positions at General Electric. Calhoun was well-known for
his record in crisis management and “plain-spoken communication style that could help win
over key constituencies after overly optimistic messaging stumbles by his predecessor”
(McGregor, 2020). While some analysts thought that the choice was a little too close to
home, and that the company should have brought in an outsider, there are also good
arguments for bringing on a CEO with inside knowledge into the workings of the company.
Considering that Boeing is the largest aircraft manufacturer in the world, an executive with
internal experience with the company provides some level of continuity.
Expanding this first step of the recovery process, replacement of corporate leadership,
should also include other executive levels to move away from the previous regime that
allowed the crisis to occur in the first place. The new CEO has indicated that replacement of
key leadership positions at Boeing will continue into 2020, but it remains to be seen how
Calhoun will implement any specific corporate executive changes (Kitroeff and Gales,
2020). Further changes in executive leadership may be potentially revealed during the
second step of the process, the process of restructuring.
Restructuring
For the second step of the process, the new CEO must lead the company through a
restructuring process. For companies, such as Volkswagen, that have successfully
navigated through corporate crisis, the restructuring process can help move the company
away from scandal and into a new corporate organization. When Volkswagen began its
recovery process, the new CEO restructured the executive and divisional levels of
“Initially, Boeing CEO Muilenburg refused any suggestions
that he resign and insisted that the 737 Max would fly
again soon and the corporate crisis would quickly be
resolved.”
j JOURNAL OF BUSINESS STRATEGY jleadership to increase efficiency by halving the number of top managers who directly report
to the CEO. As a result of the streamlined restructuring, Volkswagen was able to redefine its
focus and simplify the leadership organization to make more efficient, timely and informed
decisions (Welch, 2019).
It is vital for Boeing to revamp its corporate structure as the 737 Max problem was largely
the result of a dysfunctional evolution in Boeing’s corporate culture. For most of the
company’s existence, “Boeing basically functioned as an association of engineers,”
business strategist Jim Collins suggests:
Its executives held patents, designed wings, spoke the language of engineering and safety as a
mother tongue. Finance wasn’t a primary language. Even Boeing’s bean counters didn’t act the
part. As late as the mid-’90s, the company’s chief financial officer had minimal contact with Wall
Street and answered colleagues’ requests for basic financial data with a curt “Tell them not to
worry” (Useem, 2019).
It was this culture that made Boeing the world’s largest and arguably most respected
passenger aircraft manufacturer. The focus on safety and engineering was the central
mission and aviation personnel around the world grew to trust the brand above any other
manufacturer. Unfortunately, the culture devolved away from a focus on quality and safety
into one focused on the financial return.
CEO Dennis Calhoun has pulled no punches when describing the primary cause of
Boeing’s culture problem, placing the direct blame on previous CEO Dennis
Muilenburg. Calhoun, in an interview with the New York Times in March 2020, said he
realized very quickly upon taking the job that the situation was worse than many had
realized. The shift in culture away from the safety and engineering focus led to an
unhealthy preoccupation with stock price which in turn led to a precarious position for
the once solid, dependable manufacturer. Calhoun explained that Boeing’s former
chief executive had “turbocharged Boeing’s production rates before the supply chain
was ready, a move that sent Boeing shares to an all-time high but compromised quality”
(Kitroeff and Gales, 2020).
For an airplane manufacturer, quality and safety are paramount. The solid reputation
for quality and safety that Boeing had built over the previous 100 years of its existence
was destroyed in one year. The focus on costs and margins weakened the major
reason that so many global airlines contracted with Boeing. In fact, Boeing-
manufactured aircraft represent three models, the 717, 747–8 and 787, with perfect
safety records. In addition, the popular Boeing 777 has had only one incident in over
18 million hours of flying, an incident in which everyone survived. Even the previous
generation of Boeing 737 s was known as one of the safest aircraft in the world, with
only a 0.06 fatal crash rate per million flights, which is one of the lowest rates for
commercial aircraft. (Whitmore, 2019). This safety record has been significantly
tarnished with the 737 Max, an aircraft with a horrendous 3.08 crash rate through
March 2019 (Whitmore, 2019).
Now, for Boeing to successfully navigate through the recovery process, some level of
corporate restructuring is required that can help return the company to the previous
focus on engineering. The company must regain trust in the marketplace, but a
recapture of trust is difficult, if not impossible, without organizational change. Given the
seriousness of the safety issues inherent with the 737 Max aircraft, the corporate
structure should be reconfigured to prevent any potential future safety lapses, and to
assure the flying public that any safety lapses in the design and function of Boeing
aircraft will never again occur. Some analysts have even suggested bringing back
former Boeing executive Alan Mulally to serve as a “safety czar” to help right the ship
and assure critics that the company is willing to return to a safety focus (Hoffman,
2019).
j JOURNAL OF BUSINESS STRATEGY jWhether bringing Mulally back is realistic or not, a corporate restructuring sends a strong
message that the company is willing to put time, money and effort into guaranteeing that
accidents will not reoccur, and that the company has a revitalized safety focus. Corporate
structure and corporate culture are closely related as the new leadership of the company
seeks change in solidifying organizational structures around the company’s mission and
vision. Dennis Calhoun is now concentrating on the revitalization of corporate structure and
a resulting transformation of the internal culture. For a large organization like Boeing,
corporate restructuring is certainly a very complicated process. If Volkswagen, one of the
world’s largest car companies with over 300,000 employees, can restructure following its
crisis, Boeing, with just over 150,000 employees, should be able to accomplish a similar
level of restructure.
For his part, Calhoun has admitted that, “pulling Boeing out of the hole it has dug will take
years” (Kitroeff and Gales, 2020). But he also told critics that he was not done with the
corporate restructuring and strategic re-alignment. He promised to insulate engineers from
the business pressures inherent in the previous regime and he noted that he was not done
shaking up the company’s leadership. He wants to introduce a “new set of values intended
to guide the company, which he hopes will inspire employees still working on getting the
737 Max back in service” (Kitroeff and Gales, 2020).
Redevelopment of strategy
Following corporate restructuring and revitalization of the corporate culture, the third step in
the process is redevelopment of corporate strategy. Calhoun. in the New York Times article,
said perhaps the major concern with the 737 Max aircraft is that the apparent strategy of the
company, at least to many industry critics, had moved away from a safety focus to a cost
efficiency focus. For an aircraft manufacturer, this was not a good shift. Considering the
relationship between passenger psychology and a willingness to fly, aircraft safety is
paramount to the entire industry and efficiency should always remain secondary to the
safety issue. This became a very public debate when Boeing engineers alleged in media
reports that the company culture prioritized costs over safety and emphasized speed, fuel
efficiency and cost-cutting above all else (McGregor, 2020).
Critics faulted the company for not bringing in a complete outsider, claiming that Calhoun
and the rest of Boeing’s board were complicit in the previous CEO’s bad decisions. It is
apparent that Boeing’s board members never seriously questioned the change in strategy
from safety and engineering to cost efficiency and profit margins, and since the company
was enjoying its best run in years, things seemed to be working, from the board’s limited
perspective. Most board members felt confident that Muilenburg was a good judge of the
risks involved in ramping up production.
The strategic tension between safety and efficiency is reminiscent of the Ford Motor
Company crisis in the 1970s. When Ford dealt with its Pinto disaster in the 1970s, involving
a model that blew up if rear-ended, information emerged that CEO Lee Iacocca had
suggested to company engineers that “safety doesn’t sell” (Judge, 1990). This quote
backfired for Iacocca during the lawsuits that followed, and the company had to redevelop
their strategy with safety as a priority. As Ford sought to compete with the Japanese auto
manufacturers, Iacocca had pushed for a £2,000 car with an under $2,000 price tag. This
strategy resulted in safety taking a backseat and the vehicle explosions damaged the
company’s reputation for many years. A lack of safety does not sell, as not only is Boeing
dealing with the grounding of the 737 Max, but sales of the company’s other aircraft lines
have been hurt as well (Cameron, 2019).
In addition to the 737 Max, another major impact of the company’s misguided financial and
cost-cutting focus is that Boeing has been a follower over the past nine years and has not
been a global leader or innovator in commercial aviation. Observers believe that Calhoun
j JOURNAL OF BUSINESS STRATEGY jhas no choice but to revamp Boeing’s commercial airplane product strategy. With the new
global travel realities resulting from Covid-19 and potential future pandemics, this could
involve a rethinking of aviation routes along with aircraft size and configuration. One
consideration in this new reality is a reversion of the aircraft seating strategy, as more space
between passengers may become a necessity.
Aviation analysts believe that Boeing must reassess which segment of the commercial
aircraft market is the most appropriate for its next aircraft development program. For several
years Boeing talked of launching a near market aircraft, an aircraft with 270 seats and
moderate flight range. However, the 737 Max grounding delayed the projected mid-2020s
launch of the near market aircraft, and Airbus was able to beat Boeing to this market with
the launch of its A321XLR aircraft in 2019. In a March 2020 interview, Calhoun said that
Boeing’s next aircraft program “will leverage tools that will significantly ‘differentiate’ it from
competing products” (Hemmerdinger, 2020a, 2020b). But the pandemic is likely to alter
Boeing’s commercial aircraft design strategy as airlines struggle with flying with social
distancing requirements.
Although the commercial aircraft strategy is the major strategic area that needs Boeing’s
attention at present, the continued growth of the defense arm of the company may be the
area to help them make it through the current challenge. Even though sales of commercial
aircraft have historically been the larger piece of Boeing’s total revenue, the gap between
commercial aviation and defense sales has been narrowing in recent years. Boeing is a
prime US defense contractor, making it all but certain it will get US Government support to
survive in the current climate (Marketwatch, 2020). With the publication of Boeing’s 2025
goals, the company’s revised strategy focuses on eight priorities: market leadership; top-
quartile performance and returns; growth fueled by productivity; design, manufacturing,
services excellence; accelerated innovation; global scale and depth; best team, talent and
leaders; and top corporate citizen (Boeing, 2020). These priorities require tactical planning
for implementation so that the 2025 goals become more than simply a speculative but
unrealistic sound bite.
Rebranding of the product
The final step in the recovery process focuses on rebranding the product. With new
leadership, corporate restructuring and the redevelopment of strategy, turnaround
companies often launch a rebranding of the product in question. This is the one area where
Boeing has the biggest obstacle to overcome. With approximately 350 of 737 Max aircraft
currently grounded around the world, another major challenge will remain even after the
plane is approved to fly again. Convincing the flying public to feel comfortable flying on a
737 Max will be a difficult sell. While a name change, or a variation, of the aircraft could
potentially help alleviate the reminder of the 2018 and 2019 crashes, it would most likely be
a long journey to completely distance the aircraft from those events, any name change or
new variation notwithstanding. In fact, a renaming of the aircraft may come across as
disingenuous. Only time and distance will be able to move the 737 Max away from its
soured reputation.
Boeing is not a one trick pony, as they do have other aircraft in their stable. The best hopes
for the company, at least in the short term, depend on pushing orders for their other aircraft
such as revised versions of the 787 and the 777. The 787 Dreamliner, a wide-body
aircraft with three variations, has been quite popular over the past ten years, with over 800
aircraft currently in service. The new 777, the 777X, is a variation of the popular 777 aircraft,
another wide-body airliner which first entered commercial service with United Airlines in
1995 and has received more orders than any other wide-body airliner. It was announced in
January 2020 that the 777X was finally ready for its maiden flight. Though the 777X program
had been beset by delays, partially because of ongoing issues with the 737 Max, it appears
that the program is finally moving forward.
j JOURNAL OF BUSINESS STRATEGY jThe major key for rebranding Boeing aircraft is a revitalized interest and focus on aircraft
safety. This is one aspect of the rebranding process that Boeing can ensure gets enough
attention. Moving away from the efficiency and cost reduction emphasis back into a safety
emphasis can be achieved in part through marketing and media efforts. One of the best
marketing campaigns that Volkswagen implemented following its emissions scandal was
their “rebirth” campaign, a marketing blitz which admitted their shortcomings and
demonstrated that the company was getting back to the drawing board with a new quality
improvement focus. In one of the most powerful rebirth commercials, short segments of
news broadcasts about the scandal were shown with Simon and Garfunkel’s “The Sounds
of Silence” as the musical background. In the visual background was the silhouette of a
Volkswagen employee, designed to represent the company’s “soul-searching” (Hsu, 2019).
Finally, a newly designed vehicle, an electric minivan planned for production in 2022, cuts
through and points to a new future. The powerful video concludes with the phrase: “In the
darkness, we found the light” (Hsu, 2019). The Volkswagen rebirth advertisement sent a
new message centered in transparency, which remains an important aspect of any re-
branding strategy. Boeing would do well to learn from Volkswagen’s marketing efforts as it
begins to craft its recovery.
Boeing is struggling for survival and now forced to rely on government loans and grants in
response to the Covid-19 crisis. Initially the company sought $60bn in grants and loans for
the company and its supply chain. The final amount may be much higher depending on the
length of the crisis and the overall market conditions for a recovery in the aviation industry.
In fact, insiders feel that congress will continue to examine the dire situation that the industry
is facing and will be “reviewing Boeing’s cash needs as Congress considers a stimulus and
rescue package that could top $1 trillion” (Shepardson, 2019). The idea of Boeing being
able to access any form of government bailout has been a controversial idea, as critics
continue to blame Boeing for its own undoing, the current pandemic notwithstanding.
To adequately respond to the crisis and to regain sales traction, Boeing needs to implement
a strategic public relations campaign to reassure critics that the safety issues have been
addressed and to recapture public confidence in the business. Following a replacement of
leadership and concurrent with the restructuring of the company, firms in the midst of
recovery should also embark on the development of new and comprehensive strategic
plans. For the world’s largest aircraft manufacturer, this is easier said than done. However,
as the company shifts attention and focus back to a safety centered approach, it can
gradually regain trust within the marketplace.
Boeing must rebrand itself into this global new reality, including a comprehensive dose of
high-level public relations. To get Boeing back on track, CEO Calhoun is now working
diligently to mend relationships with airlines but also with the President and executive
branch, with Congress as well as domestic and international regulators. This needed work
in public relations is balanced with continuing efforts to get the grounded 737 Max back in
the air. Early into his tenure Calhoun embarked on an apology tour, holding a series of what
he called “greet-and-mend opportunities,” with the first stop being the White House.
Although the coronavirus outbreak has put a crimp into the apology tour, the high-level
networking is now even more necessary because of the immediate need for financial
support during the crisis. For an industry fighting for survival, Boeing is a major player in
assuring politicians and regulators that safety is the main priority. This could include a re-
thinking of aircraft design, allowing for more space between passengers in the new global
reality.
Conclusion
When examining the corporate recovery process, even though the four-step approach of
replace, restructure, redevelop and rebrand appears to be a model that can work across
industries, there are some issues that depend on corporate specifics. Even as Boeing
j JOURNAL OF BUSINESS STRATEGY jattempts to move back into a safety and engineering focus instead of the previous push for
fuel efficiency and cost cutting, the company’s safety reputation remains on shaky ground.
This reputational damage is difficult to overcome in the short term and will require time,
effort and focus to be achieved.
Once the 737 Max is brought back into service, the company will still have to assure critics
and potential passengers that the safety issues have been addressed and that the
company’s strategic emphasis centers on providing safe and reliable aircraft to the
marketplace. Given the potential in the 777X, the 787 and future aircraft, the company can
rebound as long as it continues to work through the recovery process. A full corporate
recovery will undoubtedly require attention to each of these four prongs of the process, and
any missteps along the way will only prolong the pain.
Given the complications of the Covid-19 crisis, Boeing is going to need help in surviving the
global downturn in economic activity despite its own internal progress thus far in the
corporate recovery process. Early on in response to the health crisis, the company
engaged two investment banks, Lazard and Evercore, Inc. for help in securing a financial
lifeline through private and governmental grants and loans (Lombardo and Hoffman, 2020).
The financial lifeline became an absolute necessity following the complete shutdown of
manufacturing operations for over a month and then the gradual phase-in of resumed
operations. In mid-April of 2020, the company announced that it was resuming a phased in
approach to its commercial airplane production at the Puget Sound, Washington, facilities
and began planning for resuming operations at the South Carolina facilities.
Though the company began the year with a 5,350 commercial aircraft backlog, that number
may have been reduced, as global air traffic has plummeted. In recognition of this new
reality, the company has offered buyouts for employees to reduce their footprint during the
economic downturn. As CEO Calhoun explained in an April 2020 interview: “When the world
emerges from the pandemic, the size of the commercial market and the types of products
and services our customers want and need will likely be different. We will need to balance
Keywords: the supply and demand accordingly as the industry goes through the recovery process for
Strategic leadership, years to come. It’s important we start adjusting to our new reality now” (Isidore and Wallace,
Marketing strategy 2020).
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Further reading
Reuters (2019), “Ethiopian airlines grounds its Boeing 737 MAX 8 fleet”, Reuters, available at: www.
reuters.com/article/ethiopia-airplane-grounding/ethiopian-airlines-grounds-its-boeing-737-max-8-
fleet-idUSL3N20Y12R
Corresponding author
James Welch can be contacted at: jwelch@ut.edu
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