boeing project management case study

Boeing Crisis Management Case Study: A Detailed Analysis

In the fast-paced world of aerospace engineering, few companies have enjoyed the prestige and influence of Boeing.

Renowned for its innovative aircraft designs, Boeing has long been a symbol of excellence and reliability in the aviation industry.

However, even the most formidable airlines giants can stumble, and Boeing faced a monumental crisis that shook its foundation.

This blog post delves into the Boeing crisis management case study, examining how the company navigated through a storm of unprecedented proportions.

From fatal crashes to regulatory scrutiny, we unravel the complexities of the crisis and analyze Boeing’s response, shedding light on the importance of crisis management in the corporate landscape.

Let’s learn more about Boeing crisis management case study

Boeing as a prominent aerospace company

Boeing, a globally recognized aerospace company, has played a pivotal role in shaping the aviation industry for over a century.

Founded in 1916, Boeing has consistently pushed the boundaries of innovation, engineering some of the most iconic and groundbreaking aircraft in history.

From the pioneering days of commercial aviation to the modern era of space exploration, Boeing’s contributions have been instrumental in revolutionizing air travel and shaping the course of human progress.

As one of the largest aerospace manufacturers in the world, Boeing operates across multiple sectors, including commercial airplanes, defense, space, and services.

The company’s commercial aircraft division is particularly noteworthy, boasting a diverse portfolio of aircraft models that cater to the varying needs of airlines and passengers worldwide.

With a steadfast commitment to excellence and a relentless pursuit of technological advancements, Boeing has firmly established itself as a trusted partner to airlines, governments, and customers across the globe. Its aircraft have become synonymous with reliability, efficiency, and cutting-edge innovation, setting industry standards and shaping the future of flight

However, like any prominent organization, Boeing has faced its share of challenges and setbacks. In recent years, the company has been confronted with a crisis that has tested its resilience and called into question its reputation.

Background of the Boeing Crisis

Following are the key aspects of Boeing crisis and incidents that led the company towards unprecedented crisis.

Development of the Boeing 737 MAX aircraft

The Boeing 737 MAX, a narrow-body aircraft designed for fuel efficiency and enhanced performance, was a crucial addition to Boeing’s commercial aircraft lineup.

Developed as an upgrade to the highly successful Boeing 737 Next Generation (NG) series, the MAX promised increased fuel efficiency and operational cost savings, making it an attractive choice for airlines seeking to modernize their fleets.

The development of the 737 MAX began in 2011, with Boeing aiming to compete with rival Airbus’s A320neo aircraft. Key advancements included the incorporation of larger and more fuel-efficient engines, known as the LEAP-1B engines developed by CFM International, along with aerodynamic improvements and advanced avionics.

Boeing marketed the 737 MAX as a seamless transition for pilots already trained on the 737 NG, highlighting the aircraft’s commonality and familiarity. This offered airlines the opportunity to minimize training costs and streamline operations when introducing the new aircraft into their fleets.

To expedite the launch of the 737 MAX, Boeing pursued a strategy known as “minimum change, maximum benefit.” This involved making minimal alterations to the existing 737 design while maximizing performance gains through new engines and improved aerodynamics. However, this approach posed significant challenges in terms of maintaining the aircraft’s stability and handling characteristics.

As development progressed, Boeing faced pressures to bring the 737 MAX to market swiftly. The intense competition with Airbus and the demand for more fuel-efficient aircraft led to a compressed timeline, which put strain on the engineering and certification processes.

The Federal Aviation Administration (FAA) granted the 737 MAX its certification in March 2017, paving the way for deliveries to commence. Boeing anticipated that the 737 MAX would be a game-changer for the company, reaffirming its dominance in the narrow-body aircraft market.

Little did Boeing know that the development and subsequent introduction of the 737 MAX would soon be marred by a series of devastating events that would test the company’s crisis management capabilities to their limits.

Two fatal crashes involving the 737 MAX

The Boeing 737 MAX was thrust into the global spotlight following two tragic and highly publicized crashes that resulted in the loss of hundreds of lives. These crashes were:

Lion Air Flight 610 (October 29, 2018)

Lion Air Flight 610, a scheduled domestic flight in Indonesia, crashed into the Java Sea shortly after takeoff from Jakarta. The aircraft involved was a Boeing 737 MAX 8. All 189 passengers and crew on board perished in the accident. The investigation revealed that erroneous data from a malfunctioning angle of attack sensor triggered the aircraft’s Maneuvering Characteristics Augmentation System (MCAS), an automated flight control system designed to enhance pitch stability. The repeated activation of MCAS caused the aircraft’s nose to be pushed down, overpowering the pilots’ attempts to regain control. This tragic event raised concerns about the 737 MAX’s flight control system and its potential impact on flight safety.

Ethiopian Airlines Flight 302 (March 10, 2019)

Ethiopian Airlines Flight 302, a scheduled international flight from Ethiopia to Kenya, crashed shortly after takeoff from Addis Ababa. The aircraft involved was a Boeing 737 MAX 8, similar to the Lion Air aircraft. The crash claimed the lives of all 157 passengers and crew on board. Investigations into the accident indicated similar circumstances to the Lion Air crash, with the MCAS system being implicated once again. The data from the flight data recorder and cockpit voice recorder pointed to a faulty angle of attack sensor triggering the MCAS, leading to a nosedive that the pilots were unable to counteract.

Investigations and its Results

These two devastating crashes prompted worldwide alarm and raised serious questions about the safety of the Boeing 737 MAX. As a result, regulatory authorities around the globe, including the Federal Aviation Administration (FAA) in the United States, grounded the entire 737 MAX fleet pending further investigation and the implementation of appropriate safety measures.

Multiple investigations were launched to determine the root causes of the accidents. These investigations involved aviation authorities, Boeing, airlines, and other industry experts. The primary focus was on understanding the design and functionality of the MCAS system, the training provided to pilots, the certification process, and potential lapses in safety oversight.

The investigations revealed critical issues, including shortcomings in the design and operation of the MCAS system, inadequate pilot training regarding the system’s functionality and potential failure modes, and concerns about the regulatory processes surrounding the certification of the 737 MAX. The findings of these investigations had far-reaching implications for Boeing, the aviation industry, and the future of the 737 MAX aircraft.

Media across the world widely reported on Boeing crisis after incidents of two crashes .

Analysis of Boeing’s Crisis Management Approach 

Boeing’s initial handling of the 737 MAX crisis was met with widespread criticism and scrutiny. Several key aspects of their approach can be evaluated:

Delayed Acknowledgment

Boeing’s initial response was perceived by many as slow and lacking in transparency. It took several days for Boeing to issue a statement expressing condolences and acknowledging the tragedies. This delay eroded public trust and raised concerns about Boeing’s commitment to transparency and accountability.

Lack of Transparency

Boeing’s delayed acknowledgment of the accidents and limited transparency surrounding the issues with the MCAS system undermined public trust and raised concerns about the company’s commitment to safety. The perception of secrecy and withholding of critical information further eroded confidence in Boeing’s crisis management approach.

Boeing was criticized for not being forthcoming with information about the MCAS system and its potential risks. It was revealed that Boeing had not disclosed the existence of the MCAS system to pilots or airlines prior to the accidents. This lack of transparency raised concerns about the adequacy of the information provided to operators and the extent of their understanding of the system’s functionality and potential failure modes.

Confidence in the Aircraft

In the immediate aftermath of the accidents, Boeing maintained confidence in the safety of the 737 MAX. The company initially stated that the aircraft was airworthy and did not require any additional pilot training beyond what was already provided. This response created a perception that Boeing was downplaying the severity of the situation and prioritizing commercial interests over safety.

Minimal Engagement with Stakeholders

Boeing’s initial response seemed to lack proactive and open engagement with key stakeholders, including regulators, airlines, and the public. Insufficient communication and consultation with these parties created an impression of disconnection and a failure to prioritize their concerns and perspectives.

Inadequate Crisis Communication

Boeing’s communication strategy during the early stages of the crisis was deemed reactive and insufficient. The company’s messaging lacked empathy and failed to address the severity of the situation adequately. This approach fueled speculation and contributed to a perception that Boeing was more concerned with protecting its brand than addressing the safety concerns raised by the accidents.

Overemphasis on Commercial Interests

The initial response by Boeing was perceived by some as prioritizing commercial interests over safety. Maintaining confidence in the aircraft’s airworthiness without additional pilot training raised questions about Boeing’s commitment to putting safety first. This perception further eroded trust in the company’s crisis management efforts.

Regulatory Relations and Oversight

The crisis also shed light on concerns surrounding the relationship between Boeing and regulatory authorities, particularly the FAA. Questions were raised about the level of oversight and the certification process for the 737 MAX. The perception of a cozy relationship between Boeing and the FAA added to the public’s skepticism regarding the independence and objectivity of safety evaluations.

Decision to continue production and delivery of the 737 MAX

The decision by Boeing to continue production and delivery of the 737 MAX aircraft during the early stages of the crisis was a subject of intense scrutiny and debate. Analyzing this decision involves considering the factors and considerations that influenced Boeing’s stance:

• Financial Implications: Boeing faced significant financial implications due to the grounding of the 737 MAX fleet. The production and delivery of aircraft generate substantial revenue for the company, and halting production would have resulted in substantial losses. Boeing likely considered the potential impact on its financial performance, stock value, and relationships with suppliers and customers when deciding to continue production.
• Confidence in Remedial Measures : Boeing believed that the software updates and additional pilot training being implemented as part of the proposed fixes for the MCAS system would address the safety concerns. They may have felt confident that these measures, once implemented, would reinstate the airworthiness of the 737 MAX and enable its safe operation. This confidence likely influenced their decision to continue production and delivery.
• Regulatory and Certification Expectations: Boeing may have also considered the expectations of regulatory authorities, particularly the Federal Aviation Administration (FAA), regarding the steps required to recertify the 737 MAX. By continuing production, Boeing may have sought to demonstrate their commitment to addressing the identified issues promptly and efficiently. This approach may have been viewed as a proactive step toward meeting regulatory expectations and expediting the return of the aircraft to service.
• Supply Chain Considerations: Halting production would have had significant implications for Boeing’s extensive global supply chain. Numerous suppliers and manufacturing partners rely on the production and delivery of the 737 MAX for their own operations and revenue. Disruptions to the supply chain could have had cascading effects on multiple stakeholders. Considering these dependencies, Boeing may have determined that continuing production, albeit at a reduced rate, would minimize disruptions throughout the supply chain.

Impact of the crisis on Boeing’s reputation and financials

The crisis surrounding the 737 MAX had a profound impact on Boeing’s reputation and financials. Let’s examine the consequences in both areas:

Reputation Impact

The 737 MAX crisis severely damaged Boeing’s reputation and eroded trust among key stakeholders, including airlines, passengers, regulators, and the general public. The accidents and subsequent revelations about the aircraft’s design and certification processes raised questions about Boeing’s commitment to safety and transparency.

Financial Impact

Grounding and Production Halt: The grounding of the 737 MAX fleet resulted in a halt in deliveries and production, leading to significant financial losses for Boeing. The company had to store and maintain grounded aircraft, face cancellations and delays in orders, and adjust its production schedules.

Order Cancellations

Boeing experienced a substantial number of order cancellations for the 737 MAX from airlines and leasing companies. The loss of these orders translated into reduced revenue and affected the company’s long-term sales projections.

Boeing’s communication strategy during the crisis

The effectiveness of Boeing’s communication strategy during the 737 MAX crisis can be evaluated based on several key factors:

• Timeliness: Boeing’s initial response to the crisis was delayed, which had a negative impact on its effectiveness. The company took several days to issue public statements acknowledging the accidents and expressing condolences. This delay resulted in a perception of unresponsiveness and lack of transparency, eroding public trust.
• Transparency and Openness: Boeing’s communication strategy during the early stages of the crisis was criticized for lacking transparency. The company faced allegations of withholding critical information from regulators, airlines, and the public. The limited disclosure and perceived secrecy fueled speculation and further eroded trust in Boeing’s crisis management approach.
• Clarity of Messaging: The clarity of Boeing’s messaging during the crisis was also a concern. There were instances where the company downplayed the severity of the situation and maintained confidence in the airworthiness of the 737 MAX without acknowledging the need for additional pilot training or design changes. This approach created confusion and raised questions about Boeing’s commitment to safety.
• Stakeholder Engagement: Boeing’s communication strategy faced criticism for its limited engagement with key stakeholders, including regulators, airlines, and the families of the crash victims. Insufficient communication and consultation with these stakeholders created a perception of disconnection and a failure to address their concerns and needs adequately.
• Crisis Management Updates: Boeing’s efforts to provide regular updates and progress reports regarding the investigation, the proposed fixes, and the recertification process were essential. However, there were instances where the information provided was seen as incomplete or lacking in transparency, fueling skepticism and undermining the effectiveness of their communication strategy.

Legal and regulatory challenges faced by Boeing

Boeing faced significant legal and regulatory challenges as a result of the 737 MAX crisis. Let’s examine some of the key challenges:

• Legal Liability: Boeing faced numerous legal challenges, including lawsuits from the families of the crash victims, airlines seeking compensation for financial losses, and investors alleging securities fraud. The lawsuits alleged negligence, product liability, wrongful death, and other claims against Boeing. The company had to navigate complex legal proceedings, potentially leading to substantial financial settlements and damage awards.
• Regulatory Investigations: Multiple regulatory authorities conducted investigations into the design, certification, and safety of the 737 MAX. The primary focus was on the Federal Aviation Administration (FAA), which faced scrutiny for its oversight of Boeing and the certification process. Other countries’ aviation authorities, such as the European Union Aviation Safety Agency (EASA), also conducted independent reviews. These investigations aimed to determine the extent of any regulatory lapses and evaluate the adequacy of the aircraft’s design and certification.
• Certification and Reapproval Process : The grounding of the 737 MAX led to a lengthy recertification process. Boeing had to work closely with regulatory agencies to address the identified safety concerns, implement software updates, and enhance pilot training requirements. The process involved rigorous testing, inspections, and demonstration of compliance with regulatory standards before the aircraft could be cleared to fly again. The recertification process required coordination between Boeing, regulatory authorities, and international aviation bodies, adding complexity and scrutiny to the company’s operations.
• Regulatory Reforms: The crisis also prompted calls for regulatory reforms to improve safety oversight and the certification process. There were concerns about the level of independence and objectivity in the relationship between Boeing and the FAA. Governments and regulatory agencies around the world were under pressure to strengthen safety regulations, enhance oversight, and ensure transparency to prevent similar incidents in the future.
• Increased Regulatory Scrutiny : Boeing faced heightened regulatory scrutiny beyond the 737 MAX. Inspections and audits of other Boeing aircraft models, manufacturing facilities, and quality control processes were conducted to ensure compliance with safety standards. This broader scrutiny affected the company’s operations and required additional resources to address any identified issues.

Corrective measures implemented by Boeing to address the crisis

In response to the 737 MAX crisis, Boeing implemented several corrective measures aimed at addressing the identified issues and restoring confidence in the aircraft. Let’s analyze some of these measures:

• Software Updates: Boeing developed and implemented software updates to address the MCAS system’s design flaws, which were identified as a contributing factor in the accidents. The updates included changes to the system’s activation criteria, increased redundancy, and enhanced pilot control. These updates were intended to prevent the system from engaging erroneously and provide pilots with more control over the aircraft.
• Enhanced Pilot Training: Boeing recognized the need to improve pilot training on the 737 MAX, particularly regarding the MCAS system. The company revised the training materials and procedures to ensure that pilots were adequately trained to handle any potential issues related to the MCAS system. The training enhancements aimed to provide pilots with a better understanding of the system’s functionality, failure modes, and appropriate responses.
• Collaboration with Regulators: Boeing worked closely with regulatory authorities, primarily the FAA, throughout the crisis and the subsequent recertification process. The company collaborated with regulators to address safety concerns, share technical information, and seek approval for the proposed fixes. This collaboration was aimed at ensuring that the aircraft met all regulatory requirements and regained certification for safe operation.
• Independent Review and Oversight: Boeing initiated an independent review of its processes and practices related to aircraft design, development, and certification. The review was led by experts outside the company and focused on identifying areas for improvement and strengthening safety practices. The findings and recommendations from the review were used to enhance Boeing’s internal processes and ensure better adherence to safety standards.
• Cultural and Organizational Changes: The crisis prompted Boeing to reflect on its internal culture and decision-making processes. The company acknowledged the need for cultural and organizational changes to foster a stronger focus on safety, transparency, and accountability. Boeing aimed to address any shortcomings in its culture and decision-making frameworks to prevent similar issues in the future.

Final Words

The Boeing crisis management case study surrounding the 737 MAX crisis serves as a powerful reminder to importance of prioritizing safety, timely and transparent communication, strong regulatory relationships, rigorous risk assessment, independent oversight, continuous learning, and ethical decision-making.

Boeing’s initial response to the crisis faced significant challenges, including a lack of transparency and accountability. The decision to continue production and delivery of the 737 MAX while it was under investigation also raised concerns. These missteps led to a severe impact on Boeing’s reputation and financials, including loss of trust, order cancellations, legal liabilities, and financial losses.

However, Boeing took corrective measures to address the crisis, including software updates, enhanced pilot training, collaboration with regulators, independent reviews, and organizational changes. These steps were crucial in addressing the identified issues, rebuilding trust, and ensuring the safe return of the 737 MAX to service.

About The Author

Tahir Abbas

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Home > School, College, or Department > MCECS > ETM > ETM Student Projects > 818

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Boeing dreamliner:a project management study.

Fahad Aldhaban , Portland State University Chris McGinnis , Portland State University Wendy Peterman , Portland State University Noah Third , Portland State University Tom Torres , Portland State University

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Tim Anderson

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Project Management

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The 787 Dreamliner aircraft project required not only the application and integration of new construction materials, it also required new project management techniques for Boeing. By outsourcing most of the aircraft fabrication, Boeing’s primary role changed from designer and manufacturer to system integrator. Hindsight shows that more preparation and planning was needed for this transition. This case study review of the Boeing Dreamliner examines the project management techniques actually employed during the initiation and execution phases of the project. Techniques evolved from the start of the project to what is used currently. Best practices and recommendations for how a large-scale outsourced project could be managed are described. During the initiation phase, Boeing decided to outsource both design and manufacturing. Outsourcing core competencies is a risk to the main contractor’s design and manufacturing edge. The authors recommend selecting those subcontractors with a five step plan, based on selection criteria and culminating with clearly defined expectations. Boeing’s selection was strongly based on cost and market access, and the subcontractor understanding of work expectations initially differed from Boeing’s. It is important to work closely with subcontractors when advanced technology and key components are at stake. Boeing is doing this now, more effectively than at the start. Regular monitoring and control has improved as the project has progressed. Finally, delays and issues show after the fact that Boeing’s early work would have benefited from more robust risk management methods. Risk management techniques are discussed as are improvements Boeing has implemented currently.

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Aldhaban, Fahad; McGinnis, Chris; Peterman, Wendy; Third, Noah; and Torres, Tom, "Boeing Dreamliner:A Project Management Study" (2009). Engineering and Technology Management Student Projects . 818. http://archives.pdx.edu/ds/psu/22869

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Please note you do not have access to teaching notes, boeing – a case study example of enterprise project management from a learning organisation perspective.

The Learning Organization

ISSN : 0969-6474

Article publication date: 1 June 2003

This paper helps explain the impact and potential for companies to better leverage knowledge and organisational learning from their portfolio of projects. It offers a model based on analysis of the development of the Boeing Company and from change management theory of a way to achieve an enterprise project management culture through organisational learning. The paper provides insight into and a rationale for improvement of project management practice for organisations that currently possess the ability to intelligently use knowledge gained from many projects to service their stakeholders. This ability provides the feedstock for organisational reinvention that can be a survival mechanism in reacting to changed circumstances as well as providing a proactive mechanism for developing new markets. In doing so, the paper draws attention to both the requisite enterprise knowledge management infrastructure and the required organisational culture that supports commitment and enthusiasm.

• Project management
• Organizational learning
• Knowledge management
• Aerospace industry
• Aircraft industry

Szymczak, C.C. and Walker, D.H.T. (2003), "Boeing – a case study example of enterprise project management from a learning organisation perspective", The Learning Organization , Vol. 10 No. 3, pp. 125-137. https://doi.org/10.1108/09696470310472453

Copyright © 2003, MCB UP Limited

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The Boeing 7E7 Project Management Case Study

Executive summary.

This case study entails the examination of various data and information and decision-making recommendations for the Boeing Company’s board. The impacts of the 9/11 terror attack and America’s economic trend are some worrying issues for the board to approve the 7E7 project. The analysis examines the project’s profitability and attractiveness. The project’s WACC remains consistent compared with that of the commercial division, which resulted in the determination of beta using unlevered industrial average and Boing’s leverage, and division beta using WACC of two different departments. This produces the project’s WACC to be 10.33%. The analysis also uses IRR to measure the project’s profitability, since its comparison with the WACC determines if the board should approve the project or stop it. Moreover, sensitivity analysis is conducted to give the board a comprehensive perspective of the project regarding internal and external environmental forces such as costs and returns. It is therefore concluded that the board should accept the project due to its opportunities and benefits to the company.

Introduction

Boeing had planned to initiate a project known as 7E7 in 2003. Starting such a project in the manufacture of airplanes is considered one of the most daring moves a company can make. Mr. Bair must show evidence that Boeing 7E7 is profitable based on his valuation of the project and sectoral analysis for the board to accept it. Therefore, this analysis considers the project’s strengths and weaknesses, its major competition, calculations of costs and capital, and scenario scrutiny.

The Boeing 7E7 Project

The Boeing 7E7 entailed a design of an airplane that was meant for short and long distances and various cargo and passenger capacities. At the same time, the jet was supposed to consume 80% of fuel compared to its predecessor and would cost customers 10% cheaper. The aircraft was thus designed to make more profits and save Boeing from its lost customers in the commercial air carrier sales.

Strength and Weaknesses of the Project

Boing 7E7 project was flexible in handling short domestic travel and long international ones. The aircraft would be 10% cheaper thus attracting more customers in addition to consuming less fuel than other aircraft of the same size. Moreover, its production cost would be less because of composites and carbon-reinforced matter. However, the project’s downside was its choice of Snap-On wing extensions, which would cost a lot more due to the limits of technology.

Competition

Boeing faced and still faces aggressive competition from its main rival Airbus. Boeing would reduce this competition by lowering its operational costs and fuel consumption. This can help the manufacturer get more aircraft buyers, thus gaining its market share. Moreover, it should implement its expandable wing, to give the airline owners options to cover more cargo and passenger routes. Enabling carrier companies to access more routes means more customers and more revenue, which would attract airline buyers to purchase from Boeing.

Cost of Capital

Since Boeing mainly builds its aircrafts for defense and commercial use, it shows the commercial division of the manufacturer faces more risk, thus higher Beta compared to the defense division. The cost of equity rises with the level of Beta, showing that the commercial division must have a higher weighted average cost of capital (WACC) (Vitolla et al. 525). The comparison of the commercial division’s WACC and the project’s rate of return can help be the board decide whether to accept or reject the Boeing E7E. Consequently, this analysis utilizes the 21-month S&P 500 Beta, which eliminates the impact of 9/11.

This analysis uses the pure-play technique to identify companies that operate as the defense division of Boeing and determine their unlevered Beta. The analysis then calculates the average of the individual company Betas and uses that for Boeing (Santos). This analysis uses the information presented in Exhibit 1, particularly using Raytheon and Northrop Grumman, which relate closely to Boeing.

The calculations above are presented in Exhibit 2.

Boeing’s defense division unlevered Beta can be re-levered to determines its financial position as follows:

The above values can then be used to determine the company’s commercial division Beta as follows:

There the commercial division’s WACC is calculated as follows:

Evaluation of Boeing E7E

The project’s sensitivity analysis gives optimistic and pessimistic estimates for the variables affecting sales’ costs and volume as shown in Exhibit 3. Using the determined WACC and information presented in Exhibit 3, it is revealed that the internal rate of return (IRR) tends to equal WACC in most pessimistic scenarios (Radiant and Ahmad 137). This indicates it is not possible to disregard the project due to the above analysis conducted above. Moreover, it is also revealed that the project can be discarded in cases where the cost exceeds 8 million dollars, and the cost of goods rises above 84 %. Consequently, this requires scenario analysis since both IRR and WACC are affected by costs and economic conditions surrounding the business. The environment affects the firm’s market premium, cost of debt, and Beta. An optimistic economy implies a reduced cost of capital, which Exhibit 4 reveals would translate to a reduction of cost of debt by 5%, which reduces WACC from 10.33% to 9.92%.

Overstating the risk reduces WACC further to 9.71% since the actual Beta for Boeing’s commercial division is 1.5. Since the market return is also crucial in estimating WACC, then the underperformance of the market will result in reduced market return, which in turn will further reduce the company’s market premium, thus lowering WACC. Contrarily, a pessimistic economy results in higher WACC due to the increased cost of debt resulting in higher risk and market underperformance as shown in Exhibit 4.

Boeing must build its 7E7 aircraft to counter the forces of such rivals. The risk to developing Boeing E7E means it will develop its expandable wing, which will increase its versatility. This means the airplane will be open to new routes and serve more customers, while at the same time, utilizing fuel efficiently. The company can increase the wealth of its shareholders by ensuring that its IRR is equal to or greater than its WACC. This indicates that Boeing must strive and sell a minimum of 1500 of its E7E aircrafts within 20 years. It must ensure that its cost of developing the planes remains below $8 billion and that the cost of goods is below 84%. Amidst its risks, the project can result in better outcomes for Boeing’s shareholders, hence a desirable understanding. The board should therefore accept E7E because its benefits outweigh its risks.

Works Cited

Radiant, Joseph and Prasetyo, Ahmad Danu. “Investment Analysis of Integration Project (Case Study: Pt Bandung XYZ).” International Journal of Accounting, Finance and Business . vol. 6, no. 32, 2021: pp. 128-139.

Santos, Ricardo Sérgio Gomes. Equity Valuation: Netflix, Inc ., 2021. Doctoral Dissertation.

Vitolla, Filippo et al. “The Impact on The Cost of Equity Capital In the Effects of Integrated Reporting Quality.” Business Strategy and the Environment. vol. 29, no. 2, 2020: pp. 519-529.

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IvyPanda. (2023, February 25). The Boeing 7E7 Project Management. https://ivypanda.com/essays/the-boeing-7e7-project-management/

"The Boeing 7E7 Project Management." IvyPanda , 25 Feb. 2023, ivypanda.com/essays/the-boeing-7e7-project-management/.

IvyPanda . (2023) 'The Boeing 7E7 Project Management'. 25 February.

IvyPanda . 2023. "The Boeing 7E7 Project Management." February 25, 2023. https://ivypanda.com/essays/the-boeing-7e7-project-management/.

1. IvyPanda . "The Boeing 7E7 Project Management." February 25, 2023. https://ivypanda.com/essays/the-boeing-7e7-project-management/.

Bibliography

IvyPanda . "The Boeing 7E7 Project Management." February 25, 2023. https://ivypanda.com/essays/the-boeing-7e7-project-management/.

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Understanding the behavior of systems is essential for human survival — with Dennis L. Holeman

The Boeing 737 MAX: A Case Study of Systems Decisions and Their Consequences

Revised 3 July 2019

The Boeing 737 MAX program provides an illustrative example of how incentives can shape the behavior of complex technical and economic systems decisions that result in serious problems.  After more than a century as one of the most respected companies in the entire field of aviation, Boeing’s credibility as the builder of safe commercial aircraft has come into doubt. How the 737 MAX will regain the confidence of regulatory agencies, airline customers, and the flying public is an open question at this time.  This article describes the path that brought things to this point  Read Less

The Boeing 737 Family

Boeing designs the 737 starting in 1964 as a short-to-medium range, smaller-capacity member of the Boeing single-aisle jetliner family. It uses the same fuselage cross section, cockpit, and controls technology as the predecessor 707 and 727 aircraft.  The initial seating design (on the 737-100) is for 85 passengers. However, airlines find this aircraft is too small and the first major production version is the lengthened 737-200 with 102 seats in two classes.

Because the 737 is intended to serve secondary airports with less-developed infrastructure (boarding stairs instead of jetways, limited baggage loading and engine servicing equipment, etc.), it is designed with short landing gear to allow the fuselage to sit as low as possible.  The initial engines are small-diameter JT8D low-bypass turbofans, mounted directly under the wings without pylons.

After a somewhat slow sales start, the 737 becomes very popular, eventually becoming the most-produced airliner family in the world (over 10,500 produced).  It supplants virtually all of its early competitors in the smaller jetliner segment (e.g., Douglas DC-9, BAC 1-11, Fokker F28/F50/F100, Sud Caravelle, BAe 146, etc.).

The design is extended to a number of growth versions with different length fuselage stretches.  These include the 737-300, 737-400, and 737-500. The engines selected for the new versions are more powerful CFM-56 high bypass turbofan engines.  To accommodate the larger diameter high-bypass engines while retaining adequate ground clearance, the nacelles are mounted higher and further forward and the nacelles are flattened on the bottom

The biggest change occurs with the 737 Next Generation (737NG) series that features enlarged and redesigned wings, larger fuel tanks for more range, new cockpits, and uprated CFM-56 engines. The 737NG series is first produced in 1996 and includes the 737-600, 737-700, 737-800, and 737-900.

All the new versions are certified by the FAA under the original 737 type certificate, even though the largest 737NG versions of them have nearly three times the original passenger capacity (230 in maximum density), twice the engine power, twice the range, all-digital “glass” cockpits, and serve different market segments than the original 737 design.

Boeing’s largest customer for the 737 family is Southwest Airlines, whose fleet is exclusively made up of 737 variants.  Like a number of Boeing’s other customers, Southwest wants its pilots to be able to fly any 737 version in its fleet with one pilot type certificate and common training.

Origin of the 737 MAX

The Airbus A320 family (A320, A319, A321, and A318) becomes the primary competitor to the 737 family.  First flying in 1987, the A320 is a clean-sheet-of-paper design not tied to previous Airbus aircraft. Because it is not optimized for serving secondary airports, it has a higher stance with plenty of ground clearance to accommodate large diameter engines.  The A320 family sells well.

Airbus introduces the A320 Neo family incorporating new technology ultra-fuel-efficient engines with larger engine diameters.  The A320 configuration accommodates the new engines easily. The first flight is in 2014. With its improved economics, the A320Neo family is very attractive to customers.

In order to avoid losing next generation single-aisle jetliner sales to Airbus, Boeing decides it needs to create a new 737 family with comparable ultra-fuel efficient engines.  This becomes the 737 MAX series. It is closely based on the 737NG family (737-600, 737-700, 737-800, and 737-900).

To be able to install the larger diameter engines on the 737 MAX design, the engine nacelles are moved even further forward and higher than the previous CFM 56 engines.

Selling the 737 MAX Family

Boeing aggressively markets the 737 MAX as being just like the previous 737 variants but much more economical to operate.  It claims essentially no additional training is required for a 737 pilot to transition to flying the 737 MAX. Only an hour or two’s study of instructional material on an iPad is sufficient.  Boeing takes orders for almost 5,000 737 MAX aircraft and sets up to produce about 60 units per month.

737 MAX Flight Characteristics 

Previous 737 models had the center of gravity well forward of the center of lift. In a stall, with neutral control inputs, the plane will nose down and recover on its own.  The natural nose-down force is counteracted by downward lift generated by the horizontal stabilizer. This lift creates drag and increases aircraft fuel burn. It appears that Boeing changed the 737 MAX’s relationship between the center of gravity and center of lift to minimize this trim drag effect and optimize efficiency.

In flight test, the 737 MAX variants are found to have flight characteristics that differ significantly from previous 737s.  This is particularly true at a high angle of attack where body lift from the large engine nacelles mounted ahead of the wings creates a strong nose-up force.  The center of lift shifts forward. The thrust from the low-mounted engines acting below the center of gravity also provides a nose-up force. This latter effect is especially pronounced at high power levels.

Without corrective input, at a high angle of attack a 737 MAX will continue to pitch up further, leading to a stall.  As a result, Boeing finds the 737 MAX design does not satisfy Federal Aviation Authority (FAA) airworthiness criteria for stability, particularly Federal Aviation Regulation (FAR) 25-173 [see appendix].  If the angle of attack of the aircraft exceeds 14 degrees, the nose will rise on its own until the aircraft stalls, unless a corrective action is taken.

Creating a Fix for the Stability Problems 

Rather than doing an aerodynamic redesign of the airplane, Boeing decides the quickest and least expensive fix for the flight characteristics of the 737 MAX is to provide a new software system. Called the Maneuver Characteristics Augmentation System (MCAS), it endeavors to make the 737 MAX aircraft behave like previous 737NG versions through flight control software algorithms.

As a priority, MCAS is intended to prevent the aircraft from getting into a hazardous unstable flight regime.  In addition to traditional pilot warning mechanisms (e.g., a “stick shaker” stall warning system), the MCAS will automatically drive the stabilizer trim to force the nose down when sensor data indicate a dangerously high angle of attack.

Characteristics of the initial design of the MCAS software include the following:

• It electronically manipulates the aircraft horizontal stabilizer trim to increase the lift on the tail to force the nose down
• The sensed angle of attack is above a pre-set value
• The autopilot is off
• Flaps are up (at low altitude and low airspeeds MCAS is also cued to operate with flaps lowered).
• MCAS moves the horizontal stabilizer trim upward at 0.27 degrees per second, up to 9.26 seconds at a time
• Then system pauses for about 5 seconds.  If the sensed angle of attack is still high, the MCAS repeats the process
• The MCAS is supposed to deactivate when angle of attack is sufficiently reduced or pilots cut out power to the stabilizer trim.

A 737 MAX with the MCAS operates in a manner that can be rather disorienting to pilots accustomed to flying earlier 737 models without the software. A pilot may raise the nose by pulling back on the control yoke but then observe the stabilizer trim wheel moving to trim the nose down opposite to his or her input.  This is a result of the aircraft’s computer calculating that the optimum angle of attack for maximum lift is less than the angle which the pilot is demanding through moving the control yoke.

As long as the angle of attack sensor is providing a high signal, the MCAS will drive the trim repeatedly, overriding pilot input.  Note that the nose-down force provided by the stabilizer trim is stronger than the pilot’s ability to counter it by pulling back on the control yoke to raise the elevators.

Recommended Pilot Responses to MCAS Malfunctions

Like any flight control system, the MCAS can malfunction.  There are a number of hardware and software faults that can cause the system to behave incorrectly.

Boeing’s position has been that pilots should respond to an MCAS malfunction as though it were a case of runaway stabilizer trim.  This is a condition that pilots routinely train for in a simulator. The handbook procedure for this problem is to cut off electrical power to the stabilizer trim motors and trim the stabilizer back manually using a hand crank in the cockpit.

Unfortunately, Boeing’s assumptions about pilots’ ability to respond in such a situation may not be realistic.  Smaller pilots may not have sufficient strength to pull back on the control yoke to recover from the dive caused by the MCAS.  And when the airspeed is high, aerodynamic forces on the horizontal stabilizer may make it too difficult for pilots to manually trim the horizontal stabilizer with the hand crank.  In particular, if they are simultaneously holding strong force on the control yokes they may not have a free hand to rotate the trim crank.

When the MCAS is acting to prevent a stall, the cockpit is full of audible and visual alarms that can be highly distracting.  And the time available to understand the situation, diagnose the fault, and take the necessary corrective actions can be very short before a fatal dive angle and descent rate occurs, particularly at low altitude.

Corner Cutting

At the time the 737 MAX program is being developed, Boeing management is obsessively focused on driving down costs in every area in order to maximize shareholder value.  Top management compensation is tied to increases in the company share price, providing strong incentives.

Boeing does not follow generally-accepted design practice when it incorporates the MCAS into a safety-critical flight control system for the 737 MAX.  Airbus aircraft have four angle of attack sensors, with comparison among sets of three in order to use the data from the two sensors that most closely agree. Although newer Boeing jetliner designs (e.g. the 777 and 787) use three, only two angle of attack sensors are provided for the 737 MAX.  The MCAS only reads data from one of the sensors on a given flight, and then switches to the sensor on the other side of the fuselage on the next flight. If the MCAS gets a reading of a high angle of attack from the one sensor it is using, it will command nose-down stabilizer trim.

However, it is well known that angle of attack sensor malfunctions are relatively common.  A number of things can cause problems, including icing, careless aircraft washing, damage from contact with a jetway, bird strikes, and maintenance errors.

In addition to using only one angle of attack sensor at a time, Boeing does not follow generally-accepted design practice by providing redundant electrical and signal buses with fail-safe design approaches.  This results in several different single-points-of-failure paths in the 737 MAX flight control system.

Boeing makes several cockpit safety features, such as an angle of attack display, extra-cost options with a high price.  As a result, many budget airlines do not order these options. Although a warning light indicating disagreement between the two angle of attack sensors is standard, it does not function if the angle of attack display isn’t installed. The non-functionality of this warning light is not documented.

Recently, it is reported that rather than using experienced in-house experts, Boeing outsourced much of the development and testing of 737 MAX software to temporary-hire software developers paid as low as $9 an hour by Indian contractors HCL Technologies and Cyient.

Boeing’s Lack of Transparency

Boeing obscures the existence of the MCAS flight control system as a fix to the aircraft flight characteristics problems.  It doesn’t have it reviewed by the FAA during the 737 MAX certification process, doesn’t communicate about it to the airline customer technical representatives, doesn’t document it in the flight manuals for the pilots, doesn’t incorporate it in any training materials, and doesn’t represent it in any 737 simulators for pilot training.  Until the first crash of a 737 MAX in late 2018, no one outside Boeing even knows of the existence of the MCAS or the design of the systems feeding data to the MCAS.

Certification of the 737 MAX

The FAA takes a hands-off approach on certifying the 737 MAX and trusts Boeing to effectively self-certify the new aircraft.  The type certificate from the original 737 design, nearly 50 years old, is used for the new variants. This policy is partly because the FAA certification department is drastically under-staffed due to many years of budget cutbacks.  Other nations accept the FAA certification of the 737 MAX and do not independently evaluate the aircraft’s design and airworthiness.

Accidents and the Grounding of All 737 MAXs

Two fatal crashes of 737 MAX aircraft occur in 5 months.  The crashes, traceable to flight control problems unable to be overcome by the pilots, expose the existence of the MCAS.  All 737 MAX aircraft worldwide are grounded until the aircraft can be determined to be safe. Airlines operating nearly 400 737 MAX aircraft scramble to replace the lost capacity with other aircraft.  They are forced to cancel many scheduled flights, and incur significant financial losses.

Investigations to determine the full details of the causes of the two crashes are underway, but will take a significant time to reach definitive conclusions. While the operation of the MCAS is clearly a factor, there are indications that a number of other aspects of the design may be involved in the overall failure chains.

Passenger confidence in the 737 MAX series evaporates.  People indicate they are unwilling to fly on a 737 MAX, at least until the aircraft is positively demonstrated to be safe.  Aircrews also express apprehension about the airplane.

Airlines begin cancelling their orders if they are able.  However, their contracts with Boeing make this very difficult.

Boeing continues to produce over 40 unmodified existing 737 MAX aircraft every month while no customers take delivery.  Boeing has difficulty finding places to store all the airplanes coming off the production line. Employee parking lots are filled with 737 MAXs.

Boeing management asserts in public testimony that the company has done nothing wrong.  The 737 MAX design is safe, Boeing’s design and certification processes for the airplane were sound, and that the pilots in the two crashes should have been able to overcome the problems even though they had no knowledge of the existence and operation of the MCAS.

Boeing tries to show that pilots should have been able to deal with the problems in the two crashes by reproducing the conditions in simulators.  However, the pilots in the simulator trials appear to have known what to expect, rather than being taken completely by surprise, so a successful recovery in a simulator may not be a realistic confirmation of the system safety.  There are doubts that the simulator trials are realistic in other respects as well.

Lawsuits against Boeing begin piling up, with many different plaintiffs filing suit.  Boeing’s stock price declines.

At the same time as the 737 MAX crisis, news comes out about serious manufacturing defects in other Boeing jetliners currently being produced.  These defects include tools, even ladders being left inside structural compartments after being closed up. The defects also include damage to electrical power and signal cabling that can cause shorts and defective data.  The U.S. Air Force refuses to accept additional Boeing KC-45 tanker aircraft (modified 767s) because of these production quality control defects. Boeing 787 Dreamliners are also reported to have serious manufacturing quality control problems.

A separate defect independent of the MCAS software is discovered in the 737 MAX flight control system. A microprocessor can get overwhelmed by the volume of data to be handled and cause significant delays in processing.

Although the investigation of the detailed causes of the crashes is far from being completed, Boeing is desperate to get the 737 MAX back into service as soon as possible.  Boeing engineers work on modifications to the MCAS software. However, no changes are made to the physical systems (sensors, signal and power buses, etc.). There is no guarantee that changes to the MCAS algorithms are sufficient to make the airplane safe.

Problems with Boeing’s Proposed Solution

Boeing proposes the fix for the 737 MAX is a software change to the MCAS so that it will only push down one time and not repeatedly.

This does not correct the multiple single-point-of-failure cases: depending on a single angle of attack sensor, a single data bus, and a single electrical circuit connecting the angle of attack information into the flight control computer.

This also does not correct the fact that MCAS does not take into account other data that show the aircraft is  not  in danger of stalling.  The flight data recorders from both crashes indicate that the other systems were showing that the nose attitude was down (not up), the trim was full nose down, the altitude, airspeed, power, and ground proximity warning all provided contrary indications to a stall situation and were opposite to what MCAS was designed to prevent.  A proper implementation of the MCAS would involve a complete integration with other flight data systems to provide backup, redundancy, and corroboration, so the MCAS cannot act alone or contrary to the majority of other indications.

Furthermore, MCAS bypasses pilot display of the situation and pilot control as primary, contrary to all good transport aircraft design practice.

There is a strong likelihood that damaged wiring may have caused the faulty inputs to the MCAS function.  On one of the aircraft that crashed, the angle of attack sensor produced faulty readings on flights the previous day.  Before the fatal flight, it was replaced with a brand new unit, indicating that the sensor itself was unlikely to be the source of the problems.  Boeing’s proposed fix does nothing to correct the possibility of damaged wiring from manufacturing quality control defects.

In one of the 737 MAX crashes, it appears that the powered stabilizer trim may have re-engaged itself after the pilots acted to disengage it.  This is not being addressed in Boeing’s proposed MCAS software fix.

The proposed fix does not have a means to disable the MCAS software functions altogether.  MCAS will continue to operate, regardless of pilot actions.

Boeing is not proposing to provide new training for 737 MAX pilots as part of the fix.  In particular, 737 flight simulators are not being upgraded to accurately represent the MCAS functionality and possible failures.

Importantly, Boeing is trying to avoid a full FAA (and other nation airworthiness agency) certification review of the modified aircraft, because this could delay returning the 737 MAX aircraft to service for a substantial period.

Pilot Views

Chesley "Sully" Sullenberger, the pilot for the “Miracle on the Hudson” water landing of an Airbus airliner in 2009, told the House Transportation Committee during a hearing on the 737 MAX that it is critical that pilots not be faced with "inadvertent traps."  He said "We must make sure that everyone who occupies a pilot seat is fully armed with the information, knowledge, training, skill and judgment to be able to be the absolute master of the aircraft and all its component systems and of the situations simultaneously and continuously throughout the flight."  Boeing’s attempt to avoid specific training for the 737 MAX and its specific characteristics is viewed very negatively by pilots.

Conclusions

Boeing has been driven by economic incentives into producing a product with deficiencies, seriously harming its reputation as a trusted supplier of safe aircraft.  By selling the 737 MAX as not requiring detailed certification review and needing no significant pilot training for the new characteristics of the aircraft, Boeing has failed in its responsibilities to be honest with regulatory authorities, airline customers, aircrews, and the flying public.  It is not clear at the present time (July 2019) when appropriate corrective actions can be completed to make the 737 MAX aircraft safe to return to regular airline service, even as large numbers of unmodified aircraft continue to roll off the production lines.

Appendix: Federal Aviation Regulation Airworthiness Criteria

• Sec. 25.173 — Static longitudinal stability.

Under the conditions specified in §25.175, the characteristics of the elevator control forces (including friction) must be as follows:

(a) A pull must be required to obtain and maintain speeds below the specified trim speed, and a push must be required to obtain and maintain speeds above the specified trim speed. This must be shown at any speed that can be obtained except speeds higher than the landing gear or wing flap operating limit speeds or  V FC /M FC, whichever is appropriate, or lower than the minimum speed for steady unstalled flight.

(b) The airspeed must return to within 10 percent of the original trim speed for the climb, approach, and landing conditions specified in §25.175 (a), (c), and (d), and must return to within 7.5 percent of the original trim speed for the cruising condition specified in §25.175(b), when the control force is slowly released from any speed within the range specified in paragraph (a) of this section.

(c) The average gradient of the stable slope of the stick force versus speed curve may not be less than 1 pound for each 6 knots.

(d) Within the free return speed range specified in paragraph (b) of this section, it is permissible for the airplane, without control forces, to stabilize on speeds above or below the desired trim speeds if exceptional attention on the part of the pilot is not required to return to and maintain the desired trim speed and altitude.

[Amendment 25–7, 30 FR 13117, Oct. 15, 1965]

• 25.601 General.

The  airplane  may not have design features or details that experience has shown to be hazardous or unreliable. The suitability of each questionable design detail and part must be established by tests.

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What Corporate Boards Can Learn from Boeing’s Mistakes

• Sandra J. Sucher
• Shalene Gupta

Five lessons from the 737 MAX shareholder lawsuit.

Board members have an incredibly difficult job. On average they spend between 250 to 350 hours a year advising the company, and they must understand the manifold issues management is dealing with, as well as the industry and global context. When they fail at these duties, the consequences, including public outrage, can be immense, as we’re seeing in a shareholder lawsuit against Boeing. The suit offers five main lessons for companies and board members: 1) Hire board members for competence and objectivity; 2) Ensure that the board structure aligns with industry needs; 3) Prepare for the worst case; 4) Manage for truth and realism; and 5) Practice accountability and punish wrongdoing.

In February, Boeing shareholders filed a lawsuit against the company’s board of directors. They argued that the board had neglected their oversight duty, failing to hold Boeing accountable for safety before and after the crashes of two 737 MAX airplanes that killed 346 people in 2018 and 2019. “Safety was no longer a subject of Board discussion, and there was no mechanism within Boeing by which safety concerns respecting the 737 MAX were elevated to the Board or to any Board committee,” they wrote in the 120-page filing .

• Sandra J. Sucher is a professor of management practice at Harvard Business School. She is the coauthor of The Power of Trust: How Companies Build It, Lose It, and Regain It (PublicAffairs 2021).
• Shalene Gupta is a journalist and writer. She is co-author of   The Power of Trust: How Companies Build It, Lose It, and Regain It  (PublicAffairs, 2021), and the author of The Cycle: Confronting the Pain of Periods and PMDD (Flatiron, 2024).

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