Letter to Dennis A. Muilenburg, CEO of Boeing
By Ralph Nader
April 25, 2019
Dennis A. Muilenburg
Chairman, President and
Chief Executive Officer
The Boeing Company
100 North Riverside
Chicago, IL 60606
Dear Mr. Muilenburg:
On April 4, 2019 you somewhat belatedly released a statement that “We at Boeing are sorry for the lives lost in the recent 737 MAX accidents. These tragedies continue to weigh heavily on our hearts and minds….” You added that a preliminary investigation made it “apparent that in both flights” the MCAS “activated in response to erroneous angle of attack information.”
These and other remarks reflect years of mismanagement by Boeing executives, now tragically bearing bitter fruit. Your acknowledgement of the problems with the 737 MAX somehow escaped inclusion in your messages to shareholders, the capital markets and the Securities and Exchange Commission. It is now stunningly clear that your overly optimistic outlook on January 20, 2019 – after the Indonesian Lion Air crash – was misleading. Whatever the public learns, day after day about the troubles of your company, it is still far less than what Boeing knows will come out day by day, and not just about the deadly design of the 737 MAX.
Your narrow-body passenger aircraft – namely, the long series of 737’s that began in the nineteen sixties was past its prime. How long could Boeing avoid making the investment needed to produce a “clean-sheet” aircraft and, instead, in the words of Bloomberg Businessweek “push an aging design beyond its limits?” Answer: As long as Boeing could get away with it and keep necessary pilot training and other costs low for the airlines as a sales incentive.
Boeing kept on this track until the competition from its only competitor, Airbus, came along with its A320neo. The year 2011 was a crucial period for the company. Top management was into preliminary work on a new aircraft and then panicked over Airbus’s success. To compete with Airbus, Boeing equipped the 737 MAX with larger engines tilted more forward and upward on the wings than prior 737’s. Thus began the trail of criminal negligence that will implicate the company and its executives. The larger engines changed the center of gravity and the plane’s aerodynamics. Boeing management was on a fast track and ignored warnings by its own engineers, not to mention scores of other technical aerospace people outside the company. The Maneuvering Characteristics Augmentation System (MCAS) software fix or patch with all its glitches and miscues is now a historic example of a grave failure of Boeing management. Yet, you insist the 737 MAX is still safe and some alteration of the MCAS and other pilot advisories will make the aircraft airworthy. Aircraft should be stall-proof, not stall-prone. Trying to shift the burden onto the pilots for any vast numbers of failure modes beyond the software’s predictability is scurrilous. Deplorably you are still pushing to end the grounding for the 737 MAX and resume delivery of nearly 5000 orders worldwide. The Boeing 737 MAX must never be permitted to fly again – it has an inherent aerodynamic design defect.
No matter your previous safety record of the 737 series, Boeing doesn’t get one, two or more crashes that are preventable by adopting long-established aeronautical knowledge and practices. You are on the highest level of notice not to add to your already extraordinary record of criminally negligent decisions and inactions. Result – 346 innocent people lost their lives.
A reckless salesman, driving dangerously to reach a customer and close a deal, causing a collision and death of a family in another motor vehicle, does not get to be exonerated from a manslaughter prosecution by saying he has a 25 year good driving record.
Boeing management’s behavior must be seen in the context of Boeing’s use of its earned capital. Did you use the $30 billion surplus from 2009 to 2017 to reinvest in R&D, in new narrow-body passenger aircraft? Or did you, instead, essentially burn this surplus with self-serving stock buybacks of $30 billion in that period? Boeing is one of the companies that MarketWatch labelled as “Five companies that spent lavishly on stock buybacks while pension funding lagged.”
Incredibly, your buybacks of $9.24 billion in 2017 comprised 109% of annual earnings. As you well know, stock buybacks do not create any jobs. They improve the metrics for the executive compensation packages of top Boeing bosses. Undeterred, in 2018, buybacks of $9 billion constituted 86% of annual earnings.
To make your management recklessly worse, in December 2018, you arranged for your rubberstamp Board of Directors to approve $20 billion more in buybacks. Apparently, you had amortized the cost of the Indonesian Lion Air crash victims as not providing any significant impact on your future guidance to the investor world.
Then came the second software-bomb that took away control from the pilots and brought down Ethiopian Airlines Flight 302 on March 10, taking the lives of 156 passengers and crew. At the time, you were way overdue with your new software allegedly addressing the avoidable risks associated with the notorious 737 MAX.
Don’t you see some inverted priorities here? Don’t you see how you should have invested in producing better aircraft, if you wished to compete with Airbus, whose engineers were allowed to do their job and avoid design instabilities? Instead, your top management was inebriated with the prospect of higher stock values, through stock buybacks and higher profits by keeping your costs lower with that “aging design” of the Boeing 737s. It now is apparent that you guessed wrong – big time for your passengers as well as for your company and its shareholders.
Boeing is in additional trouble that reflects poor management. On March 22, 2019, the Washington Post reported that NASA’s Administrator, Jim Bridenstine said “the agency is considering sidelining the massive rocket Boeing is building because of how far behind schedule it is.”
According to a second Washington Post, March 22, 2019 article, the delay in the “scheduled maiden launch in June 2020” and the “billions of dollars over budget” had NASA’s leaders in a fury. Last year, NASA’s inspector general excoriated your company, revealing it has already spent over $5 billion and is “expected to burn through the remaining money by early this year (2019), three years too soon, without delivering a single rocket stage,” wrote the Post.
On March 13, 2019, Bridenstine said “although NASA still steadfastly supports the massive rocket, known as the Space Launch System (SLS), the agency would consider sidelining it and instead using commercially available rockets for the mission known as Exploration Mission-1 (EM-1).” This announcement before the Senate Commerce, Science and Transportation Committee “set off shock waves… a major blow to NASA’s flagship rocket program and its main contractor, Boeing.”
And now, the agency is about to announce another major delay in the high-profile spacecraft Boeing is building to fly astronauts to the International Space Station.
On March 28, 2019, the World Trade Organization (WTO) after 14 years, issued a final ruling that Boeing received an illegal U.S. tax break from the state of Washington in prohibited subsidies under international trade rules. Boeing has long been a recipient of various kinds of extensive corporate welfare before and after it became a U.S. monopoly.
Then on April 21, 2019, the New York Times in a lengthy front-page story, based on “internal emails, corporate documents and federal records, as well as interviews with more than a dozen current and former employees,” reported that your South Carolina factory, which produces the 787 Dreamliner, “has been plagued by shoddy production and weak oversight that have threatened to compromise safety.” These problems have persisted notwithstanding two documentaries, commencing in 2013, produced by Al-Jazeera investigators reported similar problems. The Air Force last month temporarily stopped deliveries of the KC-48 tanker after finding random objects inside the new planes, causing Will Roper, Assistant Secretary of the Air Force to exclaim “To say it bluntly, this is unacceptable.”
It is not as if you are receiving anything but top dollar payments for these civilian and military aircraft. Or, you are underpaid at over $23 million in 2018 which comes to over $12,000 an hour.
In the midst of these accusations, whistleblower lawsuits, alleged retaliations by management, the Times reports your pace of production “has quickened” and that you are eliminating “about a hundred quality control positions in North Charleston [South Carolina].”
Boeing shareholders and your compliant Board of Directors should be advising you that the scheduled one hour annual shareholder meeting is not nearly enough time for you to explain these matters to shareholders in Chicago on April 29, 2019. Big corporations are run like top-down dictatorships where the hired hands determine their own pay and strip their shareholder owners of necessary powers of governance. Do not push this envelope, further. Your Board of Directors should disclose what you told them about the 737 MAX and when they knew it.
Already, corporate crime specialists are making the case for you and other top Boeing managers, having refused to listen to the warnings of your conscientious engineers, regarding the redesign of the 737 MAX, to face criminal prosecution. Note BP pleading guilty in the Deepwater Horizon oil spill, to eleven counts of manslaughter in 2013.
Already, the kindly corporate crisis specialists are issuing warnings, along with the mild ones by the shareholder service firms such as Institutional Shareholder Services (ISS), which urges separation of the roles of the Chairman of the Board and CEO, both of which you hold. Further, Glass Lewis urges removal of Boeing audit committee head Lawrence Kellner for “failing to foresee safety risks with the 737 MAX aircraft,” reported the Financial Times, on April 16, 2019.
Consider, in addition, the statement of two Harvard scholars—Leonard J. Marcus and Eric J. McNulty, authors of the forthcoming book, You’re It: Crisis, Change, and How to Lead When it Matters Most. These gentlemen did not achieve their positions by using strong language. That is why, the concluding statement in their CNN article on March 27, 2019, merits your closer attention:
“Of course, if Boeing did not act in good faith in deploying the 737 Max and the Justice Department’s investigation discovers Boeing cut corners or attempted to avoid proper regulatory reviews of the modifications to the aircraft, Muilenburg and any other executives involved should resign immediately. Too many families, indeed communities, depend on the continued viability of Boeing.”
These preconditions have already been disclosed and are evidentially based. Your mismanagement is replete with documentation, including your obsession with shareholder value and executive compensation. There is no need to wait for some long-drawn out, redundant inquiry. Management was criminally negligent, 346 lives of passengers and crew were lost. You and your team should forfeit your compensation and should resign forthwith.
All concerned with aviation safety should have your public response.
P.O. Box 19312
Washington, DC 20036