(Bloomberg) -- On Jan. 5, the plug door of an Alaska Airlines 737 Max 9 blew out mid-flight, forcing the plane into an emergency landing with a large hole in the fuselage. Miraculously, nobody was hurt or killed, but it could have been a disaster. It was the latest in the persistent string of mechanical and engineering setbacks that have plagued Boeing over the last six years. Of course, the company went into crisis mode in late 2018 and early 2019 when two different 737 Max planes crashed, killing 346 people combined. So what's wrong with Boeing? It's a crucial question since the company is arguably America's pre-eminent manufacturer and one of the only two dominant global players in commercial jets. On this episode we speak with Bloomberg investigative reporter Peter Robison, the author of Flying Blind: The 737 MAX Tragedy and the Fall of Boeing. We discuss the company's problems, its history and culture, and how it lost its focus on safety and engineering in favor of a focus on pleasing shareholders. This transcript has been lightly edited for clarity.

Key insights from the pod:The origins of Boeing’s fallout — 4:44Alaska Airlines flight and prior crashes — 5:35The evolution of Boeing’s culture — 10:37Financial pressures onBoeing — 12:10Miscommunication leading to mass failure — 15:08Balancing improvement and over-engineering — 18:09How has Airbus avoided the issues? — 19:33Should Boeing be nationalized? — 20:38Safety and the MAX crashes— 22:36Calhoun’s rise at Boeing — 25:18Options for Boeing engineers — 30:19The outlook for Boeing — 32:18

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Joe Weisenthal (00:10):Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. 

Tracy Alloway (00:15): And I'm Tracy Alloway.

Joe (00:17):Tracy, this might seem like the most obvious statement in the world, but I'm really worried about Boeing. And I don't mean like flying on one per se.

Tracy (00:25): Oh, really? I mean, that's kind of what I would be worried about. But I feel like I need to do a disclaimer before we do this episode, which is that I have a massive soft spot for Boeing. I think a lot of Americans actually maybe still do. My dad flew B-52s, and then he flew 737s for Southwest for a long time. I've been in a 737 simulator with him. I covered airlines, not really aerospace, but airlines for a while. And so I feel like my life has, to some extent, been a little bit entwined with Boeing. A large part of my inheritance, if I get it, is Southwest stock, which I think still kind of correlates with Boeing, given that their fleet is all 737s. So, there's my disclaimer. Upfront.

Joe (01:10): That is a very good thorough disclaimer. So when I say I'm worried about Boeing, I mean, I guess as someone who flies...

Tracy (01:20):As a passenger, yes.

Joe (01:21):As a passenger, occasionally. You know, Boeing is one of the most important manufacturers in the world, certainly to the US economy. Commercial aviation is one of the areas in which the US Boeing is still a dominant leader. It's not one of these spaces that's lost its crown in one way or another to China, the way we've seen in other industrial sectors.

And as a society, it feels [that] policy-wise we want to reinvigorate American manufacturing. We know about the importance of complexity, which is something that we talk about a lot on this show. Probably, you know, a Boeing pane. These are among the most complex manufactured products in the world. And so if the preeminent maker of planes in America is having perpetual trouble making planes, that worries me about the country.

Tracy (02:07):So there’s two things here. I think there’s two ways of thinking about what the Boeing story, or at this point the downfall of Boeing, really says about the economy. And I say downfall because while it's true it hasn't been superseded by a Chinese manufacturer, it has lost a huge amount of market share to Airbus, its main competitor.

So two things. So one, absolutely [it’s] indicative of the path of American manufacturing or industrial capacity within the US. But I also think it says a lot about the structure of the economy and the wider incentives at play. And you think about, you know, concentration of corporate power, Boeing and Airbus are so emblematic of this. You basically have a duopoly, or you had [one] for many years. And now we're kind of moving, I guess, to a monopoly as Airbus sells even more planes. But it's interesting to me, both from a manufacturing perspective and also from an incentive perspective, like what are the decisions? What is the system in place that leads to an outcome where you have one or two extremely dominant manufacturers of something that's really important?

Joe (03:19):  Totally! And then of course, you know, just sort of dovetailing on what you said, there's all these questions about sort of financial capitalism versus industrial capitalism. And whether, you know, is this an area in which desire to boost the stock price through one way or another by increasing the dividend, allocating more to shareholders rather than reinvesting in safety, etc.? Whether that was the impulse or whether that was a driver of the troubles that we've seen at Boeing? Huge, I just think like core questions for us and the US economy. 

Tracy (03:53):Boeing is sort of an expression at this point of some of the thorniest issues facing the US economy. It feels like it kind of encapsulates all of them.

Joe (04:01):Yes. So we really have to do a Boeing episode, probably more than one. But we got to start. So I'm really excited to say we literally do have the perfect guest today. We are going to be speaking with Peter Robison. He is the author of Flying Blind: The 737 MAX Tragedy and the Fall of Boeing, which is a New York Times bestseller. He's also our colleague, and he is an investigative journalist here at Bloomberg. So Peter, thank you so much for coming on Odd Lots.

Peter Robinson (04:29):Thank you for having me.

Joe (04:30):So many different ways we could begin this, and Boeing touches on so many things. But where does the story begin in your view, or in your book? Literally, when you think about the Boeing saga, where does the story begin?

Peter (04:44):Well, It really reflects some of the things that Tracy was saying, because this is a company where just about everyone that I meet has an incredible amount of pride in the product. They got into the industry because they wanted to build things that fly. They wanted to affect the future. They wanted their work to have meaning.

And I started covering this company in the late 1990s, so I have a lot of history following it. What I noticed again and again was that these workers seemed let down by management. They seemed let down by management who weren't investing for the future, who were pushing for free cash flow over investment and new products. And what we've seen increasingly over the last few years is the fallout of those management allocation decisions that are being shown to be deeply flawed. 

Tracy (05:31):So we should probably talk about why we're doing this episode.

Joe (05:35):Yeah, right.

Tracy (05:35):We kind of forgot in the intro. I guess it's a testament to just how many problems Boeing has had at this point with its new Max-9 model. It's just been, I guess, years and years of problems at this point. But Pete, why don't you explain what has happened recently? What's the latest fiasco in the history of this relatively new aircraft introduced by Boeing?

Peter (06:00):This is an almost brand-new aircraft. The Max-9 is the latest version of, I believe, the fourth version of the 737, which dates back to 1967. 

Tracy (06:13):The world’s most popular aircraft for a time, right? The 737?

Peter (06:15):For a time, yeah. And bestselling narrow-body plane of all time, more recently superseded by Airbus. But, I'm sure people have seen the terrifying cell phone videos of a portion of the plane being ripped off and the plane landing with a gaping hole in its side — which Boeing CEO Dave Calhoun said was our mistake. And the leading theory is that it was due to perhaps shoddy workmanship at either Boeing or its leading supplier, which used to be part of Boeing until an outsourcing strategy, which was partly designed to raise free cash flow, led Boeing to sell that supplier.

Joe (06:55):So now of course, you know, just again zooming out obviously [on] Jan. 5, we've seen the cell phone videos of the door flying off, and sort of miraculously nobody died. The plane was able to make an emergency landing. But of course, the story in many people's minds begins in 2018 with the two crashes. One in late 2018, and one in early 2019 with the 737 MAX. What is the 737 MAX? Actually, when there is a 737 MAX-8 or a 737 MAX-9, what is this product?

Peter (07:28):It is a roughly 150 to 180-seat airplane that is designed to be the most cost-effective A-to-B device in the skies. The 737 is designed for quick turnaround, short-haul flights. It's meant to be extremely reliable and cost-effective for the airlines. So a lot of low-cost airlines, like Southwest, fly the 737. And the MAX-8, as you mentioned, in 2018 had just been introduced. In the space of five months, two crashes were found to be due to a flight control system that had been implemented without telling the pilots it was there and pushed the nose of the plane into the ground without them being able to control it.

Tracy (08:16):So I realize it's early days on the most recent incident with the Alaska Airlines plane and the door kind of blowing out. But what do we know so far about that particular situation? And I guess, what's the significance of the difference of something happening with, say, bolts not being drilled correctly, versus a problem in the flight control, I guess essentially, software of previous crashes?

Peter (08:45):In some ways, this could be seen as potentially a simpler problem than the problem with the flight control software. Because the flight control software was a design issue that required extensive reworking of the software and retraining of the pilots. In this case, it seems that someone didn't do their job and there wasn't potentially a second set of eyes on the work that was done.

So what happened was that a portion of the plane that would've looked like a window to passengers was actually behind the wall — an emergency exit — and there was a plug door put over that part of the plane. And that plug door, as the plane reached 16,000 feet, escaped the plane and the hole opened. And the theory is that there were just four bolts that attached this plug door to the plane, and either they were not fastened properly, or they simply weren't installed at all.

Tracy (09:37):“Escaped the plane” is a very creative way of saying catastrophic in-flight decompression, but here we go.

Peter (09:44):Yes. It would've been, it was terrifying to people on the plane.

Joe (10:05):The story that people tell, or as this idea, and you sort of already hinted at, is that at one point Boeing had an engineering culture. And I'm sure there still is a very intense engineering culture, but that was really dominant. And then it became more of a financial culture or a shareholder-friendly culture. People were brought in and there was more focused on dividends, etc. And I get why people tell the story, but what actually happened? What was the culture of Boeing maybe during its best days? And then when did that begin to change in your view, in your telling of the story?

Peter (10:37):I've talked to employees from pretty much every era, even back in the 1950s. 

Joe (10:43):Wow. 

Peter (10:44):People who worked at Boeing and the early stage of Boeing is very much this, there's a saying at Boeing ‘We hire engineers and other people.’  It was very much focused on product, it was focused on customers, It was, you know, we'll have a service team, when a new airplane was introduced, there would be a service team waiting at every landing to see how the plane performed.

Over time, as the company grew, especially as it became dominant, one train of thought that complacency set in. Boeing, at the time by the 1980s, had more than 60% of the market. And it did settle into essentially a duopoly with Airbus. The 777 in the 1990s was, many people have told me, the high point of Boeing's design culture. One person called it Boeing's ‘Camelot.’

What happened after that point was two things: Boeing purchased McDonnell Douglas and McDonnell Douglas was the also-ran to Boeing's leader for much of the commercial jet age. That brought in McDonnell Douglas leaders who were trained more in the free cash flow approach to management. And especially one leader, Harry Stonecipher, who had been a disciple of Jack Welch. And it was very much raise the stock price, buybacks, not as much investing for the future. And if you recall, the late ‘90s was also the time when Jack Welch was seen as the paragon of corporate culture.

Tracy (12:10):The cult of GE. This kind of leads to something I wanted to ask, why did Boeing feel, this might be a weird question, financial pressure at all? Given that, you know, it was the leader in aerospace manufacturing at that moment in time? It wasn't like anyone was really doing better than it. At least until, I guess until [John] Leahy came in as the Airbus CEO.

Peter (12:33):That's an interesting question. They felt two kinds of pressure. They felt market pressure because Airbus came in and did have extensive state support and built what was considered a very, very, very good airplane, the A320, which had fly-by-wire technology and electric sensors that Boeing's 737 didn't have. It was a more analog plane that used cables and pulleys to connect to the flight surfaces.

So there was some, you know, real competition from the point of view of the product. And there was always the comparison. Boeing would be compared to other industrial companies. And the comparison company for Boeing was General Electric. And so [Philip] Condit, the CEO in the late ‘90 and early 2000s, would be compared quite critically by Wall Street analysts to Jack Welch. ‘Why aren't you raising the cash flow like he is? Why aren't you raising the dividend?’

Tracy (13:24):It's so crazy to me that people made that comparison when it's GE making, I mean not exclusively, but consumer appliances versus a company designing planes.

Joe (13:33):They did make engines, right?

Tracy (13:34):Yeah. They have a huge engine [business], that's fair. But still, there's a lot more, I guess, leeway when you have an industrial conglomerate maybe to experiment versus when you're making one thing.

Joe (13:45):Completely agree. Okay, so they brought in McDonnell Douglas executives, some or at least one of whom was a Jack Welch acolyte. Wall Street started comparing its margins to GE and the influence of Jack Welch thought [was] all over the place. From the perspective of engineers within the company, what did they notice as this new breed [was] brought in? Were there changes in what they were told to do? How did that manifest itself internally?

Peter (14:18):That's a good question. They started feeling it in all sorts of ways. One good example is their employee evaluations. I saw one engineer's evaluation where the manager had noted ‘ideas are measured in dollars.’ Or as the MAX was being developed, which was a time when Boeing did have cash, but instead was spending about $40 billion on buybacks [in between 2013 and 2018]. But the MAX, the engineers were noticing, was held to a tight budget. They were told that any changes would have to ‘buy their way’ onto the airplane. So when one engineer proposed adding a check and balance of the flight controls that would've potentially noticed the issue with the flight control software that led to the crashes in ‘18 and ‘19, was told no.

Joe (15:08):You basically anticipated my question. But when you look at what happened in 2018 and 2019, can you just sort of tell the story? The sort of succinct version of the story about what was going on inside Boeing that they made this software change and apparently did not communicate well to pilots or to the airlines buying the planes that this change had been made.

Peter (15:34):Over time, it became a very compartmentalized organization, a lot of different silos. And there was one silo that was looking at the issues that were raised by the larger engines that were put on the plane. The larger engines, you know, potentially made the plane more prone to stall.

So one group of engineers added this software that would push the nose down. And late in the process, there was a decision made to tie that software to a single sensor, the A08 gauge, which is prone to bird strikes. It's prone to various failures.

Separately, there was a group at Boeing that was working with the FAA and pilots on the flight manual for the plane. And the flight manual showed that there were no changes to the flight control software. MCAS was not described. Late in the process, it was discovered that there were certain conditions where the nose of the plane could be pushed down. But it did not appear in the flight control manual.

So it was a miscommunication. And ultimately, what the Justice Department found is that a couple of Boeing's employees who learned about this change late should have told the FAA, should have brought in the FAA, and had that included in the manual.

Tracy (16:49):How do you disaggregate, I guess, corporate short-termism and the drive for profits, andbureaucratic oversights that led to two massive tragedies — I think more than 300 people killed in both those crashes — versus Boeing catering to what customers were asking for. Because I remember in the mid-2010s, oil prices were going up. The refrain in the aerospace industry was always ‘make the planes more efficient, more efficient, more efficient.’ The larger engine sizes located closer to the front of the aircraft eventually had to be offset with the new flight control system, MCAS. It was a result, partially, of trying to make the plane burn less fuel, and I guess to some extent give the airlines what they were asking for.

Peter (17:43):Yeah, it's an industry that's under tremendous cost pressure. In this case, as Boeing said itself, it was a few lines of code. It wouldn't have [cost] anything to do the job correctly. But as you're saying it, it is partly pressure from customers that's driving this. And it was, in some ways, Southwest's desire to keep the plane similar to previous versions that led to some of the cost pressures.

Tracy (18:09):How do you balance the drive for continuous improvement and efficiency with the dangers of over-engineering or creating these kinds of problems?

Peter (18:19):You know, simple is always better. And in some cases, Boeing's management lines became awfully confused. In the case of the MAX, the engineering team was reporting to a business unit manager. It was the business unit manager who was making these decisions. There was a countdown clock that was put up near that person's desk so the engineers could see exactly how much time there was left.

Joe (18:45):Tracy's question makes me think about this question in another way. There's complexity and there's sort of these weird business lines of reporting as you've just mentioned, versus again, the sort of shareholder capitalism, buybacks, the lack of investment, the lack of reinvestment or internal investment. Setting aside uses of capital, how much is it a story of the company just becoming, as a corporation, internal and weirdly complex? And now I'm thinking, Tracy, about our episodes on software. And the MAX we talked about, that the software product itself becomes a reflection of the complexity with the organization.

Tracy (19:29):Yeah, but the irony was that the A320 is the more complex aircraft.

Joe (19:33):Well, that too. I'm also curious why haven't some of these same issues bedeviled Airbus the same way.

Tracy (19:39):Yeah, that's the question I was going to ask. Why hasn't Airbus succumbed to the same financial incentives that have been Boeing's downfall?

Joe (19:47):Or the internal complexity of a gigantic flying machine?

Peter (19:51):I think one difference is that it is in Europe. To this point, it's not the same shareholder-driven culture. And consistently the capital expenditures have been higher at Airbus. We had some numbers on Bloomberg showing that over the last 10 years, Airbus' revenue has grown, Airbus’ CapEx has grown. At Boeing, the revenue has declined and the CapEx has declined. So there's a more long-term management focus. I was told there isn't the same hire-and-fire mentality. There are stricter work rules so that you may not have the turnover of employees that you see in the United States.

Tracy (20:38):Should Boeing be nationalized? Some people would argue that Airbus, I mean, what you're alluding to is Airbus is almost… Someone's going to get very mad.

Joe (20:48):We can’t say it, but it's at least perceived, right Tracy? To be more of a state...

Tracy (20:50):Yeah. De facto nationalized, kind of? Please don't at me online.

Joe (20:57):I believe there are big, like, WTO fights over this every few years

Tracy (20:59):Yes, that’s a good way of putting it.

Peter (21:02):It's an interesting question, I've wondered that myself. I think there are, you mentioned other countries coming into the market, China has an airplane that they've delivered one or two a year so far. It's probably not a viable competitor over 10 years. But if Boeing doesn't get its act together, you have to wonder if nationalization is a possibility. It's got $40 billion in debt. You can't imagine a future where the US wouldn't want to maintain a viable commercial aircraft manufacturer. It's also so important for military aircraft in some ways. And as you alluded to, it is state-supported already through the military and space contracts.

Joe (22:00):What happened after 2019? So I don't remember, I didn't follow it that closely, but I assumed that after the crashes in 2019 and the flaws discovered with the software, etc., I imagine management went through a big thing of ‘we're changing, we're going to change the culture, we're going to focus, safety as our number one priority.’ I'm just imagining, I didn't see that. But I imagine they said things like ‘Safety is our number one priority.’

Tracy (22:26):There were memos, Joe.

Joe (22:27):Many memos about all that stuff. What did actually happen though? Did the company change in any way after the second crash in 2019? 

Peter (22:36):Well, you've imagined the messaging exactly right. There were times in the mid-aughts when Boeing wouldn't mention the word ‘safety’ in its annual report. But Dave Calhoun, taking over as CEO, mentioned safety was the number one priority many, many times. There was a safety committee created for the board.

Boeing shockingly didn't even have a committee dedicated to safety until the MAX accidents. And I'm told that Dave Calhoun talked extensively to Mike Fleming, who was the exec in charge of the MAX’s return to service. I'm told that he talked to him regularly. And what you're seeing is that throughout the organization, the same problems are there.

Boeing is trying to get the production rates back up, especially since the pandemic, especially at its supplier, Spirit. There was a lot of turnover there. And what you're seeing is, as Dave Calhoun said himself, that they need to renew the safety culture, and they need to focus on it again.

Tracy (23:38):What about the FAA, the Federal Aviation Administration? So I don't think we can have this conversation about the incentives and the structure of the system that created this bad outcome without talking about the relationship between Boeing and the FAA.

Peter (23:55):Yes, because that turned out to be a bad relationship. The FAA, especially the FAA management, began to see its role as helping Boeing in its goal of delivering airplanes. And the incentives for managers became almost to see the aircraft industry as the customer rather than as the regulated entity.

You know, I wrote about many cases in my book where the FAA manager in charge of monitoring Boeing would then go on to get a job at Boeing or at the industry lobbying group. So that problem with the revolving door is there. In this case, since the latest incident, the FAA, at least in its press releases, is being very careful to say that the plane will fly when we determine it's safe. You know, we determine the timeline here.

Joe (24:46):On Calhoun, so I'm doing the thing where I pulled up his Wikipedia page to look at his bio, so maybe it's wrong or right. But former GE guy, and then he ran Nielsen, which I don't think is a manufacturing company. And then he also joined the Blackstone group as a senior managing director and head of private equity portfolio operation. What was the choice when he was elevated to become the CEO, of someone who it's not obvious that their background is particularly engineering-focused.

Peter (25:18):No. Well, he did come from GE. But he had been on Boeing's board since 2009, so definitely not independent by any means. His Nielsen and Blackstone period, I wrote about this in my book. He went to Blackstone's annual conference, and this is again going back to the 2010 to 2014 period, and talked almost lovingly about the amount of cash the business was generating.

And he made appearances during this period about the amount of government regulation being not helpful. And yet he is the person in charge at Boeing now at this crucial time. I think one issue was that it would've been very hard to find anyone to take the job after Dennis Muilenburg had been pilloried internationally for his handling of the MAX crisis. I did hear that Alan Mulally, who was sort of a much-loved leader of the commercial airplanes group in the late ‘90s, early 2000s, a group of retirees wanted him to come back. And he replied ‘If asked, I will serve.’ But as far as we know, he was never asked.

Joe (26:32):Nobody asked, huh?

Tracy (26:33):What sort of response have we seen from customers of Boeing? So the airlines themselves. I have to imagine, and in fact, we've already seen this since the first two crashes, but I mean, you have to be thinking twice about whether or not you want to purchase this aircraft.

Peter (26:49):You're seeing customers make decisions with their purchasing. It used to be that Boeing had 60% of the narrow body market. Now Airbus has 60% of the narrow body market, and customers are saying they need to get their act together. Tim Clark from Emirates has been saying this repeatedly, for one.

Tracy (27:09):Do you see customers asking — this was always a thing in airline and aerospace reporting — the purchase agreements for aircraft were massively secret. And I remember I used to know a sell-side analyst whose dream was to one day see an actual contract for an aircraft purchase. I don't know if he ever got to see one, I'd be interested to see one. But do you see people asking for discounts on the list prices? Or do you see people maybe, I don't even know if this is possible, but embedding terms? Like ‘If there's another issue with this aircraft, then we want to get some sort of compensation or something out of it?’

Peter (27:47):They do get compensation if planes are on the ground. There's contractually-agreed compensation. So it's likely that something like that is, you know, it will take place with Alaska and Boeing. In many cases, airlines who stepped up and bought the MAX after the crashes likely did get discounts. So airlines are opportunistic in that way.

Joe (28:10):It's easy to point to Calhoun, and say ‘Oh, GE, and Blackstone, and Nielsen….’ The engineers that you've spoken to within Boeing since he took over, it's one thing to say, ‘Okay, we're going to have a safety board or a safety org that reports to the board.’ Did they feel any different? Did they feel that there were changes internally in terms of taking the manufacturing and manufacturing quality more seriously?

Peter (28:35):That's a good question. You know, at the lower level, I'm not sure if people did feel that any differently. I think definitely at Spirit, which, you know, applies the fuselage for the 737….

Tracy (28:51):It's not the airline, Joe.

Joe (28:52):Right. So there's Spirit AeroSystems and was that a spinoff of Boeing?

Peter (28:56):It was, yeah. Originally that was Boeing Wichita and it made the fuselage.

Joe (29:00):But now it's a separate company that does a lot of the manufacturing for Boeing. Okay

Peter (29:03):Yeah. So what they experienced was that in the sort of ‘90s, early 2000s, they were part of Boeing that made the airplane. They were a cost center that was spun off to a private equity firm, and there was an attempt to turn that into a profit center. That proved very difficult because the airline industry is cyclical. And so when the pandemic hit, the production declined quite a lot. And Boeing had to redo its agreement to get it some more cash. So the supply base still feels pressure ultimately to raise production rates.

Tracy (29:43):What impact do all of these issues — and again, at this point, there's sort of a long list. So in addition to the MCAS failures that we've been describing, there’s what just happened with Alaska Air. There's also been like missing nuts on rudder control systems and a couple of other smaller issues that have surfaced — but what impact does this litany of problems have on the morale of engineers? And I guess what are their options? If I'm a senior engineer working at Boeing and I decide this company is no longer for me, where do I go?

Peter (30:19):So some of the knowledge that you get in the commercial [space], especially for Boeing which has this long-running plane, I've talked to engineers who say that ‘I'm not employable somewhere else because I know this particular facet of the 737. But it's not built that way in other places.’

It really depends on the age of the engineer. I mean some of the older engineers may feel that their skills aren't transferable, but it definitely has an impact on recruitment and hiring. That was something I know that people at Boeing worried about after the MAX. That young engineers might prefer to go to Blue Origin or SpaceX or a tech company.

Tracy (31:00):Interesting.

Joe (31:00):Yeah, I hadn't thought about that. Another example, you know, it’s like when we talked about the engineers not wanting to go to energy companies last year or two years ago. There just may be more exciting places. What do you expect now? Maybe the 737 MAX-9 will be in the air again soon. I think that there was a story today on the Bloomberg about the first batch of inspections having been made, maybe the first step to getting them back in the air. Is it just going to be another ‘we take safety seriously?’ What do you expect to see now?

Peter (31:35):I think it'll probably be weeks or months before the MAX-9s are in the air again. And ultimately we'll have to see that Boeing follows through and that we do see a real systemic change. You know, some of the analysts I've talked to are fairly pessimistic and think that what may happen is that this crisis passes and then another crisis happens at some point in the future.

Tracy (32:00):So I should just say we're recording this on Jan. 17, and this is still a story that is unfolding in many ways. But what do you think will happen to Boeing? I know maybe I'm putting you on the spot, but you've written a whole book on this topic. What do you think the outlook is?

Peter (32:18):I think the outlook is that, sadly, it's going to be a long time before it’s back to number one. It’s going to be sort of a number two in the aerospace industry. The Chinese competitor, Comac in China, is only making as I said one or two planes a year now. But in 10 years you could see, I've talked to some people who say they view that company almost like Airbus in its early days, where it's state-supported and people may not think much of it, but over time it becomes a viable competitor.

Joe (32:51):Peter Robison, thank you so much for coming on the Odd Lots. That was great.

Peter (32:54):Thank you

Joe (33:08):Tracy, I just find that to be such a fascinating topic. You know, it's always tempting in any story, it’s like this is a metaphor for America, this is a metaphor for the American economy. But I kind of think in Boeing's case, there's a lot there to make that kind of legitimate.

Tracy (33:23):No, absolutely. And again, there's also this emotional attachment to the company, which you don't get for everything, right?

Joe (33:30):Or in your case, a big financial aspect.

Tracy (33:32):Financial incentive. No, that was super interesting. I love a chance to sort of reminisce about aviation. The thing that really strikes me is how much things have changed just in the space of like a little over a decade. Because again, I remember the early 2010s, it was Airbus going up against Boeing really. And I also remember the first time, no one's going to believe me, but I remember the first time I flew on an Airbus. Just sort of being like ‘Oh what is this aircraft?’ And then I remember people talking about the A320 and there was initially so much reticence about it. It was like ‘Oh it's too technical, there's too much software, it's too fancy, it's too French.’ I heard that many times, but then it dominates now, you know? I think Pete said 60% of narrow bodies now are A320s. Which again, complete reversal to previously when it was 60% were Boeing.

Joe (34:30):There's also the irony or perversity or maybe neither of those things, which is that Airbus has absolutely trounced Boeing when it comes to stock price. So it’s like people talk about...

Tracy (34:42):Oh yeah, the ultimate irony! They did this all for the share price.

Joe (34:46):Yeah, so all of this sort of focus on delivering to shareholders, etc. And yet, you know, if you look at the scoreboard, it's not even close. Because the stock is at levels it has seen in 2017. As of right now, Airbus is at an all-time high, up massively since then. So it didn't even work to boost the share price. I mean, of course, it makes sense the stock's down another 20-something percent just this year with the door blowout. But it is pretty striking how far it's fallen behind, just even on the financial metrics.

Tracy (35:18):Really an incredible result. The other thing I was thinking after that conversation is, you know, we mentioned the Chinese aerospace manufacturer Comac a couple of times. But I do wonder, so you know they are growing and they've had their first sales, I think, just in the last year. But is America ever going to be comfortable with a Chinese-produced aircraft? I think that's still an open question.

Joe (35:43):No. Maybe not, or maybe not for a long time. But will Middle East airlines be comfortable with the Chinese-produced aircraft? Will other Asian airlines including, say, obviously the first 737 crash in Indonesia. And there are many markets. I mean, this is a huge, you know, for the United States, this is one of our big manufacturing exports. And so maybe, I imagine it would be a long time before we'd see a Comac C919 or any other Comac plane in the US. But in a bunch of markets where it's really important for US exports, it doesn't seem very implausible at all.

Tracy (36:19):Yeah. Definitely an interesting conversation and probably one that we can follow up on, I imagine. Shall we leave it there for now? 

Joe (36:26):Let’s leave it there.

You can follow Peter Robison at @petermrobison.

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