The Unraveling of Boeing | Jedi Mind Tricks | 3

0:062012, Seattle, Washington. In a Boeing research facility, two aerodynamicists are inside the company's transonic wind tunnel. Boeing uses this high-tech tunnel to test how its plane designs might perform under different conditions. And today they're working on Boeing's highest priority project, the 737 MAX. The 737 is Boeing's bestseller. It's the workhorse of the world's airlines. But it's under pressure. Airbus's equivalent, the A320, just got an upgrade. Its new addition, the A320neo, features modern, fuel-efficient engines, and airlines are loving it. So Boeing's following Airbus' lead in creating the 737 MAX, a 737 with modern jet engines.

0:51The aerodynamicists in the tunnel carefully set up a scale replica of the 737 MAX design. The model's about the size of an Eagle and looks just like a regular 737. Model ready, the aerodynamicists exit the tunnel and head to the control panel. On one monitor, they can see the Model 737 MAX waiting to be tested. Next to it, an LED display stands by to report on wind conditions in the tunnel. They've been testing the model for weeks, and today they want to see how it handles a steep banking turn. It's an extreme maneuver. One no commercial pilot is likely to ever do, but the MAX must be able to handle it in order to win permission to fly from the Federal Aviation Administration.

1:36The wind generator powers up. The aerodynamicists watch the orange numbers on the monitor tick upwards as wind speed rises. They take notes and adjust dials. One stares at the image of the model on the monitor and frowns. Nose is pitching up. Yeah, not good. It's the bigger engines, putting them further forward on the wings, creating more surface for lift. The aerodynamicists watch as the 737 Max's nose is pushed up towards the sky by the wind. That's a certification fail right there. If the 737 Max is to fly, Boeing's got to fix this. But the fix they come up with will prove deadly.

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4:25From Wondery, I'm David Brown, and this is Business Wars.

4:56On the last episode, a new shareholders' first culture swept through Boeing after its merger with McDonnell Douglas. And Airbus displaced Boeing as the world's biggest civilian aircraft manufacturer. Now, Airbus is going after Boeing's best-selling aircraft, the 737. So Boeing's fighting back by creating the 737 MAX. But updating the aging 737 is about to backfire more than the company ever imagined. This is Episode 3, Jedi Mind Tricks.

5:37It's spring 2011, one year before the 737 MAX wind tunnel tests, And the biggest commercial aircraft order of all time hangs in the balance. American Airlines is shopping for 460 jets to replace its aging fleet of narrow-body planes. Airbus and Boeing are desperate to win this mega order. They've spent months jostling for the airline's business. And now, American CEO Gerard Arpey is close to making a final decision. He sits in his glass-walled office in Fort Worth, Texas, nudges his rimless spectacles up his nose, then calls Boeing CEO James McNerney. James, it's Gerard and American. I've got some news for you.

6:22In his executive suite at Boeing's head office in Chicago, a smile creeps across McNerney's face. He's a silver-haired executive in Harvard MBA. He's been running Boeing for nearly six years, and he's sure this deal is his. Airbus has been trying to tempt American with its latest creation, the A320neo. But Boeing's not fretting about it. The way McNerney sees it, theneo is just a regular A320 with a more fuel-efficient engine. Why would airlines want some retrofitted jet when Boeing's got a brand new single-aisle plane in development? If they buy A320neos, they'll find themselves stuck with a dated aircraft.

7:00Besides, Boeing and American are tight. American only owns Boeing jets. To buy Airbus would require American to walk away from the huge discounts it gets from its sole supplier deal with Boeing. McNerney eases back in his chair, certain that he's about to land a deal worth up to$40 billion. Good news, I hope. Not for you it isn't. McNerney sits upright in his chair. What? You're buying Airbus? I've agreed to 260 A320s and A320 Neos. I don't want to wait a decade for a new Boeing. With Airbus, I get fuel-efficient airplanes in service in less than five years. I can't believe you're doing this. Listen, I haven't made a call on the other 200 planes we need.

7:44Boeing still has a chance to get those orders. But let me be frank with you. If you want to keep Americans' business, you need to be way more aggressive in what you're offering. Okay, Gerard. Message received. Loud and clear. It's a huge setback for Boeing and a wake-up call. Airbus is now eating into the 737's sales, and that's an existential threat. So Boeing scrambles to respond. It abandons plans for its new single-aisle aircraft and Xerox's Airbus' A320neo strategy. Its new plan is to sell airlines a new 737 model, one equipped with the latest engines. It calls it the 737 MAX. But the MAX's appeal doesn't stop at engines that burn less fuel.

8:30Boeing also promises airlines that any pilot who has flown a 737 will be able to fly its new 737 with just a few hours of computer-based training. It's a compelling offer. Pilot training is a huge expense for airlines. And Boeing's new souped-up 737 saves the day.

8:53In July 2011, American Airlines awards Boeing the rest of its mega-order. It's a victory that comes not a moment too soon. Airbus's A320neo is selling fast. The company already has hundreds of orders for its revamped single-aisle jet. Its popularity threatens to challenge the 737's position as the world's best-selling jet. Boeing is sure it can catch up with the MAX. But to succeed, it needs to keep its promises of bigger engines and minimal pilot training. And that's a challenge. The 737's airframe is 45 years old, and fitting it with newer, heavier engines will affect how it flies. But that's a problem Airbus has already solved.

9:41Since the 1980s, it's used computers to erase the aerodynamic gulf between its jets. Because of this, for a pilot, flying a single-engine A320 doesn't feel much different to piloting a mammoth A380 Superjumbo. Aerodynamically, these planes have little in common, but the computers work behind the scenes to make them handle the same for their human pilots. So, Boeing decides it'll do the same with the MAX. It adds a software program called MCAS to the plane's computer systems. MCAS's job is to automatically adjust the horizontal stabilizers on the MAX's tail so that it flies just like an old-school 737.

10:21So when its aerodynamicists discover the new engines caused the 737 MAX's nose to tip upwards, MCAS is tasked with compensating for the problem by pulling the nose downwards. It seems like the biggest challenges to bringing the MAX to market are solved. Boeing can now keep its promise that the MAX won't saddle airlines with multi-million dollar training bills for their pilots. But while the momentum behind the MAX project gathers speed within Boeing, the company's newest plane in the air, is about to encounter an electrical storm.

10:59It's January 2013, and Boeing CEO James McNerney returns to his home in Chicago after a long day. He's ready to put work out of his mind for a few hours. He puts a fish dinner in the oven and then changes into his sweatpants, ready to start his usual evening workout. But as he prepares to get on the treadmill, a message buzzes on his phone. He heads over to the table where he left it to check the message. Before he can get there, another message lands. Then another, and another, and another. By the time McNerney picks up his phone, it's vibrating wildly. He checks the first message, and his eyes widen in panic.

11:43He races to the kitchen, snatches the TV remote off the countertop, and switches on the TV to CBS News. McNerney stares in horror at the footage of passengers fleeing the Boeing aircraft. It's the second battery malfunction on a 787 Dreamliner this month, and McNerney knows what happens now. The 787 is going to get grounded.

12:12The next morning, McNerney calls an emergency meeting with Boeing's top engineers at the company's high-rise head office in Chicago. The news is grim and getting grimmer. The Federal Aviation Administration has ordered the Dreamliner out of American skies. And as usual, the rest of the world's regulators have done the same. The Dreamliner has just become the first aircraft grounded by the FAA since 1979. Airlines that bought Dreamliners now face millions of dollars in losses, losses that Boeing may now find itself on the hook for. The groundings also mean Boeing can't deliver any more Dreamliners to airlines, which means they won't be able to collect tens of millions of dollars in final payments that are due on delivery.

12:59McNerney starts by checking if the cause of the latest Dreamliner battery glitch is the same as the earlier one. Boeing's chief technology officer, John Tracy, confirms the lithium-ion batteries are the primary suspect, but the cause is yet to be determined. He reassures McNerney that Boeing's Japanese team is confident that the fire didn't endanger the aircraft or anyone on board. McNerney slams his fist on the table and starts to berate his deputies for their relaxed attitude to the incident. To him, this isn't an engineering question. This is a safety issue, one that threatens airline and passenger confidence in Boeing.

13:37Planes that catch fire are bad for business. This needs fixing now. In the weeks that follow, Boeing's engineers race to get the Dreamliner airborne again. They redesign the batteries to reduce the risk of short circuits that could start a fire. They also create a new casing for the batteries to better contain any fires. With a fix in place, Boeing sends an army of mechanics around the world to implement the changes on every Dreamliner in service so they can fly again the moment the FAA gives the all-clear. It's an operation that costs millions of dollars, but with Boeing's reputation on the line, there's no alternative.

14:17And in April 2013, after four months of furious activity and fixes by Boeing, the FAA approves the remedy. Soon, the Dreamliner is back in the air, allowing Boeing to refocus on its civil aviation priority, the 737 MAX. By now, the MAX is nearing fruition, but its orders still lag behind those of the Airbus A320neo. Theneo is proving to be a sales sensation. By the time it enters service in late 2015, Airbus will have orders for almost 4 ,500 Neos, around 1 ,500 more than Boeing's won for the MAX. For years, the 737 and A320 have vied for dominance in the single-aisle corner of the aircraft market.

15:05But now, Airbus has established a decisive lead, a lead that Boeing must overcome if it's to regain its position as the world's leader in civil aviation.

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18:10It's November 2015, and Boeing Chief Technical Pilot Mark Forkner is briefing the Federal Aviation Administration about the 737 MAX. Airlines don't want to pull their pilots off the job for lengthy training on how to fly Boeing's upgraded 737. So Boeing salespeople have been making big promises. They've told airlines that existing 737 pilots will be able to fly a MAX after only a couple of hours of computer training. But Boeing doesn't get to make that call. That's the FAA's job. And if the U.S. aviation regulator thinks pilots need more training, Boeing's sales pitch will lay in ruins, all of which puts Faulkner under extreme pressure.

18:52As the chief technical pilot for the 737, it falls to him to persuade the FAA to do what Boeing asks. And if he fails, he's sure he's going to get fired. So it's convenient that the FAA's grown cozy with Boeing in recent years. Airplane crashes are getting rarer, and Boeing's used the industry's strong safety record to defang the federal regulator. It's persuaded the FAA to let Boeing police itself more and spend less time scrutinizing what happens in the company's factories. and this lighter-touch regulation saves Boeing a lot of time and money. But while the FAA is now tamer, it still wields enormous power, as the grounding of the Dreamliner proved.

19:38And the world's other aviation regulators usually mimic every decision the FAA makes. Forkner pushes for the FAA to agree to only require 737 pilots wanting to fly the MAX to undergo Level B training, just a couple of hours of computer training. The FAA pushes back. It tells Forkner that Boeing must submit formal documentation about the MAX first. And only once the FAA's own pilots have reviewed that information will they make a decision. The FAA also signals that pilots may need to undergo expensive flight simulator training on some aspects of the MAX. That news scares Forkner. That would be nothing short of a planet killer for the MAX.

20:21annihilating the sales team's claims that the pilot training will be fast and cheap. Forkner knows he has to find a way to head off this threat, but he doesn't have to win this battle today. Bringing a new aircraft to market is a long and complicated process. Boeing's been working on the 737 MAX for five years already, and its first test flight is still two months away. These training negotiations will continue for months. Plenty of time to change the FAA's mind. But Boeing needs to offer more than quick training to convince airlines to buy the MAX instead of Airbus' A320neo. It also needs to ensure Airbus doesn't undercut it on price.

21:08It's February 2016, and at Boeing's facility in Everett, Washington, a group of engineers who build 787 Dreamliners are watching a company-wide webcast. On the screen, they see the face of Ray Connor. He's the gray-haired, dimple-chinned boss of Boeing's commercial aircraft division. And he's in some distant executive office. And he's got a downbeat message to deliver. He tells the engineers that Boeing is losing the air war. Airbus is beating it time after time. In most sales fights, Airbus beats Boeing on price. In 2015, Airbus's A320 line secured 60 % of single-aisle plane orders. This, Connor warns, is a serious threat to all of Boeing.

21:54The 737 is the product line that makes the biggest contribution to Boeing's earnings. And while the 787 Dreamliner is proving popular, it's not going to make up for all those lost 737 sales. The engineers are not surprised. The fact that Airbus is out in front is old news. The days when Boeing dominated the market are a fading memory. They also know the Dreamliner doesn't make money. Boeing's been manufacturing Dreamliners for eight years, but it's yet to reach the point where the project recoups its costs and starts generating profits. On the webcast, Conor declares that Boeing must compete with Airbus on price.

22:34And to do that, it must reduce its overhead and boost profit margins. There's a ripple of unease among the engineers. They know where this is going. Then, Conor confirms their suspicions. Boeing is starting a program of extreme cost-cutting. The engineers glance at one another and wonder how many of them will be left after this call. As redundancies rock the company, the pressure on the 737 MAX team to save the day intensifies.

23:11It's March 30, 2016, and Keith Leverkoon, the general manager of the 737 MAX program, is sitting in a fourth-floor conference room inside Boeing's campus in Everett, Washington. He and his senior team are here to learn more about the latest challenges facing the MAX. As he listens, senior members of the MAX's engineering team walk the room through the latest regulatory hurdle. The problem is the aircraft's handling. It's an issue that's been lurking in the background ever since the model plane underwent wind tunnel tests four years earlier. The 737 MAX's airframe dates back to the 1960s. It was never designed to carry the big modern engines that the MAX promises to bring to the 737 line.

23:54So to fit these engines, Boeing's had to move them forward on the wings. But this changed how the 737 handled and made it difficult to control when the nose is pointing sharply upwards. Boeing decided to resolve this by creating a computer system called MCAS. The idea is that when faced with those conditions, MCAS will automatically adjust the horizontal stabilizer on the plane's tail to push the plane's nose down. But the engineers have discovered that MCAS doesn't fix the handling problems at lower flight speeds, and particularly when the plane's approaching a stall. If nothing changes, the MAX might not get certified by the FAA.

24:36Leverkun asks if the team has an answer. The engineers smile. They do. They want to redesign MCAS. Their plan is to give it more control of the horizontal stabilizer so it has greater ability to force down the nose. They also plan to widen the range of speeds under which MCAS can activate. The engineers explain that this will resolve the issue and make the MAX handle in a more predictable way. Leverkuhn signs off on the plan, but the FAA isn't told about the change. Instead, a few hours later, Boeing contacts the FAA and asks the regulator to remove all mentions of MCAS from the MAX's pilot manuals.

25:18Oblivious to the changes to MCAS, the FAA agrees to Boeing's request, ensuring that pilots won't even know the MCAS system exists.

25:34Five months later, in Seattle, Washington, Mark Forkner, the 737's chief technical pilot, sits at his desk, excitedly typing an email to around 40 bosses and colleagues. He's got big news for the MAX team. This morning, the FAA agreed with Boeing that Level B training is all pilots need to learn how the MAX differs from earlier models of the 737. And the regulators of Canada, China, and the European Union are now set to follow suit. Forkner sends the email. Within an hour, someone from product marketing replies, gushing about how they love the news that pilots will need less than a day's training to fly the MAX.