Grounding of the Boeing 737 MAX 8 (A): What Went Wrong? Custom Case Solution & Analysis
Evidence Brief: Grounding of the Boeing 737 MAX 8
1. Financial Metrics
- Total orders for the 737 MAX exceeded 5000 units prior to the grounding event.
- The narrow body segment accounted for approximately 70 percent of the total profit for the commercial airplane division.
- Development costs for the MAX reached approximately 3 billion dollars, compared to an estimated 15 billion dollars for a clean sheet design.
- Market pressure originated from the Airbus A320neo, which secured 664 orders in a single week during the 2011 Paris Air Show.
- Boeing stock price dropped nearly 18 percent in the weeks following the second crash in Ethiopia.
2. Operational Facts
- The 737 MAX used LEAP-1B engines which were larger and positioned further forward and higher on the wing than previous models.
- The Maneuvering Characteristics Augmentation System (MCAS) was designed to compensate for the pitch-up tendency caused by engine placement.
- MCAS relied on input from a single Angle of Attack (AOA) sensor to trigger nose-down stabilizer trim.
- The system could activate repeatedly if the sensor provided faulty data, moving the horizontal stabilizer in increments of 2.5 degrees.
- Pilot manuals for the MAX initial rollout did not include descriptions of MCAS to avoid requirements for expensive flight simulator training.
3. Stakeholder Positions
- Dennis Muilenburg (CEO): Maintained that the 737 MAX was safe and blamed pilot error or maintenance issues in early statements.
- Federal Aviation Administration (FAA): Delegated significant oversight authority to Boeing employees under the Organization Designation Authorization (ODA) program.
- Southwest Airlines and American Airlines: Major customers who built business models around the 737 platform to minimize training and maintenance costs.
- Pilot Unions: Expressed outrage over the lack of disclosure regarding the existence and function of MCAS.
4. Information Gaps
- Internal communications regarding the decision to remove MCAS from the pilot flight manual.
- Specific cost-benefit analysis documents comparing the software fix against a dual-sensor hardware requirement during the design phase.
- Full extent of the influence of the marketing department over engineering specifications.
Strategic Analysis
1. Core Strategic Question
- How can Boeing restore organizational integrity and market leadership while managing the technical and regulatory fallout of a failed derivative strategy?
- Is the 50 year old 737 airframe still a viable platform for future competition against modern clean sheet designs?
2. Structural Analysis
The competitive rivalry with Airbus created a schedule-driven culture that compromised the engineering process. The value chain analysis reveals a breakdown in the outbound logistics and service stages, specifically in the communication of technical specifications to customers. The decision to pursue a derivative rather than a clean sheet design was a response to the bargaining power of buyers like Southwest Airlines, who demanded commonality to keep operational costs low. This forced engineering compromises to maintain the 737 type certificate.
3. Strategic Options
| Option | Rationale | Trade-offs |
|---|---|---|
| Technical Remediation and Recertification | Fix the software and add sensor redundancy to return the current fleet to service. | Lowest capital expenditure but carries high brand risk if another incident occurs. |
| Accelerated Clean Sheet Development | Abandon the 737 platform for a new mid-range aircraft with modern flight controls. | High capital requirement (15 billion dollars plus) and long time to market (7 to 10 years). |
| Organizational Restructuring | Separate the safety and engineering functions from the business units to remove schedule pressure. | Improves safety culture but may slow down the pace of innovation and market response. |
