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Late on Sunday evening, October 28, 2018, Dennis Muilenburg, CEO and chairman of the aerospace giant Boeing, received some disturbing news. At 6:20 on Monday morning October 29, Lion Air Flight 610 had departed from the airport in Jakarta, Indonesia, for a routine one-hour flight to a provincial capital. (Jakarta-halfway around the world-was twelve hours ahead of Chicago, where Boeing maintained its headquarters.) The aircraft was a nearly new Boeing 737 MAX, delivered to Lion Air, a low-cost regional carrier and one of Boeing's major customers, just four months earlier. The weather was clear and flying conditions excellent. Just 11 minutes into the flight, shortly after the pilots had reported a flight control problem, the plane had slammed into the Java Sea at high speed, killing all 189 people on board. The 737 MAX was Boeing's newest aircraft and the centerpiece of the company's strategy for the short to midrange commercial market. Just two hundred MAX aircraft were in operation, but many airlines, including such critical customers as American, Southwest, and Air Canada, had more than 4,700 of the planes on order. Muilenburg would need to assemble his team quickly. They faced an urgent task: to determine what had gone wrong and why with Boeing's so-far successful new model. The Boeing Company In 2018, The Boeing Company was a major multinational corporation that designed, manufactured, and marketed commercial jetliners, military aircraft, and defense, space, and security systems. For years locked in head-to-head competition with the European consortium Airbus, the U.S.-based Boeing was the largest aerospace company in the world. With headquarters in Chicago, it employed 153,000 people in 65 countries, including 137,000 in all 50 U.S. states. Boeing also had a major impact on the U.S. economy through its supply chain. In 2016, transactions with Boeing were estimated to have generated $45 billion for more than 13,600 businesses, in turn supporting 1.3 million additional jobs in the United States.1 In 2018, total revenues for The Boeing Company were on an upswing. Sales had increased from $93.4 billion in 2017 to $101 billion in 2018 as the MAX had entered commercial service. Boeing was comprised of three business units, based on market sector, and a wholly owned financial subsidiary. The Commercial Airplane unit manufactured aircraft for passenger and cargo transportation. The Boeing Defense, Space & Security unit manufactured military aircraft as well as spacecraft, satellites, and related systems. The Global Services unit provided aftermarket support for aircraft including maintenance, repairs, and training. A wholly owned subsidiary incorporated in 1968, the Boeing Capital Corporation, provided loans for commercial and military customers to purchase aircraft and supporting technology in installments. Muilenburg's senior leadership team at Boeing consisted of executive vice presidents for the three major units of the company. These four key leaders were supported by an executive council of 10 additional executive officers. 1 DRAFT COPY. Not for quotation or distribution without permission of the authors. Copyright © 2021 by R. Harris, V. Hill and A. Lawrence. DRAFT DATED JANUARY 12, 2021. 2 In 2018, the company was governed by a 13-person board of directors. Their backgrounds included high-level positions in government-mainly in defense, trade, and diplomacy-and in the aerospace, insurance, pharmaceutical, medical device, and energy industries. Five board members had ties to private equity funds, including two with leadership roles at The Blackstone Group, the largest such fund in the world. All board members were independent, except for Muilenburg, who served as chair. Exhibit 1 shows the composition of Boeing's board of directors in 2018. History of The Boeing Company The Boeing Company was an American success story, a product of ingenuity and innovation. The firm's story began with its founder and namesake, William Boeing. The son of a wealthy timber baron, banker, and industrialist who died when he was a child, Boeing dropped out of college in 1908 to launch his own company, Greenwood Timber, in his hometown of Seattle, Washington. He later diversified into shipbuilding, using wood from his mills. Boeing's interest in airplanes was sparked after attending an aviation conference in Los Angeles in 1910. He took flying lessons and bought an airplane for his personal use. He later recounted: The machine was delivered to me in October of 1915 and being convinced that there was a definite future in aviation, I became interested in the construction as well as the flying of the aircraft. Enlisting a group of technical assistants, less than a dozen men in all, work was begun in designing the first Boeing plane. At that time our combined factory and seaplane hangar were housed in a small building on the shores of Lake Union, and it was there that I made the initial test flight of the first Boeing plane.2 Working with a friend, U.S. Navy Lieutenant G. Conrad Westervelt, Boeing converted his shipyard on the Duwamish River into a manufacturing facility for airplanes and established his corporate offices nearby in downtown Seattle. William Boeing had a reputation for being a perfectionist. While visiting the factory in 1916, company legend had it, Boeing observed a set of improperly sawed spruce ribs. He swept the ribs onto the floor and stomped on them until they were broken and no longer useable. During the same visit, Boeing spotted a frayed aileron cable. (Ailerons, hinged surfaces on the top of wings, were used to control lateral balance.) "I, for one, will close shop rather than send out work of this kind," Boeing had exclaimed. By the time Boeing retired in 1934, he had left an indelible mark on the organization. Boeing had established a strong culture focused on a commitment to quality, leading the industry in cutting-edge design of commercial and military aircraft. Innovation in aircraft design would continue to be the company's hallmark as it expanded under the founder's successors. After World War II, Boeing executives moved further into the 3 commercial aircraft market. Early passenger jetliners produced in Europe had structural problems that resulted in tragic accidents, dampening public enthusiasm for commercial jet travel. Boeing's then-CEO William Allen and the board approved an investment of $16 million-almost all the profit earned during the war-in the development of a large-capacity passenger jet. The resulting Boeing 707, marketed as "comfortable, reliable, and safe," could accommodate up to 181 passengers and their luggage. The first successful commercial jetliner, the 707 remained in service for more than three decades. 3 Allen rolled much of the profit from the 707 into the development of the Boeing 747, the largest civilian aircraft in the skies when it entered service in 1970. Dubbed "The Incredibles," a team of 50,000 Boeing employees took 747 from design concept to market in just 16 months.4 Other commercial models developed in the postwar period included the 727, 737, 757, 767, and 777 series aircraft-the last of which was introduced in 1994. Culture Shift after the McDonnell Douglas Acquisition A pivotal figure in Boeing's history, Philip Condit became CEO and chairman in 1996. A pilot and aeronautical engineer with an M.S. in management from M.I.T., Condit was a career Boeing employee. Unlike his predecessors, Condit believed the company had taken undue financial risks in the design and production of new aircraft. By contrast, his strategy was to acquire other firms and assimilate their products into Boeing's portfolio while maintaining a steady revenue stream from updates of existing models. In 1997, Boeing acquired its competitor, McDonnell Douglas, a leader in the defense market.5 Boeing retained many McDonnell executives, transferring several into key leadership positions. Former McDonnell CEO Harry Stonecipher was installed as Boeing's president, bringing with him the strategic priorities and management style that had characterized McDonnell. (Stonecipher later served as Boeing's CEO.) Prior to the McDonnell Douglas acquisition, for 80 years, Boeing had operated as an "association of engineers."6 Many Boeing executives had been intimately involved in aircraft design, held patents, and "spoke the language of engineering and safety as a mother tongue."7 Stonecipher and his former McDonnell executives, by contrast, were focused on affordability, cost cutting, and efficiency. Traditionally, Boeing had held investors and analysts at arm's length. By contrast, Condit, Stonecipher, and their management teams actively sought their approval, prioritizing revenue and shareholder returns over research and development. Before the McDonnell Douglas acquisition, Boeing had avoided share repurchases, also called buybacks. (These occurred when a company bought its own shares on the stock market, reducing the number of outstanding shares. This boosted the market value of the remaining shares and annual dividends distributed to shareholders.) Within a year of the McDonnell merger, buybacks had become a key component of Boeing's strategy.8 At the same time, the company reduced R&D spending, which dropped by 20 percent in three years. For the first time in four decades, Boeing had no plans in development for a completely new plane. Rather, its strategy was to continue modifications and revisions of existing models, with an emphasis on cost effectiveness. Pushing the engineering envelope to make planes fly "higher, faster, farther"-a phrase often used in the aviation industry-gave way to the slogans, "We're in business" and "We're 4 managing for value," used by the management team to communicate Boeing's new priorities to its employees. As one senior manager described the change, 'We're not selling airplanes just for the fun of it. That's the big cultural change. We're running it as a business."9 Nothing confirmed the shift in focus more than the decision to relocate Boeing's corporate headquarters to Chicago, Illinois in 2001. This move put 1,700 miles between Boeing's engineers and manufacturing facilities, which remained in Seattle, and its senior management. While analysts extolled the wisdom of Boeing's new culture, employees were increasingly disillusioned. Charles Bofferding of the Engineers Union observed, "People aren't seeing the vision the company is talking about. Instead they see in Boeing's recent moves-the executive firings, the drive to outsource, the push into services-not the creation of a vibrant new business culture but the dismantling of one of the most successful engineering cultures of all time."10 The only new airplane Boeing designed after the mid-1990s was the 787 Dreamliner, a fuel-efficient twinjet widebody the company started work on in 2003. To cut costs, Boeing outsourced the design and production of critical components. Many of these contractors did not pay the same attention to quality that Boeing had in the past, and flaws in components led to repeated delays. The 787 was three years late and $25 billion over budget when it entered commercial service in late 2011. Just months later, U.S. regulators temporarily grounded the 787 in 2013 due to the risk of electrical fires caused by faulty lithium batteries.11 Despite these setbacks, Boeing continued its practice of stock buybacks, averaging $6.2 billion annually. When the Dreamliner was finally profitable in 2016, Boeing leadership decided to allocate 100 percent of the free cash flow from the plane to shareholder dividends rather than invest it in R&D.12 Exhibit 2 shows Boeing's investment in research and development, dividends, and share repurchases from 2010 to 2018. Ethics Policies and Practices Boeing had a code of conduct, shown in Exhibit 3, that identified behaviors expected of all Boeing employees. Included with the code was a list of the company's "enduring values"- integrity, quality, safety, diversity and inclusion, trust and respect, corporate citizenship, and stakeholder success. Boeing's Ethical Business Conduct Guidelines, is 27 pages long and explained employee conduct expectations in greater detail.13 Boeing also circulated several documents explicitly stating expected behavior for various groups of Boeing employees, such as specific codes for members of the board of directors and financial officers.1415 Employees were required to sign the code of conduct annually. The signing event was intended to "reaffirm [the employee's] personal responsibility to speak up, seek guidance, and raise concerns about possible violations."16 Boeing held regular training on compliance. Managers were responsible for training their direct reports on their obligations associated with the code and were provided resources, such as case studies, to use for this purpose. The 5 company also routinely surveyed its employees confidentially about their perceptions regarding retaliation for reporting unethical behavior and manager's support of ethical decision-making. In 2018, Diana Sands, senior vice president for internal governance and administration, was the company's chief compliance officer. In this role, she oversaw Boeing's ethics programs and practices. A trained accountant, she had previously served as corporate controller and vice president of finance. The company's Ethical Business Conduct Guidelines provided detailed protocols for how employees should report possible violations of the code. Employees were advised to go first to "a manager" with their concerns. (The manager was not specified.) Employees could also consult ethics advisors, described as "full-time, dedicated Boeing employees who are trained in advising employees and stakeholders on matters of ethical concern."17 Employees could contact an ethics advisor using one of Boeing's ethics lines, a phone number where an employee or anyone else with information could report ethically questionable behavior confidentially and anonymously. Boeing supported an ethics reporting process website, an interactive tool that guided the employee through the reporting and investigation process. Finally, a Sarbanes-Oxley anonymous reporting tool established by Boeing's board of directors allowed employees to report ethically questionable accounting or auditing practices anonymously and confidentially. Prior to the Lion Air crash on October 29, 2018, Boeing did not disclose the number and types of incidents reported under these procedures. U.S. Government Regulation of Aircraft Certification In the United States, the safety of commercial aircraft such as those made by Boeing was regulated by the Federal Aviation Administration (FAA). Created by Congress in 1958, the FAA's mandate was to provide "service with the highest degree possible of safety in the public interest." The agency had oversight of all civil aviation, including the construction and operation of airports, management of air traffic control, and certification of new and modified aircraft. It also oversaw the training and certification of flight crews. By most measures, the FAA had done an excellent job. Civil aviation in the United States was extremely safe. In the late 2010s, around one billion U.S. passengers flew annually, with around 5,000 planes in the sky over the nation's airspace at any one time. Between 1996 and 2019, the air carrier fatality rate declined from 81 per 100 million passengers to 0.6 per 100 million passengers.18 In 2005, as part of a broader deregulatory effort, Congress had approved a process called Organization Delegation Authorization, or ODA. This permitted the FAA to delegate authority to an organization or individual to undertake aircraft certification tasks that previously would have been handled solely by government regulators. As a result, companies and their employees could be tasked with certifying their own aircraft. In such delegated roles, they were known as authorized representatives, or ARs (this term was later shortened simply to "unit members"). Teams of FAA engineers and inspectors were created to oversee the work of ARs and assure 6 their work met government standards. The FAA Reauthorization Act of 2018, passed with strong bipartisan support, doubled down on this approach, calling for the agency to make progress towards "full utilization of... delegation." Supporters of delegation argued that it was necessary to augment limited government resources, leverage private sector expertise, and bring innovative new products to market more quickly. In a 2013 review of the certification process, Ali Bahrami, an engineer and chief of FAA's office in Seattle,2 wrote in defense of the practice: Given the complex nature of today's aviation products, it is virtually impossible for regulators to have all necessary expertise in every FAA office throughout the country, especially when global manufacturing models continue to grow.19 But others expressed caution, saying that such delegation set up a situation in which company employees would be pressured to act in their employer's interest, rather than the public's. Michael J. Driekorn, a former FAA official and vice president for quality and compliance at Pratt & Whitney, expressed his ambivalence about delegated authority this way: Conceptually, yes, it makes sense because FAA can't be everywhere. But the reality is it is flawed, [because] you have the fox watching the henhouse.20 At Boeing, this system of delegation took the form of a complex, two-headed structure. The FAA maintained a Boeing Aviation Safety Oversight Office (BASOO) in Seattle to oversee the company's commercial aircraft programs. BASOO was staffed in 2019 with 45 engineers and other experts, including 6 senior engineers and 18 working-level engineers. In parallel, Boeing operated a dedicated Organization Design Authorization (ODA) department, staffed by about 1400 ARs-more than 30 for every FAA employee in the Seattle office. These individuals had dual roles, in that they were both Boeing employees and authorized to act on behalf of the FAA.21 Strict procedural rules limited contact between Boeing and FAA staff. For example, if a Boeing engineer had questions, he or she was expected to resolve the matter internally instead of directly involving FAA staff.22 In late 2016, Boeing conducted a survey of its employees in the ODA group. (The results were later provided to Congressional investigators not by Boeing, but by an unnamed whistleblower.) Its purpose was to determine if Boeing AR's experienced any undue pressure, defined as "unwarranted, excessive, or unjustifiable force, coercion, or bullying of Unit Members... while performing or attempting to perform their roles and authorized functions/delegated authority."23 About a third of the AR's responded to the questionnaire. The survey revealed that almost all respondents understood what undue pressure was, and most felt comfortable reporting it to management. However, 39 percent said they perceived undue pressure, and 29 percent were concerned about the consequences of reporting it. In an 2 Bahrami left the FAA's Boeing office in 2013 to become vice president for civil aviation at the Aerospace Industries Association, a trade association and lobbying organization for aerospace and defense manufacturers. In 2017, he returned to government service as the FAA's associate administrator for aviation safety. 7 analysis of open-ended comments, the company found that the dual role of Boeing subject-matter experts who were also authorized representatives of the FAA could "cause confusion leading to potential undue pressure." For example, some authorized representatives were responsible both for developing Boeing's compliance documents and then recommending their approval.24 When an aircraft manufacturer, such as Boeing, wished to introduce a new aircraft, it had to demonstrate, and the FAA (or its designated representatives) had to certify, that the product complied with all relevant federal regulations. A brand-new model or type of aircraft, such as the 787, required what was known as a "type certificate." A modified version of an existing model, such as the 737 MAX, required what was known as an "amended type certificate." In the latter case, the government required review only of changed aspects and areas they could affect, not the entire aircraft. To obtain a type certificate could take up to a decade; to obtain an amended type certificate, generally between five and eight years. The Development of the 737 MAX In 2010, Boeing was considering options for a successor to its hugely successful 737 aircraft. The company had first introduced the 737, a short to medium range twinjet narrow-body airplane, in 1967. Since then, the plane had been updated eleven times, most recently to the 737 Next Generation (NG) series. The 737's main competitor was the A320, produced by the European consortium Airbus. In December 2010, Airbus announced a plan to redesign the A320 with larger, more fuel-efficient engines. The A320neo, as it was called, was scheduled for rollout in 2015. At the time, Boeing had two options on the table: an updated 737 with a larger engine, and an entirely new, "clean-sheet" airplane. The company was leaning toward the latter option. At a meeting in January 2011, Jim Albaugh, president of the commercial airplane division, told employees that "we think the right answer [is] to probably do new small airplane that might come out toward the end of this decade...Every customer we talk to has a real hard time understanding why a re-engined [737] airplane makes sense."25 But just a few months later, the company suddenly pivoted. The CEO of American Airlines, one of Boeing's biggest customers, called Boeing's CEO James McNerney to say that the airline was about to place a large order for the Airbus A320neo. If Boeing wanted to retain the airline's business, American's chief told McNerney, "it would need to move aggressively."26 Within 48 hours, McNerney had decided to abandon the clean-sheet design and move forward with an update of the 737-the model that later became the MAX.27 (American Airlines eventually purchased hundreds of both A320neo and 737 MAX aircraft.) The cost of updating the 737 was estimated at between $1 and $2 billion, much lower than the estimated $10 to $12 billion to design an all-new aircraft.28 The process was likely to be faster-possibly five or six years, compared with as long as a decade to design and certify a new plane. And Boeing had recently struggled with new aircraft programs; its 787 Dreamliner was already three years behind schedule and $25 billion over budget.29 Boeing's board ratified the decision to develop the MAX in August 2011. 8 When Boeing applied for an amended type certificate for the 737 MAX in January 2012, the FAA created a checklist of 93 items that would need to be certified. This list was divided, with BASOO retaining 58 items and the rest delegated to Boeing.30 Because Boeing sought an amended type certificate, each item on the list was reviewed separately in what a later investigation characterized as a "bottom-up approach," in which compliance was demonstrated at the level of each specific change rather than of an integrated aircraft.31 According to an investigation by The Seattle Times, as the process ground on, the MAX project fell behind schedule, and pressure built to accelerate certification. A former FAA safety engineer later testified that about halfway through the process, "We were asked by management to reevaluate what would be delegated. Management thought we had retained too much at the FAA."32 More items from the checklist were turned over to Boeing. By 2018, the regulator was allowing Boeing to certify 98 percent of its own work, one agency official told The New York Times.33 The Maneuvering Characteristics Augmentation System (MCAS) As they embarked on a redesign of the venerable 737, one of the first decisions Boeing's engineers made was to use a larger, more fuel-efficient engine, the CFM International LEAP1B.34 These engines were similar to those used on the 737's main competitor, the Airbus 320neo series of airplanes. This decision posed a significant engineering challenge. Because Boeing retained the old, relatively low-slung airframe of the 737, the CFM LEAP-1B engines did not fit where they had been previously mounted, so the engineers had move them further forward and higher on the wings. This shifted the aircraft's center of gravity, giving the nose a tendency to pitch up under certain conditions, risking a stall. Engineers first identified this possibility in certain high-speed maneuvers at cruising altitude. The combination of new engines on an old airframe, in short, had resulted in a dynamically unstable airplane design.35 Exhibit 4 depicts the Boeing MAX 737 in flight (note the engine placement in the photo). To counteract the tendency for the plane to pitch up under certain circumstances, in 2012 Boeing engineers developed a flight control system called the Maneuvering Characteristics Augmentation System, or MCAS (pronounced "em-cass"). The MCAS system used two angle of attack (AOA) sensors mounted on either side of the fuselage to measure the angle of the aircraft relative to the oncoming air. When a sensor detected that the aircraft was pitched too steeply upwards, the system was designed to move the tail rudder, automatically pushing the nose back down. In the original design for the MCAS, the system could only make a pitch correction of 0.65 degree or less. It was designed to work in the background, so that the pilot would not even be aware it had engaged. Although the aircraft was equipped with two AOA sensors, only one was tied into the MCAS system at a time. This created a design issue known as a single point of failure. Aircraft were traditionally designed around the principle of redundancy, so that if one system failed, there 9 was a redundant system capable of handling the problem independently of the point of failure. Boeing engineers working on the MAX debated this issue internally. On December 17, 2015, one engineer emailed a colleague: Are we vulnerable to single AOA sensor failures with the MCAS implementation or is there some checking that occurs?36 The response: ...it [is] hard to find a trim condition that generates a large enough AOA to create [an] MCAS command... I believe it is not likely to happen. At a later Congressional hearing, Bob Gibbs (R-Ohio) asked the Boeing CEO, Dennis Muilenburg, to confirm that MCAS relied on data from only one sensor. Muilenburg replied: Depending on the sequencing of the flight control computers, one sensor would feed MCAS. But on different flights it could be either sensor. But one sensor at a time. Gibbs seemed taken aback. I am not a pilot. I fly, obviously, frequently. But... you can't just pull over to the side of the road... So, I don't know what you guys were thinking... [On] an airplane, I think redundancies really would be key. 37 Boeing had placed an AOA disagree indicator in the cockpit, to alert pilots to divergent readings from the two sensors in the event one malfunctioned. However, activating this indicator was optional, available only at extra cost. Only 20 percent of airline customers had purchased this option. Lion Airlines and Ethiopian Airlines did not purchase the AOA disagree indicator for their planes' cockpits. At the hearing, Pete DeFazio (D-Oregon) questioned Muilenburg on why the company had not installed an active AOA disagree indicator as a standard feature on all MAX aircraft. DeFazio: Why wasn't it that way from day one? ...Why not have that redundancy? Muilenburg: Mr. Chairman, we have asked ourselves that question over and over. And if back then we knew everything we know now, we would have made a different decision.38 As part of the FAA's aircraft certification process, Boeing was required to assess the risk inherent in various systems. In internal documents summarizing the certification of MCAS, a "loss of one AOA followed by an erroneous AOA" was deemed "catastrophic before flight crew recognition of issue," but the risk was rated "acceptable" based on "crew training, appropriate flight crew action, and the probability of failure being extremely remote."39 The Wall Street Journal later reported that Boeing assumed that if MCAS triggered erroneously, pilots would be able to take corrective action within four seconds 100 percent of the time.40 10 Boeing went through the usual procedures and obtained FAA approval for the first iteration of MCAS. However, as the design of the aircraft proceeded, new problems emerged. On March 30, 2016, an internal memo reported that test pilots had discovered that the MAX's nose also tended to pitch up during certain low speed conditions-typically, shortly after takeoff, as the plane was ascending to cruising altitude with its flaps up.41 To address this low-speed scenario, Boeing's engineers went back to the drawing boards. They added functionality to MCAS to engage under these conditions, enabling it to make corrections of up to 2.5 degrees and to trigger repeatedly every 10 seconds until the danger of a stall had passed. Some key people at Boeing were apparently not informed of this modification-which made MCAS four times as powerful as it had been earlier. Boeing later released to Congressional investigators electronic messages exchanged between Mark Forkner, the chief technical pilot on the 737 MAX program, and his deputy Patrik Gustavsson, who later succeeded him in this role. Forkner, an Air Force veteran and experienced airman, was tasked with working with regulators to determine the typed & level of training pilots would need to fly the MAX. His job involved flying the MAX in a simulator as it was undergoing development to better understand the aircraft from the pilot's point of view. On the evening of November 15, 2016, Forkner exchanged a series of messages with his deputy, which were later released to Congressional investigators, in which he described his experiences in the simulator that day. Forkner: Oh, shocker alerT! MCAS is now active down to M .2 [low-speed conditions] It's running rampant in the sim on me... so, I basically lied to the regulators (unknowingly) Gustavsson: it wasnt a lie, no one told us that was the case Forkner: I'm levelling off at like 4000 ft, 230 knots and the plane is trimming3 itself like craxy I'm like, WHAT?... granted, I suck at flying, but even this was egregious [spelling errors in original] Media accounts and public figures widely interpreted the phrase "trimming itself like crazy" as a reference to the behavior of newly modified MCAS, as it aggressively pushed down the nose of the plane shortly after takeoff. But Boeing CEO Dennis Muilenburg later testified that Forkner was referring not to problems with the plane and its flight control system, but with the MAX simulator, which was still under development. He told members of Congress: Our understanding is that he [Forkner] was in a simulator development process. And it appears from his comments that he was surprised about some simulator feature.42 Forkner's own attorney supported this interpretation of the message.43 3 The term "trim" in aviation refers to adjustments in the control surfaces of an aircraft, for example, movement by the tail rudder to change the pitch or maintain a certain altitude. 11 Boeing was required to brief the FAA on any modifications of elements that had already been approved-such as changes to MCAS. But, somehow, communication between the company and regulators on this point seemed to have broken down. A former FAA engineer told The Seattle Times investigative journalist Dominic Gates: The FAA believed the airplane was designed to the 0.6 [degree] limit, and that's what the foreign regulatory authorities thought, too. It makes a difference in your assessment of the hazard involved. The numbers should reflect whatever designed was tested and fielded. A former Boeing flight engineer conceded: It's possible the latest numbers wouldn't be in there, as long as it was reviewed and they concluded the differences wouldn't change the conclusions or the severity of the hazard assessment.44 A subsequent review of the certification process of the 737 MAX flight control system by the Joint Authorities Technical Review (JATR), a panel of representatives from the FAA and civil aviation authorities around the world, concluded: The JATR team identified specific areas related to the evolution of the design of the MCAS where the certification deliverables were not updated during the certification program to reflect the changes to this function within the flight control system.45 A series of "coordination sheets," released to Congress, summarized the FAA signoffs on MCAS. Greg Stanton (D-Arizona) pointed out in his questioning of Boeing's chief engineer that sheets for March 2016 (before MCAS had been given greater potency) and June 2018 (after) showed no changes. Both concluded that "MCAS shall not have any objectionable interaction with the piloting of the airplane."46 Pilot Training for the 737 MAX At the outset, Boeing management established a critical program objective: pilots transitioning from earlier models of the 737 to the MAX would need training only on a tablet or laptop, rather than on a flight simulator. This was known as "Level B," or computer-based training. A major motivation was cost. Flight simulators cost between $10 and $20 million, and hourly rental rates could reach as high as $1000.47 To be trained on a simulator, pilots had to take time off from flying paying customers, travel to training sites, and be housed and fed. One of Boeing's major customers, Southwest Airlines, employed around 10,000 pilots to fly its fleet of 737s-all of whom, presumably, would need training. In recognition of the added cost, Boeing's marketing staff offered Southwest a $1 million rebate per 737 MAX if the FAA later required pilot training on a simulator. The airline had ordered around 280 MAXs. 12 A key person in Boeing's effort to convince regulators to approve Level B training was Mark Forkner.4 In his role as chief technical pilot on the MAX program, he worked with the FAA to write flight manuals and determine training requirements for pilots transitioning to the new model. The company later released to Congressional investigators many electronic messages exchanged between Forkner and his colleagues at Boeing. The messages reveal that Forkner felt great pressure from his managers to limit the training pilots would need. On December 18, 2014, he wrote a colleague: ...If we lose Level B [it] will be thrown squarely on my shoulders... Who cost Boeing tens of millions of dollars! Burn him at the stake! A pilot who worked with him later told The Wall Street Journal that Forkner was afraid of losing his job if the FAA required pilots to undergo simulator training. A former flight deck engineer who had also worked with him told the reporter, "Mark was under an enormous amount of pressure... He was clearly stressed."48 Pilot training requirements were a point of conflict between the FAA and Boeing. On March 10, 2015, one FAA employee wrote to another (with names redacted): The B737MAX presents some very contentious issues between Boeing and FAA that will likely heat up as we approach rollout and evaluation of the aircraft. The Seattle AEG [Aircraft Evaluation Group]5 will remain true to the process in every step along the way to make sure that the final training (safety) determinations are correct. The author added that Boeing was already telling its airline customers that only Level B training would be required, even though the FAA had not yet approved this. Boeing is advertising and communicating to its customers what they "desire" on issues that have not yet been evaluated. The 737MAX is not a simple derivative of earlier models. It is a very complex modification incorporating many new and novel features... Boeing is doing everything they can to be exempt from the new certification rules and keep the aircraft the same type rating with minimal training differences.49 The perception of conflict was mutual. Forkner wrote a colleague on April 17, 2015: The AEG in particular has been very difficult to work with thus far as you know. A few weeks later, on May 10, 2015, an internal FAA memo from the Seattle AEG (with names redacted) stated the regulator's continuing disagreement with Boeing on this issue. 4 As an employee of Boeing, Mark Forkner worked with the FAA's Flight Standardization Board (FSB). The FSB evaluated and validated an applicant's aircraft training proposals, such as for Boeing's 737 MAX. Forkner had responsibility for aircraft training and training manuals but had no direct responsibility for certification of the 737 MAX aircraft. 5 The Seattle Aircraft Evaluation Group (AEG) was part of the FAA. 13 Boeing maintains that the difference training required to fly both the NG and the MAX is not affected by these [substantial systems] changes. It is Boeing's intention not to have a task trainer or simulator to train pilots between the NG and the MAX. The SEA [Seattle] AEG disagrees with this assessment. The SEA AEG has identified differences that may require a pilot to be trained in a simulator or hands on task trainer.50 Over the following year, Forkner's messages reflect his urgent search for support in convincing the regulators to change their position. On November 17, 2015, he wrote a group of colleagues (names redacted): Subject: RE:!! Important Help Needed!!!... The FAA AEG refuses to negotiate the training level determination for either RSAT or RCAS [new features of the MAX] ... I'm fairly sure they will push to have at least ROLL AUTHORITY alert [a new feature] trained in a simulator. We are going to push back very hard on this, and will likely need support at the highest levels when it comes time for the final negotiation. [Name redacted] has already pledged his support for us obtaining Level B... Failure to obtain Level B for RCAS is a planet-killer for the MAX. Nine months later, the FAA acceded to Boeing's position. On August 16, 2016, Forkner sent a message to multiple Boeing employees, under the heading "MAX Differences Training Approved at Level B!!!!!" I'm happy to inform you that we successfully passed the T-3 Differences Training Validation Flight today, establishing the 737 MAX as the same type rating as the 737 NG, and requiring no greater than Level B (Computer-Based Training, CBT) difference training between the two! This culminates more than 2 years of tireless and collaborative efforts across many business units... [You] should all be commended for [your] efforts in getting us to the finish line. He received multiple replies, many from members of the product marketing team. One congratulatory message pointed out: This is a big part of the operating structure in our product marketing decks, and is at the heart of ... $$$ analysis. Even after the FAA approved Level B training for 737 pilots transitioning to the MAX, Boeing still had to convince civil aviation authorities in other regions of the world to follow suit. Forkner noted on August 18 that European regulators had accepted the FAA findings, but that "we may have to go to other regulators around the world to jedi-mind trick them into accepting [these findings.]" (The phrase jedi-mind trick apparently referred to the Star Wars films, in which Jedi masters were able to influence the behavior of others through supernatural mental powers.) Individual airlines also had to agree. 14 Congress members later questioned Muilenburg about Forkner's use of the phrase, "jedi mind-trick." He replied: Any thought that we would try to trick customers or deceive customers is just not consistent with our values. And that would not be tolerated.51 By June 2017, regulators in Europe, Canada, China, Malaysia, and Argentina had adopted the FAA's findings. But several civil aviation authorities and airlines had resisted. Among them were Indonesia's Directorate of Civil Aviation and Lion Air, the Indonesian airline that later suffered the first MAX crash. Boeing later released an email exchange with names redacted, apparently between Forkner and a Lion Air 737 training captain, dated June 6 and 7, 2017.52 Training Captain: [The airline] has decided to give the transition pilot one simulator familiarization. Forkner: There is absolutely no reason to require your pilots to require a MAX simulator to begin flying the MAX. I am concerned that if [your airline] chooses to require a MAX simulator for its pilots beyond what other regulators are requiring that it will be creating a difficult and unnecessary training burden for your airline, as well as potentially establish a precedent in your region for other MAX customers. Eventually, Lion Air backed off. As this process unfolded, Boeing was also developing and seeking regulatory approval for the training materials and manuals that would be provided to flight crews. On March 30, 2016, Forkner asked the FAA in an email for permission to remove all references to MCAS from these materials. Are you OK with us removing all references to MCAS from the operating manual and the training as we discussed, as it's completely transparent to the flight crew and only operates way outside the normal operating envelope? The FAA agreed. When the MAX entered commercial service, pilots transitioning from older 737s to the new model were completely unaware of MCAS, its capabilities, or how to override it in case it triggered erroneously. Production at the Renton Factory The 737 MAX was manufactured at Boeing's factory in Renton, Washington. As the MAX entered service in May 2018, production in Renton was severely behind schedule. "Jobs behind schedule," a key metric, spiked to ten times normal, and "roll out on time" dropped below 15 10 percent.53 The production delays postponed flight tests for new planes, pushing back delivery to customers. That summer, Boeing leadership boosted production targets at the Renton factory to 57 planes per month, up from 47, to be achieved within 6 months, by January 2019. Pressure on employees was relentless. Planned overtime rates doubled. Because critical parts were backlogged, work was completed out of sequence. Plant managers no longer held the normal daily meetings at which employees on the incoming and outgoing shifts would communicate.54 This impaired production, as the incoming shift would be uncertain about what had been accomplished and what was left to be done from the preceding shift. One of the senior managers at the Renton factory as Edward "Ed" Pierson. A highly decorated former Naval Commander, Pierson had more than 30 years of aviation safety experience.55 During his 10-year career at Boeing, Pierson had held senior management roles in flight testing and production. His final position before he retired was senior line side control manager for production of the 737 at the Renton factory. On June 9, 2018, Pierson emailed Scott Campbell, vice president and general manager of the 737 product division, to express his concerns about operations at the Renton factory. My first concern is that our workforce is exhausted. Employees are fatigued from having to work at a very high pace for an extended period of time. This obviously causes stress on our employees and their families. Fatigued employees make mistakes... My second concern is schedule pressure (combined with fatigue) is creating a culture where employees are either deliberately or unconsciously circumventing established processes. These process breakdowns come in a variety of forms adversely impacting quality. ...I am talking about inadvertently imbedding safety hazard(s) into our planes. As a retired Naval Officer and former Squadron Commanding Officer, I know how dangerous even the smallest of defects can be to the safety of an airplane. Frankly right now all of my internal warning bells are going off. And for the first time in my life, I'm sorry to say that I'm hesitant about putting my family on a Boeing airplane."56 Pierson made two recommendations. The first was to remind employees that they should prioritize quality and working safely. The second was to shut down the production line to allow the teams to regroup and address production issues so they could complete production of the planes safely. I know this would take a lot of planning, but the alternative of rushing the build is far riskier. Nothing we do is so important that it is worth hurting someone. Thank you for considering my feedback. 57 16 Campbell responded to Pierson's message the next day, assuring him that he had heard his concerns and would take steps to address them. One month later, on July 18, Pierson met with Campbell in person. As he later testified before Congress, in that meeting he stressed that management pressure on employees threatened both quality and safety. He told Campbell that management would identify employees whose areas were behind schedule and berate them in front of more than 100 of their peers. Pierson urged management to discuss performance problems with employees in private rather than publicly. One month later, on July 18, Pierson met with Campbell in person. As he later testified before Congress, in that meeting he stressed that management pressure on employees threatened both quality and safety. He told Campbell that management would identify employees whose areas were behind schedule and berate them in front of more than 100 of their peers. Pierson urged management to discuss performance problems with employees in private rather than publicly. Pierson once again recommended that the production line be temporarily shut down to address "product and worker-safety risks." He later described Campbell's response in his Congressional testimony. Campbell: "We can't do that. I can't do that." Pierson: "I've seen operations in the military shut down over less substantial safety issues, and those organizations had national security responsibilities." Campbell: "Well, the military isn't a profit-making organization."58 Pierson left the meeting shocked by what he would later describe as Campbell's "dismissiveness and general unawareness towards the factory turmoil." Pierson voluntarily retired from Boeing a little over one month later, in August 2018. Pierson later testified: "No one has asked why two brand-new AOA sensors on two brand-new planes inspected, installed, and tested by Boeing at the Renton plant during the summer of 2018 failed."59 A Design Flaw with the Plane As Muilenburg assembled his team on Monday morning October 29, and as they continued to gather intelligence over the following days, little was known with certainty about the specific circumstances of the Lion Air crash. But Indonesian investigators had quickly focused their suspicions on the possibility that an angle of attack sensor had failed, feeding 17 erroneous data into the plane's computer, and they had raised their concerns with Boeing. A week after the crash, the deputy chief of the Indonesian safety agency said an inaccurate reading from a defective sensor could have caused the aircraft to descend uncontrollably. This was "something for Boeing to reflect upon," he noted, although he then added, "We cannot yet say there was a design flaw with the plane."60 18 Exhibit 1 Boeing Incorporated Board of Directors 2018 Name Brief Biography Robert A. Bradway Director Since 2016 Age: 55 Robert A. Bradway has been the Chairman and CEO of Amgen, Inc. since 2013. Mr. Bradway has held numerous roles at Amgen, including President and Chief Operating Officer as well as Executive Vice President and Chief Financial Officer. Total Compensation, 2017: $409,675 Independent: Yes David L. Calhoun Director Since 2009 Age: 60 David L. Calhoun has served as Senior Managing Director and Head of Private Equity Portfolio Operations at The Blackstone Group since 2014. He has also served as Chairman and Chief Executive Officer of Nielsen Holdings as well as Vice Chairman of General Electric Co. Total Compensation, 2017: $359,349 Independent: Yes Arthur D. Collins, Jr. Director Since 2007 Age: 70 Arthur D. Collins was the Chairman and Chief Executive Officer of Medtronic, Inc. from 2002 to 2007. Collins has been a Senior Advisor to Oak Hill Capital Partners since 2009. Total Compensation, 2017: $366,000 Independent: Yes Kenneth M. Duberstein, Director Since 1997 Age: 73 Kenneth M. Duberstein was the Chairman and CEO of The Duberstein Group . He also served as the Former White House Chief of Staff. He was Boeing's longest-serving director. Total Compensation, 2017: 380,158 Independent: Yes Edmund P. Giambastiani, Jr. Director Since 2009 Age: 69 Edmund P. Giambastiani, Jr. was the Seventh Vice Chairman of the U.S. Joint Chiefs of Staff from 2005-2007. A former U.S. Navy Admiral and Nuclear Submarine Officer, Mr. Giambastiani has been the President of The Giambastiani Group LLC since 2009. Total Compensation, 2017: $324,500 Independent: Yes Lynn J. Good Director Since 2015 Age: 58 Lynn J. Good has served as the Chairman, President and Chief Executive Officer of Duke Energy Corporation since 2016. Good has been a CPA for over 30 years and is an alumnus of Arthur Anderson LLP and Deloittte & Touche LLP. Total Compensation, 2017: $315,000 Independent: Yes Lawrence W. Kellner Director Since 2011 Age: 59 Lawrence W. Kellner has served as the President of the Emerald Creek Group, LLC since 2010. From 2004 to 2009, he was the Chairman and Chief Executive Officer of Continental Airlines and was President and Chief Operating Officer of Continental Airlines from 2003 to 2004. Total Compensation, 2017: $367,671 Independent: Yes Caroline B. Kennedy Director Since 2017 Age: 60 Caroline B. Kennedy was the U.S. Ambassador to Japan from 2013- 2017. Prior to her diplomatic posting in Japan, she was the Chief Executive of the Office of Strategic Partnerships of the New York City Department of Education. Total Compensation, 2017: $123,627 Independent: Yes 19 Edward M. Liddy Director Since 2010 Age: 72 Mr. Liddy served as the Chairman and Chief Executive Officer of the Allstate Corporation from 1999-2006. From 2008-2009, he was the Interim Chairman and CEO for American International Group and has served on numerous boards, including 3M, Abbott Labs and AbbVie Inc. Total Compensation, 2017: $323,322 Independent: Yes Dennis A. Muilenburg Director Since 2015 Age: 54 Dennis A. Muilenburg served as the Chairman, President and Chief Executive Officer of The Boeing Company from July 2015 until December 2019. Mr. Muilenburg held numerous posts at Boeing from 1985 to 2019, including Executive VP of Boeing Defense, Space & Security. Total Compensation, 2017: $18,450,416 Independent: No Susan C. Schwab Director Since 2010 Age: 62 Susan C. Schwab has been a Professor at the University of Maryland School of Public Policy since 2009. Prior to this, she served as the U.S. Trade Representative in the Executive Office of the President from 2006-2009. Total Compensation, 2017: $341,700 Independent: Yes Ronald A. Williams Director Since 2010 Age: 68 Ronald A. Williams was the Chairman, President and Chief Executive Officer of Aetna, Inc. from 2006-2011. He currently serves as the Chairman and Chief Executive Officer of RW2 Enterprises, LLC. Total Compensation, 2017: $356,007 Independent: Yes Mike S. Zafirovski Director Since 2004 Age: 64 Mike S. Zafirovski has been an Executive Advisor at The Blackstone Group since 2011. Mr. Zafirovski was the President and Chief Executive Office of Nortel Networks Corporation from 2005-2009. Total Compensation, 2017: $346,000 Independent: Yes Source: Boeing 2018 Proxy Statement. Note: Board Composition as of April 30, 2018. 20 Exhibit 2 Boeing Incorporated R&D Expense, Dividends and Share Repurchases Fiscal 2010 to Fiscal 2018 (US $ in millions) Source: Mergent Online 2010 2011 2012 2013 2014 2015 2016 2017 2018 Research & Development 4121 3918 3298 3071 3047 3331 4627 3179 3269 Dividends 1253 1244 1322 1467 2115 2490 2756 3417 3946 Share Repurchases 0 0 0 2801 6001 6751 7001 9236 9000 -$2,000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Research & Development Dividends Share Repurchases Linear (Research & Development) Linear (Share Repurchases) 21 Exhibit 3: Boeing Code of Conduct The Boeing Code of Conduct outlines expected behaviors for all Boeing employees. Boeing will conduct its business fairly, impartially, in an ethical and proper manner, in full compliance with all applicable laws and regulations, and consistent with Boeing's enduring values. In conducting its business, integrity must underlie all company relationships, including those with customers, suppliers, communities and among employees. The highest standards of ethical business conduct are required of Boeing employees in the performance of their company responsibilities. Employees will not engage in conduct or activity that may raise questions as to the company's honesty, impartiality, reputation or otherwise cause embarrassment to the company. Employees will demonstrate their commitment to the enduring values, will treat each other with respect and will refrain from any type of harassment, including sexual harassment.61 As an employee of The Boeing Company, I will ensure that:

• I will not engage in any activity that might cause conflict of interest for me or the company. I will not take advantage of my Boeing position to seek personal gain through the inappropriate use of Boeing or non-public information or abuse my position. This includes not engaging in insider trading. I will follow all restrictions on use and disclosure of information. This includes following all requirements for protecting Boeing information and ensuring that non-Boeing proprietary information is used and disclosed only as authorized by the owner of the information or as otherwise permitted by law. I will observe fair dealing in all of my transactions and interactions. I will protect all company, customer and supplier assets and use them only for appropriate company approved activities. Without exception, I will comply with all applicable laws, rules and regulations. I will promptly report any illegal or unethical conduct to management or other appropriate authorities (i.e., Ethics, Law, Security, EEO). Every employee has the responsibility to ask questions, seek guidance and report suspected violations of this Code of Conduct. Retaliation against employees who come forward to raise genuine concerns will not be tolerated

Use the above reading to answer the following

1. What were the immediate technical causes of the crash of Lion Air Flight 610? 
2. Describe the culture of the Boeing organization. How did cultural changes at Boeing contribute to the production of an unsafe aircraft? 
3. Identify the key elements of Boeing's strategy, as guided by its board of directors. What were the priorities of Boeing's board, and what evidence do you have for your conclusions? How did these priorities contribute to the production of an unsafe aircraft?
4. Recommend actions that Boeing and its CEO, Dennis Muilenburg, could take to prevent unsafe aircraft from being manufactured and sold in the future.