January 24, 2012
When Jim Albaugh took over as the president and CEO of Boeing’s commercial aviation division in 2009, the company was facing one of the biggest crises in its long history. Boeing’s ambitious 787 Dreamliner program, promising to deliver the world’s first passenger aircraft made of composite material, was in deep trouble. At the time of its formal launch in 2005, the aircraft was well accepted by the airline industry and quickly notched up orders for nearly 900 units. But when a path-breaking initiative to source assembled sections and components from across the globe unraveled, the Dreamliner was delayed by more than three years. To make it worse, technical problems were uncovered when the plane finally took off for flight testing, damaging the credibility of one of the best known American industrial manufacturers.
While Boeing aimed to revolutionize aircraft manufacturing with the 787, its business leaders failed to fully appreciate the complexity of developing a global supply chain for highly advanced materials and components. After Alan Mulally left Boeing to start what has turned out to be a highly successful stint as the CEO of Ford Motor Company, the company’s commercial division was handed over to Scott Carson, a man whose sales skills were widely acknowledged, but whose experience on the technical and production side of the business was limited. After three years of futile attempts to iron out the teething problems at the Dreamliner assembly line, Carson stepped down. By then, Boeing had booked billions of dollars in losses due to the delays, and customers were threatening to cancel orders, despite financial payouts to compensate for their longer wait for aircraft deliveries. Meanwhile, European manufacturer Airbus spotted its opportunity and launched its competing model, the A350, which built up an order book of over 500 in quick time. Albaugh, who was until then the head of Boeing’s more profitable defense division, was given the onerous task of preventing what increasingly looked like a corporate disaster.
Under Albaugh, Boeing worked more closely with its suppliers to reduce defects and ensure timely delivery. Urgent steps were initiated to iron out the design shortcomings and other problems that became apparent during testing. Albaugh and his team also worked overtime to offer status updates on the program and reassure customers in an effort to prevent defections to Airbus. Their efforts paid off as the Dreamliner completed flight testing and the first aircraft was handed over to Japanese carrier ANA in September 2011. Boeing is currently increasing its 787 production to clear its huge order backlog, before launching more variants of the plane that will offer higher capacity and increased flying range. Ironically, the shoe is now on the other foot as Airbus is facing several years of delays in its A350 program.
In hindsight, Albaugh was the best qualified to bail Boeing out of its Dreamliner troubles. A career Boeing veteran, who joined the company in 1975 as an engineer, Albaugh had deep experience in leading complex developmental efforts, including the engines for the Space Shuttle program. He has been known to savor the technical challenges of developing advanced technologies and building complex systems. As former Boeing CEO Harry Stonecipher said, ‘Jim really is a rocket scientist’.
“What I want to do this time around is underpromise and overdeliver.
I never again want to be talking to a customer about how I’ve impacted
their business plan because I’m late and because the airplane doesn’t give
the performance that they wanted.”
- Jim Albaugh, talking about the production schedule
for Boeing’s 787 Dreamliner and the new 737 MAX
For the son of a chemist, who grew up next to a nuclear facility in Washington State where his father worked, it must have been easy enough to develop a keen interest in science and technology. That fascination led to a master’s degree in civil engineering from Colombia University, with an eye on building dams. But large dam projects had become fewer by then, and Albaugh became a rocket engineer instead. He steadily climbed the corporate ladder at Boeing, gaining commercial acumen on the way, and later became the head of the defense division in 2002. One of his first decisions in that capacity was to close down the executive dining room at the division’s major manufacturing facility, to make senior managers more approachable.
As the company leaves the troubles related to the Dreamliner program behind, Boeing is in a sweet spot that will likely allow the company to dominate the market for wide-body jets well into the future. Higher fuel costs have made it impossible for airlines to operate in a highly competitive market, forcing them to update their fleets with newer, more efficient planes at regular intervals. As a result, though the global airline industry is far from healthy, order backlogs for airplane manufacturers have never been bigger. In a curious twist of fate, Airbus’s problems with the development of its A350, which like the 787 will be mostly built from composites, has left Boeing as the only option for airline companies seeking new generation, wide-body jets in quick time within a few years.
Despite Boeing’s revival, though, Airbus continues to lead both in terms of new orders and deliveries as the European company has dominated the narrow body market in recent years. Its A320 neo received more than 1,000 orders within a few months of launch, as Boeing dithered whether to upgrade its current 737 model or to develop a new small jet from composites. By the time Boeing settled on the upgrade with 737 MAX, Airbus was well ahead in terms of orders.
Still, if Boeing can deliver on its promise to make the 737 MAX more efficient than the A320 neo, the company perhaps can strengthen its presence in the narrow body segment as well. What’s more, the company did eventually decide not to develop a new small jet, and this will free up engineering and financial resources to upgrade the 777 and introduce more variants of the 787. If Boeing can learn from its past mistakes and keep its new model development on track, it could conceivably regain the title of industry leader it ceded to Airbus at the turn of the century. That would be nice feather in the cap of Albaugh’s illustrious career, and pave the way for a great take off for Boeing.
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