What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're talking about the fall of boeing, which experienced one of the most rapid and dramatic falls from grace in corporate history. Boeing was one of the best performing stocks in the world during the economic recovery following the global financial crisis from 2009 to their peak in 2019, the stock price increased by a factor of 12 easily outperforming the market indices. Wall street fell in love with boeing stock because they benefit from the global growth in air travel, especially in developing nations. Boeing also occupied a duopoly with airbus, meaning that competition was low and profit margins were high demand for boeing's planes was so great that they couldn't get them off the production lines fast enough.

They had a massive backlog for thousands of planes. In many cases, airlines would have to wait in line for years before receiving their deliveries. It looked like boeing was on the top of the world and they would continue to mint billions of dollars a year for their shareholders, but this was all about to change. In october of 2018, a boeing 737 max operated by indonesian airline lion, air crashed into the sea tragically, claiming the lives of all 189 passengers and crew members on board.

At the time most people thought it was an isolated incident and most likely the result of human error. Investors shrugged it off and boeing's stock price was barely affected, but in march of 2019, another boeing 737 max operated by ethiopian airlines crashed just six minutes after takeoff, claiming another 157 lives with two separate crashes involving the 737 max occurring within the space of just a Few months the reality becomes painfully obvious. These crashes could not be blamed entirely on human error. There is something fundamentally wrong with the airplane's design that was causing these tragedies, and these problems came from a culture that prioritized profits over flight safety.

After the second 737 max crash boeing went on a multi-year long damage control operation. They replaced the ceo and have done everything in their power to get the 737 max back into operation, but despite their best efforts, boeing's stock has declined by more than 50. Today, during this same period, the s p 500 has increased by more than 70 percent. In this video we'll go over how boeing went from being one of the most successful and admired american enterprises to being a borderline disgraced organization, with only a shadow of its former glory, we'll also look at whether or not they have any chance of making a comeback.

Boeing was founded in 1910 by william boeing just a few years after the wright brothers invented the airplane. They developed the model c aquatic propeller plane which they sold to the us navy during world war, one by world war ii. They had established themselves as a leading defense, aerospace, manufacturer and manufactured thousands of military aircraft, including the b-17 and b-29 bombers after world war ii. They shifted their focus to the rapidly growing civilian aerospace market, with tens of thousands of former air force pilots coming home.

There are plenty of pilots for the budding commercial airlines and boeing was the biggest beneficiary of this. They developed new commercial aircraft, including the 777 and massive 747, which were huge hits with airlines around the world. Their business was so successful that they had to build a gigafactory in washington state in the 1960s to facilitate supply of the aircraft. To this day, their washington factory is the largest building in the world by indoor volume and is larger than 40 football fields.

Building large commercial planes is extremely complicated, in addition to needing a huge factory, you also need a complex supply chain, with thousands of suppliers for various parts that go into the plane because of this, smaller companies can't compete effectively in the space and is very conducive to Consolidation by the 2000s boeing occupied a global duopoly in large commercial airplanes, while there are other companies that make smaller private jets if you're an airline looking for a fleet of commercial planes, boeing and airbus are your only options by the early 2000s boeing was already an Industrial powerhouse, with tens of billions of dollars in annual revenue and billions of dollars in annual net profit, but the global economic recovery post 2008 is when their growth and profitability really starts to go through the roof. As developing new countries such as china and india gradually became richer, a greater and greater share of their population could afford air travel for tourism. Also increasing globalization increased demand for international business trips. These forces caused global airline passenger volumes to increase 68 from 2.7 billion in 2010 to 4.5 billion in 2019..

This does not mean that 4.5 billion unique individuals flew in 2019, as a single passenger can take multiple flights in a year. The majority of the world's population still doesn't have means to afford air travel, so there still is tremendous room for growth going forward. Boeing was a clear beneficiary of all of this to meet the rapidly growing demand airlines needed to invest in new planes. Boeing's order book exploded and their revenue grew to over 100 billion dollars at their peak in 2018..

Their net profit also increased substantially reaching 10 billion dollars that same year. In addition to industry growth, boeing also benefited from their revolutionary new 737 max plane, which first started flying commercially. In 2017, it boasted 14 greater fuel efficiency than prior versions of the 737, while also having greater reliability. The plane was a huge hit with the airlines and boeing almost immediately racked up thousands of customer orders.

Investors thought that this could be the revenue driver for the company for the next decade, but these hopes came crashing down, along with the two 737 maxes in indonesia and ethiopia, while the human toll is obviously the most important. These two tragedies also put boeing in an existential crisis. Both the indonesian and ethiopian crashes were caused by the malfunctions of the maneuvering characteristics, augmentation system or mcas. The mcas's purpose is to automatically regulate the so-called angle of attack or aoa.

The aoa is the degree the airplane's nose is pointing if the aoa is too high. The airplane risks stalling out the mcas automatically senses. When this is about to happen and just the plane's nose downwards. The problem with both flights was the mcas system glitched.

The computer falsely thought that the aoa was too high when it was actually normal to correct. For this, it forced the plane to dip its nose downward. The pilots manually turned the mcas off to control the plane by hand, but the mcas would almost immediately turn itself back on and continue to force the plane into a nose dive. Basically, there is a software problem with the 737 max that could cause a forced nosedive under certain circumstances, and the pilot was powerless to stop it shortly.

After the first flight in indonesia crashed boeing met with the federal aviation administration or faa to discuss it. They took almost no responsibility for the tragedy and said that appropriate flight crew action would have prevented the crash. They basically put all the blame on lion air crew and attributed none to themselves. The faa trusted boeing's explanation and continued to allow the plane to fly.

This mistake: sealed the fate of 157 passengers and crew members who had boarded ethiopian airlines 737 max in just a couple months time with the second crash happening just a few months later, and with almost the exact same cause. It was now obvious that there is a serious structural problem with the mcas software within a few weeks after the second crash aviation regulators around the world ordered the 737 max to halt flying the 737 max was boeing's largest production plane and they were making more than 40 of them per month running these production plans cost billions of dollars per year, but with the plane not allowed to fly, no airlines were willing to accept delivery of them. Additionally, boeing had already delivered hundreds of maxes to airlines around the world. With these planes left idle, the airlines were losing billions of dollars per quarter.

They would surely sue boeing for these damages boeing desperately wanted to get these planes back into the air as soon as possible. They initially thought they could do a quick software update to solve the problem with the mcas and that they could resolve this whole situation within a few weeks. Unfortunately, the problems were much bigger than this. The faa, as well as international aviation regulators, would settle for nothing less than a comprehensive review of what exactly went wrong and what boeing would have to do to convince them that this would never happen again for every day that the max was grounded.

Boeing was losing tens of millions of dollars, they were still making all these planes, but they just weren't being delivered. So the planes were just piling up in boeing's parking lot when they ran out of space in the designated airplane storage areas, they resorted to placing them in the employee parking lot. Such a practice is obviously unsustainable. They were spending billions of dollars, building these planes and there's a chance that they would never be approved.

If this happened, boeing would be forced to scrap the planes as junk for tens of billions of dollars in losses in december of 2019, almost a full year after the grounding. They finally decided to suspend production of the max until it was recertified, but the production halt came with its own problems. The supply chain is very complicated, with thousands of suppliers providing all the various parts and components with production shut down. These suppliers saw their revenues evaporate and many of them risk going bankrupt.

If production were to be halted for many months or even a year, it could be extremely difficult to bring it back up and running again, starting in 2019. The faa, as well as the relevant congressional committee, started investigating the root cause of the mcas failure on the planes and the results didn't look good for boeing. The 737 max is part of the 737 family which boeing has been making since the 1960s boeing intentionally made. The max similar enough to the previous versions of the 737 such that pilots, who already flew older versions, would only have to undergo minimal new training to fly the max.

This saves a lot of time for the airlines and was a big part of boeing's sales pitch. The mcas system was a new feature added to the max and was not included in previous 737s. There were ways to manually turn off the mcas which could have prevented the fatal crashes, but because pilots didn't receive proper training specific to the max. Many of them didn't know how to do this.

In fact, a lot of pilots didn't even know about the mcas at all. In reality, the max probably shouldn't have been a 737. It should have been a completely new model which requires new training, but boeing was greedy and knew they could sell more of them to airlines if they made it as an upgraded version of an existing model. A major question was why the faa was willing to approve the max with almost zero additional pilot training.

Despite the addition of the new complicated mcas system, the investigation exposed that boeing may have intentionally misled the faa to approve the plane. Internal communications revealed one billing engineer, saying that he played quote jedi: mind tricks with the regulators to convince them that extensive new pilot training was not necessary. He boasted that trickery saved the company a lot of money. Another one said that the max was designed by clowns and supervised by monkeys.

It's unclear if monkeys is referring to managers at boeing or the faa. Another one said quote: it isn't anywhere near as it would appear. By reading the report, the faa was neither thorough nor demanding and failed to write up many issues and the lies. The damn lies unquote and finally, one engineer contemplated resigning from the company, as he could no longer bear being part of the deception.

The evidence was not looking good for boeing. Their corporate culture fostered an attitude where profits were placed over safety and 346 unsuspecting passengers ended up paying for this with their lives. In light of these disastrous revelations, boeing's board of directors fired ceo, dennis mullenberg and replace him with long-time company director dave. Calhoun calhoun was given the daunting task of making the max safe again and getting it finally back into the air.

Just when it looked like things. Couldn't get any worse for the company the pandemic hit air traveled ground to a near hall, and airlines began cancelling orders for all boeing planes, not just the 737. Max people thought that boeing could face the prospect of bankruptcy with the grounding of the max boeing's revenue was already under pressure falling 24 in 2019. in 2020.

The pandemic caused revenues to fall by 24 again, and they recorded a record 12 billion net loss for the year. They were saved by the defense business, which makes a wide range of military aircraft. This was relatively stable as it is not reliant on commercial air travel. In november of 2020, the faa finally cleared the 737 max to fly again subject to software updates, fixing the problems with the mcas, as well as new training requirements for pilots.

Foreign regulators have followed too, and the plan is currently being flown all around the world, with the notable exception of china, which has yet to recertify it, boeing was forced to pay a 2.5 billion dollar fine for misleading the faa. They also incurred significant other costs, including billions of dollars in compensation to airlines for lost revenue. In total, the fiasco directly costs the company more than 20 billion dollars. The real economic cost is much more when you consider the profits that they would have been able to make if they had been able to continue delivering the maxes to customers during the two-year grounding in 2021.

It looked like boeing may finally be able to make a turnaround. They started. Making new deliveries of the 737 and airlines started submitting new orders as global air travel, gradually rebounded from the depths of covid, but in october of 2021 boeing reported yet another problem. Their widebody 787 dreamliner was having problems with some of its titanium components.

These components would have to be replaced before they can be shipped to the airlines. 25 billion dollars worth of 787s were sitting in storage idle. This was eerily similar to the 2019 scenes of 737 maxes parked in boeing's employee parking lots. Today, boeing is still trying to get production issues sorted out and final deliveries to airlines are still delayed.

The past two years have been an absolute disaster for boeing, with the share price falling more than 50 percent. This has seen more than 100 billion dollars of shareholder value go up in smoke. This chart summarizes the decline of boeing and their failure to mount any meaningful rebound. Their quarterly revenue fell from about 25 billion dollars to about 15 billion dollars and has hovered around this level.

For the past two years and over the past 10 quarters they've made negative net profit in all, but two of them to fund their losses. They've issued about 50 billion dollars of new long-term debt, even if their business can recover to pre-2019 levels, it will take them many years to pay this off. The boeing 737 max disaster is a clear example of what happens when corporate greed takes precedence over consumer safety and in the long run, shareholders pay the price alright guys that wraps it up for this video. What do you think about the boeing 737 max disaster? Do you think the company can make a turnaround? Let us know in the comments section below as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.