That Won't Fly

Communications represent one of the three key areas of my consulting business, and I've learned from decades of experience that the whole issue is inextricably intertwined with the operation of a business. It's also too important to be left to spinmeisters and PR flaks. Today's Wall Street Journal carries a story about the latest delays impacting Boeing's Dreamliner, a "bet the ranch" project for the company that was first announced in 2003.

The WSJ reports that Boeing management committed in 2003 to be unusually open about the project. In 2007, the President of Boeing's Commercial Airplane unit stated that "the whole issue of transparency is key" to maintaining the confidence of customers and investors. Unfortunately, the most recent project delay, which is the sixth in six years, took the company's share price down 12% in two days.

Having been a sell-side analyst myself for many years, I remember that "knot in the stomach" feeling coming into the office to read the press release and then trying, often unsuccessfully, to reach company management, which by this time were reading off an approved script of platitudes. In Boeing's case, the two key executives were not available to the WSJ for comment. Not a good idea. Portfolio managers, in the meantime, knowing the script, usually sold a portion of their holdings. "And so it goes. "

The J.P. Morgan aerospace analyst wrote, "We believe that had management been more upfront about this situation, perhaps the modest level of credibility on this topic that it had started to re-establish over the past several months could have been sustained." It's a simple lesson, but one that's ignored by companies of every size capitalization. Don't try to fool Mother Nature, and certainly don't try to fool, ignore, or spin the capital markets.

The story suggests, rather lamely, that the growing web of suppliers, many overseas, makes up-to-date project communications difficult, and that might account for the negative surprise. That excuse most certainly doesn't fly in our book. Aerospace companies use industry-leading project management tools, as they have done for decades. If their vendors are not compliant, they need to be held accountable, and the chain of accountability has to move up right to the head of the unit if effective project oversight isn't maintained. However, this is very hard to believe that communication which hadn't broken down for four years of the project, has broken down up to six times without remediation.

Now the challenge will be for Boeing with its customers; there are suggestions that it will lose market share to AirBus. I have a hard time following that argument. The recent unfortunate disaster with AirBus planes has shown, among other things, the limits of design and implementation by committee. In particular, the apparent difficulties that AirBus's Spanish shareholder consortium are having delivering on-time projects should give any fleet buyer pause. The market share game should turn on industry fundamentals, such as fuel price outlooks and long-haul market dynamics, rather than on a daily press release. Boeing has a chance to make things better. Let's hope they take their lesson and make it so.