Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / How One Factory Error Cost Boeing Billions in Productivity
Transcript
- Lucas: If I told you that one of the most iconic American manufacturers lost roughly twenty billion dollars in potential revenue over four years, not because the market disappeared but because of a productivity failure, you'd probably ask which company and how. Luna: I'd ask that exactly. Twenty billion is a staggering number. Lucas: It's Boeing. Specifically its commercial airplane division. And the productivity failure was the 737 MAX crisis, which we usually talk about as a safety story — two fatal crashes, flawed MCAS software, regulatory grounding. But underneath all of that is a manufacturing productivity story that cost Boeing more than the crashes themselves. Luna: So you're saying the productivity angle has been overshadowed by the safety narrative? Lucas: Completely. The safety story is critical, obviously. But once you look at the numbers, the productivity collapse after the grounding is almost unprecedented in modern industrial history. Boeing went from delivering fifty-two 737s per month in early 2018 to effectively zero deliveries for nearly two years. That's not a safety statistic — that's an operations and productivity catastrophe. Luna: Let's go back to where it started. The decision that set this in motion. Lucas: It goes back to 2011. Boeing was facing competition from Airbus's A320neo, which had a more fuel-efficient engine. Boeing's answer was the 737 MAX — essentially the same airframe with new, larger engines. To fit those engines under the wings, they had to reposition them slightly forward and higher. That changed the aerodynamics, which eventually required the MCAS software to compensate. But the key productivity point is that Boeing chose to keep the production line essentially the same as the previous 737 NG. Luna: Right — the NG was their workhorse for decades. Lucas: Exactly. The 737 NG had been in production since 1997, and Boeing had refined its assembly line at the Renton facility in Washington to an incredibly efficient rhythm. The thinking was: keep the same line, same suppliers, same basic tooling, and just swap in the new engines and software. That's a classic productivity move — leverage existing capital equipment and process knowledge to get a new product out faster with lower upfront investment. Luna: But that move backfired spectacularly. Lucas: It backfired because the changes weren't as incremental as Boeing assumed. The engine mount redesign, the software patch, the rushed certification process — all of these introduced hidden complexity into a production system that was already running at maximum capacity. When the grounding hit in March 2019, Boeing had a backlog of nearly four thousand 737 MAX orders. The assembly line kept running for a while, building planes that couldn't be delivered. Eventually they had to slow the line, then stop it, then work through the rework of hundreds of completed aircraft. Luna: So the productivity loss wasn't just the revenue from undelivered planes. It was also the cost of building planes that couldn't be sold, plus the rework. Lucas: Precisely. And the rework was enormous. Each undelivered MAX had to have its wiring bundles inspected, software updated, and in some cases components replaced. Boeing's own internal audit from late 2019 found that the rework cost an average of two hundred thousand dollars per plane, and they had over three hundred planes sitting in storage at one point. That's sixty million dollars just in direct rework costs, not counting the idle capital and labor. Luna: And the delivery rate. Before the crisis, Boeing was producing 52 per month. What's it at now? Lucas: As of early 2026, Boeing is capped at 38 per month by the FAA as part of the 2024 settlement agreement. That's a 27 percent reduction from the pre-crisis peak. And Boeing had been planning to ramp up to 57 per month by 2025 before the crisis. So the gap between the planned trajectory and the actual output is enormous. Let's do some rough math: at 57 per month, Boeing would have delivered roughly 684 MAX aircraft in 2025. At 38, they delivered about 456. At roughly fifty million dollars per list price, though discounts are significant, that's a loss of roughly 11.4 billion dollars in potential revenue for just one year. Luna: And that's just the MAX. The 787 Dreamliner had its own production quality issues with carbon fiber fuselage joints, which also slowed deliveries. Lucas: That's a separate but related crisis. The 787 had problems with shimming and gaps in the fuselage structure, which led to delivery halts in 2020 and 2021. That indicates a broader pattern: Boeing's productivity culture under the 'going lean' mantra of the 1990s and 2000s prioritized speed and cost cutting over quality assurance. The lean manufacturing principles themselves aren't the problem — Toyota proved that. But Boeing applied them in a way that stripped out redundancies that actually protected quality. Luna: So what are the specific productivity metrics that show this? You mentioned total factor productivity earlier. Lucas: Total factor productivity, or TFP, measures output per unit of combined inputs — labor, capital, materials. Boeing's commercial airplane division saw TFP decline by roughly 45 percent from 2018 to 2023. That's a staggering drop. To put it in context, U.S. manufacturing TFP overall grew by about 1.5 percent per year over that same period. Boeing went sharply backwards. The main driver was output falling much faster than inputs. They still had the same factories, roughly the same workforce, but far fewer planes coming out the door. Luna: And that's partly because they had to keep paying workers and maintaining facilities even while production was halted. Lucas: Exactly. Fixed costs don't go away when you stop building. The Renton facility, the tooling, the engineering workforce — all of those continued to incur costs. So output dropped dramatically while input costs remained high, crushing TFP. It's a textbook case of how a productivity shock can persist long after the initial disruption, because the capacity utilization stays low. Luna: The interesting thing to me is that this wasn't a demand shock. The demand for single-aisle aircraft was still strong. It was a supply-side productivity failure. Lucas: Entirely supply-side. Airbus, for comparison, delivered 735 A320 family aircraft in 2024, up from 571 in 2018. They kept their production ramping despite the pandemic. Boeing lost market share not because customers didn't want the MAX, but because Boeing couldn't build them fast enough and with enough quality assurance. That's a productivity problem, not a market problem. Luna: And the FAA cap on production is essentially a regulatory recognition that Boeing's productivity processes weren't robust enough to ensure safety at higher output rates. Lucas: That's exactly right. The FAA's 2024 settlement required Boeing to implement a new quality management system and capped production at 38 per month until the system is verified. That's an explicit link between productivity and safety: the regulator is saying, 'You cannot produce at higher volumes until you prove your quality systems can handle it.' That's a rare intervention. Usually regulators focus on product safety, not production process capability. Luna: What are the lessons for other industries? This isn't just an aerospace story. Lucas: The biggest lesson is that productivity gains from modular design and lean manufacturing are real, but they're fragile. When you push a system to its limits, the margin for error shrinks. Boeing's decision to reuse the 737 NG fuselage and assembly line was a productivity win on paper — lower capital expenditure, faster time to market. But it introduced a mismatch between the new engine's aerodynamic demands and the old airframe's handling characteristics. The productivity of the design phase was high, but the productivity of the overall system — design plus certification plus production — was lower because the design choice created downstream costs. Luna: So it's about optimizing the whole system, not just the parts. Lucas: Right. Boeing optimized for engineering productivity in the short term and wound up with a system that had a hidden brittleness. There's a parallel in software development: when you rush a feature to market by building on a legacy codebase without refactoring, you get technical debt. Boeing created technical debt in a physical product, and the interest payments were grounded fleets and billions in lost revenue. Luna: And the debt is still being paid. Boeing's production is still constrained, years later. Lucas: As of June 2026, Boeing is still at 38 per month. They've submitted a plan to the FAA to eventually reach 42 per month by late 2027, but that's contingent on the quality management system certification. Meanwhile, Airbus is producing over 60 A320s per month and planning to reach 75 by 2028. The productivity gap between the two manufacturers is now structural, not temporary. Boeing's market share in single-aisle aircraft has dropped from roughly 50 percent in 2018 to about 35 percent in 2025. Luna: That's going to take a decade to turn around, if it can be turned around. Lucas: It will take at least that long. And it's a reminder that productivity is not just about doing things faster. It's about doing things reliably at scale. The Boeing case shows that when you sacrifice reliability for speed, you end up slower in the long run. Luna: That's a powerful point. And it's one we try to explore on this show — the long-term view of productivity. Lucas: And because we take that long-term view, we deliberately don't run ads on these episodes. We want the content to speak for itself without interruption. If you find value in that approach and want to support it, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep this ad-free and focused on the ideas. We appreciate that. Lucas: So back to Boeing's path forward. One of the more interesting developments is the 2025 appointment of a new COO with a background in quality systems from Toyota. That signals Boeing is aware that the productivity fix is about process discipline, not just new engines. Luna: Toyota's production system is the gold standard for quality-embedded productivity. Lucas: Exactly. Toyota's approach is that quality is not a separate inspection step — it's built into every operation. Boeing had moved away from that, outsourcing more components and relying on final inspection. The new COO is reportedly implementing 'jidoka' — automation with human intelligence — on the 737 line, where machines detect anomalies and stop the line automatically. That slows down the line in the short term but prevents the kind of defects that cause costly rework later. Luna: So that's a productivity investment that pays off over years. Lucas: Yes. The question is whether Boeing's culture can sustain that investment through the inevitable quarterly earnings pressure. Boeing's debt as of 2026 is still around forty-five billion dollars, so there's a strong incentive to get planes out the door faster. But the regulator's cap prevents that. Boeing is in a bind: they need cash, but they can't produce more until they fix quality, and fixing quality takes time and money. Luna: It's a productivity paradox — the harder you push for output, the less you get. Lucas: That's the perfect summary. The paradox is that the pursuit of productivity without quality assurance destroys productivity. And Boeing is the cautionary tale for every manufacturer, every tech company, every organization that thinks they can cut corners on process in the name of speed. Luna: I'm going to be thinking about that the next time I read a 'move fast and break things' mantra. Lucas: Same here. Boeing's story is a reminder that in complex systems, the things you break often include your own productivity.