This documentary claims that
James McNerney - Boeing's first CEO without a background in aviation, made the decision to upgrade the 737 series to 737 MAX instead of developing a new model.
Is this true? If so, why did Boeing make the decision not to make a new model instead of upgrading a 50 year old one?
Other sources confirm the statement from your documentary that James "Jim" McNerney made the decision to build the 737 MAX rather than a new model:
When Airbus was about to land American Airlines with a huge order for the A320 family, both the ceo and neo, Boeing’s hand was forced. Within 48 hours, Jim McNerney, Albaugh’s boss, made the decision to go forward with what would become the MAX.
(Leeham News, emphasis mine)
The 737 MAX program was eventually launched as a response to the Airbus A320neo, the new engine option. If Boeing had started development of a new model immediately when Airbus announced the A320neo in 2010, they might have been able to come up with a competitive product in a similar time frame. But Jim Albaugh, who was head of the 737 program at the time, underestimated the A320neo and said:
I think Airbus will find re-engining the A320 more challenging than they think it will be. [...] When they get done, they will have an airplane that might be as good as the Next Generation 737. We think we can continue to make incremental improvements to the 737 to make sure that it is a more capable airplane than even the re-engined A320.
Boeing wasted valuable time here while Airbus was working on the A320neo. Boeing also struggled with the 787 at the same time:
Boeing was indecisive about which direction to choose.
The ambiguity was driven in no small part during this era by the continued 787 debacle, which at the time of this interview, had not entered service.
The final decision to re-engine the 737 instead of developing a new aircraft, came when American Airlines decided to purchase a large number of Airbus aircraft. Boeing realized they had to act quickly at this point:
Boeing faced an unthinkable defection in the spring of 2011. American Airlines, an exclusive Boeing customer for more than a decade, was ready to place an order for hundreds of new, fuel-efficient jets from the world’s other major aircraft manufacturer, Airbus.
The chief executive of American called Boeing’s leader, W. James McNerney Jr., to say a deal was close. If Boeing wanted the business, it would need to move aggressively, the airline executive, Gerard Arpey, told Mr. McNerney.
To win over American, Boeing ditched the idea of developing a new passenger plane, which would take a decade. Instead, it decided to update its workhorse 737, promising the plane would be done in six years.
(New York Times, emphasis mine)
As the other answers mention, Boeing management was complacent and were caught with their pants down by the Airbus 320 Neo. Upon its birth, Airbus industries took on a whole new, and radical, if I may say so, approach to airplane design. From the very beginning they produced a family of aircraft, where Boeing with its payload of history made more "unique" planes, in lack of a better word. Boeing planes are more like cousins to each other, not siblings.
This ideology of developing a plane family enabled Airbus to develop their concept very efficiently, and their progress came as somewhat of a surprise to Boeing. They were in trouble, as their R/D process is not as streamlined as its European counterparts. One of the major traps Boeing had already fallen into on its path quite some time ago, was that 737 was such a successful plane. They thought it would, and wanted it to, last forever. They thought the MAX upgrade was just another step to be taken to stay competitive, and they could fast track it if necessary. Needless to say, hindsight being 20/20, they were terribly wrong.
The reason 737 MAX failed big time was the fact that quite unfortunately, while Airbus 320 upgrades were building up unbearable pressure on them, a company culture formerly foreign to such a safety oriented industry as aircraft manufacturing was setting in at Boeing. Cutting corners, using sub-par outsourcing, hiding problems, misleading officials.... This is well documented on multiple sources. If one follows aviation news at all, it would have been impossible to miss.
Had Boeing stuck to high quality of design work, the end result would have been different. I mean, the 737 is an engineering marvel, there's no question about it. They just seriously effed it up on its last upgrade. There's a saying in the business world: Nothing can save a thriving business. Boeing was doing too well to see it's own faults.
So the factors leading to the catastrophic MAX project descicion were an unfortunate mix of falling off the R/D wagon a decade (or two) ago, underestimating the competition, and poor understanding of the industry by company management.
I would suggest the same reasons Boeing decided to pursue an update to the 737 over developing a new plane is the same reason Airbus only updated the A320 (a 33 year old plane) instead of building an entirely new platform, time and development costs. Airbus sunk around \$25 billion into the A380 and lost money on the project, since it was cancelled before it broke even. Airbus did not have the capital to pursue both a an A320 replacement and the development of the A350.
There is one other factor that one should consider, any replacement for the 737 is going to be an entirely new plane with new training, new maintenance, new parts. What happens if legacy carriers like Southwest or Ryan who fly only 737 decide to go with Airbus instead? On the surface, an upgrade to the existing 737 made a lot of sense.
Boeing has talked for years about a project to replace its entire civil aircraft portfolio with advanced technology aircraft, called the Yellowstone Project.
To say that several things make such a project daunting is an understatement. There are two factors for launching an entirely new aircraft that come to mind, the cost to build and the time frame to go from announcement to first commercial service.
The Boeing 787 started out as a part of Yellowstone - Project Y2. It was announced in 2003 and went into service in 2011. The total cost for the program with delays sits at \$32 billion.
For a full replacement of the 737, which the development is now being referred to as the Boeing New Midsized Plane, I would assume we would see similar costs and timeline for development. I have heard Boeing plans to release some sort of replacement for the 737 it hopes to have flying before 2030. I would assume such a development would run around \$20-\$30 billion or more.
The Boeing 737 line of aircraft have been one of the most popular for a long, long time. This means that there are a LOT of airlines owning 737s and a LOT of pilots type rated on the 737s, and a HUGE network of supportive industries in the supply chain.
If they came up with a design that is "too" different from the preceding models, then, according to the rules, pilots would have to go through a new type rating process - which is not good news for people who spend the money. Also, it would be a big task for the intermediate industries to prepare themselves to supply the materials required to manufacture the new 737 model. This would make transition from NG to MAX quite cumbersome because a huge network of industries would have to be upgraded.
In fact, if you take a look at the developments since the 737-300 or 737-400 generation, the evolution curve hasn't been too steep, i.e., from a pilot's place, there is not an overwhelming amount of difference between older and newer generation 737s.
I don't know all the reasons why they chose to build the MAX around the older foundation but making the transition to MAX seamless is definitely one of them.
This is also the reason why the new LEAP 1-B engines on the MAX models had to be pushed a bit forward and lifted up (since the 737's height is too low for the LEAP 1-B to be placed at the old spot), and why MCAS had to be introduced on the MAX lineup (to compensate for the changes in the pilot's experience brought about by the new position and increased power of the engines, and due to the aerodynamic effects of the new structure of the nacelles[1]).
The issue which, over time, became more and more problematic is that the 737 is from the late 1960s, which wouldn't have affected the MAX lineup (or affected less) if a big change had already (at least) once been done some time between 1967 and 2017.
References:
[1] - MCAS on 737 - Wikipedia
Boeing had only just introduced the 737 NG and sat back to relax when Airbus announced the A320neo. It trumped the NG and looked like eating seriously into Boeing's planned market. Boeing felt they had no choice but to fight back.
They had a project for a replacement going, but bringing it forward faced an impossible problem; it could not be done in time to hold back the challenge from Airbus, it would have meant a generation of lost orders.
So an emergency upgrade to the NG was the only solution. But even then the airlines wanted to know what it would give them that the neo did not. Part of that package was the next-generation CFM LEAP engine, but Boeing feared the technical uplift would not be enough.
So they hit on the idea of selling a "you already know how to fly it" airplane, which would save the airlines crew conversion costs and mean that Boeing could short-cut the usual into-service transition period. This proved popular with the airlines, and some even wrote penalty clauses into their contracts if Boeing did not make good their promises.
Boeing did not, but that is another story.
