Tolstoy wasn’t quite right when he said each unhappy family was unhappy in its own way. Boeing’s accelerating rate of customer-profit harming and passenger-inconveniencing product defects represents an unusually pure and unadulterated form of executive looting of a company. However, this pattern of behavior is common in Corporate America in its less extreme form.
Boeing’s unusual position as a “must have” player in a duopoly making perceived-to-be essential products where no way, no how can any other company take up Boeing’s production in less than decades means the malfeasance can continue. And worse, as an important editorial in Aviation Week explains, Boeing’s top brass shows no intention of changing their self-serving ways.
Most here know the broad outlines of the Boeing story. The company was founded in the early days of aviation, an industry built by inventors and engineers like Howard Hughes. To truncate a very long history, Boeing emerged a winner after a long period of industry consolidation. A company and industry-defining bet was the decision to bet on a new, untested concept: a large capacity, long-distance passenger plane, with only an order from Pan Am as a vote of confidence (important but no where new enough to assure the viability of the investment). But the 747 became an enormous success. It not only helped propel Boeing to its current dominant position but reshaped the industry by lowering the cost to passengers of long-haul travel, greatly expanding the market. Oddly, or perhaps in keeping with America’s warped priorities, Wikipedia’s extensive entry on Boeing makes nary a mention of the key role of the 747 to Boeing and commercial aviation. 1
Most readers also likely know of the key event that has brought Boeing to its current beleagured state, its 1997 acquisition of McDonnell Douglas. Despite Boeing being the larger company, McDonnell Douglas came out on top managerially. McDonnell Douglas was finance driven, not product driven, and quickly started remaking the company in its image. It moved the headquarters and key operations out of Seattle, in large measure to get rid of perceived to be too costly engineers. It became an outsourcing enthusiast, eventually including outsourcing parts to China. The results, starting with the 787, were not good. From a 2011 Reuters account:
The parked planes are 787-8 Dreamliners, the world’s first commercial aircraft with a body and wings made largely of lightweight carbon-composite materials instead of aluminum. Someday these sleek, fuel-efficient machines — already painted in the liveries of their airline customers — may change the face of air travel and plane-making.
But not today.
The program that produced these unfinished 787s is nearly three years behind schedule and, by some estimates, at least several billion dollars over budget. Dreamliner flight tests were halted in November after an electrical fire aboard a test plane….
About 45 miles away in south Seattle, members of Boeing’s work force gathered at a union hall for a monthly lodge meeting, a holiday party and a chance to lament the seismic shift in plane-making strategy they say the Dreamliner represents.
The 787 is not merely a historic feat of engineering. The program also marks Boeing’s departure from its own time-honored manufacturing practices.
Instead of drawing primarily from its traditional pool of aircraft engineers, mechanics and laborers that runs generations deep in the Puget Sound region around Seattle, Boeing leads an international team of suppliers and engineers from the United States, Japan, Italy, Australia, France and elsewhere, who make components that Boeing workers in the United States put together.
Advertisement“Do you see the stupidity in that?” said James Williams, an imposing 43-year-old who has been employed by Boeing for 15 years, mostly working in factory safety.
Williams, whose father worked at Boeing for more than three decades, is just one of many in the company who blame the repeated Dreamliner delays on a splintered engineering strategy and a complex supply chain of about 50 partners…
Whatever the advantages, Boeing’s outsourcing is emblematic of corporate practices that have sent large chunks of U.S. industry overseas and to other states, battered communities and vaulted the U.S. jobless rate to nearly 10 percent, economists say.
Yet the biggest victim may be the culture that underpins the aerospace behemoth. Here in Boeing country, where children follow parents into the aviation business, outsourcing is plain heresy.
“It was like the family,” said Williams, whose wife, Sarah, and three children joined him for the holiday party. “Can you outsource Mom? Can you outsource Dad?”
While this story indicates that Boeing would bring a bit of its outsourced manufacture back in house, there would be no fundamental rethink, merely an effort to fine tune. And yours truly has strong suspicions as to why Boeing would not consider a more serious rollback of its troubled outsourcing strategy. It’s not as if this were due to competitive cost pressures (more on that soon). As one colleague pointed out, it was not as if Boeing’s big competitor, Airbus, was a lean and mean company (although aerocraft profits are to a degree a function of how many planes of a particular model you sell; there appear to be meaningful scale factors at that level). Not only does Airbus have to contend with an allegedly well-paid and hard to fire work force, but production of its components is divvied among countries in its consortium, creating a supply chain not optimized for cost. Yet Boeing acted as if it needed to squeeze on costs to compete with Airbus?
Upper management ego was probably a factor; as we see on an almost daily basis, big dogs double down rather than be seen as admitting error. But featly to Wall Street was likely an even bigger factor. I know executives in other industries who have said the case for their company to outsource was not strong. They could have achieved the same margins at lower risk by improving manufacturing processes, such as their implementation of just-in-time. But their stock was sure to rise if they started outsourcing.
To simplify the history for the purpose of getting to the choices Boeing faces now, another critical set of decisions involved the 737. It has been a widly successful model, the first aircraft ever to get over 10,000 orders after its third redesign, the so-called Next Generation. But it is also a 1967 design that Boeing has kept tweaking to keep up with market demands and competitive pressure. As a CNN story explains, by 2012, even with its considerable success, the 737 was already looking long in tooth in 2012 and Boeing was feeling the hot breath of the Airbus 320 on its neck. But rather than design a new plane, Boeing decided to wring more life out of the 737. The MCAS debacle came straight out of this choice. From CNN:
The Boeing 737 Max was announced in 2011, the fourth generation of the aircraft.
“Boeing needed to combat what Airbus were doing with the A320neo, a version of the plane with a new engine that was quite substantially more fuel efficient,” says Simons.
To do so, however, the company ran into a problem it had encountered before: the new, much bigger engines it wanted for the 737 Max wouldn’t fit under the plane’s low wings – an issue Airbus didn’t have, because the A320 was already a much taller plane than the 737.
The solution was to add some length to the front landing gear and mount the engines further forward and higher on the wings, giving them the clearance they needed.
But, as Boeing later found out in simulators, this altered the plane’s aerodynamics, making it tilt up dangerously in certain situations.
To counter the problem, the company devised a safety system called MCAS, which would immediately push the 737’s nose down if it tilted too high.
Because MCAS was designed to make the 737 Max fly just like previous 737s, and because Boeing believed that it would come into action only in extreme flying circumstances, it was kept almost secret.
Boeing decided against including it in the brief lesson that pilots already certified for previous 737s needed to take to fly the 737 Max.
There’s more to the “kept almost secret” part, like not including the existence of MCAS in pilot manuals and telling faithful 737 buyer Southwest Airlines what it wanted to hear, that pilots would not need additional simulator training to fly the MCAS. But you get the idea.
You would think after a disaster like that, Boeing would be humbled and stick to its knitting, as in worry about making better planes. But noes!
Yikes:
Jan 5, Boeing 737 has a panel rip off midair
Jan 13, Boeing 737 cockpit window cracks
Jan 17, Boeing 737 strands Blinken
Jan 19, Boeing 747 cargo plane burns up
Jan 20, Boeing plane in Atlanta lost a wheel
Jan 25, Boeing to pause production for a “quality focus day”
— ib (@Indian_Bronson) January 24, 2024
the wheel of a Delta Boeing 757 just flew off while it was preparing to take off at Hartsfield–Jackson Atlanta International Airport. The wheel then rolled down the runway…
could have been catastrophic if it happened a few seconds later
video from 1/20 (VASAviation) pic.twitter.com/mO7Fvzysmx
— Gregg Re (@gregg_re) January 23, 2024
AirLive describes a new Boeing incident: A Virgin Atlantic Boeing 787-9 returned to London Heathrow with the Ram air turbine deployed. From the story. And remember, last week Lever News reported Airlines Filed 1,800 Reports Warning Regulators About Boeing’s 737 Max. And yes, sport fans, this was after the 737 Max was grounded for 20 months as Boeing had to ‘splain to regulators all over the world why its MCAS fixes were not another ticking time bomb.
One would think the flatlining of Boeing’s stock would focus the minds of its top management and board. But CEOs and their hangers-on often manage to get “Heads I win, tails you lose” pay deals, so it’s doubtful their comp has been dinged as much as it ought to be.
Two new stories look at how Boeing can pull itself out of its nosedive. A Financial Times account is fairly anodyne, framing its story around what happens to various Boeing dependents, like suppliers and long-standing customers that have tuned their operations around the Boeing product. What it does not contemplate is what happens if Boeing debacles get worse. The airline industry is correctly obsessed with safety. Customers will not fly if they think their plane might fall out of the sky. But the industry has very high barriers to entry, and no incumbent or aspirant who could meaningfully replace Boeing’s capacity in anything less than a decade even if customers rebelled. From the Financial Times:
At stake is not just Boeing’s standing as a leader in aviation. The company’s mis-steps have prompted some industry experts to ask if there has been a decisive shift of power towards Airbus in the duopoly that governs aerospace….
“It is absolutely critical that we have a strong Boeing and that we have a strong Airbus and that the two of them at least compete with each other, not just for orders, but also . . . in terms of technological developments,” says Michael O’Leary, chief executive of Ryanair, one of Boeing’s biggest customers.
That depends on Boeing turning things around. If it cannot, there would be consequences for the aerospace supply chain and for airline customers.
New entrants have tried to break into the industry but with mixed success. Comac, China’s state-backed aerospace champion whose first single-aisle C919 commercial flight took to the skies last year, has begun to emerge as the first real threat in decades….
When the C919 made its inaugural flight in 2023 it marked a breakthrough in China’s aims for technological self-sufficiency. But the aircraft is highly reliant on western suppliers for critical components, including communication and navigation systems, engines, landing gears, wheels and brakes…
But the Comac aircraft is not without problems, he [O’Leary] argues, calling it “a glorified A320”. O’Leary adds: “So the more aircraft Comac produces, you’re drawing off the same engine suppliers, the same avionics suppliers . . . it’s an A320 in all but name.”
Despite widespread scepticism that Comac can be a viable competitor anytime soon, technological development by China — including advancements in sectors including computer chips and electric vehicles — has caused some consternation in the west…
AerCap’s [Aengus] Kelly points to the enormous technological challenges that go with building aircraft and engines. He predicts it will take Comac “another 20-30 years to match what Boeing and Airbus currently do”.
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Brazil’s Embraer is not seen as likely to be able to make up for a big fall in Boeing orders, not due to a lack of technical chops, but the cautionary example of Canada’s Bombadier, which nearly went bankrupt after trying to move into the big leagues.
Yet despite the widespread recognition of the importance to the airline industry and the US of Boeing turning itself around, an important op-ed in Aviation News explains that Boeing management has no intention of changing its grifting ways, and none of the few players that could pressure them look inclined to act. From Aviation News:
Can anything save Boeing from its management?…
The safety concerns and manufacturing errors plaguing the company’s jetliner unit are just part of the problem. The production ramp-up has been a series of disappointments that will only worsen as regulators and customers scrutinize manufacturing and inspection processes.
The company is also quickly losing market share. CEO Dave Calhoun’s November 2022 announcement that there would be no new Boeing jetliner this decade had a predictable result: a record 1,300 Airbus A321neo orders in 2023. Boeing will be very lucky to retain 40% of the market by decade’s end. Given relentless cost-cutting and the demographics of the engineering workforce, it will be quite difficult for the company to create a new jetliner in the 2030s.
The situation may be worse on the defense side. Billions of dollars have been lost due to poor execution and ill-advised fixed-price contracts—over $2 billion in 2022 alone…..
For years, Boeing management was accused of focusing on money rather than products, performance or people. Between 2014 and 2018, it gave away $53 billion in dividends and buybacks…
As 2023 ended, the company’s strategy department was abolished. Unit strategy functions were also reduced. The company no longer wants a plan for company-wide new technology development, new product development or, most crucial, restoring the links between the people who design and build aircraft and the people who manage the company. There are also no plans to promote technical people to senior management positions. Stephanie Pope’s recent appointment as chief operating officer means another finance person has been made Calhoun’s heir apparent.
The future, if it can be called that, is simply to run the company for cash—deliver legacy jets, try to make existing defense programs profitable, and resume converting cash flow into shareholder returns. Management may also try to sell off parts of the company—or perhaps all of it. The implications of this for the U.S. aerospace industry, defense industrial base and even the broader economy are potentially enormous.
In other words, Boeing management is liquidating the company. It’s such a huge player with a customer base that will find it hard to go anywhere that this will be a long and personally profitable ride. Shame for all those hangers on, though.
We described in 2005 in the Conference Board Review how the corporate fixation on short-term profits was resulting in dis-investment, which was a socially acceptable way to say liquidating. It has been masked in many cases by acquisitions, so the parent entity looks bigger even as its constituent parts are shrinking. Boeing is becoming a very big and consequential version of what happens when this practice continues unimpeded.
Oh, and maybe Tolstoy was not wrong. These looting managements are fundamentally similar and are no doubt happy with their lucre.
___
1 Due to the before Internet v. after Internet era, Lambert, who helpfully went looking, was unable to find an online version of the four-part (!!!!) New Yorker story on the birth of the 747. He did find some later stories on product competition among the then-majors:
https://www.newyorker.com/magazine/1982/06/14/a-sporty-game-i-betting-the-company
The full download looks like the book derived from the article
https://www.scribd.com/document/92138009/Sporty-Game
Also on the DC-10, McDonnell-Douglas widebody
https://www.slideshare.net/MichaelRomega/dc10-72953842
Lambert notes” Precursor of 737 engineering and decision making?”
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This is what happens when the bean counters take over a company and push the people who built that company down – or out. The Boeing 707 and Boeing 747 were outstanding aircraft and revolutionized air travel in their day. But I think that Boeing no longer has it in it to do the same any more as quality-control became an optional extra down on the line. Boeing could have built a brand new plane to compete with the Airbus but instead sought to modify an old design. Why did they do that? I suspect that they lacked the money to do it. So where did the money go to that should have been spent on R & D for the next generation design?
‘Since 1998, the company has spent a staggering $63.5 billion on share buybacks. This, according to financial analyst Scott Hamilton, is equivalent to about four wide-body and five or six narrow-body airplane programs at today’s costs.’
Pleasing Wall Street took priority over pleasing their customers. And when you get down to it, Wall Street execs flew by private jets and not by Boeing airliners. I saw a cartoon today that would have been unimaginable a few short years ago. A guy was replying to his wife who was asking if he said if was falling. The guy said no, ‘It’s Boeing’ while starting at an aircraft door planted into his backyard.
https://www.rt.com/business/591332-boeing-wall-street-profit/
An old pun on BOEING: Bits Of Engines In Numerous Gardens.
In any case, if, as stated in the post, “Boeing management is liquidating the company”, then this may well go beyond beancounter’s mentality and Wall-Street short-termism. Could it be that the management (and shareholders) does not have the capacity, nor the will to make the corporation thrive in the future, that it believes the future portends insurmountable difficulties anyway, and that therefore it is just looting and taking as much as possible out of the firm before rushing for the exits? I am increasingly of the opinion that the way “elites” are acting reeks of an end-of-times attitude.
I read years ago that Boeing wanted to turn itself into a contracting company so here was the plan. They would give up on manufacturing and all the parts of a Boeing plane would be assembled in, mostly, foreign countries and even the wing which is sort of the holy grail in aircraft design was going to be sent to the Japanese to make. All these parts would flow in in from around the world and US workers had only to do the final assembly so that it could still be stamped ‘Made in the USA.’ Of course all those decades of aeronautical experience would be outsourced & lost and the Boeing workers were horrified at this idea because they knew that it was a disaster in practice.
Company loyalty is a fuzzy concept. Usually it’s deployed at underlings but rarely at the c-suite. We have tax policies that don’t encourage c-suite loyalty as their incomes aren’t tied to long term health of the companies. It’s not end times nonsense but what tax policy encourages.
As John Adams noted if men were angels we wouldn’t need government. A few here and there maybe into the product, but walk away with millions in a few months or risk a pension against the next guy is a pretty easy trade.
My dad worked for an insurance company that was acquired by GE and became a major part of Gen worth, but there really was no reason to sell except the CEO gambled and bought too much bad debt he put the company at risk of going be,on the reserves. People at the company told him not to pursue this course, but he, a local saint otherwise, could only see the dollar signs promised by cheap money. They bought small companies with ad numbers and questionable actuarial practices. Access to cheap money wrecked a company. It was great for my family but not for most people (dad knew where the bodies were buried, so he couldn’t be laid off). If the CEO of that old insurer behaves that way, imagine what the average mba sees.
It’s just everything is so broken. Lina Kahn doing her job is seen as a revolutionary act.
“Access to cheap money wrecked a company…”
And the looters are still begging and pushing for more.
As usual, the USG (the taxpayer) will pick up the pieces after the crooks have completely looted Boeing.
Air travel is doomed on a time scale of a few decades from now, because of oil depletion and geopolitical destabilization.
It will be reduced to private jets for the mega wealthy. Perhaps it will be maintained internally within the Russia-China-Iran (plus perhaps the Gulf states) triangle for a bit longer, but that will run on Chinese and Russian technology.
Thus it does actually make sense to start liquidating Boeing, if one understands that long-term predicament.
The problem is that much more likely this is not at all the reason why Boeing is being liquidated, and it is not even a conscious long-term decision. It’s simply the perverted logic of chasing short-term profits, raising the stock price and the revolving door of execs with purely financial background and zero attachment to the core business looking to grab as much as possible before they move on to the next gig. The solution to this short-term optimization problem is to gut the company by slashing R&D, crushing the unions, outsourcing, taking every possible shortcut on QC, and redirecting the “savings” towards share buybacks.
GE is the archetype — it doesn’t even properly exist anymore, and it is an incredibly sad exercise to read what the company produced once upon a time and how it used to carry out Nobel prize winning research, and what it was reduced to towards the end. But Jack Welch, despite destroying GE, and being a climate change denying lunatic, and an ideological fanatic on shareholder value, is still regarded as a model to follow, at some point taught the next generation of MBAs at MIT and other places, and his influence is all-pervasive to this day.
This is only going to get worse, until complete collapse, because there is no mechanism in the system to halt it. The government is fully captured, and full of spineless incompetents who share the same ideology.
The big problem is that this will be a slow collapse, not a fast and hard one. In general, it is better to collapse fast and hard, because the alternative is slow decay, and slow decay is much more thorough.
The Soviets collapsed fast and hard and before the planet as a whole really hit ecological limits. So then Russia spent 15 years in the gutter, but managed to recover a bit, though still far from what it once was. With such a fast and hard collapse, the people who knew how to build things were still alive and available to start reconstituting. As a classic example, most of Putin’s 2018 super-duper doomsday weapons are late Soviet developments that were resurrected after the US pulled out of the ABM treaty, and they were supervised to completion in the 2000s and 2010s by the same people who worked on them in the 1970s and 1980s before they were mothballed in the 1990s. The guy who supervised the Avangard HGV program was born in 1933 and worked with and succeeded Chelomey after the latter’s death in 1984. Had that program restarted a decade later, it is not clear if the institutional knowledge would have still been there to successfully push it through.
And this is the prospect that the US is facing now — slow collapse, the people who know how to build things die out, there is nobody to replace them, then there is just a void and you have to start from scratch. But that will also coincide with the planet as a whole hitting ecological limits, and who knows if there will be any recovery possible at all.
You already see the manifestations of the problem in real life — there were the complains about the Minuteman ICBMs not being serviceable anymore because they are so old that the documentation has been lost and the people who designed them are all dead now. Another famous story was about Fogbank, which is some kind of an aerogel that has to go in between the stages of the nuke. And it turned out they had forgotten how to make it, everyone who knew anything about it was dead, and NASA had to reverse engineer it, which cost them two years, lots of setbacks and tens of millions of expenses. That sort of thing.
Thank you for these insights. I hadn’t yet considered the fundamental importance of the tight Russian timeline — and Putin’s key cat-herder role throughout.
It has to be said, however, that Harry Stonecipher, the man most associated with the reverse takeover of Boeing by McDonnell-Douglas, Alien chestburster style, is a trained physicist, not a MBA. The rot stems from incentives, not the cultural background of the perpetrators.
Not necessarily, the highly paid “quants” on Wall Street trading floors and at hedge funds are physicists or mathematicians. I know a Harvard PhD in pure math who had to fight off the hedge funds who wanted to hire him.
And Stoneciper was not a physicist. His BA was in physics. If he is a physicist, then Matt Yglesias is a philosopher.
Correct, and I know quite a few of those types myself.
Went to scientific competitions together as kids, it was all pure, all about the science, let’s take on tougher and tougher math and win those IMO/IOI/IPO/ICO/IBO medals, then we will make big scientific discoveries, etc.
Then we become undergrads and a couple years later those same people are doing internships with hedge funds and a year later they are stereotypical libertarian free market shareholder-value-uber-alles how-much-profit-did-we-make-this-quarter bots.
And that doesn’t stay contained within the corporate world, it heavily bleeds through into academia over time.
Over the past few years I’ve had conversations with some incredibly smart high end quants and techies and in many cases I’ve been quite disturbed by their politics – its not so much that they are extreme, but that it goes little beyond smart-ass undergrad level radicalism (usually some level of libertarianism or soft liberalism).
This wouldn’t be a problem, but with Mssrs Dunning and Kruger at work, they often seem unaware of their own intellectual limitations – given their power, this is really quite disturbing.
PhD programs are often brutal enough that they cause some reevaluation of life’s priorities afterward anyway. Up to a decade of further precarity as a postdoc or adjunct professor, just to stay in the same environment you’re no longer sure you want as a career, can seem unappealing when Wall Street is dangling big money.
Fazal Majid is onto something.
Bill Allen and Frank Shrontz were lawyers, but very good CEOs at Boeing.
Phil Condit and Dennis Muilenburg were engineers and terrible CEO’s at Boeing.
Mcnerney and Stonecipher had ambiguous backgrounds, but both were enthralled by the financial world, and lost any meaningful awareness they may have ever had about the performance-driven nature of their products.
For the CEOs the board is their customers, and has been that way for decades.
I have family who worked for Boeing as far back as the 1940’s. Three of my high school friends ended up working as engineers at Boeing after college. I guarantee that there were decades of time when people were very proud to say they worked for Boeing.
Then 2001 happened and Boeing decided to move the headquarters from Seattle to Chicago. That is when I realized as The Rev Kev stated, the “bean counters” had completely taken over the company.
Nothing will change until management is found culpable in some way, preferably criminally, much as the direction of our current, criminal, political system.
There is another fact that needs to be observed. Clinton changed the law which forbade stock buybacks without advertising this in the public domain. Stockbuybacks today are simple “pumping up” practices.
I made a small profit from the stock increase after the two disasters in the 737 MAX products by selling my small amount of stock. I couldn’t understand why the stock price kept increasing in the face of the two deadly crashes. The increases were simply the effect of stock buybacks to incrase executive vested stock ownership instead of executive cash bonuses. When this became public the stock value fell back, but not to reasonable levels.
What will happen to pension funds and health benefit commitments when Boeing finally collapses?
The problems go way back (from the latimes in 1989)
“Douglas Aircraft is beset by inadequate quality on its production lines, antiquated management systems, high costs, disorderly procedures, a messy factory and looming future losses if conditions don’t change. That opinion comes not from an antagonist but from Douglas’ designated new president, Robert H. Hood Jr., who will take control of the McDonnell Douglas subsidiary May 1.”
https://www.latimes.com/archives/la-xpm-1989-03-15-fi-692-story.html
Wikipedia elaborates on Hood’s success
“In January 1989, Robert Hood, Jr was appointed President to lead the Douglas Aircraft Division, replacing retiring President Jim Worsham. McDonnell Douglas then introduced a major reorganization called the Total Quality Management System (TQMS). TQMS ended the functional setup where engineers with specific expertise in aerodynamics, structural mechanics, materials, and other technical areas worked on several different aircraft.
This was replaced by a product-oriented system where they focus on one specific airplane. As part of reorganization, 5,000 managerial and supervisory positions were eliminated at Douglas. The former managers could apply for 2,800 newly created posts; the remaining 2,200 would lose their managerial responsibilities.
The reorganization reportedly led to widespread loss of morale at the company and TQMS was nicknamed “Time to Quit and Move to Seattle” by employees referring to the competitor Boeing headquartered in Seattle, Washington.”
https://en.wikipedia.org/wiki/McDonnell_Douglas
Thanks for the additional detail. I had wanted to focus on the fact that the Boeing trajectory is liquidation, and so was a bit sparing on the backstory.
The Total Quality movement was pioneered by W. Edwards Deming. He had brought his ideas first to shortsighted US corporate suites who threw him out on his ear. He then brought them to the comparatively downtrodden executive suites of Japan, who embraced his ideas with the zeal of a convert. A perfect fit for the cooperative consensus culture of Japan, it urged companies to set lofty goals (example: “The mission of Sony is to reverse the perception of shoddy Japanese goods”) and unite around them. It rejected competitive merit raises, mass layoffs and competing internal profit centers and urged an actual focus on the goal.
When Japan Inc. proved the superiority of this approach, American MBA schools and incumbent executives did exactly what our billionaire class has subsequently done with the US Government: embrace the forms of this credo while gutting the substance. The regime imposed by this executive, notably the musical-chairs charade of a mass layoff disguised as a purpose-driven reorg, is classis American MBA stuff and the utter opposite of actual Total Quality management. In America, that’s what is rewarded.
Yes. I experienced a tepid embrace of TQM by the Nevada state government about this same time. Marginally skilled administrators attempting to implement a marginally coherent management theory was a disaster.
>>> Marginally skilled administrators attempting to implement a marginally coherent management theory was a disaster.
I can see that, but I wonder if the theory failed partly by a refusal to learn from their mistakes and because the attempt was used as a cover to go after one’s enemies. It seems to me that American society in general and in the elites especially, there has been an increasing lack of humility.
Without humility, it is hard to accept one’s mistakes, which is needed to change and improve. However, that opens one to attack by others. Add the competition caused by the generations of cost cutting and “efficiencies” and it is posterior covering and backstabbing all day, any day. TQM seems to be undoable in such a place.
Restated, even marginal administrators and management can improve if the cost is not losing one’s job in the doing, which seems to be normal in the neoliberal America of ours.
Humility and a sense of reciprocity.
Japanese society supposedly carried forward a bit of its feudal culture summed up in the term giri. One may refer to it as their take on noblesse oblige.
While it is fading as generations die, and the newer ones are hammered by western ideas, it still to some degree provide a cadre of managers that see themselves as responsible for the well being of the workforce. This at least as long as said workforce dedicate themselves to the company (sadly how you end up with karoshi, or death from overwork).
I have always felt that humility and extreme wealth are mutually exclusive. The more the wealth increases the more humility decreases and then at one point totally vanishes.
The issues I saw with TQM and appurtenant things like ISO 9000 or whatever, was that you were introducing additional points of failure (through increased paperwork) into your production without actually necessarily increasing the quality thereof. Or just spinning off that quality “control” to someone else, an even bigger mistake. Plus it provides a fig leaf in times of stress (“but the reporting says we were doing everything right!”). Kind of like relying on bond ratings for investment choices; you should do your own due diligence using the ratings as a filter, not a crutch. But of course, that’s work and that’s hard. Can’t have that.
Deming said “Abolish fear from the workplace”
American Managers “What would that leave us to do?”
Thank you, Yves.
Further to your pithy title, I attended an event with Labour’s Treasury team last week, for which I will send a read-out you.
Labour plans to set up national and regional economic regeneration commissions and stuff them with private sector investors. They also want to bring private sector, essentially financiers, personnel on secondment at all levels of government and, ahem, incentivise pension schemes and individual investors to increase their equity exposure “as the UK is not as innovative as the US and investors don’t have enough equities in their portfolios”.
What you have chronicled over the years, not just this post, never enters the thinking of Labour.
Readers may also be interested in: https://themessenger.com/opinion/safety-air-travel-boeing-tragedy-fall-american-manufacturing-icon.
Sounds like public-private partnerships from hell. I can already see it being copied wholesale across the North Sea…
Well, remember, Lockheed was bankrupt in 1971 because of hideously bad planes….but the government bailed them out – while refusing to bail out the largest transportation company in the US, at that time, the Penn Central railroad, which was being cannibalized by ts management.
General Dynamics in 1962 was heading toward bankruptcy before being bailed out…
Boeing’s troubles not new…
General Dynamics – Material Services Corp – Henry Crown.
Hey don’t forget that up here in Canada we also had to bail out Bombardier Inc just 7 years ago. They turned around and laid of 10,000 plus employees, shuttered manufacturing, and gave their executives a 50 percent pay increase.
I thought the L1011 was a pretty good plane. I did some work on it. I think the cost structure was too high. I did some work for them back in the day and employee litigation and worker’s comp costs were killing them. Boeing was afflicted with the same. So was General Dynamics. GD moved out of California to non union Tucson for that reason. Over a ten year period I watched a horrific cost explosion as the legal Piranha’s worked over the carcasses. After watching that I thought I would never ever open a manufacturing business in California at least. And with the dominance of the PMC today I would still never do it. Without massive tort reform and a national health care system with reasonable costs and a reining in of the finance industry the societal cost in the US is simply not workable. This is one reason I suspect the US cannot win a war with Russia despite spending 20 times their defense budget. The PMC and finance industry is so locked into Washington that change is very unlikely. People might point to the software industry as our salvation but most of what we are seeing is aggressive patenting and patent litigation to provide monopoly profits. Why build a better mousetrap when you can make as much when you can claim you invented the hinge.
Typo: Embraner — should be Embraer
Thanks, fixing.
I’m pretty sure that FT quote from Michael O’Leary is wrong (or perhaps O’Leary mis-spoke). The Comac C919 is not an A320 in another guise but an A220. The latter shares a lineage with the Comac in that it was a co-design with Bombardier of Canada.
The A220 is in fact proof that Boeing is rotten to the core in more ways than just downgrading engineering. The origin of the A220 is that Boeing tried to prevent Bombardiers new aircraft from competing in North America with their new aircraft by ‘persuading’ Congress to put insane import duties on it due to alleged dumping, but it backfired in that Airbus stepped in, bought the design dirt cheap, and then started making it in Alabama to bypass the import restrictions. So Airbus now has a competitor on the ‘low’ as well as the ‘high’ end to the 737, all for pocket change.
The A220 is one of the reason Comac has no chance of breaking the duopoly for now. Michael O’Leary has been bigging up Comac since 2011, but he has never been serious about buying them – he’s simply used them as a leverage for getting planes even cheaper from Boeing. Its quite possible that Comac themselves didn’t realise this is what was going on and seriously thought they could break into the European market. But while there is nothing fundamentally wrong with the C919 as an aircraft, its out of date compared to the latest A220, A320 and Boeing Max’s, so there is no good reason for anyone outside China to buy one (not for Russia either as too many parts are subject to sanction).
The only reason Airbus hasn’t cleared up is that they’ve been too successful for their own good – their order book is very large – they even converted the A380 line to A320’s to catch up (which may be a problem in the longer run as some airlines are belatedly starting to think that A380’s were actually a good idea).
Boeing have continued to be very lucky. Any potential competitors in North America have been wiped out. Embraer can’t compete and strong attempts by Canada, Japan, China and Russia to compete have regularly floundered for a variety of reasons. It will be at least a decade before either Comac or Irkut in Russia can produce aircraft that can seriously compete with Boeing, and its not in Airbuses interest to completely knock them out. So they will continue to flail around, but the company is not going away and will continue to produce mediocre aircraft for a couple of decades to come.
You might see a return to the bad old days. The scifi author Robert Heinlein said that before aircraft were regulated, that you could not pick up a newspaper in the 30s without reading about an aircraft crash somewhere.
Wasn’t Heinlein a bit of a fundamentalist libertarian?
I suppose the free market will come to rescue us from Boeing. One major search engine for flights – Kayak – allows you to exclude any connections with Max 9’s when booking flights.
“Max” was the tell. I don’t even use HBOmax anymore.
‘Wasn’t Heinlein a bit of a fundamentalist libertarian?’
Irrelevant and he was many things over his life time. In the 1930s though he still knew how to read a newspaper. Over the years he built a a clipping library of newspaper articles that he thought important so he was a heavy follower of the news.
http://www.nytimes.com/books/97/09/28/lifetimes/vonnegut-stranger_heinlein.html
December 9, 1990
THE BIGGEST, FATTEST SACRED COWS
“I believe that I have dreamed up a really new S-F idea, a hard thing to do these days,” Robert Heinlein confided to his agent, Lurton Blassingame, in 1952. His idea (which had emerged in a discussion with his wife, Virginia) used the picaresque adventures of a young human, brought to Earth after having been raised from infancy by Martians, to probe human prejudices and foibles. “Absolutely everything about Earth is strange to him . . . its orientations, motives, pleasures, evaluations. On the other hand, he himself has received the education of a wise and subtle and very advanced — but completely nonhuman — race.” No stranger to controversy, Heinlein saw the novel as an opportunity to launch frontal assaults on “the two biggest, fattest sacred cows” of Western society, “monotheism and monogamy.”
The book had a long, uncertain evolution. There were many drafts. The final version, 220,000 words long (down from the 600,000 he had once envisioned), was finished in two feverish months and submitted in 1960 to G. P. Putnam’s Sons. Putnam accepted the book but requested that it be trimmed. Heinlein reluctantly complied, deleting 60,000 words and, in the process, some of the more provocative passages lampooning American attitudes toward sex and religion.
Even in its pared-down form, the book was intensely controversial. Some reviews were descriptive rather than judgmental. Others shared the ire expressed by Orville Prescott in the pages of The New York Times. * The reviewer described the novel as a “disastrous mishmash of science fiction, laborious humor, dreary social satire and cheap eroticism.”
Despite such responses the book sold well. It quickly went into a book club edition, appeared in paperback, and eventually became the first science-fiction title to appear on The New York Times Book Review’s best-seller list. In 1989 Virginia Heinlein approached Putnam with the suggestion that the complete work, based on Heinlein’s working manuscript, should be published. While the restored version does not present a radically new work, it does offer readers a chance to watch Heinlein working out his ideas at greater length, and challenging society’s “sacred cows” with unexpurgated zest.
Heinlein was bemused by those who claimed that the work provided a blueprint for a new society. The novel was not written, he explained to one fan, to promulgate any set of beliefs. “I was not giving answers. I was trying to shake the reader loose from some preconceptions and induce him to think for himself, along new and fresh lines. In consequence, each reader gets something different out of that book because he himself supplies the answers . . . . It is an invitation to think — not to believe.”
* https://www.nytimes.com/1961/08/04/archives/books-of-the-times.html
— RICHARD E. NICHOLLS
Wow. CA, ya earned your pay today.
I read Heinlein as a 7-9th grader. Cleaned out the SF shelf at the library, and Heinlein was well-represented there.
I loved him for the adventure, for the imagination, and for his absolute love of creating things. His heroes were creators, rule-breakers, risk-takers and Big Dreamers.
I think he had a major impact on my attitudes about and hopes for American society.
But, we got side-tracked by greed, and the adventurous spirit withered.
Not dead yet, tho. I still remember, and still hope. Still struggle.
“I loved him for the adventure, for the imagination, and for his absolute love of creating things. His heroes were creators, rule-breakers, risk-takers and Big Dreamers.”
Really nice and thank you.
http://www.nytimes.com/books/97/09/28/lifetimes/vonnegut-stranger_heinlein.html
December 9, 1990
Heinlein Gets the Last Word
By KURT VONNEGUT
STRANGER IN A STRANGE LAND
By Robert A. Heinlein.
Indeed, I know he changed a lot over his lifetime (I was an avid reader of his books in my teens, but the political aspects flew over my head at the time). I was just curious if he really said something so approvingly about regulations, it seems out of character for him, from the little I know of his real life.
Would you believe that ‘Heinlein was active in Upton Sinclair’s socialist End Poverty in California movement (EPIC) in the early 1930s’? Heinlein had a lot of hidden references to regulations being a necessity and that one about aircraft was in his book “Expanded Universe” if I remember correctly. If you have read his Future History series, then no doubt you may remember how he wrote how the early days of spaceflight was ‘cowboy capitalism’ where half the ships that went beyond the orbit of Mars never came back because they were of ramshackle build as their owning companies just did not care. I think that this was him saying that like aircraft, you just can’t leave it up to corporations as they will stuff it up. And now we are seeing this with Boeing and the FAA walking away from their duties. We are going backwards in regulations and the air crashes are the result.
The major problem of the A380 was the need to reinforce runways to be able to handle it. That, much like the Concorde, limits the number of routes it can fly.
I suspect the about face regarding the plane is that with the cross-Russia route once more closed, flying via the Middle East to reach Asia has picked up massively, and at least the Emirates were already a big A380 customer and so has the runways to handle it.
Thing about the A380 was that it was initially planned as a 747 replacement flying the big city routes across the Atlantic and like. But then the FAA dropped their 4 engine requirement for trans-oceanic flights, and thus the A320 was more than capable while also allowing direct flights from smaller runways.
The A380 has lower runway loading than a 777-300ER, MD-11 or L-11011 on flexible pavements, and lower runway loading than a 747-400ER or 787-9 on rigid pavements. The determining factors in runway loading are mass of aircraft and number and type of tires, not total aircraft mass. A C-5 Galaxy for example has half the runway loading of an A380 while having a maximum mass 67% that of the A380 – because it was more tires.
https://en.wikipedia.org/wiki/ACN-PCN_method
Other airport characteristics such as gate type and spacing were the limiting factor for the introduction of the A380 at existing intercontinental airports.
The Concorde did not require special runways, it could operate from most facilties that serve intercontinental aircraft.
https://www.concordesst.com/faq.html
ETOPS-120 operations have existed since 1985, long before the phaseout of the 747 was on anyone’s mind or the A380 was concieved. A requirement for 4 engines by the FAA played essentially zero role in delaying a move to twin-jet aircraft, other factors controlled the timeline.
https://en.wikipedia.org/wiki/ETOPS
I wonder if the liquidation of Boeing isn’t the result of some realizations. Maybe the owners of Boeing are asking themselves these questions:
a. What’s the future of air travel generally, and specifically in the west? Expanding or contracting?
b. What’s the long-term fundamental capacity picture? Is the West the right place to design and build new planes?
Let’s compare airplane manufacturing to auto manufacturing, and re-ask those same questions.
Many of you know that the auto business in the West is market-saturated, and that’s the main reason that prices have skyrocketed. If you can’t sell more vehicles, raise the price of each one you do sell. Yes, you sacrifice the brand.
The sales growth in the auto business is coming from a fundamentally new product (electric cars) and the sales growth is being taken from the existing legacy manufacturers. The number of car sold is static.
The market for vehicles has shifted to the East, the design-build capacity is shifting along with it, and these big legacy product companies are dead-meat walking (remember Sears?). They know it, so the decision has been made to extract max wealth while riding the sales and market-share curve down.
I’d say that explains a lot about why cash flow has been diverted away from investment and into dividends. They’re extracting the wealth from a dying cow.
Which other industries does this same strategy apply to? Well, anything that can be produced in Asia, and can be sold globally. That realization crashed into Corporate America’s consciousness in the 80s, and has accelerated since. That helps explain the massive transfer of production capacity from the West to Asia over the past few decades.
Which brings up the interesting question of what the U.S. can continue to export. Food, lumber, and energy. It also eloquently explains why we’re trying so hard to pry open or control the Asian and Russian wealth pools and market access. But that’s not working nearly so well as it once did.
The next question is: “What does that portend for most Americans?” What if the pry-open effort ultimately fails. What do we do then?
This is the question that I am trying to answer for myself. What next?
And to affirm points made elsewhere: every incremental dime, every incremental second we devote to controlling others (to extract their wealth) is a dime and a moment not spent solving the really big problems confronting us.
The attitude of the owners of Boeing and the airlines themselves with respect to future growth possibilities can be summed up in the classic Upton Sinclair quote:
Despite market saturation, lack of FAA resources in the US to handle further traffic, global warming, etc. these chieftains see only endless growth ahead of them.
These dinosaurs lack the capacity for even thinking about a static or diminishing market, and how they might adapt to it. Another way to put it, is that there is no reverse gear.
As you say, it will be time and money wasted trying to recreate the glory age of air travel.
Can Apple be far behind? They have been doing stock buyback for quite a few years too!
Bingo! Tom Pfotzer
The de-industrialization of America led by that Arkansas hillbilly and his Goldwater-Girl wife are the downfall of a civilization. They simply hated the working class after their defection to Nixon in ’72 and stupidly bought into the Chicago School/Libertarian fantasy.
An export economy based on nothing (other than weapons) but food, lumber, and energy is the basis of a mere Third-World economy and living standard. It’s now been a generation since Americans had the self-discipline and moxie to solve “really big problems” and the thread has been lost. All this “pry-open” bullying of Russia, China, and the EU is a childish denial of the agency of those civilizations and is bound to fail. We are entering the American Dark Ages.
The corporate types know this — their looting of everything in sight tells us. In the coming collapse, will their billions protect them from the starving mob? I seriously doubt it…
>The corporate types know this — their looting of everything in sight tells us. In the coming collapse, will their billions protect them from the starving mob? I seriously doubt it…
I wish I shared your skepticism. I can easily imagine many of them having already having set up their “bug out” retreats, or bunkers, or what have you, off in the hinterlands far away from major cities and population areas (I’ve built a some “second homes” up here in the Granite State for them over the years ). There will always be those common folks out there in this hinterlands that already know how to survive with less and in the beginning will help the wealthy as they can use the income from services provided. The locals in the rural areas may not feel as much pain as will be incurred by society as a whole back in the metropolitan areas .
The big danger may be when the average person puts two and two together and realize that their billionaire neighbor was responsible for the dire straights most people find themselves in. The newbies wear out their welcome and even the locals turn on them.
Your “starving mob,” i believe, could give a f*** less about where the billionaire class skive off to. They will be too busy starving.
Many of you know that the auto business in the West is market-saturated, and that’s the main reason that prices have skyrocketed. If you can’t sell more vehicles, raise the price of each one you do sell. Yes, you sacrifice the brand.
The sales growth in the auto business is coming from a fundamentally new product (electric cars) and the sales growth is being taken from the existing legacy manufacturers. The number of car sold is static….
[ Really interesting analysis.
I was startled when Mary Barra, as the new CEO of GM, openly decided not to invest in an advanced fuel and emissions efficient vehicle fleet in China. I still have not understood the thinking, but even though GM later decided to invest there was no sense of urgency and GM had already fallen seriously behind.
Same for Toyota in China. ]
Just think: this BS ideology rules and some are selling people an idea of interplanetary travel and supply chains.
(insert infinite clown emjois)
Perhaps it should be noted that the 737 MAX wasn’t Boeing idea, they were forced into it by airlines. Back in the day they wanted to do new design, but Airbus went ahead and created A320neo update, which was derided by Boeing, but wildly successful with customers. It came to head when American Airlines, then exclusively Boeing customer, decided to purchase the new Airbuses. Boeing was then forced to scramble and “launch” 737 upgrade, at the time just paper plane because nobody seriously planned it beyond potential product studies, to have at least something and stave off full defection of AA.
So the problem is more like that Boeing vacillated and didn’t launch its new design when the opportunity window was open, later on customers didn’t want to wait decade for new Boeing design when they could buy upgraded Airbus and have it delivered in few years. On the other hand, this itself was largely result of the new 787 being in deep trouble and Boeing didn’t want to start creating another plane when the current one isn’t fixed yet.
See for example 737 Max wiki for some details on this.
“they were forced into it by airlines”
A bit misleading. Airlines didn’t want to have additional training nor deal with a new aircraft. Nothing new there.
What is new is that Boeing thought they could get away with an unsafe design to this degree, lives be damned. Boeing made the choice, pure and simple.
Yep. Boeing tried to game the pilot certification system.
Basically once a pilot is certified on one version of the 737, he can fly all versions of the same plane.
So if what Boeing introduced was a 7×7, then they would need to certify anew. Same as if they were to switch to flying a A320 or Comac C919 or anything else.
Thus a 737MAX with the performance to rival an A320, but where the airlines pilots could just hop into the cockpit and go, would be an appealing upgrade.
But the MAX fundamentally do not behave like any previous 737 aerodynamically. So in order to keep up the charade, Boeing added a little something to the autopilot to keep the plane trimmed so it would feel like any old 737 to the pilots.
Only that said system replied on a single sensor, a sensor that was prone to freezing and thus give faulty readings. and pilots could not disable the system without disabling the whole autopilot and the motorized trim, thus leaving them with a hand crank to correct the trim from where the system left it.
MCAS is not coupled to the autopilot (it can only operate with autopilot disengaged). It does not actively trim nor change the handling of the 737 MAX during normal flight. It is only activated during specific conditions on the edge of the flight envelope.
https://www.evionica.com/blog/blog/boeing-737-max-mcas.html
Just in case anyone is still catching up on Boeing, the classic reading is OUT-SOURCED PROFITS –
THE CORNERSTONE OF SUCCESSFUL SUBCONTRACTING by Dr. L. J. HART-SMITH, a Boeing memo/white paper https://s3-us-west-1.amazonaws.com/ziggyworks/coolstuff/BoeingOutsourcing-2014130646.pdf
From last paragraph:
“The fate of the former Douglas Aircraft Company, which was reduced to a systems integrator in the early 1970s by excessive out-sourcing of DC-10 production, is a clear indicator of what will happen to other companies which fail to sustain the conditions under which it is possible to launch new products.”
A brilliant article that applies to more than just building airplanes.
Hart-Smith’s description of how using return on net assets as a metric for measuring performance of a division of an enterprise propagates increasing costs (and a decrease in returns) in other divisions of the same enterprise is right on target. It is like an MBA-induced chain reaction that fissions a productive business.
What was their purpose in moving HQ to Chicago? Favorable legal venue in case something big with liability arose during that time period?
Here are the reasons they gave at the time, the usual corporate BS – https://archive.seattletimes.com/archive/?date=20010510&slug=boeingweb10
I lived in Seattle at the time, and people there were not amused, but of course Boeing promised it was only management moving and it wouldn’t affect the workers, nosirree. Just a few execs moving to Chicago. That turned out to be BS, too.
Um, well, let’s hear from the Boeing CEO that decided on the move…
We’re going down, that’s where we’re going
More centralized location is what they said. Five thousand jobs lost in Seattle. The western Washington elites have wanted Boeing gone from West side of state for a long time. The Boeing executives were barley tolerated at elite social events. Other than collecting money. Seattle was glad to see them go. Air Bus tried to move in to some of the empty Boeing manufacturing space and pickup an available trained work force. They got ran off. The elites killed the deal. They don’t want any major manufacturing. Over the last few years Seattle wants Amazon to get out.
What kinds of businesses would Seattle like to have as replacements for Boeing and Amazon?
premium condos?
I was a tool-and-die maker/machinist at Boeing during the period under discussion. When family members asked me why management moved from Seattle (where the airplanes were designed and built) to Chicago (where Boeing, even after the merger, had no production facilities at all) I told them, “they want to be rootless, so they can be ruthless.”
The outsourcing and off-shoring took off, and the looting of the company via stock buybacks and extra dividends did as well. Of course we were subjected to ever-changing “flavor of the month” management babble, foremost among which was “we’re a large-scale systems integrator,” not an engineering works.
I think the die was irretrievably cast in the years around 2011 or so: it was clear the 737 was no longer competitive against Airbus’ newer designs. But Boeing management refused to commit to a clean-sheet 737 replacement, opting instead for the kludge of the 737 MAX. It was still faffing around with the 787 debacle (the poster child of outsourcing and “systems integration”), getting its butt saved by the union engineering and machinist workforce in the Puget Sound region. Our reward: management twice forced the Machinists to agree to contract extensions (as we were working under contracts which still had years to run, we weren’t able to strike without going totally outside the constraints of labor law) under threat of airplane production being moved elsewhere. In 2013/14 we lost the defined-benefit pension, and got saddled with a 10-year contract. That defeat was foisted on us with the collaboration of the IAM International leadership, against the wishes of the Puget Sound union membership.
Boeing moved 787 production to non-union South Carolina anyway. Now, ten years on, much of the institutional knowledge among the workforce is retired and gone, every Boeing program is years behind schedule or in various, sometimes deadly states of disarray. But the stock price hit astronomical highs along the way, “investors” and management made out like bandits. What’s not to like?
> Now, ten years on, much of the institutional knowledge among the workforce is retired and gone, every Boeing program is years behind schedule or in various, sometimes deadly states of disarray. But the stock price hit astronomical highs along the way, “investors” and management made out like bandits.
As I keep saying:
The only market is the labor market.
What, ultimately, was Boeing’s valuation based on? Apart from the Bezzle, of course.
Thanks for that comment, Jim. I read your experiences and I think of this going on in every industry across the country and that is why re-industrialization will be a pretty steep slope to climb – if at all possible. You can print money but you can’t print institutional knowledge or highly trained workers. Things are going so bad at Boeing I read not that long ago NASA banned them from a space contract as they had no trust in their ability to build space vehicles that wouldn’t mimic the Challenger.
Nikki Haley {Nimarata Randhawa}, was on the Boeing board when much of this happened. She no longer is.
Here’s a perfect nightmare platform alternate to Trump:
Willard Romney, “Corporations are people my friend” with Nimarata as V.P.
To add some detail to the power point slides link on the DC10 crash, here is an excellent article about the crash in France 1974.
https://admiralcloudberg.medium.com/a-legal-and-moral-question-the-crash-of-turkish-airlines-flight-981-and-the-dc-10-cargo-door-saga-d22f0b9fa689
No one has mentioned the enormous political considerations involved in the consolidation of the US Aircraft business, which lasted 50 years. For Boeing to win, it was essential to leave some jobs in Congressional Districts outside of the Seattle area.
They enthusiastically embraced outsourcing because it was essential to gain political agreement on closing down the losers. Did they embrace associated cost savings? I would hope so. Was consolidation necessary? Europe seemed to find it necessary also, so it wasn’t a uniquely American, greed driven arrangement. Further, there was an International, global aspect to this. Other countries were induced to forgo a national programs for some outsourced jobs and no doubt some tough love from Washington. Does anyone seriously believe Japan couldn’t be building high quality Toyota narrow body jets?
The modern commercial aviation industry was built in the US and European countries at the cost of thousands of American lives as it was perfected or de-bugged or whatever you want to call it. We haven’t had a major US commercial aviation crash in the last 20 years, so that period is over. But the idea that any accident is forever intolerable and impossible without gross carelessness is naive and shortsighted.
Any firm that pays any dividend or returns excess capital can be referred to as ‘self liquidating’, no? The point being that a narrative built on the basis of unique, Capitalistic greed will will be incomplete at best and more likely miss the unique dynamics of the commercial aerospace business.
I was on a Dreamliner in Warsaw airport in 2014, heading down to Tbilisi in Georgia on a night-flight.
I could see the sweep of the wing from my seat and as I looked out into the darkness, I could see what looked like the ailerons fluttering – not moving up and down through electrical control, but moving randomly.
I looked at this with interest for a while, then the Captain’s voice came over the speaker: “We apologise for the delay but it seems that we have a problem with the central computer system. We are going to have to shut it down and reboot.”
This was pretty surprising given the detail it gave, but then the lights went out, there was darkness for a bit, then everything came back on and, as I looked out the window, the ailerons were flat and unmoving. Then we took off.
This was years before things fell to pieces, but these days I keep a close check on what plane I’m on.
“Damn! Boeing?? Ain’t going!”
Typo: adulterated for unadulterated in second sentence.
Aargh, thanks. How did THAT happen? Maybe spell check didn’t like the first way I typed it and I muffed the correction.
Fortunately, there is a perfectly reasonable alternative to Boeing aircraft that does not require a decades long gestation period. High speed trains are here now and fully functional in many countries around the world. For any trip of a thousand miles or less, a 200 to 300 mph train (Chinese trains are achieving speeds in excess of 300 mph in test runs), will beat a 500 mph plane every time, considering travel to and from distant airports. Cramped thinking about possible alternatives (TINA-there is no alternative) is another clear sign of a polity in decline.
Only if you also assume Chinese (or French) companies will be building them and the Chinese (or French) government will be managing the pursestrings and beating back the NIMBYs. US style ‘public private partnerships’ can’t get past the sticking the fingers into the wallet stage.
Given that EU is mandating more and more competition on the tracks, i suspect it will not last.
So far, EU deregulation rules are actually working quite positively – lots of new long distance routes are being created by independent operators using ‘spare’ capacity on existing cross-national lines. This doesn’t really apply to HSR lines as their engineering is very specific to HSR rolling stock (an exception is the London to Paris line, which was designed to allow a wider variety of trains to use it). Contrary to what is often claimed, the EU Directives do not compel privatisation, but they do force infrastructure owners to open up their lines to independent operators.
Its not an area I’ve delved into deeply, but this is one area where opening up infrastructure to private operators is probably beneficial. A lot of national or regional operators who own their own lines can be remarkably closed-minded to different ways of using those lines. Going back to the 19th Century, many railway Iines were specifically designed not to allow interchanging rolling stock, as the operators didn’t want the government to force them to co-operate. This is why, for example, the lines out of Kings Cross and Euston in London are at different levels (about 7 metres height difference) and so are impossible to link directly. One reason HSR lines were built in the first place in France and Spain was the near impossibility of linking up all existing lines into a coherent whole due to their original designs. Spanish gauges different across regions.
This is another handwave. You can’t affordably run high speed trains into already built dense urban areas. The US has too many facts on the ground in the form of existing home and office developments.
High speed rail works very well, but only in very specific circumstances – usually between well connected or high density nodes within a four hour journey time (about 5-700 miles). Hence they are perfect for countries like Japan or France, but find it hard to compete otherwise (let alone the issue of crossing seas). If you match them with more sleeper trains, you greatly increase the possibilities – there are many regular speed railway connections that take 8-12 hours, which for many people could be done comfortably with sleepers.
In reality, only very specific regions in the US, such as the Atlantic corridor in the north east are really suitable. You could argue that the super fast Japanese new trains (chou Shinkansen) could create viable corridors for longer distances, such as Chicago to New York, but this would be at a vast cost.
However, this still leaves a lot of routes which are unsuitable for HSR, and the only sustainable solution to these is to make flights more expensive, or in economics speak, ensure that the real costs are included in the ticket price (aviation is, in real terms, highly subsidised). One of the core environmental problems we have is that a minority take an enormous number of flights. There was a recent twitter thread in the UK of people who live in relatively close cities in England finding it cheaper and faster to meet up for family gatherings in the Spanish island of Tenerife than taking the train to see each other – flights are that cheap these days (and trains are so expensive). This is what we should be tackling.
I know it’s not the point of the post, but I would argue the 747 was not the main reason Boeing emerged as the main aircraft manufacturer (despite the 747 being the most culturally significant aircraft), but rather the 707, 727 and 737, and even 767 (as a dc10 competitor).
The 747 entry into service was 1969, just a few years before the fuel crises. Sales after introduction and in the 70s were not that great.
Look at boeings competitors at the time:
Douglas merged with mcd in 1967 for financial reasons. It surely didn’t have boeings product depth at the end of the 60s and later.
Lockheed missed the jet age and and only had the TriStar in the early 70s (after a bankruptcy).
Convair exited the passenger airline business in 1963.
Airbus was a startup.
As i recall, the 747 was firstly designed as a cargo plane (why it has that distinct cockpit bump, to allow for a hinged nose). Because at the time Boeing was working on a supersonic passenger plane, same as the Concorde.
But after some test flights and complaints about shockwaves, the plan was scrapped along with a ban of supersonic flights over land This is also what curtailed the Concorde to flying across the Atlantic, as it didn’t have the range to cross the pacific and could not go supersonic on an overland route.
Enter the 747 with its cargo hold filled with seats as an alternative.
Excellent, informative piece, thank you Yves.
“…They could have achieved the same margins at lower risk by improving manufacturing processes, such as their implementation of just-in-time. But their stock was sure to rise if they started outsourcing…”
A great example of the emphasis on the short-term, a financialized mindset, rather than industrial production. Also, I believe there might be tax advantages to outsourcing production overseas. Tax policies can provide further incentives to offshore production.
The Boeing example can be seen to represent the overall decay and rot of the US economy, and society in general. Looting what is left of public (and private) resources, and asset-stripping the place seems to be running apace.
It sure seems like our business and political leaders are becoming more and more short-sighted, corrupt, and freakish. I guess there is a certain rationality to this: everyone knows the ship is going down, they just want to scramble to grab whatever valuables they can before it does.
Typo: “no where new enough to assure the viability of the investment” should presumably read “nowhere near enough” in the sentence “A company and industry-defining bet was the decision to bet on a new, untested concept: a large capacity, long-distance passenger plane, with only an order from Pan Am as a vote of confidence (important but no where new enough to assure the viability of the investment).”
Historically, in aviation, when the ‘bean counters’ take over, flight operations go down hill. Textbooks will teach the “Boeing Way”: Get the machine off the assembly line as soon a s possible and deal with the lemons later.” This will be contrasted with “Deming’s Way”: Promote managerial control and statistical analyis to eleiminate variables in all stages of the production process.” Note: The Japanese automotive industry adopted Deming’s Way post WW II so that by the late 20th Century, they dominated the globasl market. Fasten your seat belt and hold those babies tightly.
Leeham news has a good opinion piece up about Boeing. Notably, they have a union contract negotiation coming up that Leeham postulates looks like a union win.
https://leehamnews.com/2024/01/29/culture-change-needed-at-boeing-labor-contract-talks-begin-in-march-and-could-lead-the-way/
Its interesting days when an industry outlet like Leeham is pointing out the benefits of working with unions. One wonders if the shareholders have caught on yet.
The crucial role of government support should be mentioned; omitting the role of government only serves to strengthen the misleading “free enterprise” half-truths central to failed neoliberal ideology. The Boeing Model 247, first flown in 1933 and considered the first modern airliner, used aerodynamic and structural features of the Boeing Monomail, developed for government airmail routes, and B-9 bomber, developed for the Army Air Corps. The Boeing Model 307 Stratoliner, the first fully pressurized airliner, was derived from B-17 Flying Fortress bomber, using the wings and tail designs of a B-17C .
The 707 was developed as
Boeing was able to support 707 development with funds from the KC-135 tanker contract with the US Air Force. The KC-135 was based on the Boeing 367-80 jet transport “proof of concept” demonstrator, which Boeing desingnated internally as the Dash-80.
Design of the 747 incorporated — at no cost to Boeing — the aerodynamic breakthroughs developed by NASA scientist Richard T. Whitcomb using the Langley Research Center wind tunnels.
That is the thing that USA is loath to talk about, all the military contracts that help bootstrap their big civilian brands.
Heck, Silicon Valley was doing radar and radio work for the military during WW2. And the personal computer industry basically happened because NASA was writing blanks checks to anyone that could supply components for the space race.
One can even go further back and look at consumerism as a whole getting bootstrapped by Bernays after WW1 as factories had massive excess capacity after having tooled up for war production.
If anything, war and technology seem to go hand it hand. Across all of history the empires were built on the back of new tech, from new metals to chariots to bows on to gunpowder.
And medicine as well, with the likes of penicillin being seen as too expensive until WW2 threw enough money at the project to scale up the manual growing while developing more efficient ways to do so in parallel.
So much for the innovative power of capitalist free enterprise and competition! As you say, much (in fact possibly almost all) of contemporary technical innovation is/was driven by public money. The jet engine being a partial exception. It’s unfortunate that most of this money came from war oriented sources, but at least the innovations spread to peaceful uses, although not always in the best interests of the environment. Maybe it would have been better if they had stuck to research on killing goats by mind control.
Thanks very much for this post.
Thanks for this, Yves. And thanks to many of the commenters for their insights on the insidious phenomenon of outsourcing/offshoring. The Boeing saga is emblematic of a larger malaise afflicting the US economy and its manufacturing sectors.
Since 1992, there has been a jump in both the intra-firm Imports of intermediate inputs by US multinationals, i.e. importing of components whose manufacturing has been offshored to their own captive units abroad, as well as increase in intermediate input imports through outsourcing to arm’s length suppliers. Most of these inputs and components were hitherto manufactured in the United States. The very act of moving them abroad for a significantly lower wage bill and other lower costs overnight added to the gross profit margins, while leaving behind shattered workers and a tottering manufacturing sector. The financial wizards were happy with corporate profits on a permanently higher growth path.. As a result, there has been a pockmarked hollowing out of significant technical, skilled occupations, with a negative spillover onto the other contiguous, neighboring occupations across the entire skill spectrum. As Tim Cook pointed out, when he has to put together a conference for tooling engineers, a critical node in the occupational structure in manufacturing chain: blueprint-to-machine tools-to-assembly lines, he cannot put together enough people to fill a room in the United States, whereas in China he would need a couple of football fields.
https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-number-1-reason-we-make-iphones-in-china-its-not-what-you-think.html
This an indictment of the entire employer class in the US, which has waged war against working people, and downplayed the importance of both manufacturing and occupations in the goods producing sectors, as well as of the overall business culture and the political-policy establishment. Ultimately, it’s an open question, whether globalization, free markets, and a polity responsive to the needs of citizens are all compatible with each other.
Just now catching up with this. Re one of the two nosewheels falling off in Atlanta–this was almost certainly the fault of Delta mechanics. Wheels, unlike plug doors, are not a part likely to escape attention by operators as opposed to manufacturers.
And even Alaska Airlines had warning of a problem when that same plane had pressurization trouble on previous flights. Their only response reportedly was to ban flights over water.
So it’s not just Boeing falling down on the safety issue.
The Wall Street Journal reports that Alaska Airline plane left the factory w/o the plug:
https://www.wsj.com/business/airlines/signs-suggest-alaska-airlines-plane-lacked-bolts-when-it-left-boeing-factory-f0246654
I am highly confident these bolts would not be part of a first or even second order check on pressurization problems.
What if the govt takes a large share? Like they did with some banks and insurers after 2008/9 crash?
They do that only in the fact of actual or imminent bankruptcy, and ex AIG, those equity infusions were designed to be unwound.
Here, a slow motion liquidation should not lead to bankruptcy. But if it did, the equity infusion would be permanent.
From Bill Lazonick’s excellent “Investing in Innovation: Confronting Predatory Value Extraction in the US Corporation” from 2023, Table 4:
Between 2010 and 2019, Boeing spent $43.4bn on buybacks, 87% of net income. Including dividends, it was 137% (!!) of net income.
Then from page 33:
Looting, plain and simple. These directors should be in prison, not country clubs.