Blain’s Morning Porridge 17th November 2021: Boeing? Worst company on the Planet?
“Had the government done its job of regulating Boeing, it is highly unlikely that the 737 Max would have been globally grounded.”
This morning: A new book on the fall of Boeing is getting the headlines this morning. I’ve been arguing it illustrates all the worst excess of capitalism – yet how many investors have called it out? Very few. Why does ESG apparently not apply to Boeing?
Very short Porridge this morning as I’m about to fly…
Thankfully, I shall not be flying on a Boeing 737 Max.
At the end of this month a new book will be launched – Flying Blind: the 737 Max Tragedy and the Fall of Boeing, by Peter Robinson. Bloomberg carries a piece on it this morning: Boeing Built an Unsafe Plane, and Blamed the Pilots When it Crashed.
Since the first tragic B-737 Max crash in 2018, and then the second on March 10th 2019, I’ve written about the unravelling tumble of Boeing many times. It’s been something of a journey – discovering the emperor not only had no clothes on, but was an abusive, thieving, wife-battering bully into the bargain.
I have a childish fascination with aircraft, a geeky ability to identify and prattle about any plane that’s ever flown, and a business interest in aircraft finance. But nothing quite prepared me for just how badly Boeing’s myth collapsed.
Frankly – I’m surprised it still exists, and hasn’t been split into a wholly newCo airliner maker, and a legacy Boeing to service its Military contracts. The world needs climate-clean new airliners, but Boeing is a busted flush and will need a massive injection to contribute anything. Airbus isn’t much better – its suffering a talent drain as engineers age and retire, and is struggling to maintain quality on its current products, let along deliver promised hydrogen clean tech by 2035.
If ever there was a time to completely relaunch the airliner business… aside from having to reinvent them from the wheels up, and rebuild the workforce.. this would be it.
Once Boeing was the byword for aviation brilliance – successfully launching the jet-age, making mass travel possible and displaying endless innovation and inventiveness as the premier aviation firm. And then the cost accountants took over – the old Boeing vanished the day McDonnell-Douglas famously bought Boeing with Boeing’s money in what’s turned out to be among the worst takeovers in corporate history.
The last decent plane Boeing made was the innovative, fuel-efficient, composite Dreamliner. It cost $25 bln plus to develop – and it will take decades to recoup the money through clever accounting. (It may never make a real profit.) The plan had then been to develop a successor for the venerable B-737 which airlines and the environmental lobby would have loved: a fuel-efficient, climate friendly, lightweight city-to-city hopper. It never happened.
Instead, the C-Suite cut costs and saved money. Their market was secure, a duopoly with Airbus and a packed 3-4 year order books, happy that airlines had little choice but keep buying whatever crud they offered.
As interest rates fell Boeing borrowed more and more from market, using debt and earnings to buyback stock. The stock soared. Executives received enormous bonuses and stock option packages. Workers saw salary and conditions cut. Quality fell. The C-Suite decided not to invest in new aircraft development – they simply further extended the B-737, making the once slim thoroughbred of the skies into a fat, bloated, unstable, unsafe cow of flying metal that barely defied gravity. They told airlines crews would not need retraining. They lied. 346 people paid the ultimate price for Boeing compromising safety.
Today Boeing has no aircraft on its books any airline really wants. Its new B-777x that finally showed up for the Dubai airshow earlier this week is years late. No one wants it. It’s utterly pointless in this new environment. There have been very few new Dreamliner orders – the whole programme may have lost money.
Boeing is textbook corporate failure.
Equally it’s a market failure. Have investors pilloryiedBoeing the same way they punish oil majors, miners and energy firms for the temerity of being involved in businesses that cause a perception problem because of the E in ESG? No they have not. Yet Beoing absa***glootly fails both the Social and Governance aspects of ESG. How many big investors have said they are dumping the stock?
No, they keep buying because they know just how important Boeing is to the US economy, that it’s too big to fail, so it won’t be allowed to die..
When I give lectures on financial markets I cite Boeing as a prime example of a company guilty of every kind of corporate failure and blatant greed. Its leadership failed in every respect imaginable.
- It killed 346 people through the deliberate negligence of cost-cutting accountants and marketing teams.
- It sold an unsafe compromise of plane to avoid spending the money it would have cost to develop a new, more efficient and climate friendly single aisle short-haul airliner.
- It gambled the money it should have invested in new products by squandering the company’s earnings on stock buybacks to boost the incomes of senior executives.
- It is now effectively finished. Its reputation as a leading corporate is in taters. It can’t afford to develop new products. It has no current product airlines want – they will buy the relaunched 737 Max because there is nothing else and its’ cheap.
- Its employee relations are in tatters. What was once the pride of American engineering has a record for shoddy workmanship.
It also exposes a number of critical failure across the US industrial complex, including the regulator, The FAA, whch was effectively “state-captured” by Boeing, enabling it to deliver compromises to trusting customers.
If you use the search function on the top right of the Morning Porridge website you will find a whole series of Morning Porridges where Boeing was the main topic, including the following:
July 10th 2019: Could Boeing trigger a market crash?
October 22nd 2019: Boeing, Boeing, Boing, Bong..
May 1st 2020: Boeing, Marx was right?
Enough said..
Out of time, and off to the day job.. after flying to Egypt!
Bill Blain
Shard Capital
4 Comments
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“Frankly – I’m surprised it still exists…” Me, too! Sadly, that observation can be applied to an incessantly growing list of formerly respected companies that devolved their cultures and deployed similar corporate policies over decades…General Motors (as goes GM, so goes America), General Electric (Jack Welch, CEO of the century), Enron (the smartest guys in the room), Wirecard (the Enron of Europe), the entire U.S. steel industry, Wells Fargo (bilking customers is corporate culture), Countrywide Financial (America’s home lender), and on and on. The news on business pages all too frequently reads like a police blotter. But, the execs all get away with murder. And, no one seems to connect the dots why this happens, how government policy codified into legislation creates the climate that brings out bad behavior and then enables it with weak, if any, consequences. In fact, quite the opposite. I’m afraid Boeing is simply another bad actor with a deepening cast of understudies.
I stopped reading after this trash line:
“The world needs climate-clean new airliners”
1) No, it doesn’t, and 2) unless you’ve got an endless supply of magic Unicorn farts they can run on, the very idea is laughable stupid.
Yes, a multiple billion dollar corporation tried to copy another airline’s idea to upgrade their fleet and cut corners in the process of approving at minimal change that wasn’t so minimal. And people died as a result. And then they tried to cover it up after the fact. And I virtually guarantee that failure mode exists in every company on earth. Including yours. Here’s the actual conclusion: “There but for the grace of God, go I”
COAB…
If you stopped reading why grace us with your thoughts on the topic. If you mind is closed, please go park it somewhere else..
and,
for free, it doesnt matter what you or i think, but if sometoday was to present a half-viable plan to build and sell completely new clean airliners it will be worth $100 bln this time next yeart and more than Tesla the next… what individuals think is zero value. what the market thinks counts.
Whether climate-crisis is real or not, the market values it as such…
So please, please, please don’t stop at not reading, but dont even open my comments. Idiot.
The 737 Max is a shining example of corporate influence and government corruption in the US. The ones of us that do/have done real engineering air vehicles. Are wondering how the 737 Max was even certified for flight. It’s a completely different airplane than the 737. I’ve personally worked on three different military planes. Two were new aircraft (C-17 F-22). The amount of design reviews, code reviews, testing, document reviews, requirements is staggering. Everything checked and cross checked. In an existing aircraft a change in flight controls is a full regression tests on the system and extensive set of flight tests. How did the 737 Max get around this is the real question? Why was Boeing even allowed to have engineers do part of a flight control system that had never done it? How did they get around the standard procedures and requirements do the development? A final question, why didn’t the FAA and other countries de-certify the aircraft and force Boeing to go through certification process for a new aircraft and flight tests? Boeing now has other problems with the Dreamliner and the 777. Boeing is failing all over the place. They should be broken up and the management prosecuted. The real question is “what’s going to happen when another plane goes down”? And what about the FAA and NTSB?