Time 2 Nationalize & Then Break Up Boeing?

Investment Analysis Clubs Macro Economic Trends and Risks
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If you want to understand what to do about the recent 737 Max fiasco… it helps to start with the fact that Boeing is not a private corporation, but is a state entity in all but name.

The airlines, who are the main customers of the aircraft maker, have nowhere else to go, because its main rival, Airbus, can’t deliver on new orders to replace Boeing jets, at least not for years. And that means that the aerospace giant is not subject to any discipline from customers.

Boeing has joined big banks in the TBTF category while putting airline passengers at risk.[1] What to do?
Likely nothing will happen as did after the 2008 financial crisis–Banks were propped up and no CEOs who were responsible for the crisis went to jail.

Stoller explains that the merger of McDonell-Douglas & Boeing is what led to the downfall of Boeing.
Another source confirm this thesis.

In a clash of corporate cultures, where Boeing’s engineers and McDonnell Douglas’s bean-counters went head-to-head, the smaller company won out. The result was a move away from expensive, ground-breaking engineering and toward what some called a more cut-throat culture, devoted to keeping costs down and favoring upgrading older models at the expense of wholesale innovation. Only now, with the 737 indefinitely grounded, are we beginning to see the scale of its effects.

Welchonian Share Holder Value became the mantra of Boeing.

[1] A book on the 737 Maxx fiasco:

Drawing from exclusive interviews with current and former employees of Boeing and the FAA; industry executives and analysts; and family members of the victims, it reveals how a broken corporate culture paved the way for catastrophe. It shows how in the race to beat the competition and reward top executives, Boeing skimped on testing, pressured employees to meet unrealistic deadlines, and convinced regulators to put planes into service without properly equipping them or their pilots for flight. It examines how the company, once a treasured American innovator, became obsessed with the bottom line, putting shareholders over customers, employees, and communities.
Shareholder Value!

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As a BA honcho said, within the last couple years, BA is perfectly fine having a minority share of the commercial market. We old phartz remember when BA dominated the market, having outcompeted Douglas. It stands to reason that, Airbus, with increasing market share, needs to ramp production, while Boeing, with a shrinking share, has no capacity constraints.

Probably 30 years ago, I saw an interview with aviation analyst Wolfgang Demish. He talked about what long term means to the Asian mind, vs the western mind. He said something along the lines “will the Asians be a factor in the commercial market in 10 years? No. Will they be a factor in 30 or 40 years? You bet” I wonder if he ever considered that Boeing would cut it’s own throat? We have seen how their latest Air Force tanker contract, using the 76, which they have been building for decades, has turned into a cluster of delays and cost overruns. We have seen how their Air Force One contract, using the 74, which they have been building for decades, has turned into a cluster of delays and cost overruns…just like everything Lockheed touches.

Boeing’s plan, in moving their HQ to DC, is clear. DoD will put up with sloth that commercial airlines will not tolerate. Competing against Airbus is hard. Taking DoD’s money is easy.

Nationalize Boeing? Of course not. That would be Communistical. The government will continuously pump money into the company, via “defense contracts” to keep the “JCs” fat and happy.

Steve

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For the halibut, I looked at the fleets of Aeroflot and Air China.

The Aeroflot fleet is now mostly Airbus, rather than Boeing, but the only aircraft they have on order now are of domestic, Russian, origin.

The Air China fleet used to be majority Boeing, now mostly Airbus.

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I believe Toyota is a prime example. Is Toyota rushing out many new models of EVs. They are plodding along. I expect their EV model that do emerge will be as reliable as their IC models and will attract many buyers. They are also working on 700 range solid state batteries.
Toyota made incremental improvement of their products while American car companies tried flashy model changes which usually flopped. Toyota built upon their successful, reliable products and created a following. And in 2022 Toyota sold more cars than GM in the USA. Slow but steady has worked for the tortoise and Toyota. I expect that trend will continue. Toyota recognized that their previous CEO was too old and resistant to change. So he was eased out for a younger CEO willing to move quicker in EV model development. But that development will be deliberate concentrating reliable and value. Yep is slow off the blocks. But I suspect the EV models that do emerge will compete very effectively.

Range anxiety is still a factor amongst potential US buyers. Also lack of charging infrastructure equal to the number of existing gasoline filling stations within the USA. Of course these 2 restricting factors will ease as time passes. And cheaper EV models will become available too.

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You can’t say “nationalize” in America. We didn’t nationalize the banks, we just fed them with truckloads of cash. Doing otherwise would - somehow - be SOOCIIALISM, and that’s bad.

Last time something was nationalized around here was in the early 20th century, when the phone companies couldn’t get their act together and we took it over and handed it to the post office, which had no clue, and promptly handed it back to private enterprise (AT&T) to run.

Maybe there was some of that during World War II, although I don’t think that should count.

But “nationalize”? Do you need meds?

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Require mgt to fly on their own planes. Suddenly, there is a valid reason mgmt wants to require “high quality workmanship” on any plane they build.

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Not quite. When the Penn Central railroad went bankrupt, management tried the “too big to fail” gambit, demanding vast amounts of money from the government, or they threatened to stop operations and crash the economy. Nixon nationalized them instead. Remember Conrail?

In mid-1973, officials with the bankrupt Penn Central threatened to liquidate and cease operations by year’s end if they did not receive government aid by October 1. This threat to US freight and passenger traffic galvanized Congress to quickly create a bill to nationalize the bankrupt railroads. The Association of American Railroads, which opposed nationalization, submitted an alternate proposal for a government-funded private company. Judge Fullam forced the Penn Central to operate into 1974, when, on January 2, after threatening a veto, President Richard Nixon signed the Regional Rail Reorganization Act of 1973 into law

But, as you said, the US is much Shinier now. Corporations suckling on the government t3at is “free enterprise”, but taking a company away from the honchos who ran it into the ground is “COMMUNISM!!!”

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Ah yes, I’d forgotten. A mere 50 years ago. Heh, things have changed, methinks.

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Of course, the argument that CEOs can’t be jailed because the companies they head happen to be TBTF is ridiculous hogwash designed to mask ulterior motives.

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That is because of Trump’s tariffs. The EU was much slower to follow with less protectionism.

It is not that simple. The EU is not playing it that simple.

The US Boeing shed some business but that is not that simple. Assuming Airbus is better run would be a mistake. It has had its production problems as well.

Boeing’s problems with capital are resolved. It is important that no one died this time. One or two deaths would not have been a game-changer. The finances at Boeing are recovering from the Max problems. Things will be good. I think people way over-dramatize what is going on with Boeing on this board.

Looking at the RSI this is probably a buying opportunity. Use your own due diligence.

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Please enlighten us.

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If the argument held true CEOs could shoot people on the street without being jailed. Legally pursuing senior officers for mere fraud and gross negligence may negatively impact corporate free speech flows though.

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That makes perfect sense. Because when each wage their wars of destiny (Russia to reconstitute the USSR, and China to conquer all the parts of Asia they want to control), they want to put themselves into a position in which it is more likely they can still get access to parts, etc.

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iirc, Qantas used to be the biggest operator of 74s in the world. Now, their fleet is mostly Airbus. Their order book has a dozen 78s, and 44 Airbuses.

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In those events, they would not get parts from Europe if either was at war with the US or any NATO member.

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Maybe, maybe not. But it is definitely more likely that they would get parts from Europe than from the USA. They have various things they can threaten Europe with to induce them to bend to their will. And Europe always has weak players here and there that will skirt the rules as much as possible.

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Today’s Stoller.

THe confluence of various parties could affect who runs Boeing going forward.

*What we are seeing is something unusual in American capitalism, where the credibility of an immensely powerful and politically connected firm has collapsed. *

So what happened to crush Boeing’s credibility now, given that the incident that took place with Alaska Air was not nearly as bad as the Max crashes in 2018 and 2019? One thing I’ve learned in dealing with monopolies is that Americans will put up with unfairness, but not incompetence.

Because Boeing really matters, and its executives just don’t seem to get that. It’s evident that even after the Max crashes, CEO David Calhoun still refused to fix the fundamental disdain for engineering and construction embedded in the finance-first culture. The incompetence is actually impressive, Boeing executives cut quality, slashed labor, offshored work, have monopoly power, and still lost money. Boeing leaders are even bad at being greedy.

The engineers and workers at Boeing, in other words, really want to build quality aircraft, but are prevented from doing so by the suits. This is consistent with what I’ve heard from labor negotiators who dealt with Boeing in the early 2000s; the executives absolutely despised their union and attempts from the workers to preserve quality processes. Next month, the Machinists are going to start negotiating with Boeing over pensions, health care, and salaries. But the subtext will be the absolute rage towards the executives who ruined their once-great company.

The fundamental problem with Boeing’s internal culture is that the executives who run the place simply do not respect the design, production, and testing of aircraft, and they despise the people who actually do it.

That situation is clearly no longer tenable. Because this time the workers and engineers are joined by, well, the rest of us, including the CEOs of United Airlines, Alaska Airlines, and pretty much every other Boeing customer, as well as the head of the FAA, both parties in Congress, and anyone who has to fly anywhere.

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McNerney timed everything perfectly. He hollowed out the company, while lining his pockets, then he retired as CEO in 15, and as Chairman in early 16, a couple months after the first Max prototype flew. The first Max entered service in May 17. The first Max fell out of the sky in October 18. Of course, by then the pitfalls of excessive outsourcing, and using unqualified labor, had already manifested themselves in the 78 program. But McNerney didn’t care, because he had made his stack, and left the mess for others to clean up.

McNerney is the exemplar of today’s Shiny management "gut the company to enrich yourself, then clear out before the husk collapses.

Steve

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Can anything save Boeing from its management?

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. But that shareholder focus no longer works. Boeing is the only large-cap aerospace company in the world with a flat share price throughout the remarkable demand surge the industry has seen over the last three years.

As 2023 ended, the company’s strategy department was abolished.

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.

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 for Boeing management.

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I’m curious. If you “broke up the company”, what would you break it into?

This debacle has been caused by Boeing management outsourcing major parts of the production to other companies, which sounds a lot like “breaking up” into other parts.

So what would the “new Boeing” be comprised of?

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