Opinion: How Boeing lost its way

[mahatmakanejeeves]

Full disclosure: I do not own shares of BA outright. I do own shares because of their being in an S&P index fund.

The term "controlled flight into terrain" seems somehow fitting.

Opinion: How Boeing lost its way

Opinion by Richard Aboulafia
4 minute read
Updated 1:08 PM EDT, Fri March 22, 2024

Editor’s Note: Richard Aboulafia is a managing director at AeroDynamic Advisory, an aerospace and defense management consultancy headquartered in Ann Arbor, Michigan. AeroDynamic Advisory has worked for Boeing, its competitors and its suppliers. The views expressed in this commentary are his own. Read more opinion at CNN.

(CNN) - The situation at Boeing is grim. Serious program execution problems and high-profile safety incidents, with still-fresh memories of the two 737 MAX disasters in 2018 and 2019, are damaging the company’s brand and bringing increased regulatory scrutiny. Its recovery won’t begin until management starts examining how the company got here. ... Years ago, an excessive focus on financial returns led Boeing to badly neglect two of its greatest resources: its people and its suppliers. First, in the 2010s, Boeing made a forceful effort to weaken its workforce’s power. Aggressive moves, such as transferring production sites to new locations and threatening to move additional work, reduced labor’s negotiating power, resulting in minimal pay increases and terminated pension plans.

Most damaging, then-CEO Jim McNerney systematically promoted non-technical people to executive positions, particularly on the board. Incredibly, the MAX was developed under him and the commercial unit CEO — neither of whom had a technical degree. Current CEO Dave Calhoun, also not an engineer, has followed the same path, promoting people with similar finance backgrounds. ... At the same time, the company went after its suppliers’ profits. Programs like Partnering For Success called for consistent price reductions, even as demand increased. Boeing pursued its suppliers’ product support business, further impacting their business models. Payment terms were increased to 120 days in many cases, up from around 30 days.

The company announced a “no-fly list,” implying that suppliers that didn’t give in to Boeing’s demands would not be used for future jets. Boeing even began an ill-advised program of vertical integration, aiming to replicate systems and components provided by some of its specialized suppliers, to further pressure them on price.

Effectively, workers and suppliers were being crunched to provide rewards to Boeing shareholders. And in the short run, it worked great. In 2012, 19% of operating cash flow was being returned to shareholders in the form of dividends and buybacks. By 2015, this had ramped up to an astonishing 99%. It stayed in the 90% range until the two MAX crashes and the resulting MAX line shutdown. Between 2014 and 2018, the company rewarded investors with $53 billion in these returns. Senior executives, often compensated on the basis of stock returns, also did quite well.

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[genxlib]

1. John Oliver did an extended segment on Boeing

Highly recommend it.

He is always great and this story was as illuminating as they always are.

Short version is that they merged with McDonnel Douglas and the shitty MD culture won the internal battle for the soul of the company.

[maspaha]

2. This is completely true. There's a reason Douglas was failing when they merged.

[1cheapbeemr]

3. The long shadow of Jack Welch

G.E. was the template, where these people came from.