Boeing’s unwinding
How the downfall of Boeing exemplifies the broader decline of American industry
Boeing was once one of America’s great global companies. Whether you’re flying on a regional short hop in the US, a mainline flight in China, or a on a crowded budget airline in Southeast Asia, there’s a good chance you’re on a Boeing airplane. Furthermore, Boeing was known as a great engineeringcompany. It takes math to design the iconic 747 jumbo jet or contract on the Apollo program. The Boeing Company pumped out military aircraft like the B-17 Flying Fortress during WW2, enabling America and its allies to dominate the skies and win the war. In addition to the famed 7x7 series of commercial aircraft, Boeing has developed the B-52 bomber, the KC-135 refueling tanker and the E-3 surveillance plane, adding to American military dominance.
But starting in 2018 with two 737 MAX crashes killing 346, grounding the plane for nearly two years, continuing to today with yet more 737 MAX troubles, Boeing has shred that reputation. These failures are complex and multifaceted, but at a high level have three main causes: 1) increasing market consolidation, 2) extreme shareholder capitalism, and 3) regulatory capture. These problems also describe the broader, late-stage capitalism of America in the 2020s. In this post, I’m going to describe Boeing’s troubles and then extrapolate them to the broader economy.
Death by merger
Boeing is the legacy of many mergers. There are many more progenitors, but notably Boeing is the amalgamation of McDonnell, Douglas, North American Aviation, and the Boeing Company. Boeing was founded in 1916 in Seattle, the Douglas Aircraft Company was founded in 1921 in Southern California, and the McDonnell Aircraft Corporation was founded in St. Louis in 1937. McDonnell and Douglas merged in 1967 to form the McDonnell Douglas Corporation. My personal favorite, North American Aviation (NAA) was a major contractor to the Apollo project and the Space Shuttle. NAA was founded in 1928 and after a series of different corporate parents, including automaker GM, was merged into Boeing in 1996. In 1997, Boeing swallowed McDonnell Douglas to form the sprawling corporate entity we know today, with $67 billion in revenue in 2022. About half that revenue comes from commercial aircraft and half comes from defense contracting.
If that series of mergers sounds complicated, I’ve simplified it greatly. And the broader consolidation in aerospace and defense since 1980 is much more complex.
In the broader economy, mergers have consolidated most sectors, resulting in higher prices, worse service, and less innovation. There are so many large firms that we have short hand for them: Big. Big Tech, Big Oil, Big Pharma, Big Ag…the list goes on. Part of why the descriptor “late-stage” is so aptly applied to American capitalism in the 2020s is that after 200 years of mergers, we’re left with lumbering monopolies in most sectors of the economy.
Shareholder primacy run amok
Many place blame for the 737 MAX calamities at the 1997 merger of McDonnell Douglas and Boeing. In this telling, the legacy company kept the name Boeing but shed its focus on aerospace engineering, instead adopting the financial engineering of McDonnell Douglas. It moved its headquarters from the engineering-focused Seattle campus to commercially-focused Chicago after the merger. Other decisions were made that appeared to prioritize the short-term performance of the stock price rather than the best engineering designs. Most famously, the decision to retrofit the 737, which was designed in 1964, into the 737 MAX using computer code rather than designing an entirely new narrow-body airframe based on best engineering principles, seems financially motivated and foolish in retrospect. Perhaps tellingly, Boeing announced plans in 2022 to again move its headquarters to Washington DC, to further grow its defense business.
The broader economy suffers from the same short-term focus, which defenders claim to be the legal obligation of the senior executives and boards that steward them. “Shareholder primacy” was a school of thought championed by Milton Friedman, among others, in the 1970s that became extremely influential. Transmitted by management consultants and MBAs, “shareholder primacy spread through the economy like a virus, infecting everything. In this theory, “corporations have no higher purpose than maximizing profits for their shareholders”[i], which sounds good, but can lead to short term decisions that destroy long term value. An example is stock buybacks, which Ad Astra has argued should be banned, which entail purchasing the company’s own stock, often using debt, to boost the stock price, often to the long-term detriment of the company.
Crony capitalism
Boeing makes complex products that are often beyond the regulator’s ability to fully evaluate. The Federal Aviation Administration (FAA) actually had Boeing “self-certify” elements of the doomed 737 MAX before its fatal accidents. Furthermore, since Boeing is the only American aircraft manufacturer, some claim that the FAA advocates for the interests of Boeing rather than for the interests of the public, termed “regulatory capture”. There is also a revolving door between FAA regulators and employees at Boeing, who lobby the FAA and the broader government extensively in order to increase its profit. This leads to situations where it’s easy to claim that Boeing is getting preferential treatment based on its political connections.
More broadly, regulatory capture afflicts many sectors of our economy from incestuous insider relationships in Big Pharma to the budding regulatory capture in AI. Some point to poor recent airline service and bailouts as manifestations of regulatory capture. Critics ascribe one of the seminal events in recent political history, the 2008 bank bailouts, to insider dealing. Today, genuine entrepreneurial innovation seems to have given way to political relationships as the most important asset for a new business.
Holding pattern?
Ad Astra is not predicting the demise of Boeing or the collapse of late-stage American capitalism. But Boeing does need domestic competition and capitalism needs reforms. Most importantly, the US should promote a thriving startup ecosystem. Upstart Boom Aerospace is trying to create a supersonic jet and could be just the competition Boeing needs. Furthermore, the government should step up its antitrust enforcement, preventing new mergers and breaking up monopolies. With these policies, late-stage American capitalism can leave its current holding pattern and return to its prior glory.
News
FLASH Drone strike kills 3 American soldiers in Jordan; Biden: ‘Iran-backed militias’ to blame
1 TX defies feds
2 Globally, girls are increasingly more liberal while boys are more conservative
3 Traditional media firms undergoing bloodbath
4 Foreign adversaries want to exploit US heath data
5 US in talks to fully withdraw from Iraq, Syria
6 ‘Opportunistic’ Chinese lines send ships to serve Red Sea
Ed. Note: Border Security is among President Biden’s greatest political liabilities. According to an NBC poll, voters prefer the Republican Party by 30pts on the issue . A report in early January also revealed that the Customs and Border Patrol has released 2.3m migrants into the US since 2021. That is the context for a Supreme Court decision this week that backed the Biden Administrations use of federal agents to cut razor wire in Texas on the Southern Border, an assertion of federal over state power. Now Texas Gov Abbott pledges to ignore the court order, setting up a significant potential state vs. federal clash.
1 TX defies feds
in recent days, Republicans and conservative media have alluded to the prospect of the situation forcing soldiers to choose between loyalty to their state and loyalty to their country — even proposing that matters could turn confrontational and violent. Some have invoked another civil war. The comments have increasingly referenced a situation in which President Biden would try to federalize the National Guard. (A few current and former Democratic members of Congress have called for such a step, after Abbott signaled that the Texas National Guard would continue laying razor wire along the border despite the Supreme Court saying federal authorities can remove it. The White House has shrugged off such calls to federalize the Guard.)
WaPo
2 Globally, girls are increasingly more liberal while boys are more conservative
Gen Z is two generations, not one. In countries on every continent, an ideological gap has opened up between young men and women. Tens of millions of people who occupy the same cities, workplaces, classrooms and even homes no longer see eye-to-eye. In the US, Gallup data shows that after decades where the sexes were each spread roughly equally across liberal and conservative world views, women aged 18 to 30 are now 30 percentage points more liberal than their male contemporaries. That gap took just six years to open up.
FT
3 Traditional media firms undergoing bloodbath
Business Insider yesterday announced it was eliminating 8% of its workforce, months after a union strike over a contract impasse. The L.A. Times this week laid off about 120 journalists (more than 20% of the newsroom), after cutting 74 newsroom positions in June. TIME on Tuesday told staff about an unspecified number of layoffs across editorial, tech, sales and TIME Studios. The Washington Post lost a whole newsroom's worth of talent at the end of last year through a buyout offer aimed at eliminating 240 jobs. Condé Nast saw hundreds of union workers walk off the job Tuesday to protest hundreds of previously announced layoffs impacting approximately 5% of staff, or roughly 300 people. Sports Illustrated's newsroom was gutted by sweeping layoffs. ParamountCEO Bob Bakish warned employees yesterday that the company is planning a fresh round of layoffs. The New York Daily News editorial union walked off the job yesterday. Forbes' newsroom union began a three-day walkout yesterday, arguing management was union busting. Its CEO announced layoffs later that afternoon hitting roughly 3% of the company.
Axios
4 Foreign adversaries want to exploit US heath data
The White House is increasingly concerned about how vulnerable the US health system is to hacks and other targeted efforts that allow adversaries to exploit and profit on Americans’ data. Those fears have led the Biden administration to draft a new executive order that seeks to prevent foreign adversaries from accessing troves of highly sensitive personal data about Americans and people connected to the US government, as I reported earlier this week.
ODNI warned at the time that the collection of Americans’ genetic information endangers economic and national security, as well as individual privacy. “Losing your DNA is not like losing a credit card,” it said. “You can order a new credit card, but you cannot replace your DNA. The loss of your DNA not only affects you, but your relatives and, potentially, generations to come.”
Bloomberg
5 US in talks to fully withdraw from Iraq, Syria
Iraq
American officials are set to begin formal talks with Iraq to end its military presence in the country. America’s army has been in Iraq since 2003. It currently has around 2,500 troops stationed there to help prevent a resurgence of Islamic State. Iraq’s government has repeatedly called for America’s withdrawal from the country.
Economist
https://www.economist.com/in-brief/2024/01/26/trump-goes-on-the-attack-first-execution-by-nitrogen-gas
Syria
Members of the Biden Administration alongside Allied Defense Officials are reportedly now discussing a possible Withdrawal of U.S. and Coalition Forces from Eastern Syria due to ongoing Attacks by Iranian-Backed Forces, alongside a Reconsideration of Military Priorities for the Middle East Region; this Withdrawal would likely be a Major Blow to Allied Kurdish Forces in Northeastern Syria as well as the continuation of Operation Inherent Resolve, the Fight against the Islamic State (IS).
@OSINTDefender
https://x.com/sentdefender/status/1750197018100719652?s=46&t=nVb-5uC_WM3Cp0R0dGiqHQ
6 ‘Opportunistic’ Chinese lines send ships to serve Red Sea
Several Chinese shipping lines have been redeploying their vessels to serve the Red Sea and the Suez Canal, in what analysts have said is an effort to exploit China’s perceived immunity from the Houthi attacks that have driven most other operators out of the area.
FT
Ed note: see Global disorder
[i] https://en.wikipedia.org/wiki/Shareholder_primacy
