How to fix Boeing
And kickstart America’s defense industrial base
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Key takeaways
Government Intervention: Purchase a stake in Boeing to appoint new board members and influence strategy
Leadership Overhaul: Replace current CEO and restaff the board, including with representatives from the Pentagon and White House
Revitalizing America's Defense Base: Break-up Boeing and use the turnaround as a beacon to rejuvenate the broader US defense industry
Boeing is a great American company that is having an existential crisis in the 2020s. Two fatal 737 MAX crashes, a global pandemic, and some missing bolts wiped 55% off Boeing’s market value since 2018[i]. But Boeing is also one of America’s “prime” defense contractors, a group of five companies that exist solely from taxpayers funding and are critical to national security. Of Boeing’s $67 billion in revenue in 2022, more than $23 billion came from defense contracts[ii].
We know that Boeing is having trouble with commercial airplanes but how are they doing on defense? The 767 refueling tanker program is approximately 13 years late and $7 billion over budget[iii]. It also had a major corruption scandal. The T-7A fighter jet trainer is $1 billion over budget and late[iv]. And the marquee Air Force One replacement program is 3 years late and $2 billion over budget[v]. So, in summary, Boeing’s defense unit is not doing well.
As discussed in Boeing’s unwinding, the 1997 merger with McDonnell Douglas replaced Boeing’s engineering culture with a bean-counter’s focus on the share price. The erosion of technical competency at Boeing has led to its financialization and a series of decisions that prioritized profit over safety. It’s essential that Boeing gets away from finance and back to making great airplanes.
It’s very important that a nation that has prioritized manufacturing actually gets better at manufacturing. For that reason, and for the national security importance of the firm, it’s crucial that Boeing is fixed. But left on its own, it’s unlikely that will happen. In this post, I’m going to outline a plan to fix Boeing, starting with the US government purchasing a stake in the company.
Government investment
Ad Astra is no advocate of big government or central planning. Fairly operating private markets are part of what makes America and her economy great. But in this case, without government intervention it’s likely that Boeing will be hallowed out and have no future. The company has already announced it won’t bring a new clean sheet airplane to market until the 2030s. The 787, its last clean sheet airplane, began in 2003. That is an entire career without a new plane. If you’re a young engineer, why would you work at Boeing? The organization is suffering brain drain and by the 2030s it’s not clear they’ll even know how to design a new airplane.
By purchasing a portion of Boeing, the government can appoint board members and influence strategy. Each 10% of Boeing’s outstanding stock purchased by the government would cost $12 billion[vi], far lower than many costs typically thrown around in Washington DC. And the intent would be for the government to turn the company around and sell it at some future date for more, hopefully significantly more, so the taxpayer stands to profit.
Failure of leadership
The current CEO, David Calhoun, is probably a nice guy but he’s a financier not an engineer[vii]. Likewise, of Boeing’s 13-member board, one director has an aerospace engineering degree (she was appointed in 2023 after criticism that the company did not have enough engineers on its board)[viii]. The current leadership has failed to fix Boeing’s operational problems, set a compelling future vision, or otherwise demonstrate how they’ll turn the company around. Therefore, the government’s first action should be to fire the CEO and appoint new board members with technical backgrounds who understand the product Boeing makes. The Pentagon and White House should have designated representatives on the board, and fixing Boeing should be a key campaign issue in the 2024 US Presidential election. The performance of Boeing’s turnaround can be judged by voters in future elections.
Restarting the defense base
America’s defense industry is broken, and Boeing is just the tip of a much larger iceberg. Ad Astra has published articles on the defense industry’s failure to supply Ukraine with ammo and our hypersonic Achilles heel. America had a thriving defense base after WW2 but it’s been allowed to consolidate into just a few decrepit “prime” contractors.
An industry with more, small firms is more innovative and competitive. Many firms are also more agile and able to quickly respond to America’s national security needs in a rapidly changing world.
Antitrust enforcers should break Boeing up, probably into commercial airplanes and defense. Regulators should also look at the other four “prime” contractors for monopolistic practices and consider breaking them up as well.
There are a few defense-tech startups in Silicon Valley with promise - notably Palantir and Anduril. That’s the future and a thriving defense-tech ecosystem should be encouraged.
In the meantime, America needs Boeing and setting an example by fixing it is the best way to kickstart the moribund defense industry.
[i] https://stockanalysis.com/stocks/ba/
[ii] https://www.perplexity.ai/search/How-much-has-fQEMWJWhSp.xifbve3Xfvg#b8f06311-df6a-4cda-ac3a-87bbe73ab057
[iii] https://www.perplexity.ai/search/What-are-the-8.iEi768SLePuaPu6bGBcg#9a6c9500-4663-437c-866e-b4062bd63ed3
[iv] https://www.perplexity.ai/search/What-is-the-94UeNYYoTzajjTDTUPl9jQ#f7851e35-8628-4f36-a38d-30d350f97d8d
[v] https://www.perplexity.ai/search/What-is-the-94UeNYYoTzajjTDTUPl9jQ#f7851e35-8628-4f36-a38d-30d350f97d8d
[vi] https://stockanalysis.com/stocks/ba/
[vii] https://www.boeing.com/company/bios/david-l-calhoun
[viii] https://www.boeing.com/company/general-info/corporate-governance#board