“Had the government done its job of regulating Boeing, it is highly unlikely that the 737 Max would have been globally grounded.”

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..

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