Boeing is a very troubled company. It’s a theme I’ve been sounding in recent weeks, and I’m heartened that the drumbeats are getting louder from those who speak with greater authority.
View From The Wing, a thoughtful travel blog, featured this story about comments from an anonymous Boeing insider warning that Boeing’s production lines have an “enormous volume of defects.” Andy Pasztor, a former Wall Street Journal reporter whose work I’ve repeatedly cited, wrote this commentary for the Seattle Times noting that Boeing’s “manufacturing, ethical lapses go back decades.”
The Lever, the only publication doing gumshoe Boeing reporting, reported that over the last three years, operators of Boeing’s troubled 737 Max planes have filed more than 1,800 service difficulty reports — more than one per day — warning government regulators about safety problems with the aircraft since the fleet was allowed to resume flying after two fatal crashes.
All but roughly 150 of the reports came from Alaska Airlines — the operator of the 737 Max 9 plane that suffered a mid-air cabin breach over Portland, Oregon earlier this month.
Boeing arguably was once America’s greatest company, yet we haven’t heard a peep from Mr. MAGA Donald Trump, the political showman who promises to make America great again.
That’s because his campaign has taken more than $600,000 in campaign contributions from Boeing over the years. It was Trump’s Justice Department that let Boeing off with a mere $2.5 billion fine and a promise not to criminally prosecute after the company admitted to conspiring to defraud federal regulators, providing Boeing improved its shoddy manufacturing. A judge ruled Boeing’s dishonesty was responsible for multiple 737 MAX crashes that killed 346 people.
Patrick Shanahan, a veteran senior Boeing executive who last fall was named CEO of Boeing’s troubled fuselage subcontractor, previously served as Trump’s deputy defense secretary.
President Biden wouldn’t dare rail about Boeing’s troubles, as his campaign has received more than $700,000 of the company’s campaign contribution largesse. Two Biden appointees – Secretary of State Antony Blinken and NATO Ambassador Julianne Smith – also received lucrative consulting fees from Boeing. Transportation Secretary Pete Buttigieg, the former South Bend mayor ultimately responsible for the FAA, allowed the critical and understaffed agency to remain rudderless for some 18 months.
Boeing’s decline isn’t just a story about a once great company’s fall from grace, but rather emblematic of America’s decline. It’s reasonable for Americans to expect meaningful political leadership to intervene and rescue Boeing from further decline, particularly since the company has mooched more than $15 billion from U.S. taxpayers in recent years.
Yet CEO Dave Calhoun remains on the job, despite having played a major role in Boeing’s fall. Although the ruthless accountant has only been CEO for three years, he joined Boeing’s board in 2009 and reportedly drove much of the cost cutting that’s led to Boeing’s travails.
America today is ruled by Wall Street, which rigidly adheres to the edict that greed is good. The ruling gospel stems from this watershed essay economist Milton Friedman wrote in 1970 for the New York Times headlined.
Here’s the essence of Friedman’s doctrine:
In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.
Friedman railed against DEI when they were independent letters of the alphabet.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation.
Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hard core” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stock holders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.
Friedman’s doctrine ultimately reshaped America’s businesses, paving the way for the celebrity CEO that America’s media has come to glorify and idolize. The poster boy for Friedman’s doctrine was former General Electric CEO Jack Welch, who during his two-decade tenure increased GE’s revenue fivefold to $130 billion and boosted the value of the company’s shares to $410 billion from $14 billion.
Welch made the ruthless firing of employees not only acceptable, but praiseworthy. He was admiringly known as “Neutron Jack,” for turfing some 100,000 employees within the first four years of his tenure and mandating that his managers every year fire 10% of their bottom performing employees. Welch loved cheap overseas labor: Under his watch, GE doubled its foreign workforce to 130,000 employees while halving the size of the company’s U.S. workforce.
GE today is a shadow of its former self. Unfortunately, Welch’s influence was responsible for the decimation of many more great U.S. corporations, including Boeing.
Boeing’s decline began with the appointment of former McDonnell Douglas CEO Harry Stonecipher, the architect of the Boeing/McDonnell Douglas merger. Stonecipher was widely blamed (or credited depending on your point of view) for transforming Boeing from a company run by engineers to an enterprise overseen by finance guys.
“When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm,” Stonecipher told the Chicago Tribune in a 2004 interview. “It is a great engineering firm, but people invest in a company because they want to make money.”
Stonecipher was replaced by a Welch protégé named Jim McNerney, who received, on signing, a pay package worth $52 million. McNerney was responsible for authorizing the development of the 737 MAX, the controversial aircraft that’s possibly forever destroyed Boeing’s once vaunted reputation.
The 737 MAX was developed in response to Airbus’ more modern and fuel efficient A320 series single-aisle aircraft, which was fast gaining market share on Boeing’s 737, the company’s big money maker. Rather than spend the considerable funds required to develop a competitive aircraft from scratch, Boeing opted to rejigger its original 737 design to accommodate more fuel-efficient engines. That redesign altered the aircraft’s center of gravity, potentially causing it to stall. Boeing’s engineers wrote a “software fix” to address the problem, but the Band-Aid solution was responsible for two plane crashes that ultimately resulted in the grounding of all 737 MAX planes.
Dave Calhoun, Boeing’s CEO, was another Welch protégé. He worked at GE for 26 years, eventually becoming vice chairman of the company’s largest industrial unit. As an active board member, he no doubt was well aware of Boeing’s cost cutting moves, such as relying on temporary workers making as little as $9 an hour to develop and test critical software, often from countries lacking a deep background in aerospace — notably India.
The severity of Boeing’s problems is deep and widespread. The company’s emphasis on profits rather than safety and quality has destroyed the company’s once vaunted reputation and given Airbus an edge.
The France-based company, whose CEO is a veteran aviation engineer and is paid nearly 25% less in annual compensation than Calhoun, recently reported record orders and a 11% rise in 2023 deliveries, maintaining the top manufacturing spot against rival Boeing for the fifth straight year. Industry consultant Richard Aboulafia predicts that Boeing will be lucky to maintain a 40% market share by decade’s end.
Meanwhile, China’s homegrown C919 passenger jet last May made its long-awaited maiden commercial flight, the first step in that country’s goal of launching a competing product to Boeing’s 737 and Airbus’ A320 single-aisle aircrafts. While skepticism abounds that China will mount effective competition, there were legions of skeptics who dismissed the country’s EV ambitions, which have proven successful.
Hard as it may be to believe, in the 1940s and 1950s, CEOs of major corporations like GE, General Motors, Coca-Cola, and Eastman Kodak joined together in the Committee for Economic Development to lobby for measures to expand jobs. They even argued that unions “serve the common good.” In the 1960s, many of these CEOs lobbied for stronger environmental protections and for passage of the Environmental Protection Act.
Most of America’s CEOs today care only about the enrichment of their shareholders, which in turn enriches themselves. America is decidedly on a downward trajectory, a decline for which America’s enemies owe Milton Friedman considerable thanks.