Oh, they can sort of make plane models that already exist. Sort of. They claim it’s just a delay; part of the plan. From LNA:
CEO David Calhoun said there won’t be any new airplane this decade…
“And then there’ll be a moment in time where we’ll pull a rabbit out of the hat and introduce a new airplane sometime in the middle of next decade,” Calhoun said. (Emphasis added.)
A normal program launch-to-EIS is about seven years. One could conclude, then, that the program launch could come around 2027 or 2028 if EIS is 2035. (Boeing wants to shrink the timeline to five years from launch to EIS.)
The implication is that they’re waiting for a new engine design which won’t be available until 2035, but that seems like a weak reason to not start work on a plane for six years.
Meanwhile, about the plane design they actually have, Boeing claims:
Officials said supply chain issues continue to dog steady production and delivery rates of the 737 MAX. Engine deliveries from CFM remain slow. Bringing the production line back from zero to higher rates remains a challenge.
But….
During the pandemic, Boeing encouraged early retirement and offered buyouts to reduce headcounts across the enterprise. On top of normal attrition and scheduled retirements, thousands left the company. Returning to normalcy — a process still underway — required hiring new employees. These employees have a learning curve, which, LNA is told, slows the production of not only the 737s but also the 767-300ERF. (Customers have complained to LNA about quality control on 767s.)
So, they don’t have enough skilled employees, and getting new ones takes time because they have to be trained, and Boeing gutted its cadre, a process which had been going on long before the pandemic. Indeed, Boeing made a point of getting rid of a lot of engineers before this and even replaced the physical wind tunnel used to test plane models with computer modeling. (No, no, computer modeling is not as good.)
So, Boeing isn’t going to design and make any new planes, probably until 2035, and that plan is just a plan — there’s almost certainly no significant resources even dedicated yet. It’s close to plucking a figure out of the air, and the current CEO is unlikely to be at Boeing then, he might not even be there in 2028 or 2030, when the major design work would need to start.
So much for the recent news. Boeing, as Stoller has pointed out, was forced to merge with McDonnell Douglas, the other great aviation firm. Clinton’s administration thought big was better and forced a wave of mergers in the aerospace and defense industries. Less competition, and not keeping separate corporate and engineering cultures, did the rest. Monopolies have to be regulated to hell, nationalized, or broken up, and breaking up a monopoly which is not a public good is generally better. Playing suppliers off against each other is what the government should do, along with having some in-house capacity. Innovation in technology (not so much science) works better with competition between multiple groups; science works best when researchers are given the ability to pursue their interests (which is not quite the same thing — see Bell Labs.) There are exceptions to these rules, I’ll probably touch on them in a later post (for one, some projects need to be centralized, due to equipment requirements — think the Manhattan project or particle accelerators.)
As with car companies, the switch to a management culture rather than an engineering culture has been fatal. Boeing was classically a Seattle firm, but in ’96 they moved their headquarters to Chicago, and now they intend to move them to a suburb of DC, which shows they’ve become completely dependent on government money.
If your executives or engineers aren’t where the planes are made, you lose engineering ability and damage proper feedback. The manufacturing floor, the engineers, and the decision-makers all need to be in the same place, and the culture needs to be, first and foremost, an engineering culture.
This is the great mistake that GE made (and GM as well, though they came through better). They decided their business was to make money, and that the products were secondary. But in the not-very-long-term (a couple decades at most), you make the most money by making good products. For GM, it’s automobiles. For Boeing, it’s planes. GE had a more varied base, but the same principle applied.
As for an analysis of the current circumstances, the union (whose necks are on the line, as their members won’t walk away rich no matter what happens) is fairly clear-sighted:
Failing to launch their next airplane program, effectively handing over dominant market share in the single-aisle and mid-market aircraft to their main competition, is a situation with dire consequences for the future. If market share tips in favor of Airbus at 60/40 or worse 70/30, it puts pricing pressure on Boeing, making it impossible to recover for decades.”
No business, with the possible exception of certain banks, is just in the business of making money. Aim straight at money, and you’ll ensure your decline. Aim at something else, do it well, and the money tends to take care of itself, especially when you’re in a duopoly situation, as is Boeing –for now.
China is working hard on a domestic aviation industry, not least to avoid further sanctions (some aviation-related sanctions are already in place). Once they have it, there will be three competitors, or perhaps 2 1/2 given how pathetic Boeing is becoming.
This is a BIG problem, not just for Boeing, but for the US. People harp about “comparative advantage,” but in some ways what matters more is “absolute advantage” or “you can only get it from us.” DC is acting to keep absolute advantage for the US hegemonic area (which is Taiwan leading in semis is OK except for the military risk, and why Air Bus never got sanctioned), but the smarter ones can see its end. China will break the last technological bastions, and countries outside the hegemonic area will then have two real options: They can get commercial jets from China or the West, just as they will be able to get advanced chips from China or the West.
Once the absolute advantage is gone, you’re reduced to comparative advantage. And in a comparative advantage competition, people get ground into the dust.
Astrid
Sometimes it feels like everyone in the West knows the jig is up and are just biding time until everything crumbles away. So we procrastinate and stop planning for a future that we don’t believe is coming. Why not while corporations and countries, kicking the can and avoid facing reality a little longer? Apocalyptic thinking abounds.
Or maybe it’s just me projecting. I had to buy several baby shower gifts this year so some people are still optimistic.
Willy
So what do Boeing, ancient Rome, and the modern LA Rams all have in common?
I dunno exactly, but it’s obvious that that they, and most other orgs, seem to go through some kind of wild cultural cycle. From highly motivated believers working together towards mutual greatness (and personal payoff), to a confused hot mess where everything’s so dysfunctional that nobody gives a fuck anymore.
I believe there may be a social science behind all this.
While I was at Boeing in the early 90’s, it was already a mess. While I have a few scattered stories from my days spent with many other companies, I’ve got dozens and dozens from my 4 short years at Boeing. Enough to top all of the gags seen in both the Office Space and Idiocracy movies. Bizarrely humorous tales of mass dysfunction. Imagine The Office, but with a whole lot more jaded zombies and backstabbing assholes.
This is why I have such a strong interest in the ongoing Twitter follies, where Musk has no clue why his people don’t want to work twice as hard for half the pay just to make him a richer man.
Willy
It was once succinctly stated in this place that the very best way to ruin a successful company long term, is to put MBAs in charge. Sure, they can help engineers or doctors improve profits in their engineering or doctoring businesses in the short-term. But giving MBAs total long-term power will destroy their will and their ability, to be their best at what they’re best at.
different clue
@Ian Welsh,
Where you write . . . ” Boeing was classically a Seattle firm, but in 96 they moved their headquarters to Seattle, ” . . . did you mean to write . . . ” but in 96 they moved their headquarters to Chicago” . . . ?
Mark Level
So Willie– I was talking to a usually very smart and insightful friend today and the topic of Musk & Twitter came up. He surprised me by making an uncharacteristically (for him) dumb remark that even if Musk had screwed up at Twitter since taking over, “he’s still a smart business man and he’ll make it work, & eventually make bank off it.” I disagreed, and pointed out that Musk is actually just a con man (which my buddy had already tacitly admitted before the remark) that mostly he’s taken credit for other’s work, which is still only at a conceptual level and “could” some day work, ridiculous ideas like firing people across vast spaces underground in little metal boxes instead of bullet trains, etc. Also that AI is not remotely “smart” and driverless cars will not work in my lifetime, if ever, which I got ready agreement on . . . my friend offered that obviously Musk’s neuro-atypical/ “autistic” style didn’t mean that he could deal with people well, thus his bullying style coming into the company is making the workers mass quit. I guess the point is that crazy schemes generally only work on the first gen of suckers, sometimes people make money but eventually the bottom drops out. Anyway, since the US de-industrialized, all the money seems to be generated by Ponzi schemes of this type, & only short term for a very few sleazy scammers, as noted. Beyond the well-publicized payouts Musk has had to make for sexual harassment or paying for babies thru a surrogate (he seems to be obsessed with spawning multiple offspring as Jeffrey Epstein was, since Epstein donated to Harvard in return for spreading his sperm to unknowing women) . . . Anyway, generally speaking there’s that old saying that the first generation creates wealth (from looting the newly obtained resources, like exterminating the Natives in Settler-Colonial countries like the US, Australia etc.), the 2nd manages it competently, and the 3rd are dumb, decadent fools who squander it all . . . the US is obviously very far into this “3rd generation” now, as Astrid says people “know the jig is up” though there is still mountains of denial to defeat before they will DO anything about it . . . I have been reading Derek Jensen’s “Endgame” vol. 1 recently, it was published way back in 2006 but he pretty accurately foretold everything that’s happening as well as WHY it has to happen. I’m glad I had a decent full life, I feel like I’d only be able to ride out what’s coming if I still had the energy and flexibility I had in my early 20s. It’ll be interesting to see how widespread the wreckage is and what areas of the country remain viable . . . after the Mycaenean and Mayan civilizations slowly collapsed around the same time there were obviously neighboring groups that came in to replace them (well, the Mayans had 2 collapses so obviously some of them survived the first, I guess any surviving Mycaeneans got subsumed as “Greeks”). Anyway a predatory society eventually eats itself & that seems to be where we are.
elkern
I worked for 25 years as a computer programmer in a factory which mostly made jet engine parts; Boeing wasn’t a direct customer, but about half of the products went into engines destined for Boeing planes. As at Boeing, the MBAs took over, and in the long run (decades), quality and capacity suffered. Quarterly profits were prioritized over all other metrics.
Aerospace is a very cyclical business. Downturns quickly led to layoffs and reductions in capital equipment budgets; upturns eventually led to more hiring and more investment in capital equipment.
Workers – hourly and salaried – who survived the cycle were overworked as business picked up quickly and new employees were hired slowly. Employee experience & expertise jettisoned by layoffs was never fully replaced. Worker loyalty decreased as it became obvious that it was not reciprocated. Pride in workmanship declined as MBAs pretended that tasks could be done by new workers with minimal training. Everyone was pressured to increase Efficiency. There were a few Quality scandals; luckily, no airline disasters were traced back to us while I was there.
MBA-ism has hollowed out the American economy.
Boeing’s admission that it’s not even working on plans for a new plane seems like a thinly veiled capitulation to the Chinese. Shareholders and top managers get more money for less effort by investing in share buybacks rather than new equipment.
What I don’t understand is, where are the people who profit from this going to go when it all falls apart?
different clue
@Elkern,
MBAism isn’t the only thing that hollowed out American industry. Free Trade also hollowed it out. Unless we want to make a narrow distinction between burning it down to the ground ( Free Trade) as against hollowing it out in place ( MBAism).
” What I don’t understand is, where are the people who profit from this going to go when it all falls apart? ” . . .
Well, they will retreat into their various underground luxury bunkers, armor-plated communities, secret little Galt’s Gulches, New Zealand, Paraguay, etc. Maybe the rest of us will have created some secret revenge societies who can figure out how to make them pay once they are bunkered up. Maybe someone will have the schematic diagrams to some of their bunkers showing where the air vents are, and maybe those someones will be able to introduce bubonic plague rats into the air vents.
Joe
Not too long ago, I heard on a podcast (I’m pretty sure it was Ezra Klein’s) an economics expert paraphrasing Keynes.
The paraphrase basically iterated Keynes’s point that finance and ultimately capitalism is simply a way of prioritizing resource expenditures. In the example, if a country has the skilled workers, technology base, and industrial capacity to build 100 jet fighters, then finance will figure out how to pay for them. However, if they only have the resources to make 95, no amount of financial tomfoolery will allow them to make 100.
He seem to be a society that has forgotten that finance is meant to allocate actual resources and instead have become obsessed with the abstraction. As we hit limits to the resources available for all of our widgets (important or fripperies), the financial system will cease to make sense if it’s ultimate function (allocating resources) since it will be divorced from its core raison d’être.
VietnamVet
My Dad and Brother-in- law worked at Boeing. Dad was downgraded to an assistant engineer in the 1970’s when “The last person who leaves Seattle, turn off the lights”. The Boeing horror stories didn’t start until the Clinton Era. The McDonnell Douglas merger and the headquarters move to Chicago was the signal that the company’s good/safe engineering tradition was finished. Both Boeing and Amazon are moving their headquarters to Crystal City, Virginia, now called “National Landing”. Replacing government employees who are no longer needed due to de-regulation and privatization.
In a lot of ways, the only explanation that makes sense is that the Western Empire recognizes that the gig is up. “Get it while you can.” North America is pretty much depleted except for expensive oil shale and tar sands. The only relatively cheap stuff left is in Russia and in the third world like Guyana. Oil majors need to control it to turn a profit. Thus, the non-stop propaganda and colonial wars that have escalated into a proxy world war in Ukraine that has already touched Poland and blown up three of the four natural gas pipelines from Russia to Germany.
The developed world must live within its means, or the collapse will be civilization itself or human extermination in a global nuclear war. Halliburton, Enron, Boeing, Theranos, FTX, and PG&E are simply harbingers, symbols of the corruption. Since the Oligarch’s successful Reagan/Thatcher counter-revolt, peoples’ lives are of no matter, only profits.
China is the alternative, such as it is, a chauvinistic civilization 3,000 years old.
Shout at the Debil
Frontline put out a pretty decent documentary about a year ago about the 737 MAX debacle that delves into the corrupted culture at Boeing & dovetails nicely with the points you make here.
https://youtu.be/wXMO0bhPhCw
bruce wilder
“forgotten that finance is meant to allocate actual resources and instead”
meant by whom and forgotten by whom?
marku52
When i was at HP under Mad Queen Carly, they had an author come in to lecture about the Toyota method of product development. We had recently sent our manufacturing overseas, and I, as a manufacturing support engineer knew what a mistake this was. Time after time, I’d be called out to the line “Look at this. Why is it doing that?” Putting manufacturing overseas completely severed that link.
So I asked the guy “Would Toyota ever separate engineering and manufacturing?”
“No”, he abashedly replied.
StewartM
Ian, you just summed up what I have been seeing and saying for decades. The Reagan economy of my adult life is not some ‘vibrant’, ‘dynamic’, ‘creative’ economy once the forces of capitalism were unleashed, but a plunder economy that prioritizes writing down bigger numbers on sheets of paper than actually the ability to create, produce, and deliver. I can personally say not only at my own company, but of our suppliers, customers, and peers, everyone is less capable and less knowledgeable than decades ago. As the saying goes, “if you give a man to fish, you feed him for a day; if you teach a man to fish, you feed him for a lifetime”, and all my life the US and the West have been de-learning how to fish.
As I have written before, the great knowledge purge of US companies is not the replacement of US nationals with immigrants, but the replacement of older US workers who had better pay and benefits with cheaper kids (mostly domestic). In fact, the domestic kids seem to be often worse hires than the immigrant kids, as the domestic kids (if they have the educational pedigree) see technical jobs as just stepping stones to managerial jobs where they never need apply any technical skills they ever had, and it’s spending decades in a technical field, not a few years, that generates institutional expertise. Also something the degrades institutional expertise is downsizing—having sufficient people doing similar tasks allow some of them to specialize more in one facet of a discipline, achieving deep expertise in it; downsizing forces them all to become jack-of-all-trades and masters-of-none.
Our managerial class, however, remains clueless and (eerily reminiscent of Hitler and his generals as the war went on) enamored of unrealistic and pie-in-the-sky goals which we can’t realistically achieve given the people and tools allocated to it. “Create and achieve more, but do it with 5 % fewer people and 10 % less money than last year”. It’s the “Triumph of the Will” of the business leadership class (as so obviously-displayed at Twitter nowadays). This is what unregulated capitalism ultimately leads to, as paper profits, profits in gamed markets, and state bailouts are so much more the easier to achieve than actually designing and building better mousetraps, or delivering superior service. This was all very predictable.
Only the Asian countries seem to be able to still do it right. Japan took over the car industry by actually elevating the design and manufacture of superior cars (oh, the horrors! did they not have enough MBAs?) over profits. They were willing to sell their cars in the West at minimum profit to gain acceptance, something a Western company would never do (I have witnessed this first-hand; where we are involved in making a superior product but the MBAs stepped in demand we sell it at a price high enough to recoup all our investment in it within a few years, resulting in the product being priced out of the market. If we had been willing to sell it at about the same price as the inferior competition, we would have taken over the market….idiots!!). The Chinese, too seem to be doing it better and learning. In some of the ventures I’m personally aware of, the Chinese government owns more than 50 % of the stock and thus has veto power over any ideas they think are shortsighted or bad for China (no outsourcing that factory to Indonesia!)).
The interesting thing is, perhaps we could have achieved something like this too…during the 2008-2009 financial crises and the bailouts, Ian mentioned that “in capitalism when you bail someone out, you own it” and perhaps there was a chance for us keep a controlling share of stock in the companies we bailed out, which would have been the simplest way to stop bad, shortsighted, or illegal behaviors. But no, we socialized the losses of the rich and privatized their profits. Thanks Obama!!
StewartM
DC,
MBAism isn’t the only thing that hollowed out American industry. Free Trade also hollowed it out. Unless we want to make a narrow distinction between burning it down to the ground ( Free Trade) as against hollowing it out in place ( MBAism).
They are two sides of the same coin. If there was a cause, though, MBA-ism is the cause, though Reaganism is the cause of both.
1) Reaganism (which in some ways started before Reagan, btw) cuts taxes on rich people and de-regulates what companies can do to achieve profits.
2) Rich people, who previously were deterred from demanding higher profits as their share gets taxed away, demand more. With deregulation firms are less restrained to achieve more profits by hook or crook (and believe me, hook or crook is far faster reward-loop than actually doing the risky and difficult work of churning out “better”). Worse, ponzi schemes and fraud are great ways to paper profits, so allowing them puts stress on firms actually making real things or delivering real services in competitive markets. In addition, not enforcing anti-trust laws allow some companies to start achieving oglopolistic power.
3) MBAs replace engineers and technical people at the top of firms (at my company, when I started out, all the leadership team had gotten MBAs at some point but were initially engineers). MBAs, being ignorant of technical matters, pursue paper profits over real improvements both by inclination (they are adept at paper manipulations) and by ignorance (they will implement changes that will degrade actual production that an engineer would never do as the engineer realizes that’s not a true cost saving).
4) At some point, no amount of slashing-and-burning at the US sites can achieve the profits that are demanding by such firms being forced to compete against the profits achieved by oligopolies and firms in gamed markets, or against Wall Street fraud and ponzi scheme profits, so the “demand for capital” forces the leadership to move production overseas to cheap-labor locales overseas. Engineers and other technical people will protest that the workforces there may not have the educational pedigrees to really implement such a move, but their protests are ignored as such protests are “mere details” to the MBAs, for whom these are just numbers in Excel spreadsheets. (Note: I have seen this personally too, production shifted to locations that NEVER were able to make good product). China (and other Asian countries) was a temporary godsend for the Western MBA class, as their workforce was better-educated (respect for education being part of their culture) but moving production there came at a cost that the Western business class would never fully control what happened in their Chinese locales; the Chinese government would have the final say. Still, fixated on short-term profits as they were, they ran for it like lemming to a cliff.
Fixing all this is going to be hard, maybe politically impossible now (retirees and near-retirees like myself being currently dependent on the Great Walll Street casino for our retirements). You have to fix taxes, you have to restrain what companies can do, you have to make 5 % profits fully acceptable (like it once was, Ian is right about that) you have to fix retirements. But taxes are probably the biggest thing. Just reading an article on the recent midterms, where anonymous donors gave say $400-plus million to a conservative election slush fund, if we had a 90 % tax rate, that anonymous person would have had to pay $4 TRILLION in taxes just to make that $400 million donation. How many rich people would take that kind of risk? Few, I’d doubt. You greatly cut down the money in politics by that way alone.
Trinity
“Aim straight at money, and you’ll ensure your decline. Aim at something else, do it well, and the money tends to take care of itself, especially when you’re in a duopoly situation like Boeing is.”
This is absolutely true, or I should say was true. They’ve managed to game all the systems, so it’s not true for THEM anymore. They can do whatever they want, whenever they want. Their paid shills in the media will be happy to print whatever they say.
It is much, much easier to financialize everything and play games with (someone else’s) money, rather than actually build something. Also, I suspect the “highs” are higher in finance, compared to the long slog and uncertainty in building something as complex as a jet. And we already know their interests never lie in producing a public good. Seriously, who would want to fly in any new jet they produce anyway?
But I agree, their activities aren’t sustainable at all. They are so incredibly high on the idea of their own self Importance, and their own “genius”, they can’t foresee the end of their games.
anon y'mouse
“finance is meant to allocate resources”
to whom and for whose benefit?
which resources?
what is getting built?
who chooses?
not us peons.
different clue
I remember a tiny scene-snippet featuring Danny DeVito from some movie or other. He was shouting at someone who had apparently disrespected him by asking him ” what he makes . . . really . . . ”
” What do I make? WHAT do I MAKE? I MAKE YOU MONEY! “
someofparts
Well, whatever Keynes or anyone else had to say about capital allocation, my question is WHO controls that allocation. In the early 20th century private interests created the Fed and took over control of all that … and here we are – nowhere anyone want to go. Last time I checked, China is keeping control of that allocation firmly in government hands, where it belongs.
There was a review of Nomi Prin’s latest book at NC yesterday – https://www.nakedcapitalism.com/2022/11/youre-living-in-a-world-wrought-by-central-banks-notice-anything-wrong.html
“It was around July 2020, when we were all locked down … when I realized that the Federal Reserve had … created about $5 trillion worth of money in a very short period of time. … money became available at such an immense level [that] the distortion between where money goes in the financial markets and where it doesn’t go in the real economy became permanent.”
As to Keynes’ ideas about capital allocation, Prin explains how our current practices have made that traditional relation between capital allocation and material productivity irrelevant.
“But now there is more money being thrown into the markets from an outside source. It’s not money from the actual profits of a company or its long-term strategy, or the productivity of workers, or the creation of long-term things. You end up getting an unmooring between what markets are theoretically there to do in a capitalist society and from a capital-raising standpoint. There’s this other source that comes in and kind of turbo-boosts and distorts all of those relationships.”
Joe
bruce wilder asked “meant by whom and forgotten by whom?”
“He seem” is a typo and is meant to be “We seem.”
I am critiquing our society for being decadent and incompetent, collective truths are breaking down. One of those collective truths is the nature and role of finance vis a vis capitalism’s methods of allocating resources to the means of production.
Willy
I worked on a process improvement team under an enthusiastic genius who spotted a way to automate a series of boring and dangerous jobs which nobody liked to do. That project’s end product result, costs and quality, were excellent.
I remember how much enthusiastic genius stood out from the rest of us on that team. We did these weekly teleconferences, the kind where you’d stare at a wall full of TV screens with roomfuls of other bored-looking guys staring back at you. Enthusiastic genius was the only guy who ever showed any kind of positive human emotion. Yay team. Well, maybe there was that one time where we wondered why Wichita’s screen was always blank and their leader dryly joked that since his division didn’t have the budget, they all had to be crammed inside a phone booth. And so we chuckled. But I digress…
After I’d left, some Russian salesmen convinced company MBAs that they could do these jobs in Russia for less. By pure coincidence I met a member of the Boeing team which had been tasked with fixing the many screwups which the Russians were shipping back. He described a costly offshoring disaster.
In hindsight, it seems obvious the Boeing MBAs were persuaded that the Russians, being Russians, were going to copy all the same American automated processes but do it for less. Maybe they had visions of the old Soviet fighter plane industry flying through their heads. But the reality was that the Russian salesmen had just bullshitted the MBAs about their abilities and probably overworked their crews to create these products manually, along with all the screwups.
Circling back to that enthusiastic genius, I’ll never forget the consolation phone call I made to him after he got surprise pink-slipped during an MBA-sponsored cost cutting exercise before his project’s completion. It was a bit like that scene in Caddyshack when the drunken Bishop proclaimed that “there is no God”. He did eventually get a Boeing job working for his college buddy, who’d taken the political insider track. I’m guessing he spent the rest of his days marking X’s on the wall until retirement. Had he still been leading our group he might’ve prevented that costly offshoring disaster, since he was likely the only non-brain damaged human left in that group.
I tell these stories hoping to inspire the younguns to not make these same mistakes.