In November of 2011, a young President Obama oversaw and gloated over Boeing signing a nearly $38 billion deal with Indonesia's Lion Air, Boeing's most significant order to date[1]. President Obama would leverage this historical sale as a success of his diplomacy in Southeast Asia. He estimated this order would create 100,000 jobs in the US, believing this would impress his voters. Almost 7 years later, one of those planes crashed, killing 189 people. Boeing claimed its plane was in compliance and was a pilot's error. Five months later, an Ethiopia Airlines Boeing plane crashed and killed 157 people.
These 2 accidents were avoidable. Boeing hid significant design changes for its 737 Max, reducing airline training costs and making the plane more appealing to airlines. The airline pilots had no understanding of the changes and no training on the critical new safety feature.
In 2003, Boeing advocated to Congress for less oversight, and that naïve parent appeased their kids by passing a regulation that let Boeing self-certify itself. One of Boeing's justifications to Congress was that an airplane manufacturer would never put a dangerous plane on the market; it would be bad for business[2]. The US Government gave Boeing the power to self-certify its design changes and was allowed to put unsafe planes into the air[3].
US federal and local governments have been giving Boeing what it wants for a century in the name of economic development, security, and sometimes bad ethics. These incentives have continued to lead to destructive behavior among Boeing executives, costing people's lives and America's once commanding lead in Aviation.
Bill Boeing founded a company with a strong engineering culture.
Over the last 4 years, I've been conducting research for a book that compares the economies of Seattle and Detroit. I've taken a deep look at Boeing and the aviation industry, comparing it to the auto sector with Ford and GM. Bill Boeing not only had the vision to create an aviation enterprise but took the incredible financial risk to see his vision through.
When Boeing started, flying was unsafe and finding a sustainable market was challenging. Bill wanted his brilliant young engineers to leverage his timber holdings and design furniture to help cover costs. One of those engineers, Claire Egtved, challenged Bill Boeing not to back away from aviation and to invest in R&D. Bill listened, agreed with Claire and invested in Boeing to build the safest and best planes. This made Bill unique; other entrepreneurs, like Henry Ford, would fire any engineer who would challenge him at the time[4].
The market problem would be solved soon with the U.S. government getting involved. One of the first markets the US government opened to aviation companies was airmail, allowing Boeing to compete for Airmail Routes. Revenue from Airmail Routes would help start the commercial aviation industry in the U.S. During the late 1920's Boeing and other aviation companies vertically integrated manufacturing and airlines to take advantage of this.
Timeline of Government Bad Parenting
1930 – Spoils Conference to consolidate aviation companies
1987 – The state of Washington approves legislature to prevent a hostile take over of Boeing
1997- U.S. Govt approval of Boeing – McDonnell Douglas Merger
2001 – the City of Chicago provides $60 Million incentives for Boeing to move HQ there, only to have it move again to DC 20 years later.
2003 – Congress allows Boeing to self-certify itself.
2013 – The state of Washington provides $8.7 Billion in tax breaks to Boeing, only to see jobs leave the state.
The unstable relationship between government and aviation.
In 1930 the lousy parenting would start under the Hoover administration when the Post-Master General wanted to help accelerate the growth of the aviation industry. The Post-Master General played industrial policy and would force smaller aviation companies to be bought out by larger ones like Boeing using large airmail contracts as the financial incentive. When FDR and Democrats took over, they heard many smaller firms were unhappy with the forced consolidation. The Democrats would force aviation companies to break up their airline business from manufacturing. Boeing, United Airlines, and Pratt Whitney would come out of this breakup. Bill Boeing was disgusted by the heavy-handed parenting of the US government and would leave his company. He left the company in the hands of extraordinary leaders and engineers that he empowered. Claire would soon take over the company and ensure it would continue to invest in R&D for the safety and quality of its planes.
The importance of air power would emerge during WWII and help Boeing demonstrate its ability to design, engineer, and build the best airplanes. Boeing would be part of FDR's Arsenal of Democracy that demonstrated the power of American innovation. Their engineers would be working directly with military leaders, getting direct feedback to design some of the best bombers in the war. Boeing designed two critical planes, the flying fortress and the super fortress, which dropped the atomic bombs. After the war, Boeing would leverage its learnings to build its civil aviation business.
The Cold War with the Soviet Union would be the most lucrative war for Boeing since it focused so much on researching, designing, and developing new weapon systems. Boeing was additionally helped by Senator Henry Jackson of Washington, a heavy promoter of high military spending to defeat the Soviet Union. Boeing, in return, would support Henry with campaign endorsements. The Senator's advocacy for Boeing was so strong some would accuse Jackson of being the Senator from Boeing.
Boeing's merger with McDonnell Douglas created a company culture focused on politics.
During the 1950s and 1960's Boeing helped ensure commercial travel would be more mainstream. The planes they created helped airlines increase the number of consumers who could fly at an affordable cost. A great example was in the 1960s when Boeing would financially leverage the whole company to build the 747 jumbo jets in 16 months. It happened so fast that they finished the first planes before finishing the most extensive manufacturing plan in the world. The 747 showed Boeing's engineering, management, and manufacturing capabilities. Launching and delivering the 747 in record time was a proud moment for Boeing and its highly skilled workforce.
In the 1990's Boeing, still the most successful and prestigious airplane manufacturer was infused with Bill Boeing's engineering culture. Boeing dominated commercial aircraft with 60% of the new airplane market, and its defense business was thriving. In 1997, Boeing would change the direction of the American aviation industry with a move to focus on financial returns. Boeing would merge with McDonnell Douglas, which had failed in commercial aviation but was a strong defense sector. The move would give the new Boeing company more political clout nationally and locally. Although the merger was terrible since it limited competition for airlines and the military, the Clinton Administration approved the merger[5].
The McDonnell Douglas Merger would kill the deep engineering culture in Boeing. McDonnell Douglas's management would take many leadership positions in Boeing, even though Boeing was the stronger managed company. The culture of the new Boeing would change to a more financial focus from an engineering one. Boeing's new management saw it could use its size for political clout to drive strategy more than its engineering brains.
Local government fight over jobs
One of Boeing's first moves was to separate engineering from corporate strategy decisions, moving their corporate HQ from Seattle to Chicago. Chicago gave Boeing $60 Million in incentives to move their HQ to Windy City. The state of Washington worried that it would lose its most significant private employer and provided Boeing with the most significant state subsidy in US history – a whopping $8.7 billion - as an incentive to keep engineering and manufacturing in metro Seattle. Even though the incentive did not have the promised economic effect, and the company let go of 12,655 jobs in the state, every state where Boeing has a plant is now paying subsidies so that Boeing will stay. Boeing is one of the country's biggest recipients of state tax dollars.
Where is the citizen's ROI?
And what returns have the taxpayer has gotten from their subsidizing Boeing: scandals. In the early 2000's Boeing hired an Air Force procurement officer, and her daughter, the company would have to pay one of the most significant fines in military history, and the CEO was forced to resign. Another scandal would occur when 2 Boeing employees were caught stealing records from one of their competitors, and Boeing paid $615 million in fines.
Airbus had half of Boeing's market share when the merger occurred and has overtaken Boeing as the most prominent commercial airplane manufacturer for the last 3 years. Several of Boeing's biggest commercial customers believe the company has lost its way and are worried about Boeing's future commitments. At the same time, NASA and US defense officials are worried about the future of one of its essential contractors, with no suitable alternative available. I am confident Bill Boeing would be ashamed to see his company becoming a spoiled child to government regulators, procurement officers, and local economic development officials while losing its competitive edge.
And what is Boeing's strategy to put itself on the more ethical path to build trust with its customers through better and safer planes? The solution would seem obvious for Boeing to return to its engineering roots in Seattle. Boeing is doubling down on becoming a political player and moving its headquarters from Chicago to Washington DC to get closer to its overprotected parents.
The American federal and state government has to take some of the blame for creating this spoiled company. Both levels of government should stop providing special tax breaks and take responsibility for regulating the company as they once did. The aviation market needs more competition, and the government needs to encourage new players in aviation and defense; one way is by opening up government procurement and financing to new players. These decisive actions will send Boeing and other spoiled corporations a message to stop getting closer to the politicians and focus on their customers, employees, and community.
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Great Books on Boeing to read
More sources
https://norberthaupt.com/2012/04/29/boeing-vs-airbus-education-in-the-united-states/
[1] https://www.cnn.com/2011/11/18/business/boeing-lion-air-indonesia-analysis/index.html [2] https://www.politico.com/story/2019/03/21/congress-faa-boeing-oversight-1287902 [3] https://www.irishexaminer.com/news/spotlight/arid-40772532.html [4] An excellent reference for Henry Ford and the Ford Motor Company is Wheels of the World https://www.goodreads.com/book/show/838460.Wheels_for_the_World [5] https://www.yahoo.com/video/1997-merger-paved-way-boeing-090042193.html
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