Boeing CEO warns of possible industry bankruptcy
marketwatch.com
marketwatch.com
The stock buyback thing is just idiotic. It's just dividends by another name.
Boeing/Airbus are not responsible for the current crisis, unlike the banks in 2008.
Buyback is more tax efficient than dividends.
What would you have done,if you were Boing CEO?
If you're Microsoft or Apple or Google, the answer is "Hold hundreds of billions of dollars of cash" [1]
That article, from late 2019, feels such holdings are in need of explanation; today, they seem like common sense.
[1] https://www.cnbc.com/2019/11/07/microsoft-apple-and-alphabet...
Not only that. The current economic system is fundamentally flawed due to the fact that it is based on usury (aka interest). We have known for thousands of years that interest is evil, yet people still engage in it. Then we complain about wealth gaps and how people lower on the economic-ladder are slaves, completely bypassing the fact that interest plays a direct role in keeping the cycle going.
Oh, they were received with open arms; they were just delivered with 2 crashes that led to their grounding.
Both Boeing and Airbus received a lot of government funding to get started and grow and still do to this day.
What will happen most likely is that the US and France/EU will just bail them out since they're not only vital for jobs but for defense and national security as well as their execs having strong ties to politicians in their respective regions who can push for a bailout package.
If they went bankrupt, and there was less/no government funding, we'd see more innovation, I'd guess. There's still money to be made building planes, even if fewer.
I agree with your assessment though: they are national champions, they will get bailed out.
Just because in the current situation we can't imagine it being different doesn't mean there wouldn't be possibilities if it wasn't so government focused.
I think a much bigger risk is that fact that I doubt many people will confidently fly like they did before for the next 10 years. I think airline travel will dramatically decline.
Are they? How much regulation there is for cargo-carrying rockets vs passenger airplanes?
Are you sure? There's a big difference between building single-purpose, unmanned rockets and commercial jets that carry hundreds of people, fly for 20 hours a day, and last two decades. According to Wikipedia Falcon development 9 cost $300-390 million [0]. The 787 program cost $32 billion [1]. Even the A320 neo, which is a refresh of the original A320, cost $1.3 billion [2].
[0] https://en.wikipedia.org/wiki/Falcon_9_v1.0 [1] https://en.wikipedia.org/wiki/Boeing_787_Dreamliner#Market,_... [2] https://en.wikipedia.org/wiki/Airbus_A320neo_family
Quick browsing for airliner unit costs shows a B737 max starting from ~$100M which is more expensive than a Falcon 9.
> I think a much bigger risk is that fact that I doubt many people will confidently fly like they did before for the next 10 years. I think airline travel will dramatically decline.
This is the real problem, airline travel won't recover for many years.
I suspect we’d see the opposite: consolidation in the industry.
It corrects the price of the assets to match current market.
It transfers assets to more efficient owners.
Bankruptcy is not: a vaporization gun.
The assets remain in the physically existent universe, as do the employees and even the entire industry, even if it is diminished.
I wonder what could be done with interstate travel using another $25 billion that is being used to bail out airlines. High speed rail? Hyper loop? Gravity powered gliders? Then again, California has managed to spend nearly twice that on a not so high speed train that probably won't exist...
This comment represents, unfortunately, what's wrong with capitalism and, at the same time, what makes it work. Bankruptcy is used by companies to get rid of debt and refocus their business, which is good. In the case of Boeing, an eventual bankruptcy comes as a consequence of a decade of buybacks to fill investor targets and lousy engineering in the case of the 737 Max. But hey, with infinite FED money, Boeing is not going down that easily.
> This comment represents, unfortunately, what's wrong with capitalism and, at the same time, what makes it work. Bankruptcy is used by companies to get rid of debt and refocus their business, which is good. In the case of Boeing, an eventual bankruptcy comes as a consequence of a decade of buybacks to fill investor targets and lousy engineering in the case of the 737 Max. But hey, with infinite FED money, Boeing is not going down that easily.
The Federal Reserve system is anti-capitalistic because it removes choice and agency from the market, which are critical components of capitalism.
Bankruptcy is also used by creditors to take possession of the assets of bad borrowers, which typically is not to the benefit of the borrowers.
Financing issues rarely impact engineering decisions. If there is something outside of Boeing influencing this, the more likely culprit is regulatory capture effectively blocking innovators from entering the market.
I can completely agree with this if Boeing is nationalized. While it's not, if they receive FED money, they would just use it to keep operating, come back to profits in a few years and distribute dividends then. This is a capitalist behavior.
I wouldn't generalize the fact that financial issues can't impact engineering decisions because I've seen that happening in the past. In the case of the 737 Max is evident: they adapted the 737 with a new engine that was too big and because there was no space to put it, they placed it in an odd position and compensated with Software that was operating silently. They did this to avoid developing a new plane, which would cost them time and money.
> I can completely agree with this if Boeing is nationalized. While it's not, if they receive FED money, they would just use it to keep operating, come back to profits in a few years and distribute dividends then. This is a capitalist behavior.
> I wouldn't generalize the fact that financial issues can't impact engineering decisions because I've seen that happening in the past. In the case of the 737 Max is evident: they adapted the 737 with a new engine that was too big and because there was no space to put it, they placed it in an odd position and compensated with Software that was operating silently. They did this to avoid developing a new plane, which would cost them time and money.
Agreeing that the Federal Reserve system is anti-capitalistic but things under it are capitalistic is a nonsensical argument. You seem to be applying "capitalism" to anything you don't like. This is poor argumentation and makes for very poor discussion.
Every engineering project has some sort of budgetary constraints, no matter the source of the funding. Even under ideal conditions, poor engineering decisions have been made. Attempting to just blame everything on a singular cause that you happen to not like does not result the important critical thinking required to uncover and correct actual causes of actual problems.
You were the one bringing up there was some kind of connection between money and the engineering mistakes with the 737Max. If you read my critical thinking above, I'm just saying that capitalistic behaviors (stock buybacks to pursue investor targets) together with lousy engineering (proven in the case of the 737Max) are the actual cause of the problem. Now I clearly don't know enough about plane engineering but from what is known, the main reason for the issue was cost.
But the virus will not disappear tomorrow. It will be with us for at least a year, probably two. Other pathogens will follow. Passengers and airfreight will not return to 2019 volumes in the foreseeable future.
That means fewer flights, smaller planes, point-to-point instead of hub-and-spoke. Short hops will fall even more than long-haul as people trade flying for driving.
The airline industry is inherently mal-configured for this new world, and cannot be profitable with even 20% less volume.
So the airline industry cannot, and should not, survive in its present form. But Boeing and the dinosaur carriers can't manage the re-configuration on their own because they'll keep trying to re-invent the past.
We'll trade a few massive, lethargic, inefficient and customer-hostile megacorps for many more small, nimble, innovative, clever and customer-focused niche players.
Bankruptcy, liquidation, and reorganization of the underlying assets by new entrants is the only way.
Transferring even more billions of borrowed government money to the dinosaurs only delays the inevitable.
And costs tax money.
You still need to secure the land and build the track but instead of a cheap traditional track you need a low-pressure vessel. The costs and increased complexity are really not worth the shorter trip times.
Your comments continue to tell me you don't know any details about The Boring Company's efforts, where the boring machine they've designed so far - from having bought 3 different machines and did 3 test tunnels to study the machines, to then design their own boring machine - has apparently reached around a 15x speed improvement, essentially meaning a 15x cost reduction from the standard cost associated with digging tunnels.
Your attitude is akin to saying launching rockets into space can't get any cheaper, meanwhile Elon with SpaceX has proven that you can get the cost down from rocket launches from $60 million per launch down to $6 million per launch by having successfully creating re-usable rockets.
Re: the complexity of Hyperloop specifically needing a near-vacuum - Do you understand Elon has that expertise at his fingertips with SpaceX engineers? And that they've clearly proven they're competent and able at understanding and safely designing for physics?
Edit to add: also see my comment here for more insight - https://news.ycombinator.com/item?id=23179150
For example, try and figure out how many lines would be needed to connect all the major cities of America with high speed trains/hyperloops with useful travel times. Imagine New York to San Fran, now New York to Los Angeles, now NY to Dallas. Now how do I get from Dallas to San Fran? You can't afford to just make a different set of rails between every city, so they need to compromise with connections and detours all over the place, and with express long distance lines and stopping all station lines. It gets crazy complicated quickly.
Take a look at all the places that high speed rail works, and you'll note that they're all pretty linear lines. Japan's Shinkansen is pretty much a north to south trunk line with just a handful of high speed lines diverging away, and comparatively few stops along the trunk line. You can't do that in America.
I'm not sure that's correct..
https://en.wikipedia.org/wiki/High-speed_rail_in_France#/med...
https://en.wikipedia.org/wiki/High-speed_rail_in_China#/medi...
Simply through competitive factors they should be able to takeover, compete with, existing transit lines - initially the higher traffic lanes, however eventually costs of tunnelling will come down further, demand will go up as the value of the tunnels will go up.
In Hawthorn, California, the city already approved a tunnel to go from a main tunnel leading into the house of someone garage; https://arstechnica.com/cars/2018/09/boring-company-approved... - imagine the possibilities with that and the markets it disrupts because of the convenience then possible.
Or imagine having that tunnel system connecting to the top and/or bottom and/or middle of your street - so it's a short walk away, where a scheduled driverless pedestrian-centric vehicle comes to pick you up, or you get a package delivered to you that you pickup.
Elon suggested a cost of $1 per use of the tunnels. In LA traffic, how many people would pay $1 each way (or perhaps higher during peak for surge pricing they could implement if certain tunnels have excess demand; but then they can decide if they dig another parallel tunnel and earn even more profit) to save 3 minutes 15 seconds on their daily commute (~66% faster) - like this real-life demo comparison video shows on The Boring Company's landing page - https://www.boringcompany.com/?
I think people who are thinking the Loop and Hyperloop systems are going to fail are simply ignorant, unaware of where the product is already at, and/or they simply don't have a developed business-competition mind.
To the naysayers, it's akin to them saying pedestrians will never use a subway system - and with those systems initially it was private developers who made specific lines, only for cities to eventually buy out the individual owners so they could create a cohesive system for the citizens who's economies and people depended on.
Demand for the product is what will lead to these tunnelling systems becoming widespread - conveniently Elon needs the technology for his Mars project as well - and it will be investors who trust what they already see, and their own understanding and passion for the product, who invest funds to develop the technology further to build more tunnels and develop more revenue streams.
It is extremely practical and at times without alternative (e.g. long distance flights, think 12 hours). I am however not anywhere near the field, so I'm pretty sure I'm ignorant in regards to alternatives.
Do you happen to know any alternatives ? Or maybe some strategies, new fuels, or anything that can help with emissions in regards to airplanes ? I'd love to read more about that stuff.
It's a hard pill to swallow, and I think we're going to be seeing more of those situations popping up. We're very much used to "Progressing" our problems away and never compromising, making our lives better by making the problems disappear with technology. But we're starting to see some hard barriers in our planets ecology, and we're going to need to sacrifice instead. At least for now.
Plastic is a good example. Coke won't stop making plastic bottles because it's not what consumers want, but of course it's not what consumers want. Consumers, myself included, want the continued march of progress to make our lives better without compromise.
The COVID-19 crisis teaches us a lot about remote meetings and remote work, and will impose friction on air travel for a while yet, so hopefully this will become a culturally easier choice to make for business meetings.
Edit: Hmm... I guess not. Wow.
Could we be on the verge of losing the ability to fly? We would still have airplanes, and some parts of the world might retain the ability, but without Boeing, we could see a dramatic reduction in the amount of airplanes, flying, airports, and tourism.
[0] https://en.wikipedia.org/wiki/Late_Bronze_Age_collapse
Without Boeing other companies will emerge. There is no way in this day and age (globalization) tourism/traveling will cease to exist.
Once you have a drop in traffic, the remaining traffic could become more expensive to operate, further reducing demand, making air travel rare rather than everyday again.
It's only cheap now because of the number of people travelling it's a virtuous spiral up, but there is also a sister spiral you can travel down.
There are various startups like Boom who think a new generation of supersonics could be a profitable niche, but they were a long shot at best of times and much more so in these times. https://boomsupersonic.com/
The analogy with the Bronze Age is very neat. The two writing systems which ruled in the Mediterranean were Egyptian hieroglyphs and Sumerian/Babylonian cuneiform. Both were slow to use, difficult to spell, and non-phonetic. In contrast, the Phoenician-inspired scripts which popped up a few hundred years later were all phonetic, allowing people to more easily adopt them, and leading to Latin, Greek, and Hebrew.
I'm not saying that planes will vanish. I'm suggesting, rather, that there may be a dramatic reduction, on the order of 99% or more, in the amount of air travel, and that this reduction may last for over a generation. During that time, we may see entirely new, less centralized techniques for achieving air travel, which could not possibly have happened as long as Boeing and Airbus are still dominant.
[0] https://www.cnbc.com/2019/01/25/why-the-airbus-boeing-compan...
[1] https://uk.reuters.com/article/uk-health-coronavirus-airbus/...
[2] https://www.reuters.com/article/us-airbus-probe-idUSKBN1ZX2M...
[3] https://finance.yahoo.com/news/coronavirus-crisis-pushes-air...
Air travel around the Pacific Rim is down by about half a nine to 1 nine [0]. Worldwide, airlines are taking beatings of about half a nine [1], which isn't that much, one would think, but airlines famously have supposedly tight margins of about 1% [2][3], and so even a minor system shock is impactful.
Sure, 99% reduction, 2 nines, is a bold statement. I'm merely imagining what would happen if both Boeing and Airbus went under. Without their facilities and engineering knowledge, it could take decades for a competitor to ramp up. Airbus themselves took decades to ramp up against Boeing, and they were purposely assembled for that task [6].
Most Boeings in the air are a little dated in terms of design, which has led to scandals (read: "crashes and loss of life") in the past few years. Specifically, the 737s and 747s account for 77% what Boeing's got in the air [4]. Similar numbers for Airbus, with again 77% of those planes being the A320s [5]. That's a lot of planes that rely on the duopoly for not just continued production, but also maintenance; aircraft are continuously costly and require expertise and care.
[0] https://cdn.statcdn.com/Infographic/images/normal/21027.jpeg
[1] https://www.nationalgeographic.com/travel/2020/04/charts-sho... Apologies, but JS will be required to render the graphs. Ugh.
[2] https://www.economist.com/the-economist-explains/2014/02/23/...
[3] https://i.insider.com/4fdb8a20ecad04051f000016
[4] https://en.wikipedia.org/wiki/Boeing_Commercial_Airplanes#Ai...
[5] https://www.statista.com/statistics/263394/airbus-aircraft-i... More JS, sorry again.
That, but without any strings to get in the way of, I don't know, stock buybacks?
Boeing does want bailouts but for the airlines. The chances are basically none that the US allows Boeing to go away.
Airlines on the other hand go bankrupt all the time.
Think of the dark ages, or many of the populist revolutions of the 20th century (I personally am not for/against populism, but like other ideologies it holds many dangers when applied badly).
Boeing's biggest commercial customer, as I understand it, is Southwest, who owns about 5% of all Boeings in the air [0][1]. Thus, sure, Boeing doesn't need any one particular airline, but they certainly do need somebody to buy their planes, and each individual airline which cannot stay aloft is a potential lost customer.
Because planes are so expensive to manufacture, Boeing and Airbus typically take orders for aircraft in advance, presumably along with payment, in exchange for a hefty discount of over half off the advertised price [2]. Additionally, they take too many orders, expecting that they are overbooked on plane orders and some will be canceled [2]. This sort of accounting works well in times of trouble, as long as the system returns quickly to normal following the initial shock. For example, after 9/11, air traffic resumed after a week [3] and there was only about a 30% reduction in air travel, which lasted for about a year [4]. However, if there is a months-long depression in air traffic, then the reduction will be more severe; it's been about 45% to 90% reduced around the Pacific Rim [1] and could get worse.
Eventually, too many orders get cancelled, and production has to scale back, and once production starts diminishing, it's hard to regain capacity. The original article quotes the CEO as saying that it could be 3 years until we get back to prior levels of air travel; that is a long time for airlines to hold out, and a long time for Boeing and Airbus to keep getting orders.
[0] https://en.wikipedia.org/wiki/Southwest_Airlines_fleet#Curre...
[1] Read my cousin reply.
[2] https://en.wikipedia.org/wiki/Competition_between_Airbus_and...
[3] https://en.wikipedia.org/wiki/Closings_and_cancellations_fol...
[4] https://web.mit.edu/airlines/conferences/DC-2002_documents/0...
Oh, kind of like how the US outsourced mask production to China, and became so deindustrialized that they couldn't make their own when needed?
From the below article:
"The Post reports Mike Bowen, owner of the largest surgical face mask producer in the US — Prestige Ameritech in Texas — contacted top officials in the Department of Health and Human Services on January 22, the day after the first US coronavirus cases were identified.
His pitch: Provide the funds needed to dust off four dormant manufacturing lines, and his firm would produce 1.7 million N95 masks every week. According to Bowen, he’d been raising the alarm for years that the US was too dependent on foreign countries (where nearly 90 percent of masks used in the country come from) for production, and argued his manufacturing lines offered both a way around that, and to ensure the US would have the masks it needed.
Rick Bright — the former director of HHS’s Biomedical Advanced Research and Development Authority (who was ousted in April, and later filed a whistleblower complaint alleging he was demoted for fighting for science-based preparations “over political expediency”) — pushed top HHS officials to accept Bowen’s offer, to no avail. Prestige Ameritech later exported a million masks to China."
... "The federal government went on to spend more than $600 million on contracts including mask production. Honeywell and 3M were given contracts worth more than $170 million to produce protective gear. And a tactical training company with no history of producing medical equipment was given $55 million to make N95 masks for $5.50 each — a price around seven to nine times greater than other suppliers, including Bowen’s company. Prestige Ameritech was eventually given a $9.5 million contract in early April to produce N95 masks for 79 cents each.
Bowen’s manufacturing lines, which could be making more than 7 million masks every month, remain unused."
https://www.vox.com/covid-19-coronavirus-us-response-trump/2...
No, why? Aribus and Boeing make a lot of the big planes. But they are far from the only game in town for making planes at all.
Even fewer planes isn't much of a problem. There were much fewer planes in eg the 1950s than today. But no one thought that would mean humanity would forget how to make planes.
Also bankruptcy isn't the end of the world. In some sense, it just means that the creditors take over control of the company from the shareholders. All the factories and engineers are still there.
For example, airlines go bankrupt all the time.