The "funny" thing to me is that I'm old enough to remember when the merger occurred that people were predicting exactly what came to pass. It just took 25 years to finally happen.
"Quality inertia" is one thing which allows for giant amounts of damage to be done long before the wheels visibly come off, as deviance gets normalised (and even mandated in cases such as Boeing) and the company eats its reserve of quality and goodwill, it starts going off-track in small ways before it falls off a cliff.
It took closer to 20 years than 25 for the wheels to come off of Boeing. Lion Air 610 crashed on October 29, 2018, the MDD merger was on August 1, 1997.
And that crash was the first major externally visible symptom[0], the decisions which led to it happened years earlier (2014-2015).
[0] unless you count the dreamliner's joke of a rollout, which probably should have been the warning shot that things were getting unwell
I work in AI, where it's always about the learning signal, and how much that is delayed.
Humans (boards) really also suck at learning if the signal (crashes) is delayed (due to quality momentum)
This is where I started my career.
I’m certainly seeing a few troubling issues brewing but don’t see as many people as myself taking them as serious warning signs.
But when the collapse happens it’s rapid because the entire foundation has rotted away.
It keeps happening because that’s what the system rewards, short sightedness, and is also why founder led companies have more success, because they are able to execute in years not quarters.
My coworker loves the Boeing legacy, and in her staunch advocacy, she showed me this.
So in addition to pushing out whatever sorts of financial results that Wall Street wanted, Boeing's perhaps questionable approach to quality was not registering with its financial overlords. This happened in spite of the Al-Jazeera investigative piece of 2014, a $2.5 billion penalty paid in 2021 in connection with the 787 crashes, etc. Not to mention steady coverage of problems in the Seattle Times, Wall Street Journal, etc.
Boeing's stock is still above $100 now, which suggests that it's got a strong enough monopoly/duopoly position that investors do not regard quality issues as being all that detrimental to the "investment thesis."
Brrr!
Basically, many of these companies took decades to reach these positions where they're trusted. A bunch of managers rightfully figured out this was an asset that could be easily traded away for increased profits and they'd be gone by the time anyone noticed the devastation they left behind.
(If you built the brand yourself and did this all intentionally, I think it could also simply be called "the long con".)
The real problem here is the US's dominant business culture, which tends to value short-term cash extraction over long-term value creation. There are a lot of practical incentives for that, but the culture problem itself will have a lot of inertia, so I think we're going to have to look for a generational change.
Custodians get paid on the basis of inmediate performance.
Thats the broken link.
Custodians are thus nominating board members that are incentivized by short term decision making. The nomination is based on relationships and based on trust.
And then you get in trouble.
If board members were elected as a sort of election by ultimate stockholders (which include actual employees, in fact) you would see a different board. Therefore different CEO.
It is extraordinarily hard to perfectly align the long term interests of shareholders and employees. It requires a level of oversight that most boards can't manage.
1. https://www.investopedia.com/terms/p/principal-agent-problem...
https://en.wikipedia.org/wiki/South_Africa
It's been slowly cannibalized and is barely running on Inertia left by the previous government. Took almost the same as Boeing, about 25years. We barely have electricity, and now we're unable to supply clean drinking water to vast amounts of the country, including the capital.
Personally, I think at the core what started it, is the movement away from meritocracy. Other "things" took priority, and everyone on the ground was left trying to figure out how to not let the whole thing collapse whilst still servicing the new priorities given to them.
To me the big question is, why did it take 25 years for this to become common knowledge? Why is our system of evaluating public corporations so messed up that a public company, and one with huge government contracts to boot, could get away with this for that long?
If your answer is that not just Boeing, but our whole system is in fact that corrupt...well, that's not a very comforting answer, is it?
There's way less pride from work: most people don't judge themselves too much on coworkers opinions since jobs are more changing, and it's unlikely for you to develop lifetime friendships with people who remain on your team.
Large corporations have too many regulations and HR policies to meaningfully pay based on performance, so there's little monetary incentive to be a strong performer.
You rarely get to see the product you've built get used in a meaningful way where someone would say something about it. It's likely that only one or two disinterested people quality check your work, and in this case you're either within spec (expected), "close enough to pass" (which wasn't getting reported), or failing miserably. The QA people hate getting the last one, but there's so much apathy these days from what I've seen because everyone just wants to be somewhere else doing something else.
So basically they've evolved to take away any dopamine one can get from pushing for quality from anyone but the most intrinsically motivated workers. They got rid of those people systemically and purposefully, and made a lot of money doing it.
Current brokenthink of the management class is that their job is to wage war on their own workforce and labour rights. In the process destroying human capital. This isn't just my conclusion based on the fact that FANG was fined for having anti-poaching agreement - country-wide, corporate spending on workforce training and upskilling has been falling for the past 20 years.
https://en.m.wikipedia.org/wiki/High-Tech_Employee_Antitrust...
When it's not you, it's just training data on the "wrong thing to do", and it's usually described as "being disagreeable" which accelerates the collapse - this seems perfectly reasonable at the time, they were overly difficult and an outlier.
Without explicit intent or some sudden accident, there's nothing to point at, especially in such a simplistic "what corrupt corporate or government official ignored this? Obviously someone reported it" way
I disagree. As the article shows, there were plenty of technically competent people who did point at specific things. But management did not listen to them, and indeed actively suppressed them and drove them out. And since the FAA had outsourced all of its "independent" inspection responsibility to Boeing, there was no effective third party that the technically competent people could go to to raise a red flag.
So you don’t need a Boeing sized company to check up on Boeing.
The problem isn't that the system is corrupt, it's that you're expecting a third party to both be close enough to be intimately familiar with all the details of the airplanes and spacecraft and yet separated enough from the company they're monitoring to not have conflicts of interest.
Whenever anyone points this out, they get labeled as cynics who hate capitalism and industry, and their complaints are swept under the rug -- after all, the company hasn't collapsed yet, so the worries must be unfounded!
This is exactly why strong government regulations and oversight is necessary. Strictly profit driven companies don't care about externalities like pollution or human lives. Literally, they only care about making one number go up, everything else (including the long term value of the number) means nothing at all.
Engineers can sometimes be indispensable enough to finagle power from alliances with capital. We don’t win popularity contests.
Then why do companies' value go up long term? I own many stocks that have increased 10-fold in value over the last 10 years.
Last year, I bought GE Monogram kitchen appliances and was pleased that they work so well, until I found that it is a Chinese firm that has bought the use of GE's name along with their operations. Maybe that is why the appliances work well, and Chinese century is already on its way
Thanks, McKinsey!
A free market requires the consumer to be fully informed and rational, I just don't see that being possible in this environment.
The work is building a database of filing locations and feeds (eg: public document feeds of each and every stock exchange, corporate filing register, etc) and builder parses to extract new names, boards of directors, name changes, major stock holdings, etc.
It takes some doing (*) - but with LLM's and advances in open software it gets easier every day.
( * Myself and a small team did this for the global mineral sector some years (15+) ago )
https://www.businessinsider.com/10-companies-control-the-foo...
That is to say, this is basically what our "system of evaluating public corporations" rewards, and it's been that way for quite some time. We're just paying more attention here because lots of us fly and airline crashes capture the attention nicely. When Facebook enshittifies to juice revenues we all just kind of put up with it, but we're not so chill about a window blowing out at 15,000 feet.
Then why did markets favor companies that literally made no profits for years, Amazon and Uber being examples?
Amazon is particularly notable for how long and how energetically they resisted investor pushes to take short-term gains. They were famous for it, or perhaps notorious. So although it's a counterexample to my point, it's also great proof of it.
Opinions differ on Uber, but personally I think of it (and WeWork) as pump and dumps. After Facebook and Google ended up with quasi-monopolies, investors were hungry for another "to the moon" technology stock. I should say that was true of both VCs and retail investors. The VCs saw an opportunity to make things that looked vaguely Google-shaped, which they did, trying to sell them off to the general public before anybody caught on. They succeeded with Uber and failed with WeWork. But in both cases, it's still VCs favoring short-term cash extraction over long-term value creation.
Would you buy stock in a company that does this? Why do you think others would?
I used to write code for financial traders. I promise you that there are a lot of people who do not give half a shit what a company's up to as long as they can buy it for $100 and sell it later for $101. And based on infinite news reports, we can all see there are plenty of CEOs who will do pretty much anything that will boost the stock price in the short term so that they get to keep their jobs longer.
I'm sure there are. But you gotta fool the investors to make this work. The presumption that investors are stupid doesn't sound that plausible.
And no investor has to be stupid for this to work. You just need some investors who are smarter, better informed, better prepared, or more experienced than others. And that's no presumption at all. If you talk to experienced people in the industry, they know that their living comes out of the pockets of other people's pockets. Literal billions of dollars are invested every year in being the winner in zero-sum games in finance.
That said, plenty of investors are stupid and/or naive enough. Boeing's a fine example here. As it WeWork. Or DJT. Or literally any pump and dump or Ponzi scheme. Or nearly all of crypto.
If you're really struggling to understand this, I suggest Dan Davies' "Lying for Money". Because parasitical actors assuming that investors are stupid enough is a huge, multi-century activity.
How is one going to keep that secret long term?
And civil aviation in general scores top marks in all those fields. It's a duopoly with an insane barrier to entry both technical, legal and financial with very long and complex vendor lock-in.
Money?
Oh we could go on and on, for pages and pages. This story's not anything new.
I think a lot of people in the industry have just been waiting for the thud, but everyone underestimated just how good A&P mechanics are[1], and how tight aircrew is. As we approach the days when aircrew have to punch a de-ice button every five minutes, we're hitting the limits of those staff.
Something to think about: name a commercially successful Boeing-designed product from the 21st century. Something that can legitimately be called "Successful", and "Boeing"
[1] Who are not required in the Boeing fab - oh no - they are far too expensive. But wait, you might ask . . what credentials are required in the plant? Heh heh heh heh heh . . . oh that is a fun question.
It was in 2007 (on July 8th, a date obviously picked for the memes). Maiden flight was supposed to be two months or so away with introduction in 2008.
Maiden flight was on December 15, 2009. Commercial service started October 2011.
> name a commercially successful Boeing-designed product from the 21st century
The MAX was commercially successful before it started falling out the sky. Orders even picked back up after the dip and cancellations from the MCAS crisis.
It's not like customers have much of a choice if they need a new frame, there are 7000 outstanding orders for the A320neo family and in 2023 Airbus built 45 a month, with plans to eventually reach 75 a month (and stabilise there) circa 2026.
I should have been a little more precise. I mean a wholly Boeing designed product, from the 21st century. The MAX is still a 737 in its heart, and that design goes back a ways.
Boeing is still able to sell planes to customers, they still have a lot of orders in their backlog. This would only change if their are mass cancellations by their customers.
There is a massive demand for planes right now, airlines rather would own a "good enough" plane from Bowling than no plane at all.
The problem isn't the lack of commercial success, the problem is that Boeing is commercially successful and that there is absolutely no punishment from the market or their customers, because everyone knows that they will continue to make and sell planes.
And standing up a competitor is not really an option.
This is the part that bothers me. Why isn't it an option?
Standing up a new orbital rocket company was not really an option in 2000.
If Boeing can deliver 400 aircraft a year, why can't a startup deliver 6 in the next six years. I don't mean 6/year. I mean take 6 years to build your first 6. Or maybe it takes 12 years to deliver the first 6.
Then aim to deliver one per month for the next two years. Get FedEx and UPS and Amazon to fund you for the next 15 years. By then you could have two dozen aircraft flying real miles, building up experience and trust. Then you ramp to up to 25 aircraft per year for the next two years.
Sure, this means that after 20 years you still haven't replaced Boeing.
But Tesla didn't have to replace GM to revolutionize the industry.
When you become a real threat to take away 50 orders per year you cause visible activity among your competition. Just ask Bombardier.
(I wish I hadn't used Elon as an example twice in the same post, but it is what it is. Like him or hate him, his history is relevant when you talk about what is possible in giant established industries.)
Because a few years ago Bombardier did just that, and US government imposed a 300% tax on their planes. [1] And then a month later complained about Chinese protectionism or some such.
1 - https://theweek.com/trade/88867/us-imposes-300-import-tariff...
Boom is probably the closest thing to what is suggested but many still doubt they will make it to production. That’s minimal investment though and mostly around options on orders, so they still need massive funding to get there. Rolls Royce and others have said it’s not viable to design an engine for them so now they have to design the airframe and the engine.
Bombardier is an example of why new entrants should be concerned. As soon as you become a close threat, you don’t really trigger competition you trigger massive protectionism which forces them to sell the design to airbus, further consolidating the market
I think the incumbents would have to be broken up to seed any new competition that is remotely viable. The Boeing story has some way to go yet though, who knows
Your example of engines is an excellent point. Repeat that story 100 times to begin to understand the enormous difficulty. Which is to say, it won't be easy. I hope I didn't communicate that I thought it would be easy.
The story of Bombardier is maddening because it demonstrates that if you achieve unbelievably great things technically, you can still be assassinated by a million other attacks. The non-technical parts are what really seem to make this all a non-starter. But victory belongs to the bold.
And wouldn't it be a worthwhile ride to spend the next 20 years building incredibly cool stuff that eventually fails for whatever reason? Sign me up.
tl;dr The main obstacles are supply chain inefficiencies and that no one buys planes that aren't cost-effective.
[0] Japan's Commercial Jet Failure https://www.youtube.com/watch?v=XkmtrsE9Jfg
I still say, sign me up.
As long as we're playing with somebody else's money it would be amazing to try and try again.
Airbus is the only company in the world which has actually managed to get off the ground in that market. And only because they were essentially a state run business which were subsidized to the extreme, until they actually managed to get into the market.
COMAC in China is trying to do the same, infinite subsidies in the hope of competing.
>If Boeing can deliver 400 aircraft a year, why can't a startup deliver 6 in the next six years. I don't mean 6/year. I mean take 6 years to build your first 6. Or maybe it takes 12 years to deliver the first 6.
It is not like they aren't trying, but it is extremely hard. You absolutely need massive amounts of funding and an investor which basically does not care how big of a money pit your company is.
One major reason for this is that modern airliners aren't that much of an engineer problem, but they are a gigantic management and integration problem. Typical start up approaches do not work.
First, Boeing never needs to take an external audit - they wrote the thing - but their suppliers need to cross every T and dot every I or else they owe Boeing money. In the worst case, a supplier can end up handing over product and STILL owing money. But Boeing - and especially BCA - they have never, and will never, undergo an actual AS9100 audit.
Second, since the standards are existing Boeing process, that represents a pretty much undefined cost for any market entrant. And that cost can be cranked arbitrarily if/when Boeing feels threatened, by amending the specs themselves - as they tried to do to SpaceX in 2010. That's probably a story for later, but it's pretty disgusting, although not as disgusting as what happened to the C-Series. OK, none of those are as disgusting as a million other things, but you get the point.
[1] And, to some extent, the FAA itself, but that's a whole other subject.
You might consider that Boeing's stock is down by half.
I've been involved (at the worker bee level) in multiple mergers and in every case where they attempted to merge systems it easily took 5-10X the estimated time, cost and resources.
The most successful mergers were the ones where they either left the companies separate (minimizing the ability to reduce costs) or the ones where they just threw away one of the company's systems, got rid of most of their employees, most of their products, and just acquired their customers.
Compare X to media. Since the bridge collapse in the Baltimore I have read interesting analysis on X and reddit, not the best medium, but yet did not come across a single decent article about it in the media.
Tesla accepts that there will be some accidents at the cost of progress.
SpaceX does not. (Or specifically lines up launches so that accidents have negligible consequences)
If Xitter returns 404s for 5 minutes, it's not the end of the world. Its users will come back after going to the bathroom. If Xitter spews garbage "news" stories, it doesn't really matter: its users will stick around anyway, and the people who think the stuff on Xitter is garbage are already gone anyway, or not paying attention to those channels anyway.
You could even weight the index ratios by how self-cannibalizing you believe each company will be.
Requires a broker that does fractional shares or a lot of money, though.
Shorting a stock for that long would be a recipe for disaster, at some point it's going to go up and you're going to lose it all. Remember when you buy long your positive upside is infinite and your downside limited to 100%, when you short it's the opposite.
As they say, you’ve gotta be careful. The market can stay crazy longer than you can stay solvent.
This is the Systems Thinking concept of systems delay, the time lapse between cause and effect, of an action and its downstream effects. Someone applying this cognitive skill, when informed of material changes like that fact that Boeing usurped some of the FAA's oversight, merged with with MD with its colorful history, etc., is bound to come to think of the effects of such changes and when their effects may start manifesting downstream, especially externally. In the case of Boeing, that means the safety of their aircraft.
When it comes to orgs that make essential contributions to society such as in commercial passenger aviation, I strongly prefer thorough and effective oversight by a competent and impartial body of that org's inner workings and output. Boeing had earlier established a strong reputation for safety and engineering competence. I have no problem with profits; that is what motivates capitalists in the system we have today, but I do have a problem with risking the lives and welfare of the uninformed public. With recent events, we learned the situation changed to foxes guarding the hen house.
Trust but verify indeed. That Boeing was able to so rampantly cut quality in the pursuit of revenues under the cloak of their sterling reputation seems in part to be a condemnation of greater society.
That is what oversight is supposed to be for, the delegation of trust so that we need not overwhelm ourselves in general life.