Boeing’s Tough Challenges as Civilian Aircraft Maker – Marshall Auerback | Asia Times

— Marshall Auerback | Asia Times

The dismissal of Dennis Muilenburg as chief executive of Boeing might have looked like an early Christmas present to the employees and shareholders of Boeing, but the company’s disease has gone way past the point where any single corporate surgeon can save the patient. For those who bothered to look – and this evidently did not include the US Federal Aviation Administration – Boeing’s increasing degeneration has been evident for decades, even as the stock price continued to rise, as a consequence of quirky accounting practices that masked the company’s deteriorating cash flow position.

If the 737 Max 8 is killed off for good, it will create a huge existential risk for Boeing’s future as a viable civilian aviation manufacturer, as the company had projected revenues from its 737-related sales into its business plans for many years to come – it goes without saying that the Pentagon will keep the company afloat, with Boeing effectively operating as a military subdivision of the Department of Defense.         

The 737 Max 8 is not the first example whereby Boeing has violated the principal canon of aviation: NAMELY, TO MANUFACTURE A PLANE THAT FLIES AS SIMPLY AND SAFELY AS POSSIBLE. While this principle has been most egregiously flouted in the case of Boeing’s latest iteration of the “Next Generation” series of 737 planes, the Max 8, the 787 Dreamliner has also remained an ongoing headache for the company.

Over their economic lifespans, all successful commercial airliners do two things: They grow in size, first, by creating new models that carry more passengers. Second, they adopt new technologies that lower the cost per seat-mile.

One wonders if Boeing – hamstrung by its self-inflicted errors, notably the degradation of its historic flight engineering capabilities – will remain sufficiently robust to allow it to continue to capitalize, for example, on the growing all-electric market. The two are not strictly related, but clearly the longer the 737 problems remain, the more impaired becomes the capacity for Boeing to innovate in other areas and profit from this growing trend in “green aviation”.

In any event, there is ample evidence to suggest that the company will continue to lose global market share, notably to Airbus, largely because of decisions made early in the 737’s life. The Max 8 problems are largely the by-products of bad hardware design, NOT flawed computer software.

The plane sits too low to the ground to handle the growing size of engines or provide adequate takeoff and landing clearance when lengthened.

Instead of acknowledging the need to build a better airframe that would have addressed the structural flaws – THAT IS TO SAY, LONGER LANDING GEAR AND MORE UPWARD BEND IN THE WING – BOEING HAS RELIED ON A SOFTWARE FIX called the “Maneuvering Characteristics Augmentation System”, or MCAS for short.

The problems afflicting the Max 8 are not an issue for its competitor plane, the Airbus A320neo, where manual overrides by the pilot are built into the system, which in turn prevent the types of crashes that characterized the infamous Ethiopian Airlines Boeing 737 Max 8 flight.

Given the ongoing challenges associated with the 737 Max 8, the MCAS modifications ostensibly saved money for Boeing in the short term, BUT THAT REPRESENTED ANOTHER INSTANCE OF AN OVERLY FINANCIALIZED COMPANY BEING PENNY-WISE AND POUND-FOOLISH.

Despite the oft-cited “improvements” made to the 737 Max 8’s computer software, the plane still has not received its safety certification from any global aviation authority.

One can understand why Boeing is so keen to re-certify as soon as possible: As of the end of Q3 2019, the company had negative operating cash flow of US$2.4 billion. The company is currently burning cash at a rate of $1.5 billion to $2 billion a month, largely as a consequence of ongoing payments to suppliers, such as Spirit AeroSystems, the company that builds the 737 fuselages, lest the supply chain collapse. Barron’s also reported, “About 275 – 737 Max 8 planes have been built and parked. Inventories have consumed nearly $10 billion in cash in 2019.”

Boeing has continued to cover its cash-flow shortfall by issuing more corporate bonds, which explains the large rise in debt. But the failure to get the 737 Max back in the air means that the company can no longer credibly book revenues from anticipated further sales of the plane. In fact, if the plane is not re-certified by the spring of 2020, Boeing’s cash position could become perilous, as nearly all airlines will have the ability to cancel their orders and get their cash deposits back, which is up to 70% of the plane value prior to delivery. 

Cash-flow pressures are already mounting for Boeing: Ryanair has disclosed that it stopped putting deposits down last November, and is also looking for incremental price discounts on its existing Max orders. Other airlines are doing the same, as Boeing acknowledged on a recent investor conference call, reported by Barron’s. At the same time, United Airlines has recently placed a $7 billion order with Airbus to replace its aging fleet of Boeing 757s. While not directly related to the problems with the 737, the purchase must be viewed as an overall vote of no confidence from a company long regarded as one of Boeing’s most loyal customers.

Boeing’s new CEO, David Calhoun, is unlikely to solve these multifold problems. Having spent 26 years at General Electric, stripping aviation talent out and replacing real engineering with financial engineering, Calhoun eventually became a director at Boeing in 2009. In 2014, Calhoun joined the Blackstone Group, a private equity firm that, as Matt Stoller points out, “is a vector for financializing corporations” as well as being a company well versed in creative accounting shenanigans that enable corporate entities like Boeing to mask their extensive cash-flow problems.

During his tenure as a Boeing board member, Calhoun has been a party to a series of decisions whereby financial machinations of the company’s managerial class have taken precedence over safety culture. Despite many years of affiliation to the aviation industry, Calhoun himself is merely another financial “Master of the Universe”, representative of a caste that specializes in outsourcing and stripping out talent, all the while championing practices of the company; such as dressing up the balance sheet in a manner that is legal, but has distorted the underlying profits position.

IN OTHER WORDS, THE APPOINTMENT OF CALHOUN IS TANTAMOUNT TO PUTTING A BAND-AID ON A STAGE 4 CANCER TUMOR. 

Unfortunately, soon there might be nothing left for Boeing to outsource. At the end of December, Spirit AeroSystems indicated that it would “suspend production of 737 MAX fuselages on January 1”, according to a report from The Seattle Times.

So far, Boeing’s relationship with Wall Street, although fraying, remains intact. This has enabled the company to keep borrowing and also explains the decision of the board to continue making regular dividend payments, as a cut or suspension of such payouts would likely alert the markets as to the full magnitude of Boeing’s cash flow crisis, thereby curbing their ability to take out additional financing.

But as a viable civilian manufacturing concern, Boeing’s future remains tenuous. The appointment of David Calhoun as CEO likely represents a stopgap, although his financial engineering expertise will likely prove useful if and when the civilian aviation business is spun out from the military division, and taken it into bankruptcy or reorganization, after the legal asset-stripping has taken place. IN THAT REGARD, BOEING’S TRAJECTORY WILL REPRESENT THE PERFECT APOTHEOSIS OF ALL THAT HAS GONE WRONG WITH AMERICAN CAPITALISM FOR THE PAST HALF-CENTURY. 

At this point, no one can credibly promise anyone anything, whether we’re talking about Boeing, the FAA or the overall system itself. There is zero empathy in the system, and zero empathy translates into total entropy. Wall Street does not understand this because Wall Street does not understand how to quantify empathy and trust other than in the crude human instrument of goodwill.

Hence Boeing’s stock price will likely remain unaffected until disaster is staring even the most stone-hearted analyst in the face. Much like the flawed early-warning systems that failed to avert the tragic 737 Max accidents, at that point, it might well be too late to rescue Boeing.

This article was produced by Economy for All, a project of the Independent Media Institute, which provided it to Asia Times.

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Comments

  • Clyde Duncan  On January 12, 2020 at 12:44 am

    THE DAMAGE REPORT:

  • kamtanblog  On January 12, 2020 at 2:20 am

    Clyde
    Wow ! Wow WOW !
    Started reading but will continue doing so
    later.
    In my travels I fly EasyJet !
    They do not have any other aircrafts in their fleet. No BOING ! 😁
    All airbuses !
    BOING may soon file for bankruptcy !

    Will continue reading and comment/not comment further as a necessity.

    Thanks for article.

    Kamtan

  • Clyde Duncan  On January 12, 2020 at 5:55 pm

    The author wrote:

    “The problems afflicting the Max 8 are not an issue for its competitor plane, the Airbus A320neo, where manual overrides by the pilot are built into the system, which in turn prevent the types of crashes that characterized the infamous Ethiopian Airlines Boeing 737 Max 8 flight.”

    DO YOU REMEMBER THIS AIRSHOW WITH THE AIRBUS A320??

    Pilot VS Plane | Airbus A320 Crash During an Airshow | Air France Flight 296

    The initial design was for the computer to override the pilot – reducing pilot error:

    The Cause of the Crash

  • Clyde Duncan  On January 12, 2020 at 6:41 pm

    Kamptan wrote: “Started reading but will continue doing so later.”

    Kamptan: If you have time constraints – Try reading the bold lettering only ….

  • Trevor  On January 12, 2020 at 6:42 pm

    I think this plane crashed in Ethiopia and caused hundreds of deaths. I also believe that the plane which crashed on the CJIA tarmac was a Boeing.

  • Clyde Duncan  On January 13, 2020 at 5:30 pm

    THIS WAS POSTED IN GUYANESE ONLINE IN NOVEMBER 2018:

    With a new fleet of airplanes, Guyana’s national flag carrier – Caribbean Airlines – will be looking to improve its service. The airline announced that it has chosen to enhance and renew its single-aisle fleet with the Boeing 737 MAX 8.

    The carrier, which has long operated the Next-Generation 737, said that it will take delivery of 12 MAX airplanes in the coming years.

    Caribbean Airlines Chairman, S. Ronnie Mohammed stated, “In 2019, we will place even greater focus on enhancing regional connectivity with more options to make our region more easily and affordably accessible.

    Also, to ensure that our longer-term growth strategy remains on track, I am thrilled to announce that in THE FOURTH QUARTER OF 2019, we will begin taking delivery of our new fleet, the Boeing 737-MAX. In addition to opening new markets, these new aircraft will provide us significant advantages on operating cost, specifically fuel and maintenance.”

    ** I believe it may be in the airlines interest to inform the public – They changed their mind – If they did?

  • Clyde Duncan  On January 14, 2020 at 3:27 pm

    Boeing Reports Lowest Order Numbers in 30 years Following 737 Max Crashes

    Company reported 87 more cancellations than new purchases in 2019, after two crashes led to worldwide 737 grounding

    Edward Helmore – New York | The Guardian UK

    Boeing lost orders last year for the first time in three decades, as the 737 Max crisis impacted the company’s reputation and finances.

    BOEING REPORTED THAT IT HAD 87 MORE CANCELLATIONS THAN NEW PURCHASES IN 2019. The figures included the cancellation of three 787 Dreamliners in December. In the same month, Boeing failed to book any 737 Max orders as customers avoided the model after two fatal crashes that have led to a worldwide grounding.

    BOEING DELIVERED 380 COMMERCIAL AIRPLANES IN 2019, the lowest level since 2007, and FEWER THAN HALF THE 786 PLANES ITS MAIN RIVAL AIRBUS DELIVERED LAST YEAR, a record for the European jet maker.

    Boeing’s numbers are especially bleak compared with Airbus’s 768 orders for new planes for 2019. The European plane maker currently has a 10-year production backlog on orders, or 7,482 commercial planes, while Boeing finished the year with a backlog of 5,406.

    Boeing’s new chief executive, DAVID CALHOUN, said in an email to employees that returning the Max to service is his top priority. “We’ll get it done, and we’ll get it done right,” Calhoun wrote.

    But Calhoun, a Boeing employee since 2009, is already facing investor criticism over his potential bonus if the once bestselling 737 Max successfully returns to service. According to a regulatory filing, Calhoun will receive a $7-MILLION payout for the “FULL SAFE RETURN TO SERVICE” of the Max, IN ADDITION TO BASE SALARY OF $1.4-MILLION AND A GUARANTEED $2.5-MILLION CASH BONUS.

    THAT COMES AFTER BOEING REVEALED THAT ITS FORMER CHIEF EXECUTIVE DENNIS MUILENBURG WILL RECEIVE $62-MILLION IN ADDITIONAL COMPENSATION DESPITE PRESIDING OVER THE WORST CRISIS IN THE COMPANY’S HISTORY.

    THE SALES SLUMP COMES IN ANOTHER PUNISHING WEEK FOR BOEING.

    LAST WEEK, THE COMPANY RELEASED INTERNAL EMAILS THAT SHOWED EXECUTIVES MOCKING THE FEDERAL AVIATION ADMINISTRATION (FAA), ITS REGULATOR, AND JOKING THAT THE 737 MAX HAD BEEN “DESIGNED BY CLOWNS”.

    In the email messages one of Boeing’s technical pilots – employed to work with airlines and regulators on training – lambasted a Malaysian airline for asking for a flight simulator to train pilots. Boeing had argued costly simulators were unnecessary because the Max was so similar to the previous 737 model.

    “Now frigging [airline name redacted] may need a sim to fly the Max, and maybe because of their own stupidity,” the pilot wrote in 2017, before the fatal crash of Lion Air’s Max in October 2018. “I’m scrambling to figure out how to unscrew this now! idiots,” he added. BOEING HAS NOW DECIDED SIMULATORS ARE NECESSARY.

    The release came as regulators around the world are investigating the crash of a LION AIR 737 MAX and another operated by ETHIOPIAN AIRLINES THAT CLAIMED 346 LIVES.

    Before the crashes the 737 Max was the bestselling plane Boeing had ever built.

    It must now wait for the FAA to give its approval for the 737 Max to return to service before it can expect sales to pick up again.

    The FAA has not said when it expects to allow the Max to fly again, though many airlines are hoping the latest version of the 737 will be back in service this Spring.

    On Tuesday American Airlines said it was pulling the Boeing 737 Max from its schedules until early June.

    THE GROUNDING OF MAX HAS HAD A WIDER IMPACT ON THE US ECONOMY. BOEING IS THE US’S LARGEST EXPORT MANUFACTURER AND SOME 8,000 COMPANIES SUPPLY THE COMPANY WITH PARTS.

    LAST WEEK SPIRIT AEROSYSTEMS, BOEING’S LARGEST SUPPLIER, ANNOUNCED IT WAS LAYING OFF 20% OF ITS STAFF AS A RESULT OF THE GROUNDING.

    THE MOVE WILL AFFECT 2,800 WORKERS AT SPIRIT’S FACILITY IN WICHITA, KANSAS, AND THE COMPANY HAS WARNED THAT THERE MAY BE MORE LAYOFFS TO COME.

    Spirit supplies the fuselage, thrust reversers, engine pylons and wing components for the Max and the sales account for half of its revenues.

  • Ron Saywack  On January 14, 2020 at 4:49 pm

    Passenger safety is paramount:

    Thanks for sharing this invaluable aviation info, Clyde.

    It is clear that there is a fundamental design flaw in the 737 Max 8. It was precipitated by the unwise decision to affix the engines slightly forward than in previous models. 2 + 2 = 4. It cannot be 3. Boeing needs to smarten up.

    All these planes worldwide must therefore be sent to airplane graveyards before they become passenger graveyards. It would be a grave mistake to let them back in the sky. Caribbean Airlines should reconsider its plans for these ill-fated planes. In light of what we now know about the Max 8, I would not let my family get on board any of them. Would you?

    The Airbus a320 crash in 1988 involved pilot errors, among other things. It was also an unwise decision to let passengers get on board for the demo.

    Noneheless., it gives you a sense of real appreciation whenever you get on board an aircraft and return to terra firman safely; a testament to the engineering ingenuity of our species.

    Ron S.

  • Clyde Duncan  On January 14, 2020 at 10:39 pm

    Boeing Started a Trade Dispute with Canada, but Airbus and Alabama Ended Up Being the Winners

    Benjamin Zhang | Business Insider

    January 2019, a brand new $300 million Airbus jetliner assembly plant broke ground in Mobile, Alabama and it is the culmination of a trade dispute Boeing launched with Canada in 2017.

    THE DISPUTE INITIATED WITH A TRADE COMPLAINT FILED BY BOEING IN APRIL 2017 ALLEGING THAT CANADIAN GOVERNMENT SUBSIDIES WERE USED TO HARM ITS BUSINESS IN THE US.

    Here is how we got here:

    In 2004, Canada’s Bombardier, the maker of private jets and small regional airliners, decided it was time to make the jump into the big leagues. IT WAS TIME TO BUILD AN ADVANCED CARBON COMPOSITE JETLINER TO COMPETE AGAINST THE AIRBUS-BOEING DUOPOLY.

    MORE SPECIFICALLY, THE CANADIAN PLANE, DUBBED THE BOMBARDIER C SERIES, WOULD COMPETE AGAINST THE SMALLER VARIANTS OF THE CASH COW AIRBUS A320-FAMILY AND BOEING 737.

    For the next decade, the story around the Bombardier C Series program was one of cost overruns, developmental delays, and slow sales. Bombardier reported a loss of $4.9 billion during the third quarter of 2015 including a $4.4 billion charge largely associated with the C Series program.

    At the time of the announcement, Bombardier CEO Alain Bellemare admitted that his company was “overwhelmed” by the multiple development programs it had on its plate.

    A financially weakened Bombardier ended up taking a $1 billion bailout from the Quebec provincial government. In return, the provincial taxpayers took a 49.5% stake in the C Series.

    Even though the first C Series prototype had taken to the air in 2013 and was soon earning critical acclaim for its performance capabilities, Bombardier still struggled to find a major airline willing to buy in bulk. Especially a major US airline.

    Bombardier

    In early 2016, Bombardier and Boeing went head-to-head in a competition for orders from United Airlines. BOEING WON. United ordered 40 Boeing 737-700s in January of that year and an additional 25 in March.

    One industry analyst told Business Insider that BOEING GAVE UNITED A 70% DISCOUNT on the March order AS A MEANS TO SHUT OUT BOMBARDIER.

    BOMBARDIER’S FUTILITY WOULD FINALLY END IN APRIL 2016 WHEN IT LANDED THE SALE IT HAD LONG SOUGHT; AN ORDER FOR 75 C SERIES JETS FROM DELTA AIR LINES.

    IT IS THE DEAL CREDITED WITH SAVING THE C SERIES PROGRAM AND IT IS THE DEAL THAT SET BOEING ON THE WARPATH.

    Boeing’s Trade Dispute

    In April 2017, Boeing filed a complaint with the US Commerce Department and the US International Trade Commission ALLEGING THAT THE DELTA C SERIES ORDER WAS ONLY MADE POSSIBLE BY ABNORMALLY LOW PRICES SUPPORTED BY CANADIAN GOVERNMENT SUBSIDIES.

    The US International Trade Commission agreed and in September of that year recommended a 219.63% tariff. A week later, the Commerce Department added another 79.82% tariff.

    IN TOTAL, BOMBARDIER AND DELTA FACED A 299.45% TARIFF ON ANY CANADIAN-BUILT C SERIES PLANE EXPORTED TO THE US.

    Bombardier responded in a statement, calling the ruling “DIVORCED FROM REALITY AND ABSURD”.

    The Montreal-based Bombardier manufacturer also hit out at Boeing, accusing it of manipulating US trade laws to stifle competition.

    Bombardier and Delta both argued that Boeing’s business couldn’t have been hurt by the deal simply BECAUSE BOEING DID NOT ACTUALLY HAVE A PRODUCT IN ITS LINEUP SIMILAR IN CAPACITY TO THE C SERIES.

    “BOEING HAS NO AMERICAN-MADE PRODUCT TO OFFER BECAUSE IT CANCELED PRODUCTION OF ITS ONLY AIRCRAFT IN THIS SIZE RANGE — THE 717 — MORE THAN 10 YEARS AGO,” Delta said in a statement at the time.

    According to Delta Airline, Boeing’s only proposed alternative to the CS100 was to offer it a batch of second-hand Brazilian Embraer E190 regional jets.

    FACING THE POSSIBILITY OF LOSING THE MOST IMPORTANT ORDER IN THE C SERIES PROGRAM’S HISTORY, BOMBARDIER TURNED TO BOEING’S GREATEST FOE, AIRBUS.

    Less than one month after the tariff was announced, Bombardier handed 50.01% of its prized airliner program to Airbus with zero upfront cash investment coming from the European aviation giant.

    As part of the deal, Airbus announced that the C Series would also be produced at its assembly plant in Mobile, Alabama.

    Fortunately for Bombardier, the US International Trade Commission struck down the proposed tariff in January 2018, ENDING THE DISPUTE.

    The Alabama Factory

    BY THE SUMMER OF 2018, THE BOMBARDIER C SERIES WAS NO MORE.

    AIRBUS rebranded it the Airbus A220 and folded the product into the Airbus lineup.

    While many saw the proposal to build the Canadian jets in Alabama as a ploy to sway trade regulators. AIRBUS, AS IT TURNS OUT, WAS DEAD SERIOUS.

    Fast forward to January 2019 as the CEO of Airbus and Bombardier along with the Governor Ivey of Alabama gathered on a sunny Wednesday to break ground for the A220 final assembly line in Mobile.

    The $300 million-facility will assemble aircraft destined for the A220’s North American customers such as Delta, and JetBlue. The first delivery from the Mobile factory is expected to be in 2020.

    It is also the latest chapter in the long multinational saga that is the Canadian Bombardier C Series.

    Stay tuned for more.

  • Clyde Duncan  On January 14, 2020 at 10:46 pm

    Brother Peter wrote:

    LOOK: Boeing did NOT even have an aircraft the size and capability to compete with nor replace the Bombardier C SERIES – they cancelled production of the Boeing 717 years ago.

    Rather than build an aircraft, Boeing chose to manipulate US trade laws to stifle competition.

    After what Boeing did to Bombardier’s C SERIES I won’t be shedding any tears.

  • Clyde Duncan  On January 29, 2020 at 1:19 pm

    Well, Bombardier C SERIES – christened Airbus A 220 is in business ….

    Check it out:

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