“We’re not letting Boeing go out of business.” – Donald Trump, President USA

Something Stinks

On Tuesday, in anticipation of several trillion dollars of Congressional pork, the Dow Jones Industrial Average (DJI) rallied 11.37 percent. This marked its best day since 1933.  Some Dow 30 stocks did much better.

For example, Chevron (CVX) was the top performer; closing up 22.74 percent. American Express (AXP), which increased 21.88 percent, was a close second. But do you know what company came in third?

None other than the posterchild for corporate financialization and cronyism: Boeing. The company closed up 20.89 percent.

By all honest metrics, Boeing (BA) is circling the toilet bowl. On Tuesday, for example, Fitch cut Boeing’s credit rating to BBB. And according to Bill Ackman, head of Pershing Square Capital Management, “Boeing is on the brink [and] will not survive without a government bailout.”

The scuttlebutt on Tuesday was that the government’s imminent coronavirus bailout package would earmark $60 billion to keep Boeing solvent. One would think that in its moment of striking failure the company would practice a little humility. But, apparently, humility’s not part of its coddled culture.

In fact, in an interview on Tuesday with Fox Business, CEO Dave Calhoun clarified that Boeing would command the terms of its bailout. Specifically, the U.S. government, as dictated by Calhoun would get no stake in the company:

“I don’t have a need for an equity stake. I want them [the U.S. government] to support the credit markets, provide liquidity. Allow us to borrow against our future.” 

Yet investors are committed to rewarding Calhoun’s hubris. On Wednesday, Boeing was the top Dow 30 stock; shares ran up 24.32 percent. That was more than double the second highest increase of a Dow 30 stock for the day, United Technologies, which was up 10.87 percent. Then, on Thursday, Boeing led the pack again, closing the day up 13.75 percent.

Make of it what you well. Something stinks. Naturally, the seeds of Boeings rancid, rotten fruits were planted several decades ago…

Guided By Bean Counters

William Boeing, the man responsible for the rise of Boeing during the first half of the 20th century, died in 1956. We don’t know much about the man. We’ve never read his biography. But we suspect the culture that William Boeing instilled in his company faded from its corporate principles by the turn of the new millennium.

You see, William Boeing’s cohorts likely continued the company in the William Boeing way after his death. These associates likely passed on the culture of exacting engineering to the next generation of Boeing management. However, once management was three generations removed, they had little connection to what had made the company great.

No current Boeing employee – management, engineer, or mailroom clerk – has ever met William Boeing. What’s more, it’s highly unlikely that any current Boeing employee has ever met someone who has met William Boeing. By all practical matters, the culture of William Boeing no longer exists at the Boeing Company.

David Calhoun, the current CEO, the guy that doesn’t have a need for an equity stake, isn’t even an aviation engineer. He’s an accountant. He has no clue how airplanes fly or how jet engines work. But he does possess a special skill that’s inherent with his technical discipline…

One of the chief skills of accountants who are granted the controls of corporate management is the unmatched aptitude for eroding industrial capital in favor of shareholders. When all business decisions are guided by bean counters a company’s reason to exist ceases.

For Boeing, the con job can be traced back to its acquisition of McDonnell Douglas in 1997. Here we’ll turn to Matt Stoller, and his article What Happened at Boeing? for edification:

“Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a ‘reverse takeover.’  The joke in Seattle was, ‘McDonnell Douglas bought Boeing with Boeing’s money.’

“The merger sparked a war between the engineers and the bean-counters; as one analyst put it, ‘Some of the board of directors would rather have spent money on a walk-in humidor for shareholders than on a new plane.”’

Boeing’s Bean Counter Culture and Mass Financialization

The demise of Boeing culminated in late-2018 and early-2019 when the company’s revamped 737, the 737 MAX, suffered two systems malfunction induced crashes. This prompted aviation authorities around the world to ground the 737 MAX. More from Stoller:

“The testing in 2012, with air flow approaching the speed of sound, allowed engineers to analyze how the airplane’s aerodynamics would handle a range of extreme maneuvers. When the data came back, according to an engineer involved in the testing, it was clear there were serious issues to address.

“The old Boeing would have redesigned the plane’s control surfaces to fix the faulty aerodynamics, but the McDonnell Douglas-influenced Boeing now tried to patch the problem with software. And it was bad software, some of written by outsourced engineers in India. The Federal Aviation Administration, having outsourced much of its own regulatory capacity to Boeing, didn’t know what was going on, and Boeing didn’t tell airlines and pilots about the new and crucial safety procedures.”

All the while, as the 737 MAX was being patched up with cheap software and rolled out the world over, Boeing management was engaged in the mass financialization of its business. The kind that enriches management and shareholders to the demise of the real business.

Aerospace analyst Dhierin Bechai took a look at Boeing’s share buybacks and dividend payments in relation to cash flow between 2014 and 2019 and discovered several fun facts:

“Boeing spent roughly $60B ($59,994 million to be exact) in buybacks ($40.6B) and dividends ($19.4B) in the past years while it generated roughly $55B in cash flows.  Boeing returns all of its cash flow from operations to shareholders. The $5B excess is caused by 2019, the year in which Boeing spent money on dividends and buybacks while operating cash flow fell. Excluding 2019, we found that Boeing returns 92 percent of its operating cash flow and 113 percent of its free cash flow to shareholders.”

No doubt, the bean counters running Boeing were personally rewarded for this mass financialization. Coincidentally, or not, the $60 billion returned to shareholders is the exact amount Boeing requested in federal support for the aerospace industry.

From what we gather, this week’s $2 trillion federal bailout includes a $17 billion federal loan program for businesses deemed “critical to maintaining national security.” The provision does not mention Boeing by name, but is largely for the company’s benefit.

They’ll also likely get their grubby hands on a piece of the $454 billion the Treasury Department intends to have the Fed lever up to $4 trillion in loans for corporate America.

Just another example of financialization, cronyism, and everything that’s wrong with everything.