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Did a 1997 merger ruin Boeing?

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Re: Did a 1997 merger ruin Boeing?

#41

Post by carbine »

ajkjk wrote: post #39
mcv wrote: post #34

Here's what I don't understand: the 737 MAX was introduced in 2017. In 2018, two of them dropped out of the sky, the grounded for a while, it turned out Boeing had lost its engineering culture and its priority for safety, and it became clear that the 737 MAX had some serious design problems that they had tried to fix in software. And according to this article, the 737 MAX is Boeing's best selling plane ever. Why? Why…

Well a lot of them didn't fall out of the sky and were used like millions of times, and the reason a few of them did was ostensibly fixed so now the chances of them falling out of the sky is even less than when most of them already weren't.

ostensibly

the need for MCAS in the first place is a major design flaw and results in additional failure modes that other aircraft do not have. the "fix" was to prioritize human inputs over MCAS, making these planes more vulnerable to human error. still worth avoiding IMHO.

Re: Did a 1997 merger ruin Boeing?

#43

Post by jewayne »

moose_man wrote: post #2

Jack Welch style management and shareholder capitalism are some of the most destructive forces in the US economy.

Wow, a whole lot of people in this thread don't know about Jack Welch and his outsized influence on the current state of US business. No, US businesses did not always focus exclusively on current quarter's earnings, nor did they lay people off every year to juice the share price. In fact, before Jack Welch, many US corporations openly said that their mission was to "build/provide X", and that dividends to shareholders were just another bill to pay on their way to providing X.

Although he wasn't the only one, Jack Welch was probably the biggest figurehead of the "shareholder value" movement, and was given deity status by the business press back in the 80s. The revelation that his amazing numbers at GE were based upon deceptive accounting practices, hasn't seemed to dampen his influence one bit.

Re: Did a 1997 merger ruin Boeing?

#44

Post by bluGill »

mcv wrote: post #34

Here's what I don't understand: the 737 MAX was introduced in 2017. In 2018, two of them dropped out of the sky, the grounded for a while, it turned out Boeing had lost its engineering culture and its priority for safety, and it became clear that the 737 MAX had some serious design problems that they had tried to fix in software. And according to this article, the 737 MAX is Boeing's best selling plane ever. Why? Why…

What choice do they have? Airplanes wear out from metal fatigue over time, so airlines must replace their airplanes regularly. It isn't safe to keep operating the same airplanes for decades. (this very much depends on what the plane is made of - so some airplanes from the 1950s are still safe while others from 2000 are not). Sometimes airplanes are scraped by selling to some "third world" airline that keeps operating the airplane long past the safe date - engineers are very conservative about max life of an airplane but eventually the wings will fall off an old plane in the air.

Because of this all good airlines won't operate old airplanes. The few bad airlines can't operate very well because any country with a functional government will not allow you to fly an expired airplane. And so Boeing and Airbus have long order books to replace planes as they hit end of life. Of course airlines are limited to airplanes still in the current catalog, so they often cannot order the model that was working great for them 20 years ago.

Re: Did a 1997 merger ruin Boeing?

#45

Post by dinero_rojo »

kazen44 wrote: post #33
ameister14 wrote: post #23

Earlier quoted context omitted.

It took root in 1919, so I don't think that's actually the issue. The problem is short-term thinking based on financial markets and the ability of corporations to reinvest their capital freely. Regulating stock buybacks and the ability of corporations to invest in markets will cut down on corporate fissure.

why 1919 specifically? in my opinion, it seeems to have been enormously on the rise since the end of world war 2 and especially after the end of the cold war.

Fairly certain he’s referring to Dodge v. Ford Motor Company, where it was established that a company needs to operate in the best interests of shareholders above all else.

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.?wprov=...

Re: Did a 1997 merger ruin Boeing?

#46

Post by MilStdJunkie »

skyyler wrote: post #21
moose_man wrote: post #2

Jack Welch style management and shareholder capitalism are some of the most destructive forces in the US economy.

What can reasonably be done to combat it? Leadership at all the biggest firms is on board with shareholder capitalism. To them, Welch style management just means line goes up...

If leadership gets stock as part of their compensation, they don't get to sell it off until long after their tenure in leadership is ended.

The time horizon of these jokers is too short. If they had a 10 or even a 5 year risk horizon, they would not make these short-sighted decisions. The Welchian approach isn't just value destruction, over a longer time horizon it's quantifiably unprofitable for the business as a whole.

Forgive me a tangent here, particularly relevant with the 737, about how leaders regularly mistake economies of scope for economies of scale.

Scale and Scope are fundamentally different things, but M&A specialists and related finbros often treat them as equivalent. This is unfortunate. Scalar efficiencies are largely functions of density - more people buying the same thing over a given space. Scope involves equivalence - more people buying things that are just similar enough. This is a trap. In order to evaluate equivalence, you need domain knowledge, but in order to consolidate operations, you've already jettisoned that same domain knowledge. Also known as "Why do I need fuselage experts in three different places? It's just a tube! Let's just hire one outsourced Fuselage Expert".

Economy of Scope takes a truly heroic amount of domain knowledge among the M&A team to make it work, but if you're already convinced that finance contains the secrets of the universe, you're probably going to be dismissing domain knowledge as a basic concept.

Again - not for the first time - I marvel at the structural similarities of end-stage Soviet industry and our own late-stage financier capitalism.

Re: Did a 1997 merger ruin Boeing?

#47

Post by jltsiren »

stcredzero wrote: post #40
jltsiren wrote: post #37

Earlier quoted context omitted.

The world is very small, and it can't support that many companies making passenger aircraft. If you want aircraft of that size, you have to buy Boeing or Airbus. Both are sold out until the 2030s. And if you are already operating Boeing aircraft, it's more cost-effective to buy more of them instead of switching to Airbus. China spent ~15 years developing the C919, and it's finally entering mass production. But it als…

The world is very small, and it can't support that many companies making passenger aircraft. If you want aircraft of that size, you have to buy Boeing or Airbus. Both are sold out until the 2030s. There's an apparent contradiction here. China spent ~15 years developing the C919, and it's finally entering mass production. But it also appears to be sold out until the 2030s. And here.

While there is a growing demand for passenger aircraft, the fixed costs of getting into the business are so high that the market cannot support that many manufacturers. Not on a commercial basis, anyway.

Airbus and Boeing are commercially viable, and they have customers all around the world. Comac is more of a political project, as China tries to reduce their dependence on Western technology. There are 1000+ orders for the C919, but effectively all of them are Chinese.

Similarly, the USSR had domestic passenger aircraft industry, and Russia retains some capability to manufacture them. Their latest model is the Irkut MC-21, which has a few hundred orders. Again, effectively all of the orders are Russian.

Then there is Embraer, which is the biggest manufacturer of regional jets. They have been decades in the business, but they have not made any attempt to build a competitor for the A320 and B737.

Re: Did a 1997 merger ruin Boeing?

#48

Post by mcv »

jltsiren wrote: post #47
stcredzero wrote: post #40

Earlier quoted context omitted.

The world is very small, and it can't support that many companies making passenger aircraft. If you want aircraft of that size, you have to buy Boeing or Airbus. Both are sold out until the 2030s. There's an apparent contradiction here. China spent ~15 years developing the C919, and it's finally entering mass production. But it also appears to be sold out until the 2030s. And here.

While there is a growing demand for passenger aircraft, the fixed costs of getting into the business are so high that the market cannot support that many manufacturers. Not on a commercial basis, anyway. Airbus and Boeing are commercially viable, and they have customers all around the world. Comac is more of a political project, as China tries to reduce their dependence on Western technology. There are 1000+ orders f…

But why are they not also getting into the 737-size market, if that's such a huge market? If even the questionable 737 MAX is sold out for decades, that sounds like a pretty lucrative market to be in. It sounds to me like if you build something that works, you will sell as many as you can build.

Re: Did a 1997 merger ruin Boeing?

#49

Post by jltsiren »

mcv wrote: post #48
jltsiren wrote: post #47

Earlier quoted context omitted.

While there is a growing demand for passenger aircraft, the fixed costs of getting into the business are so high that the market cannot support that many manufacturers. Not on a commercial basis, anyway. Airbus and Boeing are commercially viable, and they have customers all around the world. Comac is more of a political project, as China tries to reduce their dependence on Western technology. There are 1000+ orders f…

But why are they not also getting into the 737-size market, if that's such a huge market? If even the questionable 737 MAX is sold out for decades, that sounds like a pretty lucrative market to be in. It sounds to me like if you build something that works, you will sell as many as you can build.

For the same reason Boeing developed the 737 MAX instead of a completely new model. The fixed costs are too high, the risks are too high, and the profit margins are too low. If it takes 10-15 years to develop a new plane, several years to ramp up production, and several years beyond that to break even, it does not make sense as a business. If you think it purely as an investment, there are always better uses for your money.

Re: Did a 1997 merger ruin Boeing?

#50

Post by dylan604 »

mcv wrote: post #34

Here's what I don't understand: the 737 MAX was introduced in 2017. In 2018, two of them dropped out of the sky, the grounded for a while, it turned out Boeing had lost its engineering culture and its priority for safety, and it became clear that the 737 MAX had some serious design problems that they had tried to fix in software. And according to this article, the 737 MAX is Boeing's best selling plane ever. Why? Why…

I'm guessing a lot of the purchase orders were placed well before the MCAS incidents occurred. These purchases tend to be contract based, and not something you can just leave with the cashier when you suddenly decide not to purchase them. So you're contractually obligated to spend the money, so might as well get a plane out of it and hope for the best
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