Boeing CEO ousted as 737 Max crisis deepens

> Over the past decade Boeing has skimped on research, development and capital spending, investing only 7% of its sales on average, compared with around 10% at Airbus.

(From the article in The Economist: https://www.economist.com/leaders/2019/12/18/boeings-misplac... )

As with all things Elon, SpaceX is built on a financial pyramid. It either wins big, or loses big. And Boeing is a clear loser if SpaceX succeeds. A rule of thumb is that the rare big projects that will do well starts announcing that they are ahead of deadlines early, and that continues. Big projects that won't do not declare slipping deadlines until they can't hide it, and there is never any sense of what the real schedule is.

Right now SpaceX is announcing that they are ahead of deadlines. Boeing is consistently slipping.

What would the losses be? Well consider:

Boeing is counting on billions of dollars for deliveries to the ISS. They are being heavily subsidized and do not have a proven technology for doing so. SpaceX is running routine missions and if their Super Heavy works out will see a dramatic cost drop.

Boeing has billions more at stake with the SLS system for deep space launches and a return to the Moon. But the project is in peril and missing deadlines. Political connections favor Boeing. But if Super Heavy is anything close to what is promised, Elon can as a publicity stunt afford to (unpaid) do missions for a few million dollars that Boeing failed to deliver for 10s of billions. How long will the gravy train continue?

And the giant wildcard is SpaceX suborbital flights. Suppose that SpaceX delivers in the next 5 years on a point to point flight time from anywhere on Earth to anywhere else in a maximum of 1 hour. It will take time for people to conclude that it is safe. But consider, a first class transatlantic flight costs $10,000 and takes ~14 hours. If the SpaceX launch costs their estimated $2 million and carries an average of 250 people, they can charge first class prices for a 30 minute flight, and take home a $500k profit per trip. Anyone who has done a long plane trip will see the appeal of not spending 14 hours in the plane. So your first class passengers switch to SpaceX.

The economics of airline travel are that first class tickets pay a very large chunk of the fixed costs of the flight, while economy tickets pay the marginal costs of adding a person to the flight. Take away the first class tickets and average tickets have to go up in price. The result? Higher ticket prices, more passengers per plane, and a consolidation in the airline industry. SpaceX does not have to take that large a fraction of the volume to trigger that consolidation.

The phrase "consolidation in the airline industry" should be extremely worrying to airplane manufacturers. Fewer and fuller long-range flights means that nobody needs to buy new airplanes for a while. Which means that Boeing's core business craters.

The long and short of it is that if SpaceX delivers, Boeing dies. We will know one way or the other in 5-10 years.

it's disappointing and frustrating, but not all that surprising, given the decades of eroding honor, responsibility, and governance (both corporate and political) of large companies and their senior managers.

i'm more appalled that we tolerate obviously poor incentive structures that implicitly endorse such behavior.

compensation for senior managers should be better tied to long-term results, and punishments should more easily pierce the corporate veil.

(and whew, glad i covered that tylenol case in my mba program... would not have looked forward to asking for a refund! =)