12 Jan Dirty Fingers in Boeing’s Pie
Is Boeing a good company?
We don’t know, and we suspect you don’t know either. You may think you know, but can you really say for sure?
On the one hand, Boeing is the second-largest producer of commercial aircraft in the world. It is also the fifth-largest defense supplier in the world, by revenues. According to Bloomberg, Boeing had a great year selling planes and is now “practically sold out for the rest of the decade on [its] most popular models….”
On the other hand, that second-place finish is out of only two companies, the other being Airbus, which has beaten Boeing in sales each of the last five years. Doors sometimes fly off Boeing planes IN FLIGHT. Its most popular plane is frequently grounded for safety concerns. And now, the Federal Aviation Administration plans more aggressive oversight of the company. Additionally, Boeing loses money consistently.
Last week, after the door fell off of the Alaska Airlines Boeing 737 Max 9, a few observers in the conservative media/community decided to take a look both at the airlines and at Boeing to see if they could tie this failure and others to “woke” corporate policies, namely DEI (Diversity, Equity, and Inclusion). In a long Twitter/X thread (which included the image below), the author and anti-woke activist James Lindsey discussed the incentivization of DEI (and ESG) at Boeing and explained why he thinks it matters:
Boeing’s corporate filings with the SEC reveal that in beginning 2022, the annual bonus plan to reward CEO and executives for increasing profit for shareholders and prioritizing safety was changed to reward them if they hit DEI targets.
Up to 40% of the executives’ potential pay is in that “annual incentive pay program” which is tied to hitting DEI targets….
Boeing didn’t just mandate DEI at Boeing. Italso prioritized ESG and DEI in their supply chain, as with ESG agendas, which suggests they did not look for the best suppliers on quality and safety on objective metrics, but focused on meeting their ESG goals instead….
Why does this matter? Whistleblowers from Boeing have pointed out safety concerns with Boeing’s production quality issues since 2018, but instead of prioritizing safety and fixing these issues, the company created bonuses that incentivize management to focus on hitting DEI goals….
The focus away from meritocracy to DEI will likely kill thousands one day due to erosion of merit, safety, and excellence.
Far be it from us – of all people – to throw shade at the idea that DEI or ESG might be the source of Boeing’s current issues. And, to be clear, we think that Lindsey makes a point, although we might make it somewhat subtler.
All of that notwithstanding, we do NOT believe that DEI or ESG is dispositive in the case of Boeing. Indeed, we wonder if focusing on “woke” explanations for the company’s current issues might not blind observers to larger, longer-standing concerns about Boeing’s business model.
The first thing to note about Boeing is that its biggest customer is the United States Government. Over the past few of years, its Defense, Space, and Security sector has become the largest source of its revenues, far surpassing the former largest source, commercial airplanes. Like other defense contractors, Boeing is seeing increased demand of late, mostly because of the war in Ukraine. (Unlike with other defense contractors, however, that’s not translating into big profits).
Additionally, and perhaps more to the point, the United States Government is also Boeing’s biggest marketing contractor, as well as its biggest cheerleader. We couldn’t find the piece when we went looking for it last night (and it was after 9:00 on the East Coast, so I couldn’t ask Mark, who was already in bed), but a hundred years ago, in our previous incarnation as analysts for a big-time Wall Street research department, we wrote a piece about how Mickey Kantor – first as U.S Trade Representative and then as Secretary of Commerce – would travel the world on “trade missions,” bringing the CEOs of various American companies along with him. One of those companies was Boeing, which we recall mentioning specifically because Kantor had traveled to Beijing to try to barter with the CCP over the purchase of Boeing jets, using policy incentives to sweeten the deal. This Washington Post article, from just under 29 years ago, gives you a bit of the flavor of the type of dealing that Kantor was expected to do:
China issued a new threat to U.S. business today after a fourth day of talks on ways to end its dispute with the United States over the protection of copyrights, patents and trademarks.
The China Daily newspaper said failure to resolve the piracy dispute might cost Seattle’s Boeing Co. $2 billion in orders for aircraft.
“We might have to turn to other, European models instead,” Ding Yuhua, general manager of China Southern Airlines’ Import and Export Trading Corp., told China Daily. He noted that Europe’s Airbus Industrie consortium had offered to sell planes to the Chinese carrier.
The article appeared to be part of China’s continuing effort to prod American businesses into pressuring the Clinton administration to settle the piracy dispute…. Boeing has been the biggest U.S. exporter of goods to China in recent years.
We concluded our piece by asking (and I’m paraphrasing, natch), “How are investors expected to make smart, informed decisions in the current environment, when a company’s success or failure often depends less on the actual merit of its products and more on the relationships it cultivates with its government and that its government cultivates with others?”
That was a good question then, and it remains a good question today.
The bottom line here is that for 30 years at least, Boeing has not only been a key part of the Military-Industrial Complex but also a major player in the Government-Industrial Complex. Or to put it another way, Boeing has been a major beneficiary (perhaps the major beneficiary) of the low-key corporatism that has been a significant part of the American business world since the Clinton administration.
You worry that Boeing is abandoning meritocracy in favor of DEI? Fair enough, we suppose. In truth, though, the company abandoned meritocracy three decades ago, when it agreed to have the federal government use policy carrots and sticks as sales tools. Were Boeing’s planes a better value for the CCP than Airbus planes? We’ll be damned if we know. We do know, however, that Boeing provided the CCP with a better deal because its government ally could provide greater policy leverage than Airbus’s allies.
Is Boeing a good company? Again, we’ll be damned if we know. But then, it doesn’t matter. It could be (and may be) the worst aerospace company in the world, and it wouldn’t matter one whit. Its status as a friend and co-conspirator to the U.S. federal government makes such questions irrelevant.
Relatedly, if it’s NOT a good company, did DEI ruin it? It didn’t help, but if it’s ruined, it was ruined long before DEI was an issue.
“Woke” corporate policies are a problem. About that, you’ll get no argument from us. Sometimes, however, the bigger problem is simply Big Government, which as Don Henley might put it, has its dirty little fingers in everybody’s pie.
