Coping with a post-Boeing world
'McBoeing' may be foolish enough to move a 787 production line to South Carolina, so this region needs to be smart enough to look beyond the Boeing economy
The only good thing about the unsurprising news that Boeing might put a second 787 production line in South Carolina is that there are so many people we can blame.
The typical blame will be levied at unions, state government, liberals, and the pressures of globalization. Boeing officials explain their recent outsourcing of so much of the 787 in terms of having to place work around the world in order to get orders from around the world. There’s some truth to that, but it doesn’t explain South Carolina. The real issues are much deeper, however, and can’t really be pinned on Washington’s much-maligned business climate.
The Machinists probably will have to agree with some concessions to placate Boeing, because the leaders of the new Boeing are apparently dim enough that they really would put a production line in a plant that is so bad Boeing had to send its own people there to straighten things out. This happens a lot when Boeing outsources work, a fact that the company routinely pretends not to notice.
Apparently buying this South Carolina plant will solve that problem for good because, according to the General Electric management model under which Boeing now operates, workers are basically interchangeable parts. It doesn’t matter what you pay them — even though it apparently matters greatly what you pay top management. So, you can build anything anywhere and it all turns out the same. The fact that GE’s far-flung manufacturing operations are not very profitable doesn’t matter; it must be the workers’ and the government’s fault, anyway.
But that begins to get us to the deeper problems with Boeing and its troubled new plane, the 787, which one aerospace observer, Richard Aboulafia, is starting to worry may be a mediocre model. Aboulafia also points to the real root of the problem: That grim day in late 1996 when McDonnell Douglas, a steadily failing aerospace and defense firm, essentially used Boeing’s money to acquire Boeing.
Douglas Aircraft was once the world leader in commercial airplanes, but they sold so many planes so cheaply that they had to be acquired by McDonnell, essentially a defense contractor. During the Cold War, when the government would buy anything that would make a big enough boom, you could run a reasonably efficient operation and make money because your one customer — the U.S. government — had a yen for weapons and a fat wallet.
But then the Cold War ended and the blank checks began to go away. McDonnell absorbed Douglas but didn’t really understand the commercial airplane business. It steadily lost market share to Boeing and, increasingly, to the European jobs program known as Airbus. (The next time that one of your market-addicted friends tells you that we must have free trade at all costs, remind them that the problem with the theory of comparative advantage — make what you’re good at, buy the rest — is that Airbus is flying proof that if you invest enough money, you can buy comparative advantage.)
Harry Stonecipher, who should be known as the man who tried to kill Boeing, was the last CEO of McDonnell Douglas. When I interviewed him in the early 1990s, he bragged that he had made the company profitable without selling any airplanes. That’s not a business model, unless your goal is Chapter 11.
McDonnell Douglas was not well run. Like a lot of U.S. firms in the 1980s and 1990s, McDD leaped into the W. Edwards Deming school of participatory management without really understanding how it works. They called it the Total Quality Management System (TQMS), which their employees came to call “Time to Quit and Move to Seattle.” By acquiring this failing enterprise, Boeing thus added a whole fleet of managers adept at arrogant failure.
McDonnell Douglas’ final act was to finish third in the three-firm competition for the F-22 Joint Strike Fighter, leaving Boeing and Lockheed Martin to slug it out in round two. But the new McBoeing put the McDonnell Douglas people in charge of the F-22 round two bid, which they proceeded to lose once more.
This was only the beginning. Phil Condit, who had seemed like a pretty good second officer to the underrated CEO Frank Shrontz, got bowled over by the new McBoeing board of directors, resigned, and was succeeded by Stonecipher. Commercial airplane sales dried up, because under the McBoeing model, you only sold at an immediate and substantial profit. Hamstrung Boeing salesmen got their tailfins kicked by the ever-aggressive Airbus team.
Stonecipher got fired over an ethics violation or McBoeing might be out of the business by now. In the ensuing six months, with no CEO to get in the way, sales went through the roof. Happy days returned, and Boeing even landed the 787 production line in Everett.
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Comments:
Posted Mon, Jul 13, 8 a.m. inappropriate
"Washington’s business tax structure is not terribly onerous."
What world are you living in? Have you ever tried to run a small business here? The big businesses thrive because they have the margin and size to cope with a burdensome tax and regulatory structure.
Much of this article reads like puffed-up sour grapes, with the author working hard to make himself and others feel better about the fact that Boeing may well in fact begin to put down roots elsewhere.
Posted Mon, Jul 13, 9:15 a.m. inappropriate
An excellent article highlighting the need for a fundamental shift in the focus of our economic development polices.
As a region the Northwest is a unique high quality product and premium products are never cheap. Those regions whose primary attributes are low tax rates, lax regulatory environments and low cost labor naturally tend to attract companies who place a high value on such things. Conversely, those regions who offer a well educated workforce, a stunning natural setting and a high quality of life tend to attract companies with a very different set of values. It is apparent from its recent actions that Boeing has decided what type of company it wants to be. What kind of state does Washington want to be?
Posted Mon, Jul 13, 10:38 a.m. inappropriate
There's no rule that regions which "offer a well educated workforce, a stunning natural setting and a high quality of life" must saddle businesses with high taxes and abusive regulation. Just think what a magnet for business Washington would be if we had both a worker-friendly and business-friendly environment! This may come as a surprise to many, but employer/employee is a partnership, not a dichotomy. Of course, there's no chance of this improved environment happening until the crisis comes, and that's still a few years off for the myopic bunch in Olympia. There's little hope of this happening after the crisis comes, either. Shouts of "But we have Puget Sound! We have Mount Rainier!" didn't keep Boeing from moving its headquarters to Chicago, and it won't keep them from moving manufacturing elsewhere, either.
Posted Mon, Jul 13, 12:23 p.m. inappropriate
Love it. Great piece.
Posted Mon, Jul 13, 1:01 p.m. inappropriate
The F-22 is decidedly not the JSF.
Posted Mon, Jul 13, 1:23 p.m. inappropriate
The loss of Boeing as a manufacturing employer in the State would deal a far more psychological blow to the State than a financial one. For one, the movement of production out of the state would be gradual. The 777 and 747 lines would still be produced here for the medium term as would the 737. A replacement for the 737 is at least 8 years out and unlikely to be delivered until 2020. This would leave a long lead-time to winding down manufacturing operations.
Also, Washington has been far more adept/lucky at moving away from being reliant on one industry. See Detroit for how not to put your eggs in one basket. When times are good for cars times are great for Detroit, and we all know the flipside.
After the late-60s-early-70s Boeing lead downturn, Washington and more importantly the Puget Sound economy slowly shifted away from just aerospace. As Boeing became more capital intensive and less labor intensive throughout the last three decades, the children of Boeing machinists decided to train and prepare for other careers than solely relying on "I'll just do what Dad did and build airplanes." (Again see Detroit for how not to be) The direct/indirect/induced wealth created by Boeing jobs over the years allowed for the creation of a well educated middle-class in the region whose children quickly adapted to the changing economics.
Regardless of Boeing's location decisions this process will continue and allow the local and state economies to diversify even further away from the aerospace industry. In the end we will be far more insulated from the boom/bust cycle so inherent to large scale manufacturing and much better off for it.
While I would be sad and disheartened if Boeing were to eventually leave Puget Sound altogether, I would have no great worries for the longterm economic health and vitality of the region.
Posted Mon, Jul 13, 10:27 p.m. inappropriate
The IAM strike might not have significantly delayed the 787 program, but people forget that Boeing makes more than one model of airplane.
Posted Mon, Jul 13, 11:03 p.m. inappropriate
I like your idea about preparing for Boeing's exit by building alternative industries here to attract its best and brightest. Boeing moved its deciders to Chicago for strategic reasons, after all, and we should expect more strategery to come.
I also think the Washington would do well to go on offense to compete for their business in mutual interest... things like proposing a package for Boeing to establish factories in sunny, energy-rich and inexpensive Spokane or Moses Lake so they can co-operate near existing plants and workforce, perhaps even pitching that Boeing bring HQ back home so management isn't so aloof from its own business, takes the opportunity to stop damaging morale and reduces potential for systemic blunders that we're concerned may ruin their business.
I also think it would be great for WA to launch a campaign to brand the state's aerospace industry as highest-quality and best for safety, and pitching the state itself as the best home for skilled aerospace engineers and machinists to stay. We should also expect bad Boeing decisions to pile up like a train wreck and their direction to continue, and we should develop a back-up plan to keep skilled, smart, productive people working here by supporting in-state diversification.
Posted Mon, Jul 13, 11:41 p.m. inappropriate
It sounds like Boeing Execs have been reading the New Yorker and Pete Boyle's "Road Ahead" article on the successes of Nissan in Smyrna and other automotive sun belt manufacturing successes.
Okay, maybe that's too highbrow for these dolts, but there is a legit question in whether airplane manufacturing can mimic the success of the auto industry. Is the bar too high? Does Puget Sound have the remarkable work force that I believe we do?
I'd say yes, but neither Union leadership nor Boeing execs are doing us justice. The feuding and misplays between the two may take away good jobs and lead Boeing into a Quixotesque venture down south.
Posted Tue, Jul 14, 5:54 a.m. inappropriate
Wow. Best column I've read succintly summarizing exactly where Boeing has gone wrong. TA Wilson is rolling over in his grave over the mess Condit and the McDD management have made of a once great company.
Posted Tue, Jul 14, 5:58 p.m. inappropriate
Excellent piece. It should be noted that even the folks at the Boeing Tour point out that how aircraft are created now and in the future requires far fewer employees on the line. According to the guides, the 747 tail takes 50 folks almost a week to create. Thanks to carbon fibers and ribbons, the 787 tail takes 3 employees... and less time. The point being the number of "future" employees lost if the new line is produced elsewhere is far less job loss than earlier models would have meant. The entire new 787 line has far fewer employees per aircraft produced once it is set in motion.
Pride and prestige yes... total jobs, not like it once was.
That said... the outsourcing trend, often driven by wall street "experts" continues on. At least Boeing is looking to bring back "in-house" some of the work it should have been doing all along. For each item outsourced, we send with it the cutting edge technology that kept us ahead of the game. Once we have shown other major industries how it's done, it is only a matter of time before they become future competitors by economic shift or national pride.
The short term gains fiscally, which Boeing did not get reap in this case, will come back to bite Boeing a decade or less from now when these same contractors build a cheaper plane using the technology we traded away.
I do understand that to sell national airlines, we need to purchase goods from that nation for the balance of trade, yadda yadda... but on the 787 we gave away far more than any previous model.
For that, I blame wall street for creating the pressure, and the CEO's for giving into it rather than looking at the long term health of their company.
The
Posted Wed, Jul 15, 12:23 p.m. inappropriate
Let 'em leave.
Then the people left here can start a new aircraft company with the facilities left behind. New blood and local ownership would go along way towards reviving the fading behemoth. Let's jump start the exit by by eliminating all the blackmail incentives our state gives to the Boeing monopoly, which rightly should be illegal. The give-aways to Boeing are gross, flat-out above-board corruption where the State is paying Boeing to stay. Let's vote on how much we give away. I'll chip in a dollar a year, that's about what they are worth to me. Unfortunately, they're extracting $25 a year from me.
(The State has about six million people. Boeing tax incentives were estimated in 2004 at $3.2 billion over 20 years. That's a little over $25 tax on every resident every year for the privilege of having Boeing in this state. So your average family of four in Spokane or Black Diamond gets to pay $100 in extra blackmail taxes annually so that Boeing will grace us with their presence. )
And My, Oh, My! what will we ever do without paying to have Boeing in our presence? First off, we'd start eliminating the ugly precedent of paying businesses to locate here. After we eliminate the blackmail payments, we could lower or eliminate the B&O; tax. We could balance the budget. We could pay for our roads and our government. We could stop having senators and representatives from Boeing. We could start having representatives who represent the people and not corporations. And we could apply the same logic to all our other monopolies and oligopolies, such as Microsoft and Google and Amazon. If Seattle is really the great place we say it is, then they're not going to leave. And if they do, smart, great companies will take their places.
Boeing is acting like the GM of Airplanes. "Gimme, gimme, gimme. I'm too big too fail. I'll leave unless you pay me." These guys should be read the riot act by the Governor and every elected official in the state, and the media should be shaming the Lazy B into a more responsible position that respects the interests of the region and the State.
And please, please, please, don't lecture about how much "the economy" needs Boeing. Just like the economy needs Goldman Sachs, AIG, Citibank, et al. Surely a good thing that we gave them all hundreds of billions financed with the average citizen's increased debt. Like all Americans, I have money I want to borrow to burn. And like all Washingtonians, I have $25 every year I want to burn at the Boeing alter.
Will the last person from Boeing leaving please turn on the lights to a less corrupt, citizen-oriented government that doesn't kowtow to monopolistic corporations?
Posted Wed, Jul 15, 10:34 p.m. inappropriate
Well, I do not work for Boeing, but I would have to point out that it ain't that simple... the $25 Stuka cites that we all pay to have Boeing here is a very narrow slice of where the money comes and goes. You can argue where the UW ranks in various programs and funding, but the Mechanical and Electrical Engineering programs are here because of the relationship with Boeing. To work at what we used to call the Lazy B took at least two years of higher ed to read those blueprints and instructions. I would dare say that the State's status as the most educated has a lot to do with having the aviation industry here. And then there is the thousands of suppliers who got their start thanks to having Boeing here... The symbiotic relationship goes far beyond the $25 I fork over if these stats are accurate. Then there is the internships, the funding of arts, the Boeing Employees who live here, buy homes, shop, dine out etc. Ask any retailer in the region if they "notice" when Boeing issues a Holiday Bonus Check... or the times they did not.
Did we give a lot away to get too few jobs back this last cycle? Maybe... Did my parents pay the same percentage when they had their small store that Boeing did? Probably not... but my parents also did not have 60,000 well paid employees who made their homes nearby. There IS an impact, and tossing the baby out with the bathwater, especially right now would not be prudent.... Do I wish Boeing would build a second 787 line here? Yep... but on the other hand, I am happy to see them take back more control of the parts... and If I have to chose if the second line is in the US vs. overseas, I will take the US... Hopefully, there is enough infrastructure here and talent that Boeing will see the wisdom of building another line here... but I am not sure the extra jobs are worth giving away as much as we gave last time.
Posted Sun, Jul 19, 1:30 p.m. inappropriate
I have a hard time with the whining of the corporations about taxes, especially a welfare queen like Boeing. Boeing is a typical big corporation that will do anything to satisfy the greedy investors, even "render" detainees as a charter service for a buck. They also have no qualms about capturing local politicians, even a majority of legislators and the executive branch. They are a prime example of a thug organization.
Posted Sat, Oct 31, 5:44 p.m. inappropriate
no one notes that Condit made an obscene amount of money for playing Boeing's Benedict Arnold. no one mentions that all of the Boeing GE and MICKEY D executives are crooks and are stealing the company blind. just another version of Enron, Tyco, AIG, etc........