Outsourced Material

I don’t have a lot of time to blog right now, but a reader on Twitter points me towards this article on the troubles at Boeing, which might be worth a read even if it’s very long.

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29 thoughts on “Outsourced Material

  1. Gave up partway through.

    There are some articles where you’re better informed before reading than after, and I suspect this is one.

    It might contain some valid information, but I don’t trust it, given its insistence on blaming capitalism this, capitalism that, and late-stage capitalism the other. Unions yay, managers boo, finance double boo.

  2. “capitalism this, capitalism that, and late-stage capitalism the other. Unions yay, managers boo, finance double boo.”

    Yeap, that put me off finishing the article as well. It just drowned out anything worthwhile in it, even if there might have been something to be gleaned.

  3. Its remarkable how well Boeing’s share price has held up, the bullish analysts have it as a buy now although if I held that type of view I would buy into Airbus instead. I wouldn’t have said this pre-crash but I think that Boeing’s reputation damage will continue to cause it headwinds for the foreseeable, their latest developments are already hitting regulator hurdles which is something that Boeing are not used to.

    For mine, the only reason that the Boeing stock didn’t suffer more than it did is due to them being a major defense contractor, Airbus are as well but not to the same extent as Boeing. One day, this whole endless war and ever increasing defense budget based on zero actual performance requirements will have to change direction and when it does the bloated aerospace defense contractors will crash out of the skies.

  4. Mr. Teacake: agreed.

    The tell was when the reporter told us of the SO important things she’d learned: One of Mr. Truman’s picks for the FAA job *may* have hit his ex-wife.

    I came away with the usual convictions: Boeing is dirty. The FAA is inept. Congressweasels are dirty and inept. And the money men and their pets like this Maureen chick are bog-rotten and a threat to civilization.

  5. Ho-hum. Nothing new. For years now, Boeing’s very severe mis-steps with the 787 have been used in academia as a poster boy for how not to run a project. There might even be a Harvard Business School case study about it.

    Businesses would be very different if Directors actually had a significant part of their personal net worth tied up in the long-term success of the business. And when are we going to get back to prohibiting companies from fiddling the market by buying back their own shares?

  6. Yeap, that put me off finishing the article as well.

    I punched out when among a list of business-related managerial incompetence allegations, they casually tossed in a claim that some Boeing VP probably hit his ex-wife.

    TNR is a shrieking lefty communist rag, is the problem.

  7. @Gavin – “significant part of their personal net worth tied up in the long-term success of the business”

    Some of them did have some of their personal wealth tied up in Boeing, we know this because between Nov 18 and Feb 19 three of their senior executives sold down their shares in Boeing at market for a combined value of US$19.5m, there have been no insider buys since then. Which is probably another good reason not to jump back into them if you were that way inclined. On the other hand if you were to start seeing senior execs or board members buying in, then that would be a positive sign and something that might tempt you to follow their lead.

  8. Bardon — those are executives — employees, really — selling off some of the (excessive?) compensation they have received in the form of shares and options.

    It is surprising how small the shareholdings of actual Directors often are — yet those Directors are the people that shareholders expect to make sure that the employees (such as executives) are not robbing them blind.

  9. On the larger cap companies you couldn’t expect the executives and board to hold a large % of the overall company stock. Although for the small holdings that they do have, selling them down can be quite indicative of what direction the company may be heading in the short to near term. It’s not the be all and end all to be taken into consideration for predicting a firms future earnings, and there is nothing ethically wrong with an insider selling down shares and taking a profit, plus it has to be done within a certain trading window and fully disclosed to the market.

    But all things being equal, and certainly for me, I always look into whether or not insiders have recently been buying or selling shares in the firm before buying into them. Given that there are thousands of companies that you can invest in and erring on the side of caution, I wont buy into them if they have recently been selling down and will opt instead for one that insiders are buying into, unless there is some other compelling reason to do so.

  10. Wordy, contemptuous, arrogant, just what I needed to read first thing on a Friday morning. This asshole could make a great career for himself in Brussels.

  11. The nuggets of truth got dragged under by the bigger browned nuggets of left wing smuggery.

  12. A thought proving article as long as you stop reading it 2/3rds of the way through when the politics take over.

  13. Agree with John above. I did get all the way through and “climate” appeared near the end.

    Politicking got Boeing into this mess, and politicking will get them out. Out to where remains to be seen.

    Somebodies head will have to be presented to the mob on a silver platter. Wonder who’s it will be.

  14. The article is quite sensationalist, but I think some of you are misinterpreting the “capitalism is evil” theme: I see it as ” capitalism’s goals do not align well with passenger safety” (hardly a controversial notion) and seen through that prism, I find the article much more tolerable (except for the mention of climate change and Trump’s nominees – this seems irrelevant to the subject of the article, and like forced additions by an editor wanting to throw some bait to their target audience).

    The trim-wheel is going to be a big deal, I think. Granted, the pilots should have shut off the powered trim system immediately after the first nose-down, but since it was intermittent every 5 sec, I assume we’re only taking about a matter of seconds before the situation became unrecoverable (TBC in final reports). I also looked into failure rates for angle-of-attack sensors, and came to the conclusion (sorry, I can’t share how) that for a fleet of 5000 aircraft (about the number of 737max sold) one should expect a failure in the fleet every 1.5 – 2 days (not an unusual failure rate on an aircraft). Then from the point of view of engineering, you can’t have a situation where you let safety rely on the idea that 100% of 20,000 people (lowball guess at the number of pilots for 5000 airplanes) won’t delay by just a few seconds when startled by an uncontrollable aircraft potentially every 2 days. Collectively, 20000 people are inevitably going to make some mistakes , and I believe the aircraft design should put more than one mistake and one equipment failure between life and death…

  15. @HibernoFrog:

    ” capitalism’s goals do not align well with passenger safety” (hardly a controversial notion)

    Nonsense.

  16. ” I see it as ” capitalism’s goals do not align well with passenger safety” (hardly a controversial notion)”

    It’s well known that killing your customers is the way to success.

  17. Bardon” “On the larger cap companies you couldn’t expect the executives and board to hold a large % of the overall company stock.”

    That is correct — but that is not the aim.

    Let’s imagine a woman being offered a lucrative Directorship in a megacompany. She has a personal net worth of (say) $2 Million, including houses, IRAs, stocks, bank accounts, everything. To take the Directorship, she is required to purchase (say) $0.5 Million of ordinary shares in that company and put them into a trust which she cannot sell until 3 years after she has resigned from the Board.

    Does that woman then have skin in the game? Will she then behave as an owner, rather than as an ornament on the Board?

    Of course, this means that Bill Gates could probably not join many Boards, since in many cases he would have to buy the company. But Directors are always at liberty to hire Advisors (with no voting authority) if they want the benefit of Mr. Gates expertise.

  18. @Arthur Teacake and Monoi:

    I see where you’re coming from, but a big company is not a monolithic entity, and individuals following the profit motive may do things at odds with the company’s wider interests. In the financial crisis we saw the profit motive put banks into a bad situation. Around the same time the Boeing 787 was grounded (don’t get me started on those f*cking batteries…) and now the B737 is grounded after two accidents. None of these things were good for business, but they happened anyway through the actions of those companies, and particular allegedly when trying to maximise profits.

    If capitalism didn’t create some perverse incentives, there wouldn’t be any need for financial or aviation regulators, but we see only too well what happens when they are not paying enough attention.

  19. “If capitalism didn’t create some perverse incentives, there wouldn’t be any need for financial or aviation regulators, but we see only too well what happens when they are not paying enough attention.”

    Have you ever heard of Underwriters Laboratories?

  20. @Gavin – “To take the Directorship, she is required to purchase (say) $0.5 Million of ordinary shares in that company and put them into a trust which she cannot sell until 3 years after she has resigned from the Board.”

    I get the intent but I dont think its workable and also depending on how the candidates financial affairs are structured it may not be possible to free up that amount of cash to purchase shares at start up and also to commit to them being tied up post-employment. What if the company is in trouble when she joins, what if she has stellar investments that she worked hard at creating elsewhere, would she be expected to sell them to purchase into the new firm, what if she gets the arse half way through her reforms and is replaced by a complete loser dickhead, I can think of many other reasons why this would be an unreasonable request.

    What is workable and occurs frequently is that shares granted through the non-salary part of their package and earned during employment can be tied up in in earn out clauses.

    Incidentally, Dennis Muilenburg the Boeing CEO’s total compensation for 2018 was US$23m with a salary component of $1.7m. Boeing’s market cap is about $214b, his compensation is above the median for a firm of that size. That doesn’t mean its wrong, the judgement of the appropriateness of his compensation rests with the shareholders and they may well be satisfied that it is.

  21. @David Moore: like for car safety tests in the USA? It’s a nice idea, but I’m not convinced it’d work well for aviation, since even the legally-backed FAA seems to have been co-opted by the industry it was supposed to regulate, and the problem only gets worse in other countries.

    But for those opposed to the existence of regulators like the FAA: This is another case where the USA bears a direct cost for the benefit of the world, but reaps a big indirect benefit in getting to set terms for everybody…

  22. Bardon asks: “… what if she gets the arse half way through her reforms and is replaced by a complete loser dickhead ..”

    We are talking at cross-purposes here. The idea of Directors having to put 25% of their net worth into the company on whose Board they sit applies to outside Directors; they are not employees of the company. In principle, they are elected by the shareholders and act as delegates of the stockholder owners of the company.

    It seems that you are thinking about employees of a company who also sit on the Board — which is a monstrosity that should never occur. There is too much of a Principal/Agent conflict for employees to be voting members of the Board of Directors which tells the employees what to do. Directors obviously should work closely with the management employees whom the Directors hire — but the roles of Principal and Agent should be quite distinct.

    No-one has the join the Board of Directors. If a person wants to turn down the offer, that is ok. But by making sure that every Director has a very direct personal stake in the long-term future of that company (whether that Director is a poor nun or a rich heiress), the management of the company would be improved — whether that company is Boeing or anyone else.

  23. HibernoFrog
    “@David Moore: like for car safety tests in the USA? It’s a nice idea, but I’m not convinced it’d work well for aviation, since even the legally-backed FAA seems to have been co-opted by the industry it was supposed to regulate, and the problem only gets worse in other countries.”

    Mostly they do electrical devices. Tools, appliances etc. The UL mark is recognized as having a high standard, better than CE.

    UL has not been co-opted by the industry, as a commercial operation it has a strong imperative not to be. No such imperative exists for the FAA.

    ” This is another case where the USA bears a direct cost for the benefit of the world, but reaps a big indirect benefit in getting to set terms for everybody…”

    Yes. Try building a plant to FDA standards outside the US.

  24. @Gavin

    I would say that the same constraints would apply to non-executive directors as executive directors when it comes to putting up “earnest” money of sorts.

    Also in my experience of boards for small to medium sized organisations, non-executive directors were normally the culprits when it came to carrying on about nonsense. Obviously the Chairman should be a non-exec but many a NED suit has brought rack and ruin to a firm, not saying that is the rule but I wouldn’t be poopooing executive directors as a general statement.

  25. @David Moore: Fascinating, I knew that “UL Listed” was important for power tools but never looked into it. I still think aircraft need a legally-enforced regulator though, since a UL-type organisation for aircraft would have many small customers and one giant one, who clearly is willing to wield their influence strongly to get what they want. True that the FAA got some things wrong, but I assume they’ve had their wake-up call…

    Not sure about FDA plants, but try building a non-FAA approved airplane anywhere, you’ll have a hard time 🙂

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