14 ms·

Airplanes and Accounting Games: The Coming Boeing Collapse?

140 points by cjbest 7y ago

Alupis 7y ago
1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again) 2) We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. 3) The US Gov't may not allow Boeing to fail for National Security reasons. Both as a major Defense Contractor, and as the sole producer of domestic airliners. (that is, if Boeing is even in a position to fail) I think the 737-MAX issues are bad, but not bad enough to destroy the company. The 737 airframe has been the workhorse for decades, and I don't see that changing soon. Major airlines operating the 737 variants will just continue to use the perfectly good 737-700,800 and 900 variants until something new and fixed comes out.
- gertrunde 7y ago
  My understanding was that Boeing were originally planning to do a clean redesign of the 737 (similar to the 787), but due to customers going with the A320neo, they rushed out the 737 MAX instead. So that last point about 737-700/800/900 may not be valid.
- Pfhreak 7y ago
  Do you have a citation on #1? If it's not the case, then there could be massive financial impact to Boeing...
  - Alupis 7y ago
    What kind of citation would you need? It's a software and sensor reporting problem in the rushed-to-market new MCAS system - both fixable obviously.
    - Pfhreak 7y ago
      That doesn't seem like it's asking enough whys to me. Why was the MCAS system necessary? Why didn't the sensor fall back to its backups? There are underlying hardware concerns, from the wings to the sensors themselves, that may require retrofits. MCAS can be patched, but I'm not convinced that a patched MCAS can fully address the hardware concerns.
      - AnimalMuppet 7y ago
        Why didn't the sensor fall back to its backups? Because, unfathomably, it was designed to only listen to one sensor. Why? Absolutely no good reason that anyone can see. Can that be fixed? Absolutely, change the code to listen to both sensors. It's not a whole lot more complicated than that.
        ClumsyPilot 7y ago
        And if one of two sensors fails, which these exposed sensors do often, how do you know which one it is? Intuition says you need three.
        perl4ever 7y ago
        If one of two sensors fails, and the computer sees that, it knows not to fight the pilot, which was the problem, wasn't it?
        ClumsyPilot 7y ago
        That's fine, but seems self defeating. Now the pilot needs training to fly without MCAS, so why have it at all?
        perl4ever 7y ago
        Your question applies to all systems that can fail, so the implication must be wrong.
- droopyEyelids 7y ago
  Right. What people are missing is that if Boeing is 'too big to fail' for the US Government, then burying the risk, soaking up the resulting windfall, and pressing the accelerator as they turn towards the brick wall was the right thing for them to do. I'm uncertain about your point where everything is fixable- don't forget, it needs to be fixable without significant pilot training, or else it'll remove airline's reason to stick with boeing. However, that doesn't matter! Boeing can fail as hard as it wants, and the executives will keep their money, and the US Government will still need to save the company. The only losers will be pension funds, employees, and citizens- people without any say in the matter.
  - alwaysanon 7y ago
    The government can pay for the pilot retraining - which Boeing should have done in the first place.
- deleted 7y ago
  [deleted]
- henryfjordan 7y ago
  Is the 737-MAX fixable? Boeing is stopping production of them, so they know that it's not going to be for a while, if ever. The 737-MAX's problem is that they changed the center of gravity of the plane so that it's not stable without an active system to correct that (MCAS). A failure in that system has already crashed 2 planes and killed hundreds. I don't think you can throw an active system on an inherently unstable airframe and call it a fix. Airplanes need to be as fail-safe as possible.
  - Alupis 7y ago
    While this is true (the MCAS being at fault), it was compounded by incorrect and/or absent reporting of what the MCAS system was doing. One of the indicators was tied to an optional set of features on accident (spaghetti code?), which caused budget airlines that didn't purchase the optional features to not show pilots when there was a problem with MCAS. That coupled with lack of training of how to react to exactly that scenario, and we have the events that transpired. All of which is fixable one way or another.
    - empath75 7y ago
      If it’s fixable, why isn’t it fixed? Why are they stopping production? It’s been a year.
      - Alupis 7y ago
        Because rushing a fix into production and then having another airline crash would be far more severe than the current situation. So it makes sense to step back, and fix things the right way before you reintroduce the system back into the market.
      - jdsully 7y ago
        Once the second crash happened there was extra oversight and other issues that were signed off on during the design phase were once again put in question. Its no longer just MCAS being modified but what happens when the two flight computers disagree. So to answer your question there are now multiple issues at play and they are effectively redesigning the flight computer system as a whole. This is not a quick fix.
- sithadmin 7y ago
  >We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. It's 30 percent of Boeing's income. Definitely not enough to prop them up.
  - Scoundreller 7y ago
    The US Government needing you is always enough to prop you up.
    - sithadmin 7y ago
      It's enough to keep the company alive, but even the most hawkish US politicians aren't going to throw enough federal cash at Boeing to keep them running in anything resembling their current scale and capabilities if they go under.
      - Scoundreller 7y ago
        Iunno, even in the financial crisis, the feds didn't even feel it was necessary to wipe out equity shareholders when they went to bailout. The feds could always rewrite regs to help Boeing, like limiting the grandfathering that allows airlines to fly aircraft that don't meet current safety regulations.
        wahern 7y ago
        The Fed's didn't wipeout equity shareholders during the financial crisis because big investors were leveraged. The whole point of the bailout was to prevent losses on leveraged assets from rippling through the financial system and collapsing the whole thing.
        Scoundreller 7y ago
        More leverage should equal more risk. You shouldn't be saved just because you took too much risk. That's how it's supposed to work!
- grecy 7y ago
  > The US Gov't may not allow Boeing to fail I agree entirely. They'll either bail them out, or just pass laws that prevent Boeing from being Sued.
  - clvx 7y ago
    The government might pass laws, but it will only fly inside the States if other countries disagree. In this one, Boeing is limited.
    - netsharc 7y ago
      At one point in time the US State Department and presidential admin would've been able to negotiate, coax, or strong-arm other countries to certify things they were reluctant to. With a gutted state dept and an admin full of incompetence, this wouldn't happen nowadays...
      - deleted 7y ago
        [deleted]
      - qtplatypus 7y ago
        Both China and the EU have said that they will independently recertificatify the plains.
  - thrower123 7y ago
    They could force them to spin off the defense contractor part and only bail that part out, perhaps.
- Scoundreller 7y ago
  > Major airlines operating the 737 variants will just continue to use the perfectly good 737-700,800 and 900 variants until something new and fixed comes out. I think airlines love the situation. The balance between supply and demand for new aircraft has taken a hit. That means any glut in capacity has been erased and pricing power has gone up a lot. Airlines had an excuse to cancel flights and put you on a different schedule, all while claiming force majeure. While the 737 variants are fine, they have a shorter range than the MAX. The MAX can do some interesting transatlantic routes (UK,FR,ES,PT) and east coast US/Canada that are dicey in a non-MAX.
  - 9nGQluzmnq3M 7y ago
    This makes no sense. Airlines hate canceling flights: they already maximize the hell out of their fleet utilization, so there's very little space capacity in the system and the knock-on effects of having to find new seats for 100+ pax per cancelled flight are massive. Pricing power has indeed gone up, but not in the airlines' favor: for example, Airbus can now charge what it wants for the A320 (the only viable 737 competitor) and wages for qualified A320 pilots are skyrocketing.
    - Scoundreller 7y ago
      Yes, the situation is even better for $Manufacturer where $Manufacturer != Boeing. But airlines aren't suddenly cancelling flights. They're looking at their schedule and consolidating whatever they can. And charging more for the remaining seats. And the value of the aircraft they already own just went up. I've also seen some airlines downgauge turbojets to Q400s, which is slower but saves a ton on fuel. Routes that needed to run X times per day to be competitive (because people want flexibility in departure and return times) can now be consolidated into X minus Y flights with the same number of passengers. It's 2019, airlines have automated processes to rebook when a flight is cancelled. And upstart airlines trying to build their fleets couldn't.
      - 9nGQluzmnq3M 7y ago
        Still not buying it. The value of the Maxes they own sitting on the tarmac has plummeted and all the capital they consumed now has a big fat zero ROI (negative, really, because they still need maintenance and interest payments). If airline X has to reduce flights because they can't fly them, and airline Y doesn't, those flexibility-demanding, well-paying business pax will migrate to Y, and it's Y who will reap the most gains from the sudden reduction in competition. And automated rebooking is a fantasy. Sure, the airline will try to default you onto some other connection, but I've always ended up talking to a human afterwards and picking out a better alternative.
- AndrewBissell 7y ago
  Even if Boeing is "not allowed to fail," the outcome for equity shareholders could be very negative (and frankly, they deserve to take the biggest bite of the turd sandwich if Stoller's analysis of Boeing's accounting risk is correct). A close historical parallel would probably be the 2009 automaker bailouts, although I suppose one might guess that Trump will pursue more of a nakedly corrupt giveaway to Boeing shareholders.
- codingslave 7y ago
  "1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again)" The public doesn't trust these planes. It doesn't matter how fixable they are. Secondly, its not a software problem, the plane is structurally deficient. A problem they tried to solve with software. These planes cannot fly without a computer adjusting them to keep the balance, something that is not true of any other major aircraft. The problem can be solved with software, but its more like a bandaid. EDIT: Heres a quick explanation of the plane: The 737 engines used too much fuel so to make a more attractive plane for poorer countries, Boeing decided to install more efficient engines with bigger fans, creating the 737 MAX. Boeing used a 737 airframe for economic reasons (it was way cheaper, didn't require pilot retraining), but needed more ground clearance for bigger engines. The 737 design cant be practically modified to have taller main landing gear. The solution was to mount to engines higher on the plane. This made the plane more unstable, so they slapped the software solution on. This "fixed" the problem, but then the plane was more complex to fly, which led to the crashes. But Boeing didn't want a plane that required retraining, so they hid the complexity of the software solutions, which led to crashes because the pilots didn't know what was going on.
  - FlyMoreRockets 7y ago
    > These planes cannot fly without a computer adjusting them to keep the balance... First I have heard of this issue, though I haven't been following it closely. Citation, please?
    - jen729w 7y ago
      https://theaircurrent.com/aviation-safety/what-is-the-boeing-737-max-maneuvering-characteristics-augmentation-system-mcas-jt610/ https://theaircurrent.com/aviation-safety/what-is-the-boeing... http://www.boeing.com/commercial/737max/737-max-software-updates.page http://www.boeing.com/commercial/737max/737-max-software-upd...
    - codingslave 7y ago
      I dont have time to find all the sources for this. But basically Boeing tried to make a flawed plane because it was cheaper and they could fly more people around on less fuel. The plane was also designed for runways in third world countries. Then they hired 8$ an hour software engineers to patch up the issues that they knew about (which ended up taking down the plane anyways).
- hurricanetc 7y ago
  I can't believe Boeing has been able to get away with the 737-MAX. It is a unique plane with unique flight characteristics running a complex software simulation so that it "feels" like an existing plane. It's an abomination designed to sell a new plane without having to retrain pilots. I think the fact that this has been allowed to happen is evidence of your third point. I'm not sure if the MAX plane or MAX brand is salvageable but I don't think Boeing as a company will be allowed to fail.
  - allovernow 7y ago
    >It is a unique plane with unique flight characteristics running a complex software simulation so that it "feels" like an existing plane. It's an abomination designed to sell a new plane without having to retrain pilots. Well...not to excuse the poor decisions that lead to the problems with the MAX, but this arguably isn't one of them. Military jets have been unflyable without computer assistance for decades, and it was only a matter of time before such tech made it into commercial aerospace. Though the advantages of maneuverability conferred to fighters from dynamic instability aren't useful in passenger flight, I'd argue that computerized flight controllers are sufficiently mature and battle tested that building a commercial jet which is dependent upon computer control isn't really an oversight, provided the systems are well designed and redundant. Remember, the issue here wasn't with the flight characteristics per se, it was penny pinching administrators who removed redundancy from a critical system to save (and attempt to mark up) a couple hundred dollars per plane.
    - na85 7y ago
      >Remember, the issue here wasn't with the flight characteristics per se, Well, it was and it wasn't. In order to meet the stated demands of their customers (large airlines who didn't want to retrain pilots on a new type), they had to stick to the same 737 type certificate. The engines on the MAX change the centre of gravity such that the handling characteristics were too different. The regulators would not have allowed the MAX to share the type certificate with the 737NG as it was, so MCAS was born. I'm convinced that the MAX 8 itself could have been certified as a distinct type (without MCAS, using some other system that wasn't half-baked) and we would not be having this conversation because those two crashes would not have happened. At least as I see it, the flight characteristics led to MCAS because of penny pinchers.
- madengr 7y ago
  I was listing to the news this morning on KPR (NPR in Kansas). 70% of the 787-MAX is built in Kansas, and the news story was about the state stepping in to pay Boeing workers salaries. I've never heard of such an arraignment between industry and government. Of course with all the news about the halt of production, I have not heard the word "layoff".
- alistproducer2 7y ago
  >either in a new airplane name by branding That's some magical thinking right there. Very few people are going to get on one of these planes as long as the bad design is papered over with a software fix.
  - sokoloff 7y ago
    I think you overestimate how many people know what type of aircraft they're flying, or will care a year from now. Additionally, I would be happy to put my family or my own backside into a Max8 flown by a Southwest, American, or United crew.
    - mrosett 7y ago
      My objection to flying on an American or United Max8 is the American or United part, not the Max8.
- inferiorhuman 7y ago
  2) We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. Sure you can. McDonnell Douglas was a failed commercial airplane manufacturer propped up by their military sales. Look where that got them.
  - catalogia 7y ago
    It got them bought by Boeing, whom the US federal government could rely on to take over production and support for McDonnell Douglas aircraft (several hundred of which are still in service today and will be for years to come.) But who could take over for Boeing? Lockheed Martin is the only plausible answer, but is that what anybody wants? Together Lockheed and Boeing would be something like 4x as large as the second largest contractor for the federal government, so that's not great. And would Lockheed Martin even want that? Right now Lockheed Martin provides support for 50-some C-5's, but with the addition of Boeing they'd have to take on support for hundreds military aircraft derived from Boeing's commercial models. Particularly, all of the Air Force's hundreds of tankers for aerial refueling are made by Boeing (or McDonnnell Douglas), derived from commercial airliners with hundreds more on order. Would Lockheed get back into the commercial airliner business (which they left in the 80s)? If not, then what would the economics of Lockheed manufacturing and supporting hundreds of airliner-derived military jets look like?
- ananonymoususer 7y ago
  The problems with the 737-MAX are inherent in the airframe design. It is unstable and it needs software to correct the instability. The 737-MAX is the only version of the 737 series with this issue. It is not the same "airframe" as all of the other 737 aircraft.
  - FlyMoreRockets 7y ago
    > It is unstable and it needs software to correct the instability. Can you be more specific about the nature of the instability? Is it lateral, longitudinal or directional stability that is at issue?
    - sokoloff 7y ago
      The issue at hand is longitudinal stability, specifically a positive but insufficient amount of it at high angles of attack. People who run around parroting that the Max8 is "unstable" are telling you more about their level of knowledge of aerodynamics than facts about the Max8 airplane.
- jimbob45 7y ago
  Can they fix the damage to their perception? No one I personally know will ever step on a 737-MAX plane.
  - __m 7y ago
    They already renamed it
    - awiesenhofer 7y ago
      to anyone else wondering: they are now calling it 737-8200 apparently [1] [1] https://www.bbc.com/news/business-48995509 https://www.bbc.com/news/business-48995509
- LoSboccacc 7y ago
  1) the technical problems? of course. the cultural problems that caused the problem in the first place?
- jorvi 7y ago
  > We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. Boeing still needs to pay an extremely hefty WTO penalty for that because it's considered state subsidizing. Bad idea to consider it a plus, in terms of accounting.
- dnautics 7y ago
  > but not bad enough to destroy the company. Not very much, including the impending launch disaster tomorrow, would destroy Boeing. The us can't let it fail, it's too big.
  - jacquesm 7y ago
    > including the impending launch disaster tomorrow I think you mean tonight, and why do you think it will be a disaster? https://www.nextspaceflight.com/launches/details/170 https://www.nextspaceflight.com/launches/details/170
    - dnautics 7y ago
      Because I can see the future? ;) Foresight is 20/20. See my comment that is a child of (https://news.ycombinator.com/item?id=21703179 https://news.ycombinator.com/item?id=21703179) It was obvious that this was going to happen. NASA was giving a pass to Boeing on a lot of things,there was lots of organizational pressure to not screw it up, and it failed its previous test due to careless error. Sadly the put order I placed did not execute because I don't know how to effectively trade in illiquid markets yet.
      - jacquesm 7y ago
        You'd have done well on that one. That's why I asked how you knew, it was a pretty bold prediction and to see it come true like that is quite a thing. Pity you didn't answer sooner!
        dnautics 7y ago
        Haha it's not the first time I've made s spectacular long prediction. I correctly predicted Sarah Palin being the us vice presidential candidate a full six months before it happened.
        jacquesm 7y ago
        That was so totally, terribly bad for McCain that I thought he would never ever go for it. You really should put some money on these, looks like you're going to be well off. OTOH of course then you'll score a long string of 0's....
- perlgeek 7y ago
  > 1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again) What's your confidence level that, in let's say 6 months, 737-MAX flies again in the US and the EU? (Feel free to answer with another time frame that makes more sense for you).
sheeshkebab 7y ago
I can’t tell difference between Boeing, airbus, or embrayer planes when I fly - as I suspect most others who fly. They all feel amazing and personally floored every time I realize I’m up in the air moving hundreds mph.
- bgee 7y ago
  embrayer => embraer? Is that a typo or just a different spelling (in Portuguese)?
  - mprovost 7y ago
    Portuguese doesn't have the letter "y"!
    - bgee 7y ago
      ha, thanks!
    - lagadu 7y ago
      Yes it does, it's part of the new orthographic agreement.
      - mprovost 7y ago
        Yes, k, w, and y were added for foreign loan words. Embraer is an abbreviation of "Empresa Brasileira de Aeronáutica" which doesn't contain any foreign words. I wanted to point out that it's unlikely that a native speaker would add a gratuitous "y". It's a common letter in Spanish and most people are surprised that it's not used in Portuguese.
ilovecaching 7y ago
Does this make any of you fearful about getting on a plane? I mean, with all this airing of dirty laundry and scrambling I feel like mistakes are more likely now than ever, plus no new planes = we are stuck on old hardware, and when those planes do go back into service they will have been outside collecting rust.
- Aloha 7y ago
  Look at average fleet age, and tell me if a couple months adds up to a hill of beans.
- s1artibartfast 7y ago
  it is not uncommon do mothball planes and return them to service. Here is a decent article from when many were mothballed in 2009: https://www.cbsnews.com/news/airlines-park-idle-planes-in-the-desert/ https://www.cbsnews.com/news/airlines-park-idle-planes-in-th...
- mark-r 7y ago
  "outside collecting rust" seems a little harsh. Aren't planes designed to be outside 24/7 under conditions a bit more strenuous than being parked?
  - dvdkdndjc 7y ago
    Well not necessarily more strenuous. Parked they’re exposed to the ground level weather, which might be harsher than in the air. - Less water - Less sodium if parked near a sea Chemically it seems better to be above the clouds then bellow them.
    - Aloha 7y ago
      I believe the bulk of the produces MAX's are parked in renton near the factory - or at Boeing Field in Seattle.
    - burfog 7y ago
      Chemically, a big factor is ozone at high altitude. It has caused window problems.
thesumofall 7y ago
Those are pretty big accusations with very little proof. They use a perfectly legal accounting method and anyone interested can largely figure out how much risk Boeing takes by investing in new programs
- Pfhreak 7y ago
  Perfectly legal doesn't make something not an accounting game. One can do things legally and still be doing them disreputably.
  - thesumofall 7y ago
    True, but the article gives also zero proof that anything disreputable has been going on in terms of accounting. While maybe not as straightforward, it does also not sound illogical to spread development costs across the early sales phase of an aircraft.
    - hurricanetc 7y ago
      The author tosses around some strong and unfounded accusations but my takeaway was that this accounting practice is ethical but risky. Case in point... Boeing isn't manufacturing or selling the 737-MAX as of this moment. If their accounting practices rely on them selling planes to recoup costs and they aren't currently even manufacturing the planes I think it is fair to ask what the financial health of the company really truly is.
    - AndrewBissell 7y ago
      Stoller writes: > The problem is that accounting for these costs have been pushed into the future based on anticipated sales, which is risky but manageable IF you can build safe aircraft airliners want to buy. Boeing's accounting methods are perfectly fine (arguably even preferable) if they are able to sell the planes whose costs they are spreading into the future. The question (and the risk to shareholders) is whether they cut so many corners to juice financial results that that will prove not to be the case.
  - deleted 7y ago
Pfhreak 7y ago
Is Boeing a reasonable company to consider nationalizing? Genuinely curious -- it seems like it's in our interest to ensure that Boeing is around, that they are sustainable, that workers continue to view Boeing as a good job, that they have the right motivations of safety vs profit, etc.
- Alupis 7y ago
  I don't see how making the US Federal Government get involved in running an airplane manufacturer would re-align those any of those interests.
  - duncanawoods 7y ago
    Avoid the sick moral hazard of privatised profits but socialised losses.
    - Alupis 7y ago
      It's a tired example, but I've yet to meet the DMV or USPS employee that just wants to excel at every aspect of their work.
      - ClumsyPilot 7y ago
        Agreeed, the way Boeing management exceeded itself will go down in history. The issues at play here affect top level management and their incentives, but let's talk about USPS deliveryman.
      - peteradio 7y ago
        I've never encountered this stereotype. USPS and DMV always just work wherever I've lived.
        deleted 7y ago
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      - deleted 7y ago
ralph84 7y ago
Money quote: > I’m not a financial analyst and I haven’t gone through the numbers in detail
- calcifer 7y ago
  You're doing some creative quoting right there. The context for that sentence is: > Boeing also said on its conference call some customers have stopped making advanced payments. [...] > I’m not a financial analyst and I haven’t gone through the numbers in detail, but I’m going to go out on a limb and assert that this is not good news. I'd say you don't need to be a financial analyst to realize customers not paying you is not a good thing.
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georgeecollins 7y ago
The amazing thing to me is how much less per year Boeing burns than Uber.
tptacek 7y ago
I got to the part about Blackstone having two board members, a "private equity vector for financializing corporations" "experienced in dealing with corporate crises". That's one way to describe them; the simpler way would be "one of the world's largest investors in corporate equities". Is it at all weird for one of the US's largest investors to have board members at one of its largest publicly traded companies? "The board of Boeing is a group of people who know how to cut corners on safety". Is this in evidence? They're the CEOs or former CEOs of Amgen, Duke Energy, Allstate, Aetna, and Medtronic, along with 2 Admirals and a couple ambassadors.
- perl4ever 7y ago
  I believe you're confusing Blackstone with Blackrock. Blackrock has ~$7 trillion in AUM. Blackstone is an "alternative" asset manager with <$0.5 trillion in AUM. An order of magnitude smaller. The Wikipedia pages on each even say "not to be confused with <the other one>"
  - tptacek 7y ago
    Thanks for the correction!
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codingslave 7y ago
Real Synopsis: Boeing 737 Max aircraft have aerodynamic and engineering design flaws The sensors that can detect potential problems were not reliable. There are two sensors but the Boeing design only used one of them. Boeing cut corners to save money To save even more money, Boeing allowed customers to order the planes without warning lights. The planes that crashed didn't have those warning lights. There were pilot training and maintenance log issues. Finally, according to the Seattle Times, the regulators got into bed with companies they were supposed to regulate Conclusion: This company should go out of business and the MBAs that cut costs on this plane thrown in jail for murder
- alexis_fr 7y ago
  > MBAs thrown in jail for murder All I see in the currently best civilization of the world is MBAs not getting jailed when a mass crime is committed. HSBC for managing the drug cartel’s money in USA, Volkswagen for deceit on pollution, Boeing/FAA for collusion (although it could change, but doesn’t seem likely). Is it just an evolutionary mistake and in a few generation we’ll accept to treat company-baked criminality as a sum of individual criminal acts deserving prison, or is there a stable factor where whatever level of development we reach, company managers get away with it?
ggm 7y ago
Is it just me, or is it weird how little reference there is to Airbus or Comac or Bombardier? If you want to talk about financial issues for an aircraft manufacturer, and their accounting model and risk, surely you need to talk explicitly about the comparable at-scale entities in the same market? I think the underlying one-paragraph hit which I paraphrase as: the way the cost of the hole they are digging is buried into future sales is not making the author comfortable is something which really demands discussion of Airbus accounting. If they also do this, if the entire industry is using future profit models to justify up-front capital and operational spend, Then its not just risk in the US markets, it's worldwide. (at some level it's worldwide anyway: the investor model these days can't stop at national borders unless the investment itself is regulated, which may be possible in the case of Boeing, I don't know)
- peteradio 7y ago
  I think the issue is that the cracks start to appear only after future projections badly miss, like when finished planes get parked. Did that happen with Airbus?
  - ggm 7y ago
    I think the decision to tank on the 380 was a sign, yes. I think Airbus is carrying a large debt, as a result of under-achieved sales on the unit, and a huge sunk cost. I have read stuff implying it barely got above its investment costs including R&D, before it stopped. The Max is possibly a bigger hole. the 787 was a huge hole, because of the battery fire. Comac, I wouldn't know. Bombardier is now in J-V land which may be recognition of the limits of what they can do with their own money. I could also say it reaches into Rolls-Royce. Engine leasing is funding engine development: if they stop future sales, because people select GE engines, are they actually in profit purely on the operational charge model of the engines sold?
seibelj 7y ago
Monopolies are caused when the government prevents competition through licenses, excessive regulation, patents, etc. Starting a new bank is an astronomically hard and impossible endeavor, whereas it was pretty easy to do in the 1800s. It’s hard to start an aerospace company, a convenience store, a restaurant, and so on. The only easy companies to start are tech companies! It’s absurd!
- kolinko 7y ago
  How did government help Google or Microsoft or eBay achieve monopoly?
  - FlyMoreRockets 7y ago
    I think OP's point is that government helped by not being in the loop.
achow 7y ago
HBR has a case study on the exact same topic - dated 2017 [Accounting Turbulence at Boeing] Unlike its rival Airbus, Boeing used a practice called program accounting to record its commercial aircraft expenses since the 1980s. https://hbsp.harvard.edu/product/118020-PDF-ENG https://hbsp.harvard.edu/product/118020-PDF-ENG
- Majromax 7y ago
  Seeing it listed like that, it's easy to spot where it appears in Boeing's current financial statements (https://investors.boeing.com/investors/financial-reports/default.aspx https://investors.boeing.com/investors/financial-reports/def...). From 2019Q3-10Q, the 787 'inventory' asset includes about $20b in deferred production expensing (plus $2.2b in tooling), and the 737MAX inventory contains $1.5b in deferred production and $0.5b in tooling. Combined, that represents a significant fraction of Boeing's $132b in total (gross) assets.
kmbfjr 7y ago
Boeing isn’t too big to fail, it is too important to fail. The author raises a valid point that the financial engineers on the board beed to go.

140 points by cjbest 7y ago

1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again) 2) We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. 3) The US Gov't may not allow Boeing to fail for National Security reasons. Both as a major Defense Contractor, and as the sole producer of domestic airliners. (that is, if Boeing is even in a position to fail) I think the 737-MAX issues are bad, but not bad enough to destroy the company. The 737 airframe has been the workhorse for decades, and I don't see that changing soon. Major airlines operating the 737 variants will just continue to use the perfectly good 737-700,800 and 900 variants until something new and fixed comes out.

gertrunde 7y ago
My understanding was that Boeing were originally planning to do a clean redesign of the 737 (similar to the 787), but due to customers going with the A320neo, they rushed out the 737 MAX instead. So that last point about 737-700/800/900 may not be valid.
Pfhreak 7y ago
Do you have a citation on #1? If it's not the case, then there could be massive financial impact to Boeing...
- Alupis 7y ago
  What kind of citation would you need? It's a software and sensor reporting problem in the rushed-to-market new MCAS system - both fixable obviously.
  - Pfhreak 7y ago
    That doesn't seem like it's asking enough whys to me. Why was the MCAS system necessary? Why didn't the sensor fall back to its backups? There are underlying hardware concerns, from the wings to the sensors themselves, that may require retrofits. MCAS can be patched, but I'm not convinced that a patched MCAS can fully address the hardware concerns.
    - AnimalMuppet 7y ago
      Why didn't the sensor fall back to its backups? Because, unfathomably, it was designed to only listen to one sensor. Why? Absolutely no good reason that anyone can see. Can that be fixed? Absolutely, change the code to listen to both sensors. It's not a whole lot more complicated than that.
      - ClumsyPilot 7y ago
        And if one of two sensors fails, which these exposed sensors do often, how do you know which one it is? Intuition says you need three.
        perl4ever 7y ago
        If one of two sensors fails, and the computer sees that, it knows not to fight the pilot, which was the problem, wasn't it?
        ClumsyPilot 7y ago
        That's fine, but seems self defeating. Now the pilot needs training to fly without MCAS, so why have it at all?
        perl4ever 7y ago
        Your question applies to all systems that can fail, so the implication must be wrong.
droopyEyelids 7y ago
Right. What people are missing is that if Boeing is 'too big to fail' for the US Government, then burying the risk, soaking up the resulting windfall, and pressing the accelerator as they turn towards the brick wall was the right thing for them to do. I'm uncertain about your point where everything is fixable- don't forget, it needs to be fixable without significant pilot training, or else it'll remove airline's reason to stick with boeing. However, that doesn't matter! Boeing can fail as hard as it wants, and the executives will keep their money, and the US Government will still need to save the company. The only losers will be pension funds, employees, and citizens- people without any say in the matter.
- alwaysanon 7y ago
  The government can pay for the pilot retraining - which Boeing should have done in the first place.
deleted 7y ago
[deleted]
henryfjordan 7y ago
Is the 737-MAX fixable? Boeing is stopping production of them, so they know that it's not going to be for a while, if ever. The 737-MAX's problem is that they changed the center of gravity of the plane so that it's not stable without an active system to correct that (MCAS). A failure in that system has already crashed 2 planes and killed hundreds. I don't think you can throw an active system on an inherently unstable airframe and call it a fix. Airplanes need to be as fail-safe as possible.
- Alupis 7y ago
  While this is true (the MCAS being at fault), it was compounded by incorrect and/or absent reporting of what the MCAS system was doing. One of the indicators was tied to an optional set of features on accident (spaghetti code?), which caused budget airlines that didn't purchase the optional features to not show pilots when there was a problem with MCAS. That coupled with lack of training of how to react to exactly that scenario, and we have the events that transpired. All of which is fixable one way or another.
  - empath75 7y ago
    If it’s fixable, why isn’t it fixed? Why are they stopping production? It’s been a year.
    - Alupis 7y ago
      Because rushing a fix into production and then having another airline crash would be far more severe than the current situation. So it makes sense to step back, and fix things the right way before you reintroduce the system back into the market.
    - jdsully 7y ago
      Once the second crash happened there was extra oversight and other issues that were signed off on during the design phase were once again put in question. Its no longer just MCAS being modified but what happens when the two flight computers disagree. So to answer your question there are now multiple issues at play and they are effectively redesigning the flight computer system as a whole. This is not a quick fix.
sithadmin 7y ago
>We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. It's 30 percent of Boeing's income. Definitely not enough to prop them up.
- Scoundreller 7y ago
  The US Government needing you is always enough to prop you up.
  - sithadmin 7y ago
    It's enough to keep the company alive, but even the most hawkish US politicians aren't going to throw enough federal cash at Boeing to keep them running in anything resembling their current scale and capabilities if they go under.
    - Scoundreller 7y ago
      Iunno, even in the financial crisis, the feds didn't even feel it was necessary to wipe out equity shareholders when they went to bailout. The feds could always rewrite regs to help Boeing, like limiting the grandfathering that allows airlines to fly aircraft that don't meet current safety regulations.
      - wahern 7y ago
        The Fed's didn't wipeout equity shareholders during the financial crisis because big investors were leveraged. The whole point of the bailout was to prevent losses on leveraged assets from rippling through the financial system and collapsing the whole thing.
        Scoundreller 7y ago
        More leverage should equal more risk. You shouldn't be saved just because you took too much risk. That's how it's supposed to work!
grecy 7y ago
> The US Gov't may not allow Boeing to fail I agree entirely. They'll either bail them out, or just pass laws that prevent Boeing from being Sued.
- clvx 7y ago
  The government might pass laws, but it will only fly inside the States if other countries disagree. In this one, Boeing is limited.
  - netsharc 7y ago
    At one point in time the US State Department and presidential admin would've been able to negotiate, coax, or strong-arm other countries to certify things they were reluctant to. With a gutted state dept and an admin full of incompetence, this wouldn't happen nowadays...
    - deleted 7y ago
      [deleted]
    - qtplatypus 7y ago
      Both China and the EU have said that they will independently recertificatify the plains.
- thrower123 7y ago
  They could force them to spin off the defense contractor part and only bail that part out, perhaps.
Scoundreller 7y ago
> Major airlines operating the 737 variants will just continue to use the perfectly good 737-700,800 and 900 variants until something new and fixed comes out. I think airlines love the situation. The balance between supply and demand for new aircraft has taken a hit. That means any glut in capacity has been erased and pricing power has gone up a lot. Airlines had an excuse to cancel flights and put you on a different schedule, all while claiming force majeure. While the 737 variants are fine, they have a shorter range than the MAX. The MAX can do some interesting transatlantic routes (UK,FR,ES,PT) and east coast US/Canada that are dicey in a non-MAX.
- 9nGQluzmnq3M 7y ago
  This makes no sense. Airlines hate canceling flights: they already maximize the hell out of their fleet utilization, so there's very little space capacity in the system and the knock-on effects of having to find new seats for 100+ pax per cancelled flight are massive. Pricing power has indeed gone up, but not in the airlines' favor: for example, Airbus can now charge what it wants for the A320 (the only viable 737 competitor) and wages for qualified A320 pilots are skyrocketing.
  - Scoundreller 7y ago
    Yes, the situation is even better for $Manufacturer where $Manufacturer != Boeing. But airlines aren't suddenly cancelling flights. They're looking at their schedule and consolidating whatever they can. And charging more for the remaining seats. And the value of the aircraft they already own just went up. I've also seen some airlines downgauge turbojets to Q400s, which is slower but saves a ton on fuel. Routes that needed to run X times per day to be competitive (because people want flexibility in departure and return times) can now be consolidated into X minus Y flights with the same number of passengers. It's 2019, airlines have automated processes to rebook when a flight is cancelled. And upstart airlines trying to build their fleets couldn't.
    - 9nGQluzmnq3M 7y ago
      Still not buying it. The value of the Maxes they own sitting on the tarmac has plummeted and all the capital they consumed now has a big fat zero ROI (negative, really, because they still need maintenance and interest payments). If airline X has to reduce flights because they can't fly them, and airline Y doesn't, those flexibility-demanding, well-paying business pax will migrate to Y, and it's Y who will reap the most gains from the sudden reduction in competition. And automated rebooking is a fantasy. Sure, the airline will try to default you onto some other connection, but I've always ended up talking to a human afterwards and picking out a better alternative.
AndrewBissell 7y ago
Even if Boeing is "not allowed to fail," the outcome for equity shareholders could be very negative (and frankly, they deserve to take the biggest bite of the turd sandwich if Stoller's analysis of Boeing's accounting risk is correct). A close historical parallel would probably be the 2009 automaker bailouts, although I suppose one might guess that Trump will pursue more of a nakedly corrupt giveaway to Boeing shareholders.
codingslave 7y ago
"1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again)" The public doesn't trust these planes. It doesn't matter how fixable they are. Secondly, its not a software problem, the plane is structurally deficient. A problem they tried to solve with software. These planes cannot fly without a computer adjusting them to keep the balance, something that is not true of any other major aircraft. The problem can be solved with software, but its more like a bandaid. EDIT: Heres a quick explanation of the plane: The 737 engines used too much fuel so to make a more attractive plane for poorer countries, Boeing decided to install more efficient engines with bigger fans, creating the 737 MAX. Boeing used a 737 airframe for economic reasons (it was way cheaper, didn't require pilot retraining), but needed more ground clearance for bigger engines. The 737 design cant be practically modified to have taller main landing gear. The solution was to mount to engines higher on the plane. This made the plane more unstable, so they slapped the software solution on. This "fixed" the problem, but then the plane was more complex to fly, which led to the crashes. But Boeing didn't want a plane that required retraining, so they hid the complexity of the software solutions, which led to crashes because the pilots didn't know what was going on.
- FlyMoreRockets 7y ago
  > These planes cannot fly without a computer adjusting them to keep the balance... First I have heard of this issue, though I haven't been following it closely. Citation, please?
  - jen729w 7y ago
    https://theaircurrent.com/aviation-safety/what-is-the-boeing-737-max-maneuvering-characteristics-augmentation-system-mcas-jt610/ https://theaircurrent.com/aviation-safety/what-is-the-boeing... http://www.boeing.com/commercial/737max/737-max-software-updates.page http://www.boeing.com/commercial/737max/737-max-software-upd...
  - codingslave 7y ago
    I dont have time to find all the sources for this. But basically Boeing tried to make a flawed plane because it was cheaper and they could fly more people around on less fuel. The plane was also designed for runways in third world countries. Then they hired 8$ an hour software engineers to patch up the issues that they knew about (which ended up taking down the plane anyways).
hurricanetc 7y ago
I can't believe Boeing has been able to get away with the 737-MAX. It is a unique plane with unique flight characteristics running a complex software simulation so that it "feels" like an existing plane. It's an abomination designed to sell a new plane without having to retrain pilots. I think the fact that this has been allowed to happen is evidence of your third point. I'm not sure if the MAX plane or MAX brand is salvageable but I don't think Boeing as a company will be allowed to fail.
- allovernow 7y ago
  >It is a unique plane with unique flight characteristics running a complex software simulation so that it "feels" like an existing plane. It's an abomination designed to sell a new plane without having to retrain pilots. Well...not to excuse the poor decisions that lead to the problems with the MAX, but this arguably isn't one of them. Military jets have been unflyable without computer assistance for decades, and it was only a matter of time before such tech made it into commercial aerospace. Though the advantages of maneuverability conferred to fighters from dynamic instability aren't useful in passenger flight, I'd argue that computerized flight controllers are sufficiently mature and battle tested that building a commercial jet which is dependent upon computer control isn't really an oversight, provided the systems are well designed and redundant. Remember, the issue here wasn't with the flight characteristics per se, it was penny pinching administrators who removed redundancy from a critical system to save (and attempt to mark up) a couple hundred dollars per plane.
  - na85 7y ago
    >Remember, the issue here wasn't with the flight characteristics per se, Well, it was and it wasn't. In order to meet the stated demands of their customers (large airlines who didn't want to retrain pilots on a new type), they had to stick to the same 737 type certificate. The engines on the MAX change the centre of gravity such that the handling characteristics were too different. The regulators would not have allowed the MAX to share the type certificate with the 737NG as it was, so MCAS was born. I'm convinced that the MAX 8 itself could have been certified as a distinct type (without MCAS, using some other system that wasn't half-baked) and we would not be having this conversation because those two crashes would not have happened. At least as I see it, the flight characteristics led to MCAS because of penny pinchers.
madengr 7y ago
I was listing to the news this morning on KPR (NPR in Kansas). 70% of the 787-MAX is built in Kansas, and the news story was about the state stepping in to pay Boeing workers salaries. I've never heard of such an arraignment between industry and government. Of course with all the news about the halt of production, I have not heard the word "layoff".
alistproducer2 7y ago
>either in a new airplane name by branding That's some magical thinking right there. Very few people are going to get on one of these planes as long as the bad design is papered over with a software fix.
- sokoloff 7y ago
  I think you overestimate how many people know what type of aircraft they're flying, or will care a year from now. Additionally, I would be happy to put my family or my own backside into a Max8 flown by a Southwest, American, or United crew.
  - mrosett 7y ago
    My objection to flying on an American or United Max8 is the American or United part, not the Max8.
inferiorhuman 7y ago
2) We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. Sure you can. McDonnell Douglas was a failed commercial airplane manufacturer propped up by their military sales. Look where that got them.
- catalogia 7y ago
  It got them bought by Boeing, whom the US federal government could rely on to take over production and support for McDonnell Douglas aircraft (several hundred of which are still in service today and will be for years to come.) But who could take over for Boeing? Lockheed Martin is the only plausible answer, but is that what anybody wants? Together Lockheed and Boeing would be something like 4x as large as the second largest contractor for the federal government, so that's not great. And would Lockheed Martin even want that? Right now Lockheed Martin provides support for 50-some C-5's, but with the addition of Boeing they'd have to take on support for hundreds military aircraft derived from Boeing's commercial models. Particularly, all of the Air Force's hundreds of tankers for aerial refueling are made by Boeing (or McDonnnell Douglas), derived from commercial airliners with hundreds more on order. Would Lockheed get back into the commercial airliner business (which they left in the 80s)? If not, then what would the economics of Lockheed manufacturing and supporting hundreds of airliner-derived military jets look like?
ananonymoususer 7y ago
The problems with the 737-MAX are inherent in the airframe design. It is unstable and it needs software to correct the instability. The 737-MAX is the only version of the 737 series with this issue. It is not the same "airframe" as all of the other 737 aircraft.
- FlyMoreRockets 7y ago
  > It is unstable and it needs software to correct the instability. Can you be more specific about the nature of the instability? Is it lateral, longitudinal or directional stability that is at issue?
  - sokoloff 7y ago
    The issue at hand is longitudinal stability, specifically a positive but insufficient amount of it at high angles of attack. People who run around parroting that the Max8 is "unstable" are telling you more about their level of knowledge of aerodynamics than facts about the Max8 airplane.
jimbob45 7y ago
Can they fix the damage to their perception? No one I personally know will ever step on a 737-MAX plane.
- __m 7y ago
  They already renamed it
  - awiesenhofer 7y ago
    to anyone else wondering: they are now calling it 737-8200 apparently [1] [1] https://www.bbc.com/news/business-48995509 https://www.bbc.com/news/business-48995509
LoSboccacc 7y ago
1) the technical problems? of course. the cultural problems that caused the problem in the first place?
jorvi 7y ago
> We can't discount all the revenues generated by defense spending, both by the US and abroad. That's a non-trivial amount of Boeing's income. Boeing still needs to pay an extremely hefty WTO penalty for that because it's considered state subsidizing. Bad idea to consider it a plus, in terms of accounting.
dnautics 7y ago
> but not bad enough to destroy the company. Not very much, including the impending launch disaster tomorrow, would destroy Boeing. The us can't let it fail, it's too big.
- jacquesm 7y ago
  > including the impending launch disaster tomorrow I think you mean tonight, and why do you think it will be a disaster? https://www.nextspaceflight.com/launches/details/170 https://www.nextspaceflight.com/launches/details/170
  - dnautics 7y ago
    Because I can see the future? ;) Foresight is 20/20. See my comment that is a child of (https://news.ycombinator.com/item?id=21703179 https://news.ycombinator.com/item?id=21703179) It was obvious that this was going to happen. NASA was giving a pass to Boeing on a lot of things,there was lots of organizational pressure to not screw it up, and it failed its previous test due to careless error. Sadly the put order I placed did not execute because I don't know how to effectively trade in illiquid markets yet.
    - jacquesm 7y ago
      You'd have done well on that one. That's why I asked how you knew, it was a pretty bold prediction and to see it come true like that is quite a thing. Pity you didn't answer sooner!
      - dnautics 7y ago
        Haha it's not the first time I've made s spectacular long prediction. I correctly predicted Sarah Palin being the us vice presidential candidate a full six months before it happened.
        jacquesm 7y ago
        That was so totally, terribly bad for McCain that I thought he would never ever go for it. You really should put some money on these, looks like you're going to be well off. OTOH of course then you'll score a long string of 0's....
perlgeek 7y ago
> 1) The problems with the 737-MAX are fixable and will be fixed (either in a new airplane name by branding, or with time as people trust the new MAX variant again) What's your confidence level that, in let's say 6 months, 737-MAX flies again in the US and the EU? (Feel free to answer with another time frame that makes more sense for you).

sheeshkebab 7y ago

I can’t tell difference between Boeing, airbus, or embrayer planes when I fly - as I suspect most others who fly. They all feel amazing and personally floored every time I realize I’m up in the air moving hundreds mph.

bgee 7y ago
embrayer => embraer? Is that a typo or just a different spelling (in Portuguese)?
- mprovost 7y ago
  Portuguese doesn't have the letter "y"!
  - bgee 7y ago
    ha, thanks!
  - lagadu 7y ago
    Yes it does, it's part of the new orthographic agreement.
    - mprovost 7y ago
      Yes, k, w, and y were added for foreign loan words. Embraer is an abbreviation of "Empresa Brasileira de Aeronáutica" which doesn't contain any foreign words. I wanted to point out that it's unlikely that a native speaker would add a gratuitous "y". It's a common letter in Spanish and most people are surprised that it's not used in Portuguese.

ilovecaching 7y ago

Does this make any of you fearful about getting on a plane? I mean, with all this airing of dirty laundry and scrambling I feel like mistakes are more likely now than ever, plus no new planes = we are stuck on old hardware, and when those planes do go back into service they will have been outside collecting rust.

Aloha 7y ago
Look at average fleet age, and tell me if a couple months adds up to a hill of beans.
s1artibartfast 7y ago
it is not uncommon do mothball planes and return them to service. Here is a decent article from when many were mothballed in 2009: https://www.cbsnews.com/news/airlines-park-idle-planes-in-the-desert/ https://www.cbsnews.com/news/airlines-park-idle-planes-in-th...
mark-r 7y ago
"outside collecting rust" seems a little harsh. Aren't planes designed to be outside 24/7 under conditions a bit more strenuous than being parked?
- dvdkdndjc 7y ago
  Well not necessarily more strenuous. Parked they’re exposed to the ground level weather, which might be harsher than in the air. - Less water - Less sodium if parked near a sea Chemically it seems better to be above the clouds then bellow them.
  - Aloha 7y ago
    I believe the bulk of the produces MAX's are parked in renton near the factory - or at Boeing Field in Seattle.
  - burfog 7y ago
    Chemically, a big factor is ozone at high altitude. It has caused window problems.

thesumofall 7y ago

Those are pretty big accusations with very little proof. They use a perfectly legal accounting method and anyone interested can largely figure out how much risk Boeing takes by investing in new programs

Pfhreak 7y ago
Perfectly legal doesn't make something not an accounting game. One can do things legally and still be doing them disreputably.
- thesumofall 7y ago
  True, but the article gives also zero proof that anything disreputable has been going on in terms of accounting. While maybe not as straightforward, it does also not sound illogical to spread development costs across the early sales phase of an aircraft.
  - hurricanetc 7y ago
    The author tosses around some strong and unfounded accusations but my takeaway was that this accounting practice is ethical but risky. Case in point... Boeing isn't manufacturing or selling the 737-MAX as of this moment. If their accounting practices rely on them selling planes to recoup costs and they aren't currently even manufacturing the planes I think it is fair to ask what the financial health of the company really truly is.
  - AndrewBissell 7y ago
    Stoller writes: > The problem is that accounting for these costs have been pushed into the future based on anticipated sales, which is risky but manageable IF you can build safe aircraft airliners want to buy. Boeing's accounting methods are perfectly fine (arguably even preferable) if they are able to sell the planes whose costs they are spreading into the future. The question (and the risk to shareholders) is whether they cut so many corners to juice financial results that that will prove not to be the case.
- deleted 7y ago

Pfhreak 7y ago

Is Boeing a reasonable company to consider nationalizing? Genuinely curious -- it seems like it's in our interest to ensure that Boeing is around, that they are sustainable, that workers continue to view Boeing as a good job, that they have the right motivations of safety vs profit, etc.

Alupis 7y ago
I don't see how making the US Federal Government get involved in running an airplane manufacturer would re-align those any of those interests.
- duncanawoods 7y ago
  Avoid the sick moral hazard of privatised profits but socialised losses.
  - Alupis 7y ago
    It's a tired example, but I've yet to meet the DMV or USPS employee that just wants to excel at every aspect of their work.
    - ClumsyPilot 7y ago
      Agreeed, the way Boeing management exceeded itself will go down in history. The issues at play here affect top level management and their incentives, but let's talk about USPS deliveryman.
    - peteradio 7y ago
      I've never encountered this stereotype. USPS and DMV always just work wherever I've lived.
      - deleted 7y ago
        [deleted]
    - deleted 7y ago

ralph84 7y ago

Money quote: > I’m not a financial analyst and I haven’t gone through the numbers in detail

calcifer 7y ago
You're doing some creative quoting right there. The context for that sentence is: > Boeing also said on its conference call some customers have stopped making advanced payments. [...] > I’m not a financial analyst and I haven’t gone through the numbers in detail, but I’m going to go out on a limb and assert that this is not good news. I'd say you don't need to be a financial analyst to realize customers not paying you is not a good thing.

deleted 7y ago

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georgeecollins 7y ago

The amazing thing to me is how much less per year Boeing burns than Uber.

tptacek 7y ago

I got to the part about Blackstone having two board members, a "private equity vector for financializing corporations" "experienced in dealing with corporate crises". That's one way to describe them; the simpler way would be "one of the world's largest investors in corporate equities". Is it at all weird for one of the US's largest investors to have board members at one of its largest publicly traded companies? "The board of Boeing is a group of people who know how to cut corners on safety". Is this in evidence? They're the CEOs or former CEOs of Amgen, Duke Energy, Allstate, Aetna, and Medtronic, along with 2 Admirals and a couple ambassadors.

perl4ever 7y ago
I believe you're confusing Blackstone with Blackrock. Blackrock has ~$7 trillion in AUM. Blackstone is an "alternative" asset manager with <$0.5 trillion in AUM. An order of magnitude smaller. The Wikipedia pages on each even say "not to be confused with <the other one>"
- tptacek 7y ago
  Thanks for the correction!

deleted 7y ago

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codingslave 7y ago

Real Synopsis: Boeing 737 Max aircraft have aerodynamic and engineering design flaws The sensors that can detect potential problems were not reliable. There are two sensors but the Boeing design only used one of them. Boeing cut corners to save money To save even more money, Boeing allowed customers to order the planes without warning lights. The planes that crashed didn't have those warning lights. There were pilot training and maintenance log issues. Finally, according to the Seattle Times, the regulators got into bed with companies they were supposed to regulate Conclusion: This company should go out of business and the MBAs that cut costs on this plane thrown in jail for murder

alexis_fr 7y ago
> MBAs thrown in jail for murder All I see in the currently best civilization of the world is MBAs not getting jailed when a mass crime is committed. HSBC for managing the drug cartel’s money in USA, Volkswagen for deceit on pollution, Boeing/FAA for collusion (although it could change, but doesn’t seem likely). Is it just an evolutionary mistake and in a few generation we’ll accept to treat company-baked criminality as a sum of individual criminal acts deserving prison, or is there a stable factor where whatever level of development we reach, company managers get away with it?

ggm 7y ago

Is it just me, or is it weird how little reference there is to Airbus or Comac or Bombardier? If you want to talk about financial issues for an aircraft manufacturer, and their accounting model and risk, surely you need to talk explicitly about the comparable at-scale entities in the same market? I think the underlying one-paragraph hit which I paraphrase as: the way the cost of the hole they are digging is buried into future sales is not making the author comfortable is something which really demands discussion of Airbus accounting. If they also do this, if the entire industry is using future profit models to justify up-front capital and operational spend, Then its not just risk in the US markets, it's worldwide. (at some level it's worldwide anyway: the investor model these days can't stop at national borders unless the investment itself is regulated, which may be possible in the case of Boeing, I don't know)

peteradio 7y ago
I think the issue is that the cracks start to appear only after future projections badly miss, like when finished planes get parked. Did that happen with Airbus?
- ggm 7y ago
  I think the decision to tank on the 380 was a sign, yes. I think Airbus is carrying a large debt, as a result of under-achieved sales on the unit, and a huge sunk cost. I have read stuff implying it barely got above its investment costs including R&D, before it stopped. The Max is possibly a bigger hole. the 787 was a huge hole, because of the battery fire. Comac, I wouldn't know. Bombardier is now in J-V land which may be recognition of the limits of what they can do with their own money. I could also say it reaches into Rolls-Royce. Engine leasing is funding engine development: if they stop future sales, because people select GE engines, are they actually in profit purely on the operational charge model of the engines sold?

seibelj 7y ago

Monopolies are caused when the government prevents competition through licenses, excessive regulation, patents, etc. Starting a new bank is an astronomically hard and impossible endeavor, whereas it was pretty easy to do in the 1800s. It’s hard to start an aerospace company, a convenience store, a restaurant, and so on. The only easy companies to start are tech companies! It’s absurd!

kolinko 7y ago
How did government help Google or Microsoft or eBay achieve monopoly?
- FlyMoreRockets 7y ago
  I think OP's point is that government helped by not being in the loop.

achow 7y ago

HBR has a case study on the exact same topic - dated 2017 [Accounting Turbulence at Boeing] Unlike its rival Airbus, Boeing used a practice called program accounting to record its commercial aircraft expenses since the 1980s. https://hbsp.harvard.edu/product/118020-PDF-ENG https://hbsp.harvard.edu/product/118020-PDF-ENG

Majromax 7y ago
Seeing it listed like that, it's easy to spot where it appears in Boeing's current financial statements (https://investors.boeing.com/investors/financial-reports/default.aspx https://investors.boeing.com/investors/financial-reports/def...). From 2019Q3-10Q, the 787 'inventory' asset includes about $20b in deferred production expensing (plus $2.2b in tooling), and the 737MAX inventory contains $1.5b in deferred production and $0.5b in tooling. Combined, that represents a significant fraction of Boeing's $132b in total (gross) assets.

kmbfjr 7y ago

Boeing isn’t too big to fail, it is too important to fail. The author raises a valid point that the financial engineers on the board beed to go.