9 ms·
This point (I put it in italics) should be discussed more: > At the time, then-Boeing executive Alan Mulally said selling the factory to a private-equity firm
by gumby 3y ago
This point (I put it in italics) should be discussed more:
> At the time, then-Boeing executive Alan Mulally said selling the factory to a private-equity firm would let Boeing focus on final assembly, where it could add the most value to its airplanes.
By now I think we’ve learned that products made in factories owned by PE firms should carry warning labels. They are proactively anti-quality organizations, focused on extracting the maximum cash out in the short term at the cost of long term value.
- ldoughty 3y agoYou could say the same about publicity traded companies. It all depends on who is in charge... And unfortunately self-serving people tend to reach the top more easily in both scenarios. You don't get Dan Price's very often (relatively). In public companies, there is more public information, but that doesn't stop a company from doing "bad" things of the short term stock movement is good enough. Look at all the merger promises that are broken. They all know what they are doing. Uphold the promise a year, then it's to late to undo the merger when you start to ignore the promise. Can also look at all the fines companies get for willfully breaking laws (or treading the line).. (fine < profits)? success!
- gumby 3y agoI think the PE companies have a specifically pathological and parasitic business model. There is more info about public companies and the majority of them don't suffer from the things you mention (which are real phenomena), and when they occur in the majority they do more from incompetence than malice. (I'm not talking about microcap companies). The PE model is: - buy company with debt. - after purchase company assumes the debt (pays off PE company) and pays further fees to acquirer - company therefore cannot make a profit, cuts staff which cuts output over time - company goes bankrupt This is the canonical business model from the big PE companies like Bain (Romney), KKR, Blackstone, CVC, Carlyle, etc.
- whatshisface 3y agoSomething does not add up. Banks would not lend to PE firms of they would all then go on to default.
- Spooky23 3y agoIt’s syndicated. The initial lenders make money off of a variety of tax and other schemes.
- whatshisface 3y agoThat's missing a lot of steps... Like how to profit by not being paid back for the money you loaned!
- mrcode007 3y agoIt’s siphoned off the acquisition target
- adgjlsfhk1 3y agothe business goes bankrupt and the bank is ahead of customers and employees in line for who gets paid first.
- whatshisface 3y agoSo the scheme is to get in debt to unsophisticated lenders (employees and customers), take the money out, and finally default?
- deleted 3y ago[deleted]
- Spooky23 3y agoThe initial lenders aren't idiots. This is a multi-billion dollar business. They sell the obligation to another sucker, who will often bundle it with a bunch of other debt (good or bad) and sell it to institutional investors. Your 401k in 2008 or whatever had some shitty balanced fund that held 0.5% of assets in some toxic shit like Sears/K-Mart for the "high yield" portion of the fixed income component. So you make some money on government, agency and Apple/Exxon bonds, and get a high yield on K-Mart that goes poof a year later.
- forrestthewoods 3y ago> And unfortunately self-serving people tend to reach the top more easily in both scenarios. You don't get Dan Price's very often (relatively). Oh boy do I have bad news for you. https://www.seattletimes.com/business/seattle-celebrity-ceo-dan-prices-rise-and-fall-at-gravity-payments/ https://www.seattletimes.com/business/seattle-celebrity-ceo-...
- ldoughty 3y agoAppreciate the additional info. I do find it interesting that the Seattle Times has basically no positive coverage of Dan Price, despite numerous accounts I've read of prosperity from the change. That said, there is likely merit in the complaints, and it's good to remember that there are often two sides to stories.
- TotoHorner 3y ago[flagged]
- Simon_ORourke 3y agoPerhaps it's the one common feature of air travel (safety & reliability) that they may start playing with to "reduce costs" elsewhere. Imagining two flights from L.A. to Vegas, one on an Airbus that costs $100, and one on a Boeing that's $5 but you have to sign a waiver going onboard.
- Certhas 3y agoIt's perfectly possible that that cost difference is massively exaggerated. It might well just be 95$ vs 100$. But if you don't have the information that one is far more risky, then you always pick the 95$ option, don't you?
- JumpCrisscross 3y ago> if you don't have the information that one is far more risky, then you always pick the 95$ option, don't you? Air travellers by and large choose their travel based on price. If a subset started paying a premium for Airbuses, the market would sort them and remain relatively equally profitable for those flying Boeings.
- jbm 3y agoThe only signal that was surfaced on many sites was cost, it's not surprising that it is the only thing flyers look at.
- wharvle 3y agoMake $/inch-of-floor-space prominent and easy to compare in flight listings and you might see something different happen.
- bluGill 3y agoI decided about 10 years ago I'm willing to pay the premium for economy plus seats (more leg room). I don't fly often enough for the market to notice me, but when I fly I notice that those seats do sell out faster, if nothing else I can still pay extra for those seats. I can also pay extra for first class - however the premium is high enough that I cannot afford it despite wanting to.
- inglor_cz 3y agoFalcon 9 is also produced by a PE firm and it is very reliable. German Mittelstand corporations are often family-owned for generations, and they are known for high-quality products. As in everything, humans and their motivations cannot be ignored. Firms are conglomerates of people, and it matters which people are on the top.
- 55555 3y agoAre you calling SpaceX a PE firm or am I missing something? https://en.wikipedia.org/wiki/Falcon_9 https://en.wikipedia.org/wiki/Falcon_9
- inglor_cz 3y agoMaybe I understand the term wrong, but I was under the impression that PE means "not publicly traded, in private hands". Which is what SpaceX is.
- TheOtherHobbes 3y agoThete's a big difference between a private firm and a private equity firm. Private firm - no public trading of stocks. Private equity - a business model created by syndicates that borrow money to buy companies, saddle the companies with that borrowing, demand a quick return (-> layoffs, selloffs, and wage cuts), then bankrupt the company when all the value and productivity have been extracted.
- ta1243 3y agoCrucially the money which is never repaid is not borne by the banks that put that money up front, they chop it up and sell it off with other things so nobody even knows who loses the money. It's the sub prime mortgage thing all over again
- inferiorhuman 3y agoTo demonstrate that I'm not an economist: PE is a more specific than just private company. Boeing sold its Wichita division to an "investment firm". An investment firm is essentially a company that buys and sells companies. Typically they're focused on short-term profits to juice the stock price before it's sold. Spirit was created and sold to the investment firm (Onex) in 2006, and Onex turned around and sold its the last of its stake in Spirit in 2014. Onex got over $3 billion for their initial $375 million stake in Spirit. The cost, as we're rediscovering, is that quality of Spirit's product went to shit and the long-term viability of Spirit is in question.
- foofie 3y ago> By now I think we’ve learned that products made in factories owned by PE firms should carry warning labels. They are proactively anti-quality organizations, focused on extracting the maximum cash out in the short term at the cost of long term value. I'd say basically the same thing but from a different perspective. Outsourcing is used to simplify management, as it allows companies to shift away from building quality organizations into the easier task of using coersion towards external organizations to drive down cost and avoid any liability due to loss of quality. Outsourcing is a cheat code for managers, and one which invariably causes serious harm to the company while shielding any decision-making exec from being held liable for nuking the company.
- gumby 3y ago> Outsourcing … invariably causes serious harm to the company while shielding any decision-making exec from being held liable… OK I posted that spinning off a portion of your manufacturing is bad, but I think your statement overstates the issue. Ford used to be so vertically integrated that they raised sheep for the wool in their seats! It makes sense to buy bearings from companies that specialize in the metallurgy and precision of good bearings. Focus on what you’re good at and what really makes the difference to your customer. I once visited a home generator factory in India. They bought billets of aluminium and copper and manually machined the two stroke engines, drew the wire and made the generators, and so on. They hadn't updated their design since the 80s. If they’d sourced the engine from an engine company and the generator from a generator company the two could have advanced separately based on the demands of a larger customer base.
- foofie 3y ago> OK I posted that spinning off a portion of your manufacturing is bad, but I think your statement overstates the issue. I was addressing the statement of "(...) selling the factory to a private-equity firm would let Boeing focus on final assembly (...)", which corresponds to outsourcing manufacturing of everything and anything used in a plane, up until the last step of the manufacturing process. It's one thing to leverage existing third-party products in your own product line. It's an entirely different thing to aim for an Ikea-like approach of buying everything and just put the thing together once you get all the parts.
- MBCook 3y agoI wonder if we’ll ever get the guts to outlaw PE somehow, or at least make it so unprofitable it’s very rare. Nothing good ever seems to come from it, despite their claims.
- candiddevmike 3y agoIt makes a lot of rich people more rich at the expense of workers and retail investors. I don't think you'll ever be able to get rid of it.
- DrScientist 3y agoOne solution is to make sure the owners pay the social costs of company destruction. Don't let them avoid pension commitments - force them to pay decent redundancy or support employees in finding new jobs. Stop them splitting off liabilities and then having that part go bankrupt etc etc.
- ryandamm 3y agoEnded the carried interest deduction would be low hanging fruit if we want to discourage purely rent-seeking financial behavior.
- milesvp 3y agoWould be nice. I think the main fix would be making sure that debt used to buy companies can never be transferred to the company purchased. I understand that money is fungible, but accounting is often there to deal with the most egregious abuses of fungibility. It would at least make leveraged buyouts much more expensive. Especially since now, the purchased company needs to maintain some kind of profitability over several years to be able to service this debt. Oh, and make it so the purchased company cannot borrow money for several years after purchase. If the purchaser wants to borrow money and infuse it into the company that's fine. I know there's still all kinds of accounting shenanigans that can be played to payout to PE purchasers, but that'd be a good first step I think.
- Aurornis 3y ago> I wonder if we’ll ever get the guts to outlaw PE somehow PE is just a type of company that participates in the act of buying and selling businesses. You can't outlaw buying and selling businesses. You can't outlaw people working together to buy companies with financing. Yes, there are a lot of PE horror stories, but there are also 100X more invisible private equity style buyups that you never hear or think about because nothing is going wrong. Many of them actually improve when they roll up the company. My local eye doctor was bought out by a PE firm. They came in and installed all new diagnostic equipment that was standardized across their locations. They now nail my prescription on the first try and it's faster than ever before. The service is also more streamlined. This is the kind of thing that nobody ever thinks twice about, but it happens all over the place.
- JumpCrisscross 3y ago> we’ve learned that products made in factories owned by PE firms should carry warning labels Source? The data I’ve seen don’t show quality differences based on ownership model except when there is family ownership.
- x0x0 3y agoI just get hung up on being an airplane company that doesn't manufacture the plane. How is that possibly not a core competency for the design and manufacture of airplanes?
- rgmerk 3y agoIt’s a matter of degree. Are they supposed to run a chip fab to make all the chips that go into their plane? That said, fuselages do seem to be a core aspect of making planes!
- bluGill 3y agoGiven the chip shortages of the past few years maybe they should have. For that matter given how often perfectly good chips go obsolete maybe they should just so they don't have to spend $$$ redesigning a perfectly good circuit.
- drexlspivey 3y agoAMD and Apple don’t run chip fabs and Boeing will.. People in here will literally argue any point no matter how stupid
- bluGill 3y agoWhat others do is not relevant. Intel does run their own chip fabs. There are pros and cons. How they fall out can be different for different actors. Boeing can probably accept the compromise that they are forever locked on an older process that can't scale to 500mhz.
- x0x0 3y agoThat's not an apt comparison. Lots of people and companies use identical chips. Only boeing uses boeing airplane bodies.
- p_l 3y agoFunnily enough, one of the major avionics vendor (Honeywell), while they no longer own fabs, they do design their own CPUs for use in aircraft (a licensed version of AMD29050)
- hinkley 3y agoI was there when Mulally was and people already knew what a horse’s ass he was. Most of this is his fault, and the board who hired him.
- renegade-otter 3y agoBut this is not just PE - this is the Jack Welch school of business. Ascend to the top of the company, attach to it like a parasite, and suck it dry over time. Short to mid term, "woah, the stock is going up, this guy is a genius!" Until there is no more company left to juice the shares with buybacks. This is how the GE engineering culture was destroyed as well. Private Equity is like that, only much accelerated. There is no pretense of "management".