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They didn‘t maximize profits at all. Why do people operate on the principle „if it is bad it had to be because of maximizing profits“? This seems to be much mor

They didn‘t maximize profits at all. Why do people operate on the principle „if it is bad it had to be because of maximizing profits“? This seems to be much more about corruption and misaligned incentives as well as bigcorp bullshit-job rot. There is really only one thing that can cure this and that is more fierce competition

waterhouse 3y ago
"Maximizing short-term profits (by cutting costs)" would be more accurate, and yeah, that is a misaligned incentive.
csours 3y ago
You're not wrong, but I would say it differently - the C suite has been focused on financialization - how to make their operations more tax efficient and make their SEC filings and shareholder meetings look good. So they spin off core manufacturing to a supplier and then squeeze them for pennies instead of concentrating on operational excellence and quality. They whip their test engineers until they pass a product instead of learning lessons. etc etc. Yes, this is all about incentives.
rightbyte 3y ago
> They didn‘t maximize profits at all [...] There is really only one thing that can cure this and that is more fierce competition Short term profits is what matter to the elite in these conglomerates. Their stock bonuses should just have a 10 year lag or something. That would align their incentives. And how could Airbus be more fierce?
- FredPret 3y ago
  > Short term profits is what matter to the elite in these conglomerates That is not true. Long-term profits are by far the best thing for the owners in a corporation. See: Berkshire Hathaway. What happened here is someone got to be in charge who did not have the brain to do the job. When you see short-termism among CEO's, that's either due to a) owners not aligning the CEO's incentives correctly due to the owners' negligence or stupidity, or b) the CEO does indeed have the correct incentives, but is stupid. Boeing profits have cratered since 2019: https://valustox.com/BA https://valustox.com/BA If they focused on making great planes with reasonable R&D costs, everyone there would be vastly better off financially.
  - JumpCrisscross 3y ago
    Honestly, Boeing makes the case for returning certain companies to elite control. Mullenberg, an engineer, burned down Boeing for tens of millions today. A family that controls it wouldn’t rationally do that.
    - mulmen 3y ago
      Good point but Mullenberg was only CEO from 2015 to 2020. The MAX first flew in 2016. Before that was James McNerney a literal Jack Welch-ian MBA who actually oversaw the development of the 737 MAX, the divestment of Spirit, and was Boeing’s first CEO without aerospace experience. Just skimming the wikis for Boeing, the 737 MAX, and the A320neo it looks like Boeing’s downfall should largely be attributed to McNerney. Mullenberg is guilty of shipping a doomed product and botching the response to the subsequent crashes.
      - deleted 3y ago
        [deleted]
    - FredPret 3y ago
      The worst part is the 737 MAX development went way over-budget. The idiots cut corners and didn't even save money! It is genuinely important for big corporations to have owners with a very long investment horizon who are involved in corporate management. People who are planning for their great-grandchildren are essentially trying their best to set up a company that can last forever.
      - mulmen 3y ago
        They thought re-engining the 737 would cost 2bn and a new plane would cost 10bn for a savings of 8bn. The actual development cost for the MAX was 4bn so their estimates were off by a factor of two. Naively the MAX saved Boeing 16bn (20bn - 4bn) in development costs. They saved “double” (by failing upwards) on development and it only cost them the future of the company.
croes 3y ago
>They didn‘t maximize profits at all. There are multiple competing levels of profit maximization: Short-term vs long-term Personal vs. operational Cheap vs. expensive Easy vs. complex
eitally 3y ago
I would argue that relocating their HQ away from their engineering hub was done to "maximize" profits by colocating close to lawmakers & lobbyists. This goes hand in hand with corruption in what is a semi-nationalized industry worldwide. Just like American air carriers being uncompetitive on international routes, Boeing risked becoming uncompetitive against Airbus, which is still ~25% owned by France, Germany & Spain.
bobthepanda 3y ago
Competition in the airline manufacturing industry is difficult and not for lack of trying; Bombardier and Embraer have found it tough, to say nothing of the poor results of state-sponsored competition like in Japan, Russia and China. Aircraft development is hideously expensive. 787 development cost Boeing $32B, and is part of the reason why airlines pushed Boeing not to replace the 737 wholesale.
potatolicious 3y ago
Wait what. I'm sympathetic to the notion that not every Bad Thing is because of "maximizing profits", but in this case you can point to incredibly specific things, done to maximize profits, that directly caused this crisis. After acquiring McDonnell, Boeing went on a spree of divestments where parts plants that supplied them were spun off into independent vendors. One of the biggest of these is Spirit Aerosystems, which provides the fuselage assembly for the 737. The divestments were specifically motivated by improving short-term profitability of the company, in the classic "sell it and rent it back" mode that's particularly in mode with private equity. By all accounts quality control at Spirit Aerosystems has suffered since, with Boeing having relatively little leverage in improving this state of affairs (one may argue that it's not terribly interested in improving the state of affairs). As far as we know the aircraft that kicked off this crisis was delivered from Spirit with an incorrectly installed plug door (more specifically, the bolts that secured it from opening were not installed at all) Sure, not everything is corporate greed, but there's a really bright and direct line here between the financialization of Boeing in the mid-00s and this specific crisis.
- WalterBright 3y ago
  NASA subcontracted about everything for the space program.
  - emgeee 3y ago
    NASA is a government organization with different incentives, and, has arguably suffers from similar problems that Boeing is experiencing.
    - wolverine876 3y ago
      > arguably suffers from similar problems that Boeing is experiencing. What problems are you referring to?
      - panick21_ 3y ago
        To airplanes failing and killing everybody inside. Excessive costs for new projects. Not upgrading their core technology. But I dont think the comparison makes much sense.
itsoktocry 3y ago
>Why do people operate on the principle „if it is bad it had to be because of maximizing profits“? HackerNews seems to hate companies maximizing profits, but loves when people like Elon run roughshod over shareholders. I don't get it, either. It's galaxy-brain stuff to believe that Boeing's biggest holders decided to make a few extra bucks in one year, and sink the 100+ year-old company the next. Versus, say, your theory that it's a multitude of issues relating to corporate rot.

waterhouse 3y ago

"Maximizing short-term profits (by cutting costs)" would be more accurate, and yeah, that is a misaligned incentive.

csours 3y ago

You're not wrong, but I would say it differently - the C suite has been focused on financialization - how to make their operations more tax efficient and make their SEC filings and shareholder meetings look good. So they spin off core manufacturing to a supplier and then squeeze them for pennies instead of concentrating on operational excellence and quality. They whip their test engineers until they pass a product instead of learning lessons. etc etc. Yes, this is all about incentives.

rightbyte 3y ago

> They didn‘t maximize profits at all [...] There is really only one thing that can cure this and that is more fierce competition Short term profits is what matter to the elite in these conglomerates. Their stock bonuses should just have a 10 year lag or something. That would align their incentives. And how could Airbus be more fierce?

FredPret 3y ago
> Short term profits is what matter to the elite in these conglomerates That is not true. Long-term profits are by far the best thing for the owners in a corporation. See: Berkshire Hathaway. What happened here is someone got to be in charge who did not have the brain to do the job. When you see short-termism among CEO's, that's either due to a) owners not aligning the CEO's incentives correctly due to the owners' negligence or stupidity, or b) the CEO does indeed have the correct incentives, but is stupid. Boeing profits have cratered since 2019: https://valustox.com/BA https://valustox.com/BA If they focused on making great planes with reasonable R&D costs, everyone there would be vastly better off financially.
- JumpCrisscross 3y ago
  Honestly, Boeing makes the case for returning certain companies to elite control. Mullenberg, an engineer, burned down Boeing for tens of millions today. A family that controls it wouldn’t rationally do that.
  - mulmen 3y ago
    Good point but Mullenberg was only CEO from 2015 to 2020. The MAX first flew in 2016. Before that was James McNerney a literal Jack Welch-ian MBA who actually oversaw the development of the 737 MAX, the divestment of Spirit, and was Boeing’s first CEO without aerospace experience. Just skimming the wikis for Boeing, the 737 MAX, and the A320neo it looks like Boeing’s downfall should largely be attributed to McNerney. Mullenberg is guilty of shipping a doomed product and botching the response to the subsequent crashes.
    - deleted 3y ago
      [deleted]
  - FredPret 3y ago
    The worst part is the 737 MAX development went way over-budget. The idiots cut corners and didn't even save money! It is genuinely important for big corporations to have owners with a very long investment horizon who are involved in corporate management. People who are planning for their great-grandchildren are essentially trying their best to set up a company that can last forever.
    - mulmen 3y ago
      They thought re-engining the 737 would cost 2bn and a new plane would cost 10bn for a savings of 8bn. The actual development cost for the MAX was 4bn so their estimates were off by a factor of two. Naively the MAX saved Boeing 16bn (20bn - 4bn) in development costs. They saved “double” (by failing upwards) on development and it only cost them the future of the company.

croes 3y ago

>They didn‘t maximize profits at all. There are multiple competing levels of profit maximization: Short-term vs long-term Personal vs. operational Cheap vs. expensive Easy vs. complex

eitally 3y ago

I would argue that relocating their HQ away from their engineering hub was done to "maximize" profits by colocating close to lawmakers & lobbyists. This goes hand in hand with corruption in what is a semi-nationalized industry worldwide. Just like American air carriers being uncompetitive on international routes, Boeing risked becoming uncompetitive against Airbus, which is still ~25% owned by France, Germany & Spain.

bobthepanda 3y ago

Competition in the airline manufacturing industry is difficult and not for lack of trying; Bombardier and Embraer have found it tough, to say nothing of the poor results of state-sponsored competition like in Japan, Russia and China. Aircraft development is hideously expensive. 787 development cost Boeing $32B, and is part of the reason why airlines pushed Boeing not to replace the 737 wholesale.

potatolicious 3y ago

Wait what. I'm sympathetic to the notion that not every Bad Thing is because of "maximizing profits", but in this case you can point to incredibly specific things, done to maximize profits, that directly caused this crisis. After acquiring McDonnell, Boeing went on a spree of divestments where parts plants that supplied them were spun off into independent vendors. One of the biggest of these is Spirit Aerosystems, which provides the fuselage assembly for the 737. The divestments were specifically motivated by improving short-term profitability of the company, in the classic "sell it and rent it back" mode that's particularly in mode with private equity. By all accounts quality control at Spirit Aerosystems has suffered since, with Boeing having relatively little leverage in improving this state of affairs (one may argue that it's not terribly interested in improving the state of affairs). As far as we know the aircraft that kicked off this crisis was delivered from Spirit with an incorrectly installed plug door (more specifically, the bolts that secured it from opening were not installed at all) Sure, not everything is corporate greed, but there's a really bright and direct line here between the financialization of Boeing in the mid-00s and this specific crisis.

WalterBright 3y ago
NASA subcontracted about everything for the space program.
- emgeee 3y ago
  NASA is a government organization with different incentives, and, has arguably suffers from similar problems that Boeing is experiencing.
  - wolverine876 3y ago
    > arguably suffers from similar problems that Boeing is experiencing. What problems are you referring to?
    - panick21_ 3y ago
      To airplanes failing and killing everybody inside. Excessive costs for new projects. Not upgrading their core technology. But I dont think the comparison makes much sense.

itsoktocry 3y ago

>Why do people operate on the principle „if it is bad it had to be because of maximizing profits“? HackerNews seems to hate companies maximizing profits, but loves when people like Elon run roughshod over shareholders. I don't get it, either. It's galaxy-brain stuff to believe that Boeing's biggest holders decided to make a few extra bucks in one year, and sink the 100+ year-old company the next. Versus, say, your theory that it's a multitude of issues relating to corporate rot.