Boeing Revelation: more dangerous than the loss of future profits is lost

March 2020, from the Egypt Air plane crash 737Max over a full year, Boeing – the world’s manufacturing industry star – still not out of the scandal, the world’s no-fly 737Max it lost at least $ 18 billion from the stock before the crash high of $ 440 / share plunged to now (March 6) to $ 262 / share. Earlier in January, did not get any new Boeing aircraft orders, the Department of 58 years for the first time. This is because Boeing “short-sighted” and pay the price. Boeing management reluctant to invest heavily in product development over the past 20 years to launch a new aircraft is only 787, the last ten years no new models, while almost continuous accident 737Max competitors Airbus Forced the result of. On the Boeing board of directors, years of planning NMA project (New Midsize Aircraft) as the ball is kicked now, still not below. In contrast, rival Airbus launched last year A32lXLR multishelf has won more than 450 firm orders, in this market segment has been leading a big step.
Boeing more willing to make an issue of shares and profits. Over the past six years (2013-2018), the Boeing board of directors did not hesitate to come up with $ 40.7 billion for stock repurchase, took out $ 16.1 billion in dividends over the same period for commercial aircraft R & D investment is only 14.1 billion dollar. Under the stock repurchase and other means to stimulate, Boeing shares rose doubled, in line with theory “to maximize the interests of shareholders,” the US corporate governance objectives, but it is the most profitable Wall Street investors and Boeing executives group. From the “Engineers” to Wall Street darling, Boeing’s change began in 23 years ago, a large field of mergers and acquisitions that the aviation industry century. McDonnell Douglas “buy” Boeing in 1997 CONTROL ENGINEERING China Copyright , Boeing for $ 13.3 billion acquisition of McDonnell – Douglas Corporation ( “McDonnell Douglas”), mergers and acquisitions in this century is considered to Boeing mediocre start. Boeing was already the dominant global aviation industry, market share in the field of civil aircraft of up to 60%, short board that military business, which accounts for part of the revenue of the two companies into revenue, equivalent to half of McDonnell Douglas. McDonnell Douglas was once the nation’s largest military aircraft manufacturing company, which about 70 per cent of profits come from the military, but the competition in the field of aircraftConstantly lost to Boeing and Airbus, Boeing merged before the global market share shrank to remaining 5%. In November 1996, a new generation of fighters in the United States, “the Joint Strike Fighter (JFS)” bid, the US Department of Defense announced from Lockheed – Martin and Boeing, select the two rivals, McDonnell Douglas playing with toys. Soldiers and civilians have lost two major markets, McDonnell Douglas select “prostitute.” Boeing was faced with the challenge comes from across the Atlantic, established in 1970 Airbus aircraft in areas already grabbed 35% of the global market share. Boeing will not only complement each other, while they would break Airbus and McDonnell Douglas could work together on technology and resources through the acquisition of McDonnell Douglas. The deal led to the decline of objective McDonnell Douglas. In 1997 CONTROL ENGINEERING China Copyright , in the new Boeing board of directors after the reorganization, two-thirds of the directors from Boeing, third from McDonnell Douglas. At the operational level, from Philip Condit of Boeing Boeing as the new CEO, the company responsible for strategic planning; Harry Stone Sefu from McDonnell Douglas served as president and COO, responsible for daily operations. On the surface, “Boeing” and control the implementation of the new strategy and the board of directors of Boeing. Writer: “Big Mac 747 victory,” a book of Clive Irving this evaluation are:. “This should be a Boeing took over McDonnell Douglas, but the actual situation on the contrary, it is a fatal error” For this acquisition, Boeing ago Ron Woodard, president of commercial airplanes in 2007 in an interview that he thought would take the opportunity to kill Boeing McDonnell Douglas, but did not, “I think 哈里比菲利普 smarter, he and his team with Boeing money to buy Boeing. we all feel very sick. “McDonnell Douglas” M “Boeing case, has appeared in” administered by professional corporate mergers and acquisitions case “and other institutions of higher education textbooks. The book mentioned in detail: Boeing There was a 18-member executive team of seven people from McDonnell Douglas, one person from Boeing, and the rest is brought in from the outside professional managers. Boeing “sour” Boeing superb engineering technology known for creating a jet age, gradually create 707,737,747,757,777 and other popular models, gradually determine their dominance. The removal of subsidies would like to thank the US government, it should also be attributed to Boeing engineersDesign and adhere to quality and safety in the first place. Prior to the merger McDonnell Douglas, Boeing employees tend to be regarded as a company by a large group of engineers formed the “family”, can equal dialogue between each other, but Harry and other senior executives of the strong McDonnell Douglas White changed all that, they think engineers “arrogant.” Harry told employees: “Do not the same as before like a family, but to behave like a team in the team if someone is poor, do not deserve to stay..” “Some people say I changed the culture of Boeing, which is my purpose. as a company like Boeing to the same operation, not just a good engineering company, because the company is the shareholders ‘investment.’ Harry in 2004 to accept the “Chicago Tribune” interview to make money. To some extent, Harry Boeing wants to change the corporate culture in order to respond to market competition, this change is supported by the board of directors and CEO Philip. Since the late 1970s, with the support of the Carter and Reagan two governments, long-standing government regulation to deregulation of the airline industry, barriers to entry are lower, price control is released, gave birth to a large number of new airlines . At the same time, the price of increasingly fierce battle between the airlines, leading to cost them no longer as in the past will purchase the aircraft passed through fare passengers, they asked aircraft manufacturers reduce upstream costs. As a result, Boeing can no longer as in the past regardless of the cost to develop a new aircraft, such as the company had bet his life 747. Coupled with the challenge from the other side of the Atlantic Airbus, Boeing increasingly focus on cost and profit. Harry was a shrewd professional managers. Before entering the airline industry, he (referred to as “GE”) with General Electric for over 25 years, and later the late CEO Jack Welch, GE concept of “maximizing shareholder value” concept “perfect” copy to Boeing. After the merger, Boeing management announced to cut production scale civil McDonnell Both models MD80 / 90, the drastic job cuts at the same time, when the plan was in 1998, when the civil aircraft sector jobs will be cut 12000. The move led to employee dissatisfaction and repeated games along with two kinds of corporate cultures, such sentiments peaked in 2000, led to a duration of up to 40 days of strike. Boeing employees feel “stale.” Thousands of “Boeing” and took to the streets of Seattle, in addition to income inferior to complainOutside the Amazon and other Internet upstart company, it will spread anger at Harry who felt that he and other executives from Boeing McDonnell Douglas changed the kinship working atmosphere. “Boeing past advocate of quality priority, emphasizing the communication of corporate culture was abandoned. Instead, McDonnell Douglas ‘profit-oriented’ values ​​were taken to Boeing, and take root in Boeing eventually become mainstream.” Tracking Boeing for decades the United States airline analyst, Scott Hamilton, general manager of the company told Leeham “prism.” Further away from Wall Street in 2001, Boeing made a more bold decision to move its headquarters from Seattle to Chicago. CEO Philip Condit explanation given: “When headquarters is located near the main business, the company’s focus will inevitably be dragged into daily business operations.” It was no longer a simple Boeing aircraft manufacturing company, prior to the merger McDonnell Douglas, Boeing has acquired Rockwell’s defense and space business, to become an international giant across the aircraft, military aircraft and aerospace business, annual revenue more than $ 50 billion. Chicago is located in the eastern part of the USA, developed transport network, is Boeing’s large customer location United Airlines Headquarters, more than 2,000 kilometers from the Seattle factory, long distance when only one hour of Washington and New York flight, easy Boeing executives went to the Pentagon lobbying, and win Wall Street’s favor. He was responsible for Boeing’s new headquarters site selection John Warner told the “Economist” magazine, said: “The new headquarters allows government officials in Washington and New York financial markets more accessible to us.” Hamilton believed to reduce the engineers on the relocation of the headquarters of the objective and the efficiency of communication between management, “but if you take into account the time Boeing’s military business is growing and the company’s financial guidance, to do so is a grain of truth.” However, Alex Lee American independent aviation analyst on the “prism” said the big companies like Boeing to move closer to Wall Street is not one hundred percent is a bad thing, “it depends on what it has done, and what not to do.” Wall Street moved closer Boeing opened a Pandora’s box. Boeing and McDonnell Douglas merger occurred in 1997. When the United States capital markets, there is a turning point: the amount of stock repurchases over cash dividends. Also in 1997 CONTROL ENGINEERING China All Rights Reserved, the US Business Roundtable (Business Roundtable) for the first time made it clear that: the ‘maximize shareholder value’ as the purpose of corporate governance, this statement have a profound impact on the capital market. Founded in 1972, the US Business Roundtable is one of America’s most influential business organizations, 1978 issue regular statements related to the principles of corporate governance, including a senior member of Apple, Wal-Mart, GE, JP Morgan Chase, IBM and other top companies the CEO. “A lot of McDonnell Douglas executives working at GE before, after they took over Boeing in the interior of the implementation of strategies to maximize profits for shareholders, including large-scale buyback (in addition to cash dividends), as well as the large number of production processes outsourcing.” United States of America Professor of Economics at the University of Massachusetts William Lazonick told the “prism.” Professor Lazonick long-term studies industrial competitiveness. He is the author of “Innovation curse: the new economy can bring sustained prosperity,” a book in 2010 Schumpeter Prize obtained. McDonnell Douglas merger second year, that is, in August 1998, Boeing announced a stock repurchase program, reached 15% of the outstanding shares. Accordance with the prevailing share price, these shares worth about $ 4.5 billion, exceeding the sum of net profit Boeing for two consecutive years. Results showed that in 1998 and 1999, Boeing’s net profit was $ 1.1 billion and $ 2.3 billion respectively. Stock repurchases as a routine means to stimulate the stock rose, in theory, allow all shareholders to benefit, but it is the most profitable Wall Street investors and Boeing executives group. For example, public information, after a merger in 1997, until 2005, was forced to resign, Harry has been one of Boeing’s largest individual shareholders. After skyrocketing executive pay and stock price experienced a financial crisis in 2008, Boeing’s stock repurchase plan a comeback. Results showed that in 2013, the amount for Boeing stock repurchase of $ 2.901 billion, rose after the way in 2018 to $ 9 billion. In other words, over the past six years (2013-2018), the funds spent on share buybacks Boeing reached a staggering $ 40.7 billion, an annual average of US $ 6.77 billion. In addition, from the first quarter of 2013 to six years in the first quarter of 2019, Boeing’s cash dividends totaled $ 17.4 billion, equivalent to 42% of the total profit of the same period. Expenditure within the six-year period, Boeing commercial aircraft R & D investment accumulated $ 14.1 billion, only three percent of the stock buyback, dividends year after year is less than , the average annual about $ 2.36 billion. “Prism” according to Boeing earnings statistics also found that in 2014, 92% of cash flow from operations to Boeing for cash dividends and stock repurchases. Boeing shares continue to rise, before March 2019 Ethiopian Airlines is difficult to occur a week hit a record high of 439.96 US dollars / share, equivalent to 3.5 times the beginning of 2014. Just after Indonesia Lion Air crash occurred first since 737Max two months, the Boeing board of directors also approved a $ 20 billion stock repurchase program, to complete the program within two years, Houyinaise aviation grounded hard and forced 737Max aborted. Professor Lazonick 2014 years “Harvard Business Review” published an article entitled “Profits Without Prosperity” (only profits, not prosperity), the “big American company executives did not invest profits to innovate and improve production efficiency, but for large-scale buy back company stock, “a set of data shows the article:”.. from 2003 to 2012, the S & P 500 index had a total of 449 listed companies have been listed in the state during this period, they will 54% of total corporate profits, totaling $ 2.4 trillion for the company to buy back its own shares, and they almost always through open market transactions, as well as 37% of the profits to pay dividends, the last only for a small part improve productivity and employee compensation. “the only purpose of the stock repurchase in the open market is to stimulate the stock. Company executives have an incentive to do so, because their wages are often linked to the share price and the company’s profits. “Lazonick told the” prism “Boeing shares and executives (especially the CEO) reported a positive correlation between income, to 2005 -. 2015 served as chairman and CEO of Boeing, Jim McNerney, for example, from 2014 he Boeing earned away $ 29 million, only 200 million are basic salary, the rest are performance and performance-linked incentive stock options, in any of the last three years, from which he walked Boeing earned about $ 79.6 million. McNerney’s successor Dennis Milun BoGrid in 2018 took $ 23.4 million from Boeing. Although the result 737Max safety scandal was fired at the end of 2019, but according to the contract, he can still continue to take $ 62 million, including pension and cash incentives (not including the millions of dollars in the value of stock options). Mirren is to succeed Berg before serving 26 years in GE’s David Calhoun, his office did not break the law payday. According to the information Boeing disclosed in January 2020, the new CE0 base salary this year was $ 1.4 million and $ 2.5 million cash prize. If he can make 737Max smoothly around, you can get another $ 7 million bonus. In addition, there are 10 million US dollars worth of restricted stock. McDonnell Douglas and lessons of the old “Wall Street investors certainly do share buybacks, stock prices have fully illustrate this point. The problem is that the capital market is short-sighted, is all about the next quarter or the next fiscal year, but the airline industry need to look very long term. “Alex Lee aviation analyst told the” prism. ” “If the follow-up to ensure a reasonable investment, usually a model series can produce more than 50 years (the Boeing 737 is one such). If you look beyond the next one to two years, then you may not be a twenty billion dollar investment to build a new aircraft, because it may take ten years to recover the costs. “Alex explained further. The Boeing 737 family is the flagship product, is the world’s aviation industry, the best-selling aircraft, the first aircraft 737-100 first flew in 1967 and 1968, put into service in 1996 to launch the third generation of a family of products NG series. In the 21st century, 737NG series to the upgrading of the critical period, when Boeing management did not timely money into research and development of new models. Public information, from 2004 to 2008, Boeing spent a total of about $ 11 billion for share repurchases, “If you use the money to build a new aircraft replace 737NG, more than enough.” Lazonick for “prism” means. Boeing management for the launch of a new aircraft gradually replace the old 737 always hesitant, until rival Airbus launched the first step in a new generation of A320NEO, and from Boeing’s most loyal customers in the hands of American Airlines won 260 orders, Boeing hurry fight. Boeing decided that the existing737 family launched production platform on the fourth generation of Max Series CONTROL ENGINEERING China Copyright , in just three months to come up with rehabilitation programs. To combat on fuel efficiency and Airbus, 737Max put on a bigger, more fuel-efficient engines, but the limitations of the fuselage, engine forced up the premise, which cause the aircraft to stall during takeoff may have risks. Boeing gives the solution is to install a sensor on the plane during the flight to determine whether the rise is too high, the MCAS (maneuvering characteristics Augmentation System) aircraft to avoid the dive. This system does not allow MCAS aircraft safer, on the contrary, according to present preliminary findings, the sensor reads the MCAS system data errors caused by malfunction, is considered to be the main reason for the occurrence of the two air crashes. Both the crash caused a total of 346 people were killed. Alex believes that Boeing did not invest heavily in new aircraft, but has been drained select models platform approach, “McDonnell Douglas is walking the old road.” “McDonnell is how the world fell from second Third World, finally the Boeing merger?” Alex told the “prism”, “then McDonnell Douglas DC-10 launch of the market response is very good, but they almost did not how to spend money on it escalated into MD-11 CONTROL ENGINEERING China Copyright , this is a disaster, the same situation also occurred in the MD-90/95 body. “Boeing McDonnell Douglas did not learn the lessons of failure, 2011 officially launched in August 737Max, to win orders for thousands in more than a year, to ensure the future of cash income for many years. After that, a similar scene from happening again, in 2013, Boeing announced stock repurchase again, until March 2019, a total of more than $ 43 billion buyback. “If the company put the cash wasted on share buybacks, then it will lose the ability to understand and improve organizational opportunities, and these are precisely the ability to produce a safe and efficient aircraft must have.” Lazonick think. Even more dangerous is the loss of not only the future of Boeing’s R & D investment in new aircraft is reduced, McDonnell Douglas merger in 20 years time, the real launch of the new Boeing 787 aircraft only a. “Harry, led the Board to require the outsourcing of most of the parts 787 to cooperation partnersWith this in the past McDonnell Douglas it is very common, but it is the first time for Boeing. “Hamilton on the” prism. “In the 777 projects in the last century 90 era carried out in 70% of the parts production and assembly done by Boeing itself. To 787 projects, 70% of the parts are assembled by an external vendor in other words, Boeing to cut spending on the supply chain vertical integration. “this is a minimal investment in their own way, so that partners choose to invest CONTROL ENGINEERING China Copyright , the final result is 787 development cost overruns and late deliveries began three years than originally planned. “Alex on the” prism. “Compared with the 787, the continuous loss 737Max caused the crash of the Boeing more financially disastrous. According to Boeing’s latest earnings report, the company in 2019 appeared for the first time since 1997 losses, net loss of $ 636 million, and also revealed that the global cost 737Max grounded as much as $ 14.6 billion. in addition, in order to slow Max restart production in 2020 will increase by about $ 4 billion cost. more dangerous than the loss of future profits is lost after the introduction of the Boeing 787 and 737Max, Boeing has been launched in planning a new mid-size models (new Midsize Aircraft, referred to as NMA), which make up the gap in the market between the 787 and 737, but the board has not made up his mind. “Boeing hesitated too long, so this cake is now Airbus robbed. “Alex said at the Paris Air Show 2019 held the official launch of the Airbus A320 family, the largest member A321XLR, the aircraft’s flight range of up to 4,700 sea miles, can accommodate up to 244 passengers, compared with Boeing 737Max series failed to match competing products. By the end of 2019, this commitment to Airbus aircraft in the world and the intention of obtaining orders for more than 450. Hamilton, general manager of Leeham company believes in research and development on new aircraft, Boeing hesitate the longer, the future will be more passive in the competition in the market. “Boeing is time to rethink their strategy, but they need to consider the entire product line, consider the future 30Years of development, then a wise investment if you do not, they are the final outcome as possible and McDonnell Douglas. “Alex said. Moment, 737Max go-around is still Boeing’s” top priority. “According to statement FAA (Federal Aviation Administration) early, 737Max in 2020 will be the fastest around.

Related articles