Capitalism is working against President Joe Biden’s plans to shore up the US supply chain in the wake of the COVID-29 pandemic and the rot is deep. The March 1 edition of Bloomberg Business week highlights just how antithetical capitalism has become to US national security in their article about Airbus and Boeing.
The commercial aerospace industry is effectively a duopoly between European-based Airbus and US-based Boeing. Nothing in the industry is cheap – research & development, supplies, high-tech composites, manufacturing, and labor all contribute to the high costs and long lead times to bring an aircraft to market. Often, these companies are betting on future air travel trends decades into the future when they start a new project.
In the mid-teens, it looked like Boeing had placed the winning bet on the future of air travel. While Airbus pursued giant planes, like the A380, betting the future of aviation was the “hub & spoke” model, Boeing invested in the 737 and 787 betting the future was the “long & skinny” model. While aviation models are fascinating, it’s a rabbit hole, I’m not going to expand on here, rather, I recommend checking out this great video from Wendover Productions.
For this post, all you need to know is that everything was going great for Boeing, until it wasn’t.
$40 Billion in Stock Buybacks May Spell Boeing’s Demise
Having made the wrong bet on the future of commercial aviation, Airbus pivoted, investing in smaller jetliners and expanding their popular A320 family. Meanwhile, Boeing rested on its success showering hedge funds and wealthy shareholders with more than $40 billion in stock buybacks.
In industries with fierce competition, one should never get comfortable with their success. Boeing’s troubles started in March 2019 when the popular 737 Max was grounded after two fatal crashes revealed serious safety problems with automated controls. Despite the grounding of Boeing’s most popular aircraft, the company pushed forward with two additional stock buybacks that year.
Today, Boeing has $65 billion in debt and no answer to Airbus’s A321XLR which will begin delivery in 2023. Small planes are destine to be the future of air travel for years to come. One of the most profound shifts to come from the COVID-era is the rise of telework and the corresponding decrease in business travel. Carriers are looking for smaller, easier to fill aircraft to respond to this new normal.
I really can’t stress how devastating this is for Boeing. Its two cash cow aircraft are plagued with production problems, it will take years of R&D to respond to Airbus’s smaller aircraft, and they’ve got $65 billion in debt. Analysis are also questioning if Boeing’s pending absence from the commercial aerospace market will pave the way for China-based Comac to become a player in the jetliner market.
Not wanting to let a good crisis go to waste, Boeing went running to the government for a cash handout to cover their bad business decisions. While some lawmakers scoffed at Boeing’s bailout request due to its previous pre-COVID financial mismanagement, the Fed quietly bailed them out through bond purchasing.
Stoping Corporate Bailouts & Protecting Workers
Boeing risked its financial health and long-term viability by bowing to the rich. Bold action needs to be taken to protect workers, end stock buybacks, and stop capitalism from eating successful companies in the name of ever-increasing quarterly profits.
Allowing Boeing to fail and wipe out shareholders and bondholders is the first step to holding the rich accountable for their reckless behavior. Of course, don’t expect them to let this happen without a fight. They’ll point to all the jobs that will be lost and the workers who will be hurt. We can protect workers and retirees. We already have some of the mechanisms in place to do so, we need to strengthen them so we’re ready the next time a company is brought to the brink of collapse by the rich.
First, lawmakers must act to shore up pension programs and make sure when companies fail due to short-sighted financial practices – like stock buybacks – hedge funds can’t raid (restructure) worker’s retirement plans. Next, Congress must increase funding to Department of Labor programs such as the National Dislocated Worker Grants, Skilled Training Grants, and unemployment insurance to ensure workers who lose their jobs land on their feet.