The challenges in Boeing’s near-term future include competitors old and new, as well as a shifting political landscape. It must navigate past many obstacles if it is to be one of the few big U.S. companies that survives far into a second century.
It’s risky to make predictions, even about an institution as seemingly strong and venerable as Boeing.
Still, we can make some informed assumptions about the company’s near-term future based on recent events and bedrock realities.
Boeing will face intense competition from Airbus and even perhaps from Canada’s Bombardier. Delta Air Lines recently chose the latter’s C-series narrowbody for a 75-jet order, surprising observers and taking business away from the 737 line.
In turn, the company will bear down on cost cutting, likely with continued job losses in Washington, although the state and Puget Sound region will remain Boeing’s largest employment hub.
Boeing Commercial Airplanes is expected to cut its workforce this year by as much 10 percent, about 8,000 jobs. The hope is that most will be done through attrition and voluntary buyouts.
Airbus isn’t the only thing on the mind of Boeing’s executives in Chicago. Foremost is pleasing Wall Street, something about which Bill Boeing never had to worry. So far, its big institutional investors remain happy, though perhaps growing a bit nervous.
Keeping them happy is Job One. For one thing, it ensures that high compensation continues flowing up to the C suite.
Washington state has given Boeing $8.7 billion in tax incentives, a record-setting package, to keep key factories here. Its unions are locked into “labor peace” agreements — “the employees are cowering,” to paraphrase an impolitic blurt from former CEO James McNerney (he later apologized). But don’t be surprised if the company throws us new curve balls.
The old Boeing that valued its engineers and machinists above all, that treated employees like family and Seattle as home, is gone forever.
Its growing commercial-airplanes assembly in North Charleston, S.C., will continue to expand, probably at the expense of the Puget Sound region.
Jobs will also be lost, perhaps in large numbers, to the coming wave of highly advanced automation, robotics and artificial intelligence.
Despite all that, most of its commercial airplanes will be built here. The 777X promises not only a new airliner, but also the potential to seed a composite-manufacturing industry here.
And even though metropolitan Seattle is evolving fast with a diverse economy and with newcomers who didn’t come from multigenerational Boeing families, the company that was once headquartered here will remain immensely important.
Beyond this, the crystal ball clouds up.
A rare perch
Boeing occupies a unique spot in the firmament of corporate America.
No other giant is allowed to stand alone without domestic competition in an American industry, in this case making and selling commercial jetliners.
Well into the 1960s, Boeing competed against Douglas Aircraft, maker of the pioneering and popular “DC” series of airliners, and Lockheed, founded in 1912 and maker of the iconic Constellation and Super Constellation.
After Douglas merged with McDonnell Aircraft in 1967, McDonnell Douglas continued to provide a third major American commercial-airplane maker.
When Lockheed left the commercial airliner business in the mid-1980s, two remained. And in 1997, federal antitrust regulators allowed Boeing to acquire McDonnell Douglas. Or, as “old” Boeing hands in Seattle put it only partly sarcastically, McDonnell Douglas used Boeing’s money to acquire Boeing and its name.
Not only that, but President Clinton and other U.S. officials pressured European Union regulators to accept the merger.
New Boeing was, and is, the apotheosis of globalization.
Under the reasoning of the merger proponents, the world was only big enough for two enormous commercial-airplane makers. The other was Airbus, formed in 1970 as a consortium of European companies. Two would be enough to provide competition, choice, innovation and to keep prices reasonable.
Boeing is an American company, but also a global one. It is a true multinational.
This shows in its supply chain, too (something that helped bring grief to the Dreamliner timetable). The airliners are assembled in the Puget Sound region with some components that have traveled only a few miles, but many that took thousands of miles to reach Everett or Renton.
Perhaps the “duopoly” has worked, after its fashion. Boeing partisans point to ferocious competition with Airbus, which recently opened an assembly plant in Alabama. The costs and advanced manufacturing involved in airplanes arguably make this a special case, too.
But it’s impossible to prove what might have happened had antitrust enforcers turned down the Boeing-McDonnell Douglas merger.
Meanwhile, the likes of Microsoft, Amazon and Wal-Mart could only hope for such a welcoming reception from regulators — and this has hardly been an era of Theodore Roosevelt trustbusting. The Big Three automakers are maintained, even with Italian ownership of one (Chrysler), and despite foreign “transplant” auto factories in several states.
Right, right, they’re not making birds.
Boeing’s situation is unusual in other ways.
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First, it is the leading American exporter and receives enormous backing from the federal government. When a president travels abroad and wants to bring home a win to burnish his trade agenda, contracts to sell Boeing jets are often the premier accomplishment.
Second, Boeing is one of a few major corporations left that employ large numbers of Americans in high-wage, advanced manufacturing jobs. This commands widespread respect and support — and also sparks desperate state battles when Boeing dangles new projects or job moves.
Third, the company is enormous on the defense side, too. Lack of antitrust enforcement and globalization has shrunk America’s once diverse universe of arms makers into a few giant planets orbiting the Pentagon — and providing lucrative exports.
Among these, Boeing is second only to Lockheed Martin. The United States still hosts many companies involved in the defense business. But only these two, along with General Dynamics and Northrop Grumman, have the scale necessary to build large fighters, bombers, drones and missile systems.
All of this, plus its money, has given Boeing tremendous political power. Forget the big banks. Boeing is too big to fail.
Or is it?
An important question in understanding the company’s long-term prospects is whether these unique or elite conditions ultimately make Boeing fragile, or resilient.
Shrinking life spans
Some companies are older than Boeing at 100. The Bank of New York, now BNY Mellon, was founded in 1784. Chemical giant DuPont was established in 1804 and the Union Pacific Railroad in 1862, with its incorporating act signed by Abraham Lincoln.
But these are rare, and their ranks have shrunk considerably since the 1980s. Blame mergers, industry consolidation, lack of antitrust enforcement and the difficulty of gaining entrance to cartelized sectors such as airlines.
Writing in the Harvard Business Review in 2014, Eric Wright noted that over the previous half century, “the average life span of S&P 500 companies has shrunk from around 60 years to closer to 18 years. For each company that has lasted more than a century, there are countless more that have failed.”
Boeing has survived plenty of near-death experiences. Before the canceled supersonic transport and the oil crisis triggered the “Boeing depression”of the early 1970s, it had weathered a federal antitrust action in the 1930s.
Boeing came through the Great Depression, Great Recession, two world wars and much else. But it also had the wind at its back during the last century, the American Century.
Now, time is not necessarily on Boeing’s side.
In addition to the whims of Wall Street, it faces an event for which it has tried to prepare for years — China’s entry with a homegrown commercial-airplane manufacturer. This is a major goal of Chinese President Xi Jinping, and if successful could seriously erode Boeing’s prospects in its largest and most promising overseas market.
American politics are less firmly in Boeing’s grasp, too.
Last year, Congress shut the venerable Export-Import Bank, an agency that aids U.S. deals abroad. Ex-Im was criticized, wrongly to my mind, as “the Bank of Boeing,” even though 90 percent of its transactions benefited small business.
Since then, there has been strong bipartisan support to reopen the bank. But full-scale operation has been thwarted by Sen. Richard Shelby, Republican of Airbus, I mean Alabama.
The presumptive nominee of the Republican Party, Donald Trump, has threatened a trade war with China. And even Democrats, including Hillary Clinton and Sen. Bernie Sanders, have backed away from support of the trade status quo and the Trans-Pacific Partnership.
Defense procurement is badly broken, exemplified by Lockheed Martin’s deeply troubled and hyper-expensive F-35 Joint Strike Fighter. The jet is not an outlier. Projects are generally too complex, too expensive, sometimes prone to scandal and facing a Congress that has been enforcing austerity.
So in federal support, trade and procurement, Boeing’s symbiotic relationship with the Other Washington is facing tectonic shifts.
How will Boeing react? McNerney remade the company on the model of his mentor, Jack Welch of General Electric. Unfortunately, this mindset builds in the rigidity of the imperial chief executive, a weak board of directors, employees as an expensive commodity and an unwillingness to demand accountability at the top. This was on embarrassing, and costly, display with the Dreamliner’s woes.
Resilience would come from new CEO Dennis Muilenburg backing away from the Cult of Jack.
Even greater risks to Boeing’s long-term viability come from the risk of shocks.
Boeing was born two years after the start of World War I, which shattered the first era of globalization. Today’s globalization is not guaranteed to last.
War between China and the United States is perhaps the greatest major danger. History offers few examples of a rising power meeting an existing one without conflict. Experts call it the Thucydides Trap, after the ancient Greek historian’s observations about the war between Athens and Sparta.
Of at least equal consequence is climate change.
Airplanes are significant contributors to greenhouse gases. Even if companies such as Boeing develop technologies to reduce this footprint, the consequences of rising temperatures and extreme weather events risk destabilizing entire regions and world commerce.
Stay or go?
More than a few readers have written me in recent years to predict that Boeing will be gone from the Puget Sound region in a decade.
That resonates. When I worked for the Dayton Daily News in the 1980s, the home of the Wright brothers enjoyed the second-largest concentration of General Motors workers in the world. State support was generous. The unions were cooperative with management, even more farseeing than many GM leaders.
No matter. GM is virtually gone from Dayton now, along with most of its other economic crown jewels.
I don’t believe that is Boeing’s future here. The Puget Sound region offers too much in skilled workers and a dense ecosystem of innovative contractors. But the company’s second century will mean living in interesting times. And, no, that’s not really a Chinese curse.