The Bean Counters Destroy An American Institution
On January 27, 2023 (a year ago), Porter & Co. published a warning about a mega-cap American stock. This was the only mega-cap stock we told investors to avoid. And it is no ordinary business. This is America’s greatest (and most strategically important) company. We said it would soon “collapse.”
Our January 27, 2023, headline? Coming Soon: The Boeing Collapse
How did we know? For the last 20 years there hasn’t been a company in America that’s embraced more terrible ideas – from financial engineering to ESG and DEI – than The Boeing Company (NYSE: BA). And while Disney is a close second, theme parks don’t fall out of the sky.
It didn’t take long for our warnings to pan out.
Last Friday evening, January 5, the plug covering an emergency door blew off during the Alaska Airlines flight 1282 at 16,000 feet. The plane was a brand new Boeing 737 Max 9, which rolled off the assembly line just two months earlier.
Fortunately, no one was injured. But a 15-year-old boy seated directly in front of the blown-out door plug lost his shirt and V-neck sweater from the sudden cabin depressurization.
In the wake of the accident, the Federal Aviation Administration (“FAA”) grounded over 170 of Boeing’s 737 Max 9 fleet. On Monday, United Airlines said that it discovered “bolts that needed additional tightening” on several of its Boeing 737 Max planes. Alaska Airlines also reported this week it had found “loose hardware” on its Boeing 737 Max fleet.
Shoddily installed door bolts appear to be the culprit.
The FAA announced a process for airlines to perform inspections on door plugs and other components of Boeing’s 737 Max 9 fleet. The planes will remain grounded until air carriers complete the “enhanced inspections.”
And in the meantime, BA stock has depressurized even faster than the jet cabin, losing about 9% between January 8 and 9 – the first two trading days after the plug blew off the plane.
While these inspections might solve the latest debacle du jour for Boeing, the company’s problems run far deeper than a few loose door bolts. Boeing’s real problem is the rot that lies within its culture – and it represents everything that’s wrong with American society today.
The downfall of this formerly iconic American business began with a match made in hell.
In August 1997, Boeing merged with fellow aerospace manufacturer McDonnell Douglas in a $13 billion stock swap. The deal marked the start of the downfall of Boeing’s culture. Boeing was known for quality, and McDonnell was known for financial engineering – with a focus on cost cutting and the company’s share price.
And though the Boeing name survived, it was the McDonnell Douglas attitude that prevailed. McDonnell CEO Harry Stonecipher, who took over day-to-day operations at Boeing, immediately took a carving knife to Boeing’s highly-paid engineering staff. The resulting labor strike shut down production for 40 days in 2000.
And in May 2001, Boeing management made a physical break with its engineering staff: manufacturing headquarters stayed in Seattle, while corporate moved to downtown Chicago, 1,700 miles away. That split symbolized the growing distance between builders and bosses.
To say that the company’s engineers were disenfranchised doesn’t really begin to explain how Boeing’s entire culture was erased. CEO Stonecipher even bragged about what he’d destroyed: “When people say I changed the culture of Boeing, that was the intent, so that’s run like a business rather than a great engineering firm.”
After running off the engineers, Boeing deliberately decided to copy the financial strategy of General Electric – a company that ultimately destroyed itself with financial engineering.
Both Boeing’s CFO Brian West and CEO David Calhoun are former senior GE finance executives. And they’ve done to Boeing what they did to GE: Destroy the balance sheet. From 2010 to 2019 Boeing spent $44 billion (!) on buying back its own shares, while adding $50 billion in debt. This reduced the share count by 23% and sent the stock price up 200%.
Unfortunately, the bean counters couldn’t run the business: Boeing’s planes started falling out of the sky. As a result, free cash flow plunged from $7.9 billion a year in 2016 to negative $4.3 billion by 2019.
Stephanie Pope is Boeing’s chief operating officer. She holds a bachelor’s degree in accounting from Southwest Missouri State University. And an MBA from another intellectual powerhouse, Lindenwood University. She has zero engineering background.
Why would someone with this kind of background be placed in charge of operations of the world’s leading aerospace engineering firm? Maybe because she is the executive sponsor of Boeing’s Women Inspiring Leadership, a group dedicated to “increasing gender diversity awareness.”
Boeing’s planes keep killing passengers and falling apart in mid-air. These outcomes are the result of years of bad ideas – starting with the intentional destruction of Boeing’s engineering culture, followed by GE-style financial engineering, and now, as the icing on this ridiculous corporate cake, the company’s full embrace of modern Marxism – ESG and DEI.
On December 22, 2023, Porter & Co. updated its “Naughty List” – a list of 10 stocks we predict are going “straight to hell.” The first company on our list? Boeing.
Boeing is a wonderful metaphor for our entire society. When we promote people because of their political views (or their race, or their sex) instead of their competencies, we get planes that fall out of the sky.
Porter & Co.