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17 July 2019


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Eric Newhill

According to Reuters, Boeing is saying none of this a settlement to the families of the victims of the two crashes. Additionally, Reuters states that the money is to go to charities and government programs that help in the communities most effected.

Some of the families are angry not about the amount or target of the $100 million payout, but because Boeing announced the $100 million payment and now people are calling them (the families) thinking it is a settlement and asking if the money has been received yet. This is, according to the Ethiopians, a dangerous state of affairs because kidnapping for ransom and theft are so prevalent in the country.

Actually, even if it was the payout to families, it's not too far off the mark. We have 346 victims. According to the reports you quote, $50 million goes to the surviving family members. So that's $144,500 per victim - or $4.19 million Ethiopian Birr. That translates to 11X the average annual income in Ethiopia. 11X the avg American annual income would be about $535,000; which is typical of a settlement for this kind of tragedy in 2019 dollars. So the Ethiopians would be getting the American equivalent of the settlement (I didn't bother to breakout to Indonesian currency/salary equivalent, etc).

But Reuters says that Boeing says the $100 million is not the settlement on the lawsuits.

A couple of other points;
1. The settlement money - whatever it turns out to be - isn't going to bring the lost loved ones back
2. If Boeing really did willfully and wantonly disregard known critical safety issues that caused the crashes, then, IMO, some kind of criminal proceedings are in order as well as massive punitive damages to a level that really hurts - of course we will never see criminal action taken even if it should be and the punitive damages are even questionable; they'd take a good long fight.


I saw this piece which I think explained what happened at Boeing.

For what little my opinion is worth, many of the problems in the West have originated in our business schools. They are a curse. Its not too late to shut them all down, and redistribute the curricula to other departments.



great article. a quote:

"According to Boeing’s annual reports, in the last five years Boeing diverted 92% of operating cash flow to dividends and share buybacks to benefit investors. Since 1998, share buybacks have consumed $70 billion, adjusted for inflation. That could have financed several entire new airplane models, with money left over for handsome executive bonuses..."



My Dad and Brother-in-Law worked at Boeing. I am not disinterested. My Brother-in-law who is also Vietnam Veteran and retired told me that the 737 Max catastrophes are directly due to the takeover of Boeing by McDonnell Douglas executives in 1997. Boeing, just like Intel, U.S. Steel or Toys R Us, was seized by financiers who could care less about the business and milked it of all its value. Money that should have been used designed a new single aisle passenger airliner instead was used to pay executive bonuses and increase shareholder value by stock buybacks. Due to this de-industrialization policy the USA is now an empty shell of the nation that I grew up in. The only thing rising is the number of billionaires up to 680 led by Jeff Bezos.

If Congress had not deregulated aviation and let Boeing employees certify the safety of the aircraft, FAA inspectors, who once were paid by taxpayers, more likely than not would have pointed out that the 737 Max flight control system which could nose dive the airplane into the ground by regulation requires three or more sensors not one.

Boeing in order to survive as North America’s aircraft manufacturer must be able to sell single aisle passenger aircraft in East Asia. Dennis Muilenburg should know this. Clearly the Trump Administration doesn’t. Boeing’s future depends on getting the 737 Max re-certified by the Civil Aviation Administration of China. This will take time and could cost billions of dollars. If not, the US aviation industry will wither away. The new Cold War, unless ended, will force the formation of two global economic blocks, once again, except this time China will have all the manufacturing expertise and industry.


Boeing buying Embraer regional airliner division and merging with its commercial airliner sector recently looked like as a desperate move, Embraer is world leader in the regional airliner market and is famous for being efficient, Boeing is hoping of being saved by Brazilian engineers.


Thanks for your very informative post. I am not all that surprised that Boeing is in their deserved trouble. Most big US companies have a senior management well removed from reality. Many years ago, when I was in the trucking business, we suddenly got a lot of trips hauling refrigerators back to various GE factories, due to a faulty compressor they had installed. The repair guys in the field soon found them to be faulty. It took one and a half years for that information to reach senior management, resulting in a lot of units made with a problem. Since airplanes are a lot more complicated, what happened should be expected.

It will take more than $100M to remedy this.

adrian pols

The 737MAX will probably never fly passengers again. It's Kludge and they knew it. So does the rest of the aviation world. Maybe the earlier 737s will live on, but this Turducken has been thoroughly exposed and other aircraft will fill the niche Boeing tried wedging this into.

James O'Neill

In many ways Boeing is a metaphor for modern America. Started out with such promise, reached a peak, and since then steadily downhill while others (competitors) thrive. Part of the tragedy is that the majority fail to see the reality and will continue down the same destructive path.

Mathias Alexander

Is it true that executives are legaly required to act in this way because it is in the interests of its shreholders?

John A

No, that myth was started by Milton Friedman.

John Minehan

Graduate Business Schools have emphasized ethics since at least the S&L Scandals in the 1980s.

It is at least arguable if the effort has produced any results.

John Minehan

to be a devil's advocate, would doing that have made business sense? Would demand have supported the new models? Was there a technological reason to bring in new models that would create their own demand?

John Minehan

Actually, it is a bit more complex than that.

Yes, executives have a duty of loyalty to the company (and, by extension, to its owners, the shareholders).

More to the point, Boards have a fiduciary duty to the shareholders of a company, which much predates Milton Friedman's 1970 article in the New York Times Magazine. Corporate law is, by and large, state law in the state of incorporation, now mostly Delaware and New York for publicly traded corporations.

Precedents from Michigan from about 100 years ago began to establish that a Board's fiduciary duty involves maximizing corporate profits. Based on this, it became part of the broader legal theory of the corporation that this was a key duty of boards in the 1920s and 1930s. By the 1940s and early 1950s, beginning with closely-held corporations and later OTC traded corporations, lawyers like Joseph Flom and Martin Lipton contended mightily over shareholder derivative suits in the New York courts.

One of the things that came out of these suits is the business judgement rule that presumes that HOW the board maximizes shareholder value is left to the business judgement of the board, who are (ideally) chosen for business acumen and savvy.

With a publicly traded corporation, a shareholder can fairly freely sell their shares if the return is insufficient (portfolio theory). However, most people do not monitor a corporation in which they own stock like they owned the business (even though, legally, they do, or at least a small part of it). Boards have a fiduciary duty to shareholder to protect their interests (largely, but not exclusively, by maximizing return), which makes sense especially because stocks are often held by the endowments of charities, pension funds and other vulnerable parties.

Put in extreme terms, a Board, which concentrates on corporate grand strategy, could put a lot of money into R&D to reap future profits by disrupting the market at cost of current returns. But that COULD be challenged. The more common approach today would be to acquire new technology to disrupt the market by acquiring a smaller company with promising tech but not risking current returns by doing expensive in-house R&D which might not show any return.

Bill H

Yes, there was. The 737MAX should have been a new model, rather than bandaids placed on an existing model which is what it was.

Bill H

FAA inspectors would have required a different airplane, one in which flight stability was inherent in the airframe and not faked by means of software.

John Minehan

I think modern approaches to corporate governance are an improvement on what went before. I also think a less intrusive regulatory structure abets growth and innovations.

However, laws (and things like the business judgement rule) have tended to restrict things like shareholder derivative suits, which I think limits a more effective check on the system.

If anything, it might make sense to take things that boards tend to get wrong (e.g., capitalization decisions by boards of financial institutions, as with the Great Recession and the S&L Crisis) out of the ambit of the business judgement rule and put the burden on the board to prove there decisions were reasonable. It does not tell the Board what decision to make, but pointedly tells them that they bear the liability if they did not consider it carefully.

ex-PFC Chuck

The root cause of all this is the out-of-control financial sectors of the western industrialized societies, and most especially that of the USA. The go-to source for understanding this is the life work of economist and economic historian Michael Hudson who, in his 80th year, is still very much at the top of his game. Hudson has studied economic history from ancient Mesopotamia 5,000 years ago to the present, and he asserts that in societies that use money the financial sectors that emerge to do basic, necessary functions such as processing transactions and lending money for short term needs inevitability become ever more parasitic, thus weakening societies from within, unless they develop active measures for preventing this. Many Mesopotamian societies of the 3rd and 2nd millennia BCE accomplished this for extended periods with periodic debt relief programs. This is the topic of Hudson’s most recent book . . and forgive them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year.

Two of Hudson’s many books are crucial to understanding how this has played out since early in the 20th century. The first is Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2003 Edition, which describes the financial aspects of US foreign policy which since the First World War enabled the US to supplant the overt colonialism of the Western European with a more stealthy financial colonialism centered on the USA. The book was originally published in 1972 and substantially updated in 2003. One thing that becomes apparent from this history even though it’s not directly brought out by Hudson, is that the refugees who have been so effectively used by Trump to distract his base from the fact he, like all 20th century presidents except Franklin Roosevelt, shy away from confronting the titans and minions of Wall Street. And even FDR limited the scope of his New Deal programs to those that affected the financial sector’s domestic predation; he was fully on board with what it did abroad.

The other book at the top of the Hudson must-read list is Killing the Host: How Financial Parasites and Debt Destroy the Global Economy, published in 2015. In it he discusses how many of the causal factors cited in other comments that have hollowed out Boeing and many other companies can be traced back to the malign imperatives of the financial sectors of the western industrialized countries.

For a convenient introduction to Hudson’s thought, below are links to transcripts of two recent interviews of him by Bonnie Faulkner of the Guns And Butter podcast which provide a pretty good overview of his body of work.



Super Imperialism: https://amzn.to/2XX9cHr

Killing the Host: http://amzn.to/2wuiYEP

blue peacock

"Boeing, just like Intel, U.S. Steel or Toys R Us, was seized by financiers who could care less about the business and milked it of all its value. Money that should have been used designed a new single aisle passenger airliner instead was used to pay executive bonuses and increase shareholder value by stock buybacks. Due to this de-industrialization policy the USA is now an empty shell of the nation that I grew up in."


Yes, this financialization of our economy over the past 40 years under both Republican and Democratic administrations and Congresses has hollowed out our economy and financed the technology transfer to China strengthening the totalitarian CCP.

With the focus on financial asset inflation that primarily benefits the top 1% we now have the worst wealth inequality in a century. Even worse the degree of systemic debt and unfunded liabilities are gargantuan. The middle classes and working classes will be further shredded as the debt load continues to depress productivity growth and monetary & fiscal policies become even more extreme. If we thought the political conflict we have seen so far is bad, we ain't seen nothing yet!

Ray Dalio, the Chief Investment Officer of Bridgewater, one of the largest hedge funds recently penned a note on "paradigm shifts", which is well worth a read.

"There’s a saying in the markets that “he who lives by the crystal ball is destined to eat ground glass.” While I’m not sure exactly when or how the paradigm shift will occur, I will share my thoughts about it. I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots.

The opioid crisis, Trumpism are all symptoms of the deleterious effects of financialization. Demagogues from both the left & right are in our political future as large segments of our population experience significant stress as their standard of living comes under increasing pressure. Note that the bottom 50% only have 1% of the financial assets.


blue peacock

Executives act in their self-interest. Their compensation packages are tied to stock price which is how they make the real big bucks. Not salary. Hence, why financial engineering is what they do. GE is the poster child and Jack Welch the epitome of the "great" CEO. It doesn't matter if the business survives and if long-term shareholders (the pension funds, 401K plans and mutual funds) lose value. After all it is OPM.

The Twisted Genius

It goes far beyond the schools. It's the overarching Western business philosophy. I had to take one business course for ROTC. The central message from day one was that the business of business is to make money. A lot of us found this sleazy and disconcerting, but we never harbored dreams of being massively rich. This is in line with what semiconscious said below about Boeing maximizing dividends and share buybacks. They may talk about building fantastic aircraft, but that's just talk. They'll build the cheapest product they can in order to maximize profits. It wasn't always this way. The idea of offering a quality product for a fair price was once far more than a marketing slogan. It was a time when craftsmen, manufacturers and service providers stood behind their work as a matter of honor and pride. It is a philosophy of "being a man for others" for the business world.



A few things I learned in my ten years in international business. 1. The business of business is making money, not the products. They are just the means for making money.. 2. Resources are not free as they are in government. Someone has to pay for them. 3. Transactions are where you make money if you do. Infrastructure; factories, people, company towns or country clubs, etc. should be taken down as soon as the transactions that they support are no longer making money. 4. There are profit centers and there are cost centers. Remember that. I hated business just like the banker Claude Devereux hated it in my books but like him I was good at it. TTG, you should have been a priest or a crusader warrior monk.


"There is one rule for the industrialist and that is: make the best quality goods possible at the lowest cost possible, paying the highest wages possible." Henry Ford.

"There is one rule for the industrialist and that is: make goods at the lowest cost possible, paying the lowest wages possible." Ver. 2.0 (current)

Eric Newhill

Then how come cars have been getting increasingly safe (accident survivability), more fuel efficient, better handling, etc?

Eric Newhill

That's just one side of the equation.It's labor's role to negotiate for the highest salary possible.

Consumers make decisions on a matrix of considerations that includes price (lowest possible), but also highest quality.

All of these tensions between and within the different players result in the right mix of quantity, quality, price, etc.

Or we could have AOC deciding what we're going to get and at what price.

Life is messy.


Probably. Boeing's engineering standards were once extremely high. It was the foundation of their long running success. For the last 20 years the management have been extracting value by under-investing. Not building a new aircraft and going with the software solution for the 737 Max saved a huge amount of money, or at least would have if the process hadn't been mismanaged/misconceived. However, making the the product subservient to the business is not a path to longterm success. Its a path to increasingly bad planes.

In many industries, CEOs can can make +USD100mn. When these kinds of sums are involved we shouldnt be surprised if decisions are made which prioritizes the short term over the long term.

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