{"id":710,"date":"2019-04-26T23:30:43","date_gmt":"2019-04-27T03:30:43","guid":{"rendered":"http:\/\/commoncents.blogwyrm.com\/?p=710"},"modified":"2019-04-26T21:59:27","modified_gmt":"2019-04-27T01:59:27","slug":"monopolies-part-1-the-boeing-problem","status":"publish","type":"post","link":"https:\/\/commoncents.blogwyrm.com\/?p=710","title":{"rendered":"Monopolies Part 1 - The Boeing Problem"},"content":{"rendered":"

By now the world is painfully aware of the shortcomings of the Boeing 737 MAX 8 aircraft<\/a>. \u00a0The Maneuvering Characteristics Augmentation System (MCAS) system, designed to prevent stalls on takeoff have caused numerous close calls and two catastrophic crashes with the loss of all passengers and crew onboard. \u00a0The entire fleet sits idle on the ground while Boeing attempts to correct the flaws in the automation and provide a patch that will restore confidence in the plane. Several airlines have cancelled their orders and it will be years or even decades before Boeing has rebuilt and restored public trust in their products.<\/p>\n

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photo credit - Daily Active Kenya<\/a><\/div>\n

Gregory Travis covers the technical points in his highly understandable (albeit somewhat long) article entitled How the Boeing 737 Max Disaster Looks to a Software Developer <\/i>(IEEE Spectrum). \u00a0It is natural to want to understand how the design and manufacturing details contributed to these disasters and, indeed, stories digging into how the MCAS went wrong have riveted many people around the globe.<\/p>\n

But as important as the technical details are to ferreting out the tangible safety aspects of the problem, they do not explain but merely point towards the managerial and business failings that caused Boeing to go so far astray. \u00a0And there are more black clouds on the horizon for the corporate infrastructure of one of the US\u2019s largest companies.<\/p>\n

The Air Force has halted deliveries of Boeing\u2019s KC-46 Pegasus tanker due to the presence of \u201cforeign object debris\u201d (FOD to those in the know) being found in close compartments throughout the aircraft. \u00a0For those of us who don\u2019t speak military jargon, FOD includes anything you should never see in a new plane ranging from an abandoned wrench left behind by a careless worker, to aluminum shavings that weren\u2019t swept up after manufacturing, to wrappers from spent food items. \u00a0As Air Force Secretary Heather Wilson characterized to the House Armed Services Committee the cause is due to \u201ca manufacturing discipline issue, on the line ... and we saw a breakdown there.\u201d<\/a><\/p>\n

Boeing has misstepped in other areas (the 787 Dreamliner has had its share of problems<\/a>) as well and the overall for outlook for the company was being openly questioned as it was getting ready to report its first quarter revenue. \u00a0And indeed the questioning was quickly replaced by pessimism when Boeing announced its revenue had been adversely affected by the Max 8 issues, although it just as quickly rebounded. \u00a0It also interesting to note that Boeing\u2019s stock took a sharp climb during the year or two before the 737 Max 8 received FAA approval on March 8, 2017.<\/p>\n

In any event, either through poor management or bad luck or some combination of both, the Boeing corporation is on shaky ground and numerous technical and safety questions abound for which the US government has a clear role to play (including some hard soul-searching as to whether the FAA was too chummy with Boeing). \u00a0But this is not a technical blog and so the operative question here is what, if anything, should the US government do to economically support the company?<\/p>\n

For most people, the knee-jerk reaction is that Boeing made its bed and it should lie in it. \u00a0This type of question also conjures up resentment over the \u2018too big to fail era\u2019 that marked the Great Recession and the government\u2019s intervention in the financial, housing, and automotive sectors. \u00a0Ordinarily, I would agree. Living in a capitalist society, we should hope that any company (especially a company as large as Boeing) should be able to stand on its own two feet and live with the consequences of its actions. \u00a0The market can vote to put its money behind another supplier and stock owners can make the appropriate response by voting directly at shareholder meetings or indirectly by selling stock.<\/p>\n

Furthermore, for all intents and purposes, the commercial market for passenger airliners is a oligopoly consisting of only two players; a duopoly spanned by Boeing and Airbus. \u00a0The two companies are protected behind one of the most formidable barriers to entry ever enjoyed by current or past industries. Modern aircraft are extremely complex mechanical, electrical, computational machines sporting a mix of modern materials. \u00a0Building an airliner requires a huge knowledge base, large collections of capital, and intricate supply chains. In addition, there is an enormous compliance burden imposed by countries all around the world and only companies with deep pockets can afford to pay the host of lawyers, lobbyists, and compliance officers needed to keep various governments happy and out of the way.<\/p>\n

To many, the fact that Boeing is essentially engaging in monopolistic practices is all the more reason to argue against government intervention on its behalf. \u00a0Heartened by the observation that no monopolistic company is invulnerable to competition in the long run and that Boeing\u2019s once seemingly unbreakable membership in the commercial aviation market is now showing substantial cracks, the same group may even think that now is the time to do some old fashioned trust busting wherein the government hastens Boeing\u2019s fade.<\/p>\n

But, those engaging in such an argument might do well to look past Boeing\u2019s sins and consider what happens as it loses market share or even exits from commercial aircraft manufacturing completely. \u00a0Articles such as Clive Irving\u2019s piece in the the Daily Beast<\/i> (Boeing\u2019s Disaster Could Turn China Into Aviation Superpower<\/i><\/a>) and \u2018Your Loss my Gain!\u2019 Airbus now reaping on Boeing crisis<\/i><\/a> at Daily Active Kenya<\/i>, gives us some clues by showing us how fast Airbus has moved to fill the order vacuum created when China cancelled its order for MAX 8s. \u00a0And as Airbus\u2019s dominance grows, the duopoly moves closer to a monopoly that, paradoxically, may mean even fewer planes in the sky than when both companies were swilling at the trough together.<\/p>\n

Next month\u2019s column will take a look at how monopolies work and how economists think about them and then will try to sort out whether or not it's in everybody's interest to help Boeing out.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By now the world is painfully aware of the shortcomings of the Boeing 737 MAX 8 aircraft. \u00a0The Maneuvering Characteristics Augmentation System (MCAS) system, designed to prevent stalls on takeoff... Read more ><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-710","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/710","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=710"}],"version-history":[{"count":1,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/710\/revisions"}],"predecessor-version":[{"id":711,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/710\/revisions\/711"}],"wp:attachment":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}