BOEING: “Breaking Up Is (Is Not) Hard to Do”

By Joe Scarry, via Scarry Thoughts

When I lived in Philadelphia in the ’80s, there were two related events in the business world that made me sit up and take notice.

The first was the acquisition of a venerable Philadelphia bank — Girard Bank — by a big Pittsburgh institution — Mellon Bank.  People were pissed.  It didn’t make complete sense to me, but I eventually learned a little bit about Philadelphia philanthropist Stephen Girard, and I came to understand a little better why people had feelings about the bank. (Hey, nothing personal, Mellon . . . we just like things in Philadelphia the way they are . . . . )

The second was the recognition by Mellon that Mellon had a substantial volume of bad assets on the books — as in, enough to bring the company down.

In the event, Mellon made a brilliant decision: they split Mellon into two parts — dubbed “the bad bank” and “the good bank” — and dealt with them separately. They recognized that as long as Mellon remained a single entity, the investment community would value the entire company in light of the problems occurring in some of its assets. The solution was to quarantine the bad assets, take the hit, and focus on saving the the part of the bank that still had (substantial) value. (See “Rich Bank, Poor Bank: Mellon’s Surprise Success” in Business Week, March 8, 1992.)

Every time we talk about the substantial part of the Boeing Corporations that is used for war and violence, I can’t help thinking: “bad Boeing, good Boeing.”

Everybody’s Doing It

There’s a lot that goes into making an argument for the breakup of a multinational corporation, and I have been meaning to develop this idea in more detail before posting it to my blog.  However, it seems that we’re in a moment where people are talking about corporate breakups and how they’re the right thing to do.

Hewlett-Packard Announces Breakup

Today we had the news that Hewlett-Packard will break itself into two companies. (See “Hewlett-Packard Announces Breakup Plan as Technology Landscape Shifts” by Quentin Hardy and David Gelles in The New York Times, October 6, 2014.)

A few weeks ago I noted that an investor was leading an effort to break up the DuPont company. The investor “argues that an overly complex and bloated corporate structure overburdens DuPont’s seven business lines, some of which the activist firm argues bear little relation to one another, making it difficult for both investors and the company itself to gauge its prospects.” (Wall Street Journal, September 16, 2014) Sound familiar?

In the last decades there have been big corporate breakups of firms like Viacom, Altria, Morgan Stanley, Time Warner, ConocoPhilips, and — recently right here in the Chicago area — Abbott Labs.

Sure, “breaking up is hard to do” — sometimes. But now, it seems, “breaking up is the thing to do.”

It seemed like a good idea at the time

It should be remembered, by the way, that today’s Boeing Corporation is really a mashup of two aerospace companies — the civilian aviation oriented Boeing and the military aviation oriented McDonnell Douglas — in 1997. (See “Building a new Boeing” in The Economist)

The merger was sort of a case of “misery loves company”: civilian aviation was in crisis, and the Cold War was over and drastic economizing in defense spending was expected, so why not put both these problems under the same roof?

Boeing has struggled to make things work. It announced in 2006 that it would reorganize the defense division.

“We’ll get this thing working eventually . . . . “ 
Boeing said it would eat $272 million in the development
of the new KC-46A aerial refueling tanker after discovering
wiring issues in test aircraft.” (Defense News, July 26, 2014)

Boeing did a big round of layoffs in its defense business in 2009, following a big drop in defense orders. “In a single day during the spring of 2009, Defense Secretary Robert Gates wiped out a quarter-trillion dollars in potential bookings at Boeing Defense, Space and Security by proposing termination of an array of programs begun during the Bush years, forcing the company to rethink its business plan and reorganize its operations. ” (More in Forbes, October 12, 2010.)

Boeing announced another reorganization of its defense division in 2012.

On September 29, 2014, Boeing “said it would move up to 1,400 jobs and change or eliminate hundreds of others over the next three years as part of the consolidation of its defense operations away from its manufacturing base in Washington state.” (Wall Street Journal)

Yup — it’s been a tough row to hoe for defense at Boeing. (And that’s not even counting things like the refueling tanker fiasco — a contract awarded, then the award frozen due to a bribery investigation, then the contract re-awarded, then the CFO sentenced to jail for trying improperly influence the contracting process, then a write-off on the program reported this summer due to production issues . . . .)

Hey, shouldn’t Boeing stick to its knitting and get its commercial business working? How about shipping the Dreamliner without those pesky battery fires?

Time to jettison “bad Boeing”

In recent months, people have become more and more aware of the role of Boeing’s weapons in the violence that we deplore — in Gaza, in the form of next-generation killer drones, in the creation of deadlier and deadlier nuclear weapons, in provoking conflict on the borders of China.

Isn’t the time fast approaching when Boeing recognizes that it’s not just one or another of their weapons systems — or weapons systems customers — that’s the problem? Isn’t Boeing’s entire defense systems division “bad Boeing”?

Last night I watched a new film about the evacuation of Saigon at the end of the Vietnam War. As I watched Huey helicopters being shoved off the deck of a Navy ship into the ocean, to make room for more people seeking refuge, I thought, “That’s right: it’s gotta go; it’s the people that matter.”

As they say in business, “The first cut is the easiest.”

A no-brainer
During the evacuation of Saigon, Huey helicopters were jettisoned
after delivering passengers to Navy ships, in order to make room
for more incoming rescuers.
This entry was posted in Military Industrial Complex Revisited and tagged , , . Bookmark the permalink.

One Response to BOEING: “Breaking Up Is (Is Not) Hard to Do”

  1. Jack Smith says:

    One man’s view of Jay’s beloved Boeing Company.

    Sent from my iPhone


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