Time for a Breakup: FTC Need to Hit Reset on Boeing

Written by Joe Marzo

Boeing, the titan of American aerospace, has long been a symbol of innovation and engineering prowess. Founded in 1916 by William Boeing in Seattle, Washington, the company initially produced seaplanes and military aircraft. Over the decades, Boeing grew to become a global leader in aerospace manufacturing, known for iconic aircraft like the B-17 Flying Fortress, the 707, the first successful commercial jetliner, and the 747, which revolutionized air travel.

However, recent years have seen the company embroiled in a series of scandals and safety issues that raise significant concerns about its dominance in the commercial aircraft manufacturing industry. The time has come for the U.S. government to consider breaking up Boeing, not only to restore public trust but also to foster a more competitive and safer aviation sector.

Consolidation of the Industry in the 1990s

The consolidation of the aerospace industry took a significant turn in the 1990s, culminating in the merger of Boeing and McDonnell Douglas in 1997. At the time, McDonnell Douglas was one of Boeing's primary competitors in the commercial aircraft market. The merger, valued at $13.3 billion, was touted as a strategic move to strengthen the U.S. aerospace sector against growing international competition, particularly from Airbus.

However, the merger also had profound implications for competition and innovation. By absorbing McDonnell Douglas, Boeing effectively eliminated one of its key rivals, further entrenching its market dominance. This consolidation reduced the competitive pressure on Boeing to innovate and maintain high safety standards, as there were fewer significant players in the market to challenge its supremacy.

The merger also led to a significant cultural shift within Boeing. Critics argue that the leadership and practices of McDonnell Douglas, which had been struggling financially prior to the merger, influenced Boeing's corporate culture negatively. This included a stronger focus on cost-cutting measures and financial performance over engineering excellence and safety. The result has been a series of decisions prioritizing short-term profits over long-term safety and quality, culminating in the 737 MAX debacle.

A History of Safety Issues

Boeing’s safety record has been marred by multiple high-profile incidents, most notably the two fatal crashes of the 737 MAX aircraft in 2018 and 2019, which claimed 346 lives. The Lion Air Flight 610 crash in Indonesia and the Ethiopian Airlines Flight 302 crash in Ethiopia were both linked to flaws in the aircraft's Maneuvering Characteristics Augmentation System (MCAS), a software system designed to prevent stalling. The MCAS issues were compounded by inadequate training for pilots and a failure to properly inform them about the new system.

The subsequent grounding of the 737 MAX fleet worldwide, lasting from March 2019 to December 2020, exposed serious deficiencies in Boeing's safety culture and its relationship with regulatory authorities. Investigations revealed that Boeing had exerted pressure on the Federal Aviation Administration (FAA) to approve the aircraft with minimal oversight, bypassing critical safety checks. This scandal highlighted a disturbing trend: Boeing prioritizing profits over passenger safety.

The financial impact of the 737 MAX grounding was substantial, with Boeing reporting over $20 billion in direct costs, including compensation to airlines and production delays. Additionally, Boeing faced a $2.5 billion settlement with the U.S. Department of Justice to resolve a criminal charge of conspiracy to defraud the FAA.

Whistleblower Revelations

The company’s internal issues have been further exposed by numerous whistleblowers who have risked their careers to speak out about safety concerns and unethical practices. These whistleblowers have reported issues ranging from defective manufacturing processes to insufficient quality control and even retaliatory practices against employees who raised safety concerns.

For instance, former Boeing engineer Curtis Ewbank testified before Congress that the company had ignored safety improvements to cut costs and expedite the production of the 737 MAX. Another whistleblower, Ed Pierson, who was a senior manager at the 737 MAX production plant, warned of severe production issues and safety lapses before the crashes occurred. These testimonies have painted a grim picture of an organization that has systematically undermined safety protocols to maintain its market position and profitability.

Perhaps the most chilling case is that of John Barnett, a quality manager who blew the whistle on defective parts and substandard manufacturing practices at Boeing. Barnett claimed that hundreds of potentially defective parts were installed on 737 MAX jets, which could pose serious safety risks. Tragically, Barnett died mysteriously the day before he was scheduled to testify about these issues. His death raised significant concerns about the lengths to which Boeing might go to silence dissent and protect its interests.

Monopoly Concerns

Boeing’s dominance in the American commercial aircraft market raises significant antitrust concerns. As one of only two major players globally, along with Airbus, Boeing enjoys substantial market power, which it has used to stifle competition and maintain its hegemony. This lack of competition has several adverse effects, including higher prices for airlines and passengers, reduced innovation, and complacency in addressing safety issues.

In 2019, Boeing and Airbus combined controlled 99% of the global large commercial aircraft market. Boeing's influence extends beyond manufacturing; it wields considerable power in lobbying, spending $12.6 million in 2020 alone to influence U.S. policymakers. This outsized influence allows Boeing to shape regulations and policies in ways that protect its market position at the expense of competition and innovation.

The Path Forward

Breaking up Boeing is not a decision to be taken lightly, but it is a necessary step to ensure the safety and competitiveness of the American aviation industry. The government can take several actions to facilitate this process:

1. Divestiture: The government can mandate Boeing to divest certain divisions, such as its commercial aircraft unit, from its defense and space divisions. This would create smaller, more focused companies that can better manage their operations and prioritize safety.

2. Regional Companies: The divestiture should also include splitting Boeing’s commercial aircraft business into regional companies. By creating multiple, regionally focused manufacturers, the market can benefit from increased competition, which would drive innovation and improve safety standards. Each regional company can focus on catering to specific markets and customer needs, fostering a more dynamic and responsive industry landscape.

3. Encouraging Competition: The government should provide incentives for new entrants in the aircraft manufacturing sector. This could include grants for research and development, tax breaks, and support for startups. For example, Brazil's Embraer and Canada’s Bombardier have shown that smaller players can bring innovation and competition to the market, benefiting airlines and passengers alike.

4. Strengthening Regulation: The FAA must be reformed to become a more independent and robust regulatory body. This includes eliminating the current practice of allowing manufacturers to self-certify their aircraft and ensuring that the FAA has the resources and authority to enforce stringent safety standards. The FAA’s dual mandate to promote and regulate the aviation industry should be reevaluated to prevent conflicts of interest.

Conclusion

Boeing’s recent history of scandals, safety issues, and monopolistic practices underscores the urgent need for structural change. Breaking up Boeing would not only enhance safety and restore public trust but also foster a more competitive and innovative aviation industry. It is time for the U.S. government to act decisively to protect passengers and promote a healthier market dynamic. The skies above America should be safe and open to all, not dominated by a single, unaccountable behemoth.

References

1. U.S. Department of Justice. (2021). Boeing to Pay Over $2.5 Billion to Resolve Criminal Charge for Conspiracy to Defraud the FAA Related to the 737 MAX. DOJ Press Release

2. Congressional Testimony. (2019). Testimony of Curtis Ewbank. House Committee on Transportation and Infrastructure

3. Financial Times. (2020). Boeing Faces $20bn in Costs From 737 Max Crisis. Financial Times

4. Bloomberg. (2020). Boeing Spent $12.6 Million on Lobbying in 2020. Bloomberg

5. National Public Radio (NPR). (2020). Whistleblower Claims Hundreds of Defective Parts on Boeing 737 MAX. NPR

6. New York Times. (2020). The Merger That Changed Boeing and the Path to the 737 Max Crisis. NY Times