Boeing Is Basically a State-Funded Company
On Tuesday and Wednesday, Boeing CEO Dennis Muilenburg was hauled before Senate and House panels to offer up some explanation for the two recent tragedies involving the company’s 737 MAX plane. This marked the beleaguered CEO’s first public appearance in Congress since the devastating crashes of the Lion Air flight in October 2018 and the Ethiopian Airlines plane in March 2019, both 737 MAXs. All told, 346 people died.
The Boeing scandal has been an item-by-item exemplar of the corporate crisis of our age. There was the insatiable push toward maximizing shareholder value, which put resources into dividends and stock buybacks when that money could and should have been put toward research, training, engineering, and in this case safety. (Boeing banked $15 billion in profit in 2018, along with $9 billion in stock buybacks, and a pledge to buy back $20 billion worth of shares going forward.) There was the corporate greed of unthinkable scale: Boeing sold two warning indicators that would have alerted pilots to problems with the flight-control software as optional extras, only making one standard after the two catastrophes. Meanwhile, engineering for the 737 MAX was outsourced to coders from India earning as little as $9 an hour.
There was the weakened regulatory environment—the Federal Aviation Administration forked over control to Boeing in certifying the jets as safe, while the company peppered the Hill with lobbyists. Even low-level employees calling an FAA hotline to confidentially report safety issues did not lead to delays in production. There was the almost comically inadequate response to the crisis as it unfolded, the details of which continue to emerge. And to top it off, there was the patent refusal to acknowledge wrongdoing. It took a full month after the Ethiopian Airlines crash, and five months from the time of the initial Lion Air crash, before the company recognized any responsibility at all, after initially fingering pilot error as the source of the catastrophe. Even in Tuesday’s hearing, which was the broadest act of contrition the company has produced in the 12 months this saga has worn on, Muilenburg vowed only to make a “safe plane safer.” Otherwise, Muilenburg suggested, there was little else, not least by regulators, that could have been done.
To get a sense of the staggering depths of the company’s culture of impunity, Boeing ultimately offered Southwest Airlines, its biggest American 737 MAX customer, a rebate of up to $1 million per plane, which list for more than $120 million each. Months after the Lion Air flight went down, killing 189 people, CEO Dennis Muilenburg pocketed a $15 million bonus. It took until mid-October, some six months after the second crash, for any personnel changes to be made, outside of some employees quitting in protest. All that happened to Muilenburg, whose $23 million in annual compensation was never in question, was the loss of his title as chairman of the board. He was, however, allowed to continue as a board member and CEO (the fact that he received even a nominal demotion was called an “unexpected shake-up”). Over a year has passed since the first crash—the number of high-ranking officials who have been fired in that time is one, who got booted last week.
Muilenburg’s defiance before Congress and his absence of real contrition or accountability has become the default posture of America’s corporate leadership (Mark Zuckerberg, for instance, has become a master of this act). That stance has been well earned. After every high-ranking executive involved in the financial crisis escaped with little more than a wrist slap, alongside a massive public bailout, the brazen impunity has only tightened its hold. The Trump administration’s commitment to minimize regulatory oversight has entrenched the trend further. Boeing’s actions in the wake of those crashes have shown the company isn’t even minimally concerned about the threat of outside regulation.
Boeing is the only major U.S. commercial aircraft maker, which has helped it become the newest poster child of too-big-to-fail logic. But for all it shares with the rest of the corporate bad actors that have flourished in recent years, Boeing is not just some private-sector marauder. In fact, it’s a company that is uniquely dependent on the largesse of the public sector.
Boeing is currently the largest exporter in the United States, which means it’s singularly dependent on the generosity of an American trade policy regime that has sought to shield the company’s monopoly position from competitors like Airbus. Those trade guidelines have long been exceedingly pro-corporate, which has set the terms for Boeing’s huge profitability. Meanwhile, the company has benefitted so inordinately from public loan guarantees from the federal Export-Import Bank that the agency has been nicknamed “Bank of Boeing.”
It’s not just that Boeing’s bottom line is based off of the U.S. government writing the rules in its favor; an incredible amount of that bottom line is actually funded by public money. Boeing received $23.4 billion in government contracts in 2017 from the Pentagon, which makes for roughly a quarter of its net revenues. In the second half of 2018, the company was awarded three multibillion-dollar contracts for major Department of Defense aircraft programs, even as it remains behind schedule for other work.
In fact, Boeing is now the country’s second-largest recipient of federal funding after Lockheed Martin. That means it’s more dependent on the public purse than a number of federal agencies. The amount of money it receives blows the federal funding of the Environmental Protection Agency and the Department of the Interior out of the water.
That’s not all. Boeing is notorious for its exploitation of the tax code; for multiple years, it managed to pay a negative tax rate on its income. The company took home an extra $1.1 billion after the 2017 passage of the Tax Cuts and Jobs Act. It performed the same contortions at the state and local level, as well. Boeing has long been the single-largest beneficiary of state and local tax breaks, to the tune of $14 billion, according to Good Jobs First. That group’s data also identifies $70 billion in federal loans that the company currently enjoys.
Due to its massive infrastructural needs, the aviation industry is exceedingly reliant on public funding, subsidy, and sweetheart policy. It’s not unlikely that Boeing, if it continues to struggle, will come hat in hand to the government soon for a taxpayer-funded bailout. Given all that, Boeing, beyond almost any other company, is effectively a public entity with private profits. The American public is its financier, its safety net, its biggest customer, and its number one advocate. So if Boeing can’t effectively be regulated, if its management is broken and consumed with short-term profits, and if it can’t be bothered to enact any sort of accountability internally, what can be done?
When Muilenburg was stripped of his title as chairman of the board, the board quickly voted for fellow board member David Calhoun to replace him. But if the public is ponying up a quarter of their revenue, plus billions more dollars in subsidies and loans, there’s no resounding case that that decision should be left to a private board. If the government won’t nationalize a broken company that it keeps afloat as a de facto state-owned enterprise while its executives rake in bonuses, then perhaps the public—or at least Boeing’s own workers—should be able to vote on a preferred representative in an open election.
The idea of workers having representation on corporate boards, a practice called co-determination, has gained traction through recent policy proposals from presidential candidates Elizabeth Warren and Bernie Sanders. The inherent reasoning of such proposals is that boards without workers make decisions on work that affect workers detrimentally (given the current CEO-to-worker pay ratio, there’s plenty of reason to believe that). It’s been a winning concept in Germany and elsewhere. But Boeing’s board has also made financial decisions that have affected the American public, its primary benefactor, detrimentally. It’s worth asking if the logic of co-determination could also work for state-sponsored enterprises like Boeing. In our new Gilded Age, corporate boardrooms have become the site of greatest decision-making power. If companies are going to engorge themselves on public funding, they should also have public representation.
That could take a number of different forms. For one, a Department of Transportation representative, appointed by the president, could maintain a board seat or a voting stake (this would be more compelling if DOT wasn’t such a feckless agency). There are a number of other federal agencies that Boeing interfaces with regularly that have a case to representation as well. It could even work as an open vote on a nationwide ballot, in the same way public officials are represented. Democratizing the company’s board should be the first step toward its reform.
As The New Republic recently reported, the company is so thoroughly in hock to Wall Street that its workers are unable to produce a decent product. But Boeing is already an adjunct of the state, privatizing just its profits and socializing all else. The most immediate solution to its intractable failures of management would be to infuse the boardroom with worker and public representation. The company is already nationalized in all but name; why not let the public have a say in steering it out of its demise?