08 February 2011

Why Boeing Is Imploding? Part I

Part II (18 July 2013) can be found at this link
Part III (25 April 2019)) can be found at this link

President Obama says that restoring America’s competitiveness is one of his top priorities.  Yet under his watch, deindustrialization, financialization, and globalization continue without interruption.  Many advocates of defense spending argue that spinoffs from the Pentagon's R&D and high tech engineering practices are keys to reinvigorating America’s manufacturing economy.  For whatever reasons, Mr. Obama shows no intention of reining in defense spending by anything more than a cosmetic amount, even though the defense budget is higher now that at any time since the end of WWII (after removing the cumulative effect of 60 years of inflation), and despite the fact that the United States is spending about as much on defense as the rest of the world combined.  Let us hope Obama has not bought into the bogus arguments that spending more on defense will be good for restoring competitiveness in the manufacturing sector of the American economy.

Defense spending may be necessary, but it can not be justified on the grounds of increasing general industrial competitiveness.  In fact, the so-called spinoffs offs from Defense spending can transmit the corrupting effects of the politically motivated, cost-plus economics of the Military - Industrial - Congressional Complex (MICC) into the larger economy  The MICC not only subsidizes wasteful cost growth in the Pentagon, its activities infect the overall economy by soaking up scarce investment and human capital; corrupting the practices of science and engineering; distorting research content on a huge scale; while  providing incentives for inefficient production and management practices, (e.g. excessive outsourcing for political reasons - aka the political engineering practices explained here and here), not to mention the politicizing of industrial management.  

It is no accident high wage countries that spend a smaller proportion of their GDP on defense, like Germany, have more competitive industrial manufacturing sectors than the United States.  To quote, William Anders, former CEO of General Dynamics, “most [weapons manufacturers] don’t bring a competitive advantage to non-defense business,” and “Frankly, sword makers don’t make good and affordable plowshares.” [see page 58 and end note 4, The Domestic Roots of Perpetual War]

In the past, many defenders of the spillover effects of high-defense budgets invoked the competitive nature of Boeing Corporation as counterpoint disproving the preceding statements.  Boeing is a company that has been competitive in the commercial international aerospace markets, has been a major export earner, and is a huge defense contractor to boot.  Surely, Boeing is an example of serendipity and spinoff in the defense-private sector combination! 

But wait, the Boeing 787 is shaping up to be a disaster, at least from a cost overrun standpoint.  Can it be that  the corrupting effects of defense spillover, plus the not unrelated dysfunctional affects financialization and outsourcing of production,  have finally caught up with Boeing and are now dragging Boeing’s commercial competitiveness into the dustbin of commercial history, as these practices did earlier in commercial airliner production efforts of the Douglas and Lockheed and Martin corporations?  Is Boeing about to become the next welfare queen sucking at the Defense teat.

I asked my good friend Pierre Sprey for his opinion. Sprey is a brilliant engineer and a long time critic of defense design pathologies.  In fact, I call Pierre the All-Purpose Schwerpunckt because of his wide range of interests, knowledge, and the pithiness of his analyses.   He responded in his typical fashion, citing a 5 February report in the Seattle Times to buttress his argument.  Moreover, the Times report cites a brilliant internal Boeing Report, written in 2001 by Dr L. J. Hart-Smith, that describes the disastrous economic effects of excessive outsourcing that is now dragging Boeing down.  Hart-Smith reinforces Pierre’s points in spades (particularly Pierre's comment about political engineering*), although Hart-Smith’s paper is focused entirely on commercial applications!

Attached herewith is Sprey’s diagnosis of Boeing and the effects of defense management practices on Boeing’s competitiveness in commercial markets and the Seattle Times report triggering Pierre's analysis.  After reading this, I would urge you to study Hart-Smith's important report.
*FYI, the theory and practice of political engineering by all the players in the MICC are explained here and here.

Chuck Spinney

Why Boeing Is Imploding
Pierre M. Sprey

Boeing has been making money on commercial airliners for 60 years by creating and enforcing a wall between their military and their civilian manufacturing divisions. Their latest and largest-ever commercial venture, the 787, has turned into a classic DoD-style fiasco, with huge engineering, quality control, schedule and cost screwups. They have overrun their planned $5 billion investment by a breathtaking $12 to $18 billion. You don't have to be wearing a deer-stalker hat to deduce that the rotten practices bred by DoD procurement have finally infected the executive suite of Boeing's commercial division. The Seattle Times story below lifts a corner of the rug, revealing that the rot began when Boeing merged with McDonnell-Douglas--and when McDonnell executives began introducing the same mindless management techniques that had wrecked Douglas as a commercial aircraft producer. 

An in-depth history of the 787 Dreamliner disaster would almost certainly uncover the following lessons:

- The simple-minded Harvard Business School style focus on percent return on investment--combined with the executive greed engendered by outrageously excessive compensation geared to stock prices--was at the root of the Dreamliner's initial financial mismanagement and the subsequent years of financial coverup.

- Boeing's heavy outsourcing strategy (intended to bring in investment money and to sweeten overseas marketing deals) certainly caused the Dreamliner's engineering failures, disastrous loss of quality control, endless and uncontrollable schedule delays. These are exactly identical to the disastrous consequences of the DoD-encouraged outsourcing to subcontractors in 40 or more states (i.e., "political engineering") that wrecked the C-5, F-22 and F-35 programs. ["political engineering" and it companion practice, "front loading" are explained here and here.)

- Bringing into the Dreamliner team engineers from Boeing's military programs undoubtedly brought in lots of DoD's engineering malpractices: unwarranted avionics complexity; reliance on untested and overtouted composite materials; wishful thinking projections of weight, drag and production cost; use of finite element analysis, computational fluid dynamics and simulation modeling to replace solid hardware testing. 

In short, the Dreamliner stands as a perfect paradigm of the profoundly negative spinoffs for the U.S. economy of DoD (and NASA) high tech spending--exactly the problem that Ernie Fitzgerald (see The High Priests of Waste) and Seymour Melman (see The Permanent War Economy and Profits Without Production) warned us about over 35 years ago.

-----[Attached Seattle Times Report]-----

A 'prescient' warning to Boeing on 787 trouble
Boeing commercial airplanes chief Jim Albaugh had some unusually candid comments about the 787's global outsourcing strategy at a recent Seattle University talk.

Seattle Times business staff, Seattle Times 5 February 2001


In a late January appearance at Seattle University, Boeing Commercial Airplanes Chief Jim Albaugh talked about the lessons learned from the disastrous three years of delays on the 787 Dreamliner.

One bracing lesson that Albaugh was unusually candid about: the 787's global outsourcing strategy — specifically intended to slash Boeing's costs — backfired completely. [… continued]