Flying Blind: The 737 MAX Tragedy and the Fall of Boeing

by Peter Robison

Stonecipher never lost the manner of the ass-kicking first-line supervisor he’d once been. He had a mien you’d call Trumpian if such a thing had existed then: a kind of deep-seated need for alpha displays, public humiliation, and conflict. “I’ll tell you why you’re all wrong,” he once said to a junior Boeing sales executive, minutes after meeting him. “I know things you can’t imagine, and I operate on a level you don’t even know exists.”

At the SEC, run by a former executive from the E.F. Hutton investment bank, the implementation of Rule 10b-18 in November 1982 drew little notice in the press but opened the way to a sustained transfer of wealth. The rule gave companies that purchased shares of their own stock in the open market “safe harbor” from charges of manipulation, as long as they didn’t exceed a limit of 25 percent of the daily trading volume. Over the subsequent decades, the University of Massachusetts economist William Lazonick wrote, “stock buybacks have channeled the productivity gains of U.S. business into the hands of the richest households, while the persistent gushers of corporate cash have played a major role in the rise of the financial sector over the once-dominant manufacturing sector.” From 1981 to 1983, he calculated, buybacks consumed only 4 percent of net income for the largest U.S. companies. By 1996, it was 27 percent; by 2006, 46 percent; and by 2016, 50 percent. Two generations later, in any prosperous American city, the unequal effects are plain—Teslas, luxury high-rises, avocado toast. And tents.

While they pressured the engineers for savings, Boeing enriched shareholders, spending $41.5 billion on stock buybacks from 2013 to 2018—enough capital to develop several all-new aircraft, had they chosen to. Almost 80 percent of the free cash during that period went to buybacks.

Within just a month of the plane’s grounding, Boeing had to sell $3.5 billion in bonds and draw on a $1.5 billion line of credit from its banks to raise money, a sign of how close to the edge it operated, and how little it had set aside for such rainy days. So much cash had been shoveled back to shareholders—not to mention Boeing’s board members and executives—that there was little left when MAX deliveries stopped and revenue dried up. Under Greg Smith, the chief financial officer, Boeing had even started pulling GE-like financial maneuvers to beat Wall Street’s quarterly targets for cash, agreeing with some customers to pull forward anticipated payments for future deliveries in exchange for later concessions. By one analyst’s measure, these “Houdini moments” had accelerated as much as $1.5 billion of payments in a single year.

Boeing’s total equity—just like a house, a measure of its debt compared to its assets on hand—stood at $410 million by the end of 2018. It had been $13 billion in 1997, before Stonecipher and his successors started hollowing out the company in the drive to boost the all-important return on net assets.