It's Time to Nationalize and Then Break Up Boeing

If America wants to make civilian airplanes here, the government must step in, take over Boeing, and then design a competitive industry.

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If you want to understand what to do about the recent 737 Max fiasco, in which a plane blew out an emergency door mid-flight, prompting mass groundings of Boeing planes, it helps to start with the fact that Boeing is not a private corporation, but is a state entity in all but name. And that’s in part because the firm has immense market power. "Obviously it's a human tragedy,” said one guest on CNBC this week, “but from a financial impact, I like the long-term story [on Boeing] because it's a duopoly."

The airlines, who are the main customers of the aircraft maker, have nowhere else to go, because its main rival, Airbus, can’t deliver on new orders to replace Boeing jets, at least not for years. And that means that the aerospace giant is not subject to any discipline from customers.

One of BIG’s first issues in 2019 was on Boeing, specifically how this once jewel of engineering prowess turned into a monopoly in the late 1990s, and destroyed its own capacity to build civilian aircraft in the process. The story I told was well-known - in 2013 Boeing became a business school case study in the disastrous risk involved in offshoring - but had not yet been connected to the antitrust revival that I was chronicling. If you want the ugly details, there have been several good books written on Boeing, the most popular being Flying Blind by Peter Robison. But I found this note from an aerospace engineer written 21 years ago, titled ‘The Downfall of a Great American Airplane Company - An Insider's Perspective‘, quite compelling, since the author accurately predicted what was to come.

The problems at the aerospace giant derive from its disastrous merger with McDonnell Douglas, in which Boeing was the acquirer, but somehow the finance-obsessed beancounter executives who had run McDonnell Douglas into the ground ended up taking over the combined company. I’ve been going over Glassdoor employee reviews of Boeing, and reading Reddit message boards, and one consensus seems to be that, like a lot of monopolies focused purely on shareholder returns, it’s a highly bureaucratic place where it can be difficult to get anything useful done. And while there are new competitors in certain areas, like SpaceX and Amazon, in terms of civilian aircraft, Boeing is dominant if you are an aerospace engineer in the U.S.

At a certain level of size, strategic importance, and market power, a corporation gets an implied backstop by the state, which becomes obvious during moments of turmoil. Boeing, as a monopoly aerospace maker, certainly fits the bill. Just as nobody is an atheist in a foxhole, no large firm is in the private sector during a financial crisis. For instance, just as the Covid crisis hit, it wasn’t merely banks and airlines that sought a backstop; Boeing sought tens of billions in government money to keep the aerospace industry afloat.

Such a bailout made sense; Boeing is America’s number one exporter, its third biggest defense contractor, and a core infrastructure provider to our air system. American society simply doesn’t function without aerospace capacity, and hasn’t since the 1930s. During Covid, it would have been foolish to let Boeing fall apart over a fake religious belief that aerospace firms can pull themselves up by their own bootstraps. Since the creation of the industry, we subsidized aerospace, at first from the post office, the Army, and the Smithsonian institute, later through a whole host of programs.

In the CARES Act, which was the bill passed during the height of the Covid crisis to provide economic support during the pandemic, there was a provision to offer $17 billion of loans and loan guarantees for “businesses critical to maintaining national security.”

What was this mysterious business? Boeing.

Boeing didn’t end up taking the money directly from the Treasury, instead borrowing $25 billion in the bond market. CEO David Calhoun did this under the pretense that the firm is in the private sector, but every bondholder understood that the Federal government was backstopping the borrowing.

There’s a lot more. In its 2022 annual report, Boeing reported that 40% of revenue comes from the U.S. government directly. And even ‘private sector’ revenue is heavily influenced by the state. The State Department encourages foreign airlines to buy Boeing aircraft and the U.S. government allows or disallows Boeing from selling weapons to foreign militaries.

The U.S. government even dictates corporate strategy, for good or for ill. In the 1930s, Congress via the Air Mail Act of 1934, broke up aerospace holding companies, turning a corporation called United Aircraft and Transport Corporation it into three separate firms - Boeing, United Airlines, and United Technologies. In the late 1990s, when the Federal government decided monopolies were good, it was the White House pushing hard for Boeing to acquire its main rival, McDonnell Douglas, with the government even threatening the Europeans if they intervened with a WTO complaint and sanctions.

There’s a very nebulous line between state officials and Boeing. Boeing sends a lot of staff into government, but the firm itself has multiple ex-high level political officials on its board, from the former chief of Naval operations John M. Richardson to the Former Inspector General of the U.S. Air Force Stayce D. Harris. Its three most political officials left in the years after the Max fiasco, but it’s still worth naming them because it reflects the firm’s political strategy. These were former Bush cabinet member Susan Schwab, former Trump cabinet member Nikki Haley, and former diplomat and Presidential daughter Caroline Kennedy.

And obviously, there’s politics. Bill Clinton structured Boeing’s monopoly in the 1990s, but the Republican Party protected Boeing during the 737 Max fiasco in 2019. Top corporate executives knew the plane would kill people, but went ahead selling it anyway. The Trump administration, prompted by former conservative judge turned Boeing general counsel Michael Luttig and his network of proteges, let Boeing off the hook on its very last day in office with what’s called a deferred prosecution agreement.

During this 2024 fiasco, the government has responded a bit better. The Federal Aviation Administration, to its credit, immediately grounded the planes and launched an investigation. And while this is a good move, it is no longer obvious where Boeing starts and regulators begin. Here’s a case in point.

Now, of course, in a sense, Boeing isn’t formally state-owned, unlike Airbus, which has the French government as a shareholder. Boeing’s shareholders are private entities, and its executives aren’t civil servants. But just as we all informally acknowledge that banks like Wells Fargo and JP Morgan are state-backed, that’s the case with Boeing as well. In other words, Boeing is a state-backed national champion, constructed by the state, financed by the state, protected by the state, and with much of its revenue supplied by the state. It may be the case that Boeing executives have more power over government than the other way around, but that’s just a different way of saying the same thing. There’s a fused public-private entity here, the question is just who is the decision-maker.

The fairy tale of a private firm is only hindering a fix to this once-great organization. Since the combination with McDonnell Douglas, Boeing has been run by Jack Welch-proteges who tend to resign in clouds of scandal. CEO Dennis A. Muilenburg lost his job after the 737 Max disaster in 2020, but CEO Phil Condit, resigned in 2003 over a controversy involving bribery and military refueling tankers. The board is incapable of addressing the engineering crisis in the company; there is just one board member with any aerospace design experience, the rest are accountants and CEOs of various large firms like Aetna, Amgen, Duke Energy, and so forth, as well as a few ex-military leaders.

All of which is to say that it’s time to acknowledge this situation and have the government step in directly and reorganize the firm, as it would during a war or in a bankruptcy. The Federal government has in the past nationalized railroads, the telephone company, various aerospace producers, and electric utilities, and it wouldn’t be uncommon throughout most of American history for it to step in here.

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Legally, the simplest way would be to have Congress act. It could do it directly by restoring and updating deleted provisions of the Defense Production Act that used to allow the President to seize assets in a national security emergency. Another legal hook that wouldn’t require Congress would be reopening the deferred prosecution agreement from the original Max disaster, which required that Boeing stop committing fraud. The FAA is investigating this latest fiasco, it’s hard to imagine there isn’t criminal behavior or lies to the government. But that’s not the only legal lever. 40% of Boeing’s revenue is coming from the government, mostly the Defense Department, so the Pentagon could declare that the firm is not a ‘responsible’ contractor, and lacks the wherewithal to responsibly perform work for the government. The DOD could demand that the board resign, and offer a caretaker set of board members, mostly engineers, who would reorganize the company.

What could such a reorganization look like? I can’t offer many details in a paragraph, but conceptually the goal would be to jumpstart competition across multiple lines of business and return to the pre-duopoly era. Globally, there’s more than enough business for several aerospace firms, Boeing alone has more than $350 billion in backlogged orders. So you’d start with simplifying the firm and fostering competition. Splitting it up into several defense side firms and several civilian aircraft firms makes sense, with each subsidiary having access to the combined intellectual property of the original Boeing. The plant would also have to be divided up, and sole source supplier contracts abrogated. After a few years, airlines, the Pentagon, and suppliers would no longer be locked into Boeing, but could choose among multiple Boeing successor firms.

While it’s generally depressing to look at a firm like Boeing and consider what to do, there’s a tremendous opportunity to rebuild our aerospace capacity if handled properly. There are a lot of engineers with deep expertise willing to get their hands dirty to save this firm, as well as immense possible innovation with new materials and technologies outside of Boeing. And rich people like investing in airplanes, and will do so if they think there’s a market opportunity.

Indeed, there is an adjacent industry where competition has driven immense accomplishment. One of the most exciting industrial areas right now is space, where SpaceX has challenged the incumbents, which include Boeing. There’s a lot of competition in satellites and launch, as well as space technology, driven by the government policy to allow new competitors into a market. Launch costs are down, and smaller and cheaper components are allowing the construction of different kinds of satellites and spacecraft that will foster a potentially trillion dollar industry.

There’s no reason why, handled properly, in ten years, the 737 Max disaster can’t be a textbook lesson on how to restore an industrial sector using competition policy. That is, no reason except the timidity of our imaginations.

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Thanks for reading. And keep those tips on monopolies flowing, they are essential to this work.

And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller