The Economist - USA (2019-12-21)

(Antfer) #1

14 Leaders The EconomistDecember 21st 2019


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n march aBoeing 737 maxaircraftcrashedinEthiopia,justsix
monthsaftera similaraccidentinIndonesia.Nearly 350 peo-
plewerekilledinthetwodisasters,whichrevealeda flawinthe
max’s flight-controlsystemandputintoquestiona vastindus-
trialenterprise.Airlinesarerelyingonthedeliveryofthousands
ofmaxplanesoverthenextdecadeorso.Boeingwasexpectedto
makeupa largeshareofitsfutureprofitsfromthemax. Thefirm
isoneofAmerica’sbiggestexportersandatleasta millionpeople
workforit orforitssuppliers.
SinceMarchBoeing’sresponsehasbeenanuglymixtureof
remorse,evasionandswagger,asithasgambledthatitcanget
themax, anditsbusiness,rapidlybackintheair.OnDecember
16ththatstrategyranoutofrunwaywhenthefirmannouncedit
wouldsuspendproductionofthestrickenplane.
Boeing’sdefiancebeganwithitsdecisionto
stickwithitschiefexecutive,DennisMuilen-
burg(althoughhewasreplacedaschairmanin
October).Therehasbeennopublic,comprehen-
sive,independentinvestigationbythefirminto
whatwentwrong.Initsplacetherehavebeen
leaks galoreand reportsabout software pro-
blemsandcornersbeingcut.
Eventhoughthemaxisnotallowedtofly,
Boeing’sfactorieshavecontinuedtochurnoutnewplanesthat
sitonthetarmacwhilecustomersareunwillingorunabletotake
deliveryofthemormakefullpayment.ThefirmsignalledtoWall
Streetthatbusinesswouldreturntonormalsoonenoughandit
continuestopaya dividend,despiteburningup$3bnofcashlast
quarter.Boeinghadindicatedtoinvestors,suppliersandcus-
tomersthatthemaxwouldbeflyingbytheendof2019,even
thoughthisisa decisionit shouldnotbeabletodetermine.
Boeingnodoubtwantstoprotectitsworkersanddefendit-
selffroma barrageoflawsuits.Buttheindustry’slackofcompe-
titionletsitgetawaywithpoorbehaviour.Intheshortrunthe
otherhalfofthepassenger-jetduopoly,Airbus,cannotincrease

outputsoastooffercustomersanalternativesourceofaircraft.
Thereisa queasysensethatBoeinghasplayeda gameofchicken
withregulators.Instokingexpectationsthatthemaxwillbeair-
borneagainsoonandkeepingproductionhumming,ithaspre-
sentedregulatorswithanunenviablechoice:eithertoletthe
maxbackintheairwhetherornotit isready,ortodamagethein-
dustryandtheAmericaneconomy.
Boeing’sstrategyhasbackfired.America’sFederalAviation
Administration(faa), thetarnishedregulatorwhichatfirstde-
clinedtogroundthemax, hasfounditsbackboneundernew
managementandsaidthatitisnotyetreadytorulethatthe
flight-controlproblemhasbeenfixed.Inthepastforeignregula-
torshavefollowedthefaa’s lead,buta majorityofBoeing’ssales
arenowmadeoutsideAmericaandauthoritiesabroadnolonger
wanttoplaywingmantothefaa. BothChina
andtheeuhaveindicatedthattheyarenotyet
happy.Thenumberofidle,newmaxespilingup
hasgrownto400.Boeing’sstrategyhasstrained
itsbalance-sheet,withitsinventoriesreaching
$73bnandgrossdebts$25bn.
Itistimefora differentapproach.MrMui-
lenburgshouldberemovedandthefirm’sboard
ofdirectorsbeefedup.If Boeingdoesnotdothis
voluntarily,itsownersandregulatorsshouldinsist.Production
ofthemaxshouldresumeonlywhenthefirmhasreceivedap-
provalfromregulatorsaroundtheworld.Boeingneedstoshore
upitsbalance-sheet,sothatithastheresourcestoinvestandto
helptideovercrucialsuppliers—whichmeanseliminatingits
dividend.Andlastlyitneedstocomeupwitha medium-term
planforlifeafterthemax, intheformofa next-generationair-
craft,perhapsonethatreliesonhybrid-electricpropulsion.Over
thepastdecadeBoeinghasskimpedonresearch,development
andcapitalspending,investingonly7%ofitssalesonaverage,
comparedwitharound10%atAirbus.Oncethe 737 maxwasthe
future.It istimefora newpilotanda newcourse. 7

Maxed out


Boeing responded to the 737 max crisis by taking a business gamble. It has backfired

Boeing

H


aving wonscores of former Labour strongholds across the
north of England in 2019’s general election, Boris Johnson is
determined to offer his new voters something in return. “We will
repay your trust,” he promised on a triumphant visit to his new
turf on December 14th. Northerners have heard this kind of talk
before. David Cameron’s government promised a “northern
powerhouse” economy—only for the idea to fall by the wayside
under Theresa May. After the Brexit referendum of 2016 there
was much talk of the need to look after “left-behind” places that
had voted Leave—instead the government spent three years fo-
cusing on its battles in Westminster. Yet with his newly remade

Conservative Party, Mr Johnson relies on the north like no recent
Tory leader (see Britain section). If he is to keep his promise to
improve life in the region, how should he go about it?
The north of England has been in economic decline relative to
the south since the late 19th century. That is not something any
government can reverse in five years. But Mr Johnson means to
make a start. His fiscal plans allow him to spend up to £80bn
($104bn), 3.8% of gdp, on capital projects in northern constitu-
encies over the next five years.
His first task is to jettison the idea, common in London, that
the north is an economic monolith where everything is grim.

Boris Johnson’s northern strategy


To help left-behind northern towns, link them to go-ahead northern cities

New Conservative heartlands
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