[ For decades, Boeing chose shareholders and executives over
workers and production quality — to the tune of $69 billion.]
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BOEING: PROFITS AND PAYOUTS OVER PASSENGER SAFETY  
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Lucy Dean Stockton, Helen Santoro and Freddy Brewster
January 12, 2024
The Lever
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_ For decades, Boeing chose shareholders and executives over workers
and production quality — to the tune of $69 billion. _

Former Boeing CEO Jim Albaugh and Vice President Nicole Piasecki
speak to reporters about plans to build the 737 Max in August 2011.,
(AP Photo / Stephen Brashear // The Lever)

 

While the companies responsible for the door plug that blew out of a
plane in mid-air last week were cutting corners, outsourcing
manufacturing, laying off employees, and working to evade expensive
safety upgrades, they paid their top executives $817 million and
showered Wall Street investors with $68 billion in dividends and stock
buybacks over the past decade.

By some estimates, the amount spent on stock buybacks that enriched
shareholders was more than the projected cost of making safety
upgrades that experts say were necessary. 

Boeing, manufacturer of the 737 Max 9 jet that suffered the mid-flight
rupture last week, laid off tens of thousands of workers in 2020,
following the grounding of its entire 737 Max fleet after two
catastrophic crashes that together killed 346 people
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That same year, the company’s new CEO David Calhoun made just over
$21 million, a $6.8 million increase from what the prior CEO made in
2019.
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The same goes for parts supplier Spirit AeroSystems, which was spun
off of Boeing in 2005 and produced the faulty door plug and other key
parts of 737 Max frames. In 2020, as the company spiraled during the
pandemic and instituted mass layoffs, Thomas Gentile, Spirit’s
then-CEO, made more than $10 million
[[link removed]]. 

In total over the past decade, according to SEC filings, Boeing spent
roughly $573 million on total executive pay, and Spirit paid its
executives nearly $245 million.

In a federal securities lawsuit
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former Spirit employees alleged that production issues resulted from a
failure to hire sufficient personnel. 

In the last decade, Boeing has spent more than $40 billion on stock
buybacks and distributed almost $22 billion in dividends to their
shareholders, according to regulatory disclosures. Spirit has also
spent $2.4 billion on stock buybacks. And since the parts supplier
started paying dividends in 2017, Spirit has paid shareholders more
than $169 million.

Critics say Boeing and its supplier’s focus on corporate and
investor rewards illustrates a major shift in the plane
manufacturer’s company culture, from “an engineering company run
by engineers” to a corporate conglomerate that prioritizes profits
and payouts over passengers. Attempts by some Boeing shareholders to
rein in this corporatization after recent catastrophic plane failures
have been quashed by the company — with the help of federal
regulators. 

Neither Boeing nor Spirit responded to requests for comment about
company strategy in time for publication.

Corporate Hijacking

“In the early 90’s, Boeing was really an engineering company run
by engineers,” Bill Lazonick, an economics professor at the
University of Massachusetts in Lowell, told _The Lever._ But that
changed in 1997 when Boeing acquired a rival plane manufacturer,
McDonnell Douglas, in what experts said was then the tenth largest
merger
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American history.

According to Lazonick, Boeing’s then-CEO Philip Condit welcomed the
merger
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McDonnell Douglas was “already shifting [their] company towards
shareholder values.” Boeing followed suit and soon handed company
control to former McDonnell Douglas CEO Harry Stonecipher, a
cut-throat corporate operative who liked to say
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“You can make a lot of money going out of business.”

Stan Sorscher, a former Boeing engineer and a union representative who
worked at Boeing during the merger, told _The Lever_ that the
company’s strategic shift was palpable. He recalled a conversation
with an executive who said the deal would reorient the company towards
“cost cutting and investor focus.” According to the executive, the
move would allow Boeing to follow “all the other industrial sectors
in the United States to industrialization and outsourcing and
globalization.”

Ed Pierson, a former senior Boeing employee who now leads the
nonprofit Foundation for Aviation Safety, links the company’s shift
in values to recent Boeing production problems. “Why are we having
all of these production quality defects?” asked Pierson. “I think
the simple answer is the company is continuing to rush production to
get planes out the door.”

Former Rep. Peter DeFazio (D-Ore.), one-time chair of the House
Committee on Transportation and Infrastructure, agrees. “McDonnell
Douglas became the final arbiter, which is now: My stock options and
Wall Street have the final say, not the engineers,” said DeFazio.
“And that's how we ended up with a [737] Max_”_

This pressure to prioritize profits over quality was felt throughout
Boeing’s supply chain, including at its offshoot, Spirit. Mustafa
Erdem Sakinç, an economist who studied Boeing’s corporate
strategies, told _The Lever_ in an email, “Cost-cutting was the
single major reason behind selling commercial aircraft-parts
operations to… the new entity named Spirit Aerosystems.”

Sakinç explained that “Spirit AeroSystems introduced its own
cost-cutting strategy, even harsher than Boeing's,” largely centered
around cutting labor costs. 

In a 2007 SEC filing
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two years after they were founded, Spirit executives explained that
they “hired 1,300 fewer people than the predecessor had employed”
and implemented less-favorable union contracts which “provided for
wage reductions of 10%,” among other profit-motivated measures.

Sorscher explained that Boeing took advantage of Spirit’s weaker
union and more cutthroat business tactics by further squeezing their
supplier to do faster, cheaper work. “You couldn’t screw over your
own employees like you could screw over your supplier’s
employees,” Sorscher said.

In a federal securities lawsuit
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Lever_ reported on Monday, some of Spirit’s former employees
alleged that production defects came from Spirit’s “failure to
hire sufficient personnel to deliver quality products at the rates
demanded by Spirit and its customers including Boeing.”

The suit identified many serious production issues including
“out-of-calibration torque wrenches” that mechanics were using,
and “defects such as the routine presence of foreign object debris
(“FOD”) in Spirit products, missing fasteners, peeling paint, and
poor skin quality.”

The complaint concluded that “such constant quality failures
resulted in part from Spirit’s culture which prioritized production
numbers and short-term financial outcomes over product quality.”

Boeing may attempt to distance itself from Spirit in the wake of
recent revelations. When asked previously about the lawsuit, Boeing
Spokesperson David Sidman told _The Lever, _“We defer to Spirit
for any comment.” 

But the two companies remain closely intertwined. According to
Spirit’s SEC filings
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2022, the company’s “business depends largely on sales of
components for a single aircraft program, the B737.” Sixty percent
of Spirit’s revenue that year came from Boeing, according to
the company’s annual report
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Spirit’s new CEO Patrick Shanahan also previously worked
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for more than 30 years, and Spirit’s senior vice president Terry
George previously served
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Boeing’s manager on the 737 program.

Executive Class Perks

Following the 737 Max crashes in 2018 and 2019, federal regulators
grounded the U.S. airliner. Between March 2019 and December 2020, in
what was the longest-ever grounding of a U.S. aircraft, Boeing paid
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estimated $20 billion in fines, compensation and legal fees, with
indirect losses of more than $60 billion from 1,200 canceled orders.

In December 2019, Boeing announced
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CEO Dennis Muilenburg would be fired — but he left with a $62
million payout. Muilenburg’s focus on stock prices while he was at
the company paid off: He netted nearly $96 million
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gross pay from stocks and equity, even while his annual salary never
topped $1.7 million.

Executive compensation packages like these are common throughout
corporate America, where official salaries often remain comparatively
low
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Instead, executives are incentivized to drive stock prices up, thus
increasing the value of their personal equity, often at great cost to
the company.
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In 2020, as the pandemic wreaked havoc on air traffic and Boeing cut
more than 12,000 jobs
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CEO — David Calhoun, who, u
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Muilenburg, was not an engineer — declined
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of his $1.4 million salary. But Calhoun, a former executive at global
investment firm Blackstone
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netted more than $21 million that year from stock benefits and other
compensation. 

In 2021, Calhoun once again made more than $21 million, and in 2022
that number jumped to almost $22 million. In February 2023,
Boeing awarded him another $5 million as an incentive to stay
through the company’s recovery.

Executives at Spirit, where 2,800 workers
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their jobs in January 2020, also enjoyed lavish compensation packages.
Spirit’s then-CEO Tom Gentile made more than $10 million
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year. 

Lazonick at the University of Massachusetts estimates that between
2019 and 2023, Boeing accrued $19.4 billion in losses.

A Boeing spokesperson for Calhoun said the company did not have a
comment, but noted that Boeing suspended their stock buyback program
in April 2019, and their dividend payments in March 2020.  

Shareholders Fly First Class

While Boeing’s engineers claim they suffered under the new corporate
regime, shareholders got rich. In the decades following its merger
with McDonnell Douglas, Boeing earned the title of a “true dividend
rockstar
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from _Yahoo’s_ finance writers who advise potential investors. By
2014, the company was paying billions
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annual dividends. Such dividend payments reached their peak in 2019,
with $4.6 billion
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out to Boeing shareholders.

Spirit followed suit. Since 2017, when the parts manufacturer started
paying dividends, Spirit has delivered more than $169 million to its
shareholders. Even in 2020, as the company laid off thousands of
workers, Spirit doled out more than $15 million in
dividends, regulatory filings
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Boeing and Spirit also spent billions on stock buybacks — which
meant they used cash on hand to repurchase company shares and
artificially inflate short-term value for shareholders. Buybacks were
seen as “market manipulation
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the U.S. until 1982.

Over the past decade, Boeing has spent $43.4 billion on stock
buybacks. In 2017, the company doled out around $9.3 billion in
buybacks, its highest amount to date. “That’s a significant
fraction of the total capitalization of the company,” said former
Boeing employee and union representative Sorscher. 

For its part, Spirit spent more than $2 billion on buybacks between
2014 and 2019, according to regulatory filings with the SEC. Both
companies’ efforts weren’t unique: In the decade leading up to the
pandemic, the biggest U.S. airlines spent 96 percent
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their free cash flow on stock repurchases.

Experts say such stock buybacks often come at the cost of companies’
long-term investments. In Boeing’s case, the cost was apparently
safety and innovation.

“No company should do buybacks — particularly a company that has
huge expenditures like an aircraft manufacturer,” said Lazonick. 

In a 2017 article for _The American Prospect_
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he co-authored with Sakinç, Lazonick identified one especially
distressing instance in which Boeing neglected to follow through on
its planned redesign of the 737 Max airplane, a project that was
estimated to cost $7 billion
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the time. That amount, he wrote, was what “on average, Boeing has
been spending on stock buybacks _annually _since 2013.”

In another analysis, Marie Christine Duggan, an economic historian at
Keene State, concluded the amount that Boeing spent on buybacks in
recent decades has generally outweighed spending on capital
expenditures like upgrades and maintenance. Duggan found that
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2017, at the height of its buyback frenzy, “Boeing’s spending on
dividends and stock buybacks was 66 percent of total spending, while
only 9 percent of Boeing’s cash went into new equipment to
manufacture planes.”

Many of Boeing’s mass stock buybacks came after President Donald
Trump’s 2017 tax cuts
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despite the fact that Boeing and other major companies promised to
invest
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resulting tax savings on capital expenditure and innovation. 

Boeing suspended its stock buyback program in April 2019 amid the
financial upheaval triggered by the two 737 Max plane crashes
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Lazonick estimates that at the time, the company had been on track to
repurchase $10 billion in stock that year.

Attempted Course Correction

Some Boeing shareholders have attempted to push back against the
company’s corporate mindset. 

In 2020, following the 737 Max crashes, a group of shareholders filed
a proposal
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would have required a majority of the company’s board members to
have backgrounds in aerospace, aviation, or engineering. But a month
after President Joe Biden assumed office in 2021, the Securities and
Exchange Commission blessed
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board's move to block shareholders from voting on the proposal.

Another proposal
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in 2020 sought to require Boeing senior executives to keep most of
their company stock until they reached retirement age. The group aimed
to stop executives from using stock buybacks as a way to sell their
shares. Shareholders claimed the proposal “provides incentives to
avoid short-term thinking and to promote long-term, sustainable
value.”

But the SEC again allowed Boeing to omit the proposal from its annual
shareholder meeting — after the company argued that the procedure
had already “been substantially implemented.”

_[LUCY DEAN STOCKTON is a New York-based editor and reporter focused
on climate and privatization. She previously worked at The Nation,
More Perfect Union, and Insider._

_HELEN SANTORO is a freelance journalist who covers health,
neuroscience, wildlife, climate change and LGBTQ+ communities._

_FREDDY BREWSTER is a reporter and has been published in the Los
Angeles Times, NBC News, CalMatters, the Lost Coast Outpost, and
more.]_

* Boeing
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* business
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* transportation
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* airlines
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* corporate profits
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* passenger safety
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* McDonnell Douglas
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* airline industry
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