Mises Wire

Boeing’s Problems Are Not Due to Free Markets

On Monday, Boeing CEO Dave Calhoun announced he will step down at the end of the year. The news comes months after a door plug blew out midflight on a Boeing 737 flying from Oregon to California. The incident gained national attention, subjecting the manufacturer to bad press and up to $4.5 billion of economic losses so far.

When incidents as serious as this happen, the public is rarely satisfied with the label of “accident.” People want accountability for those responsible and the proper changes made to prevent similar emergencies from happening again.

Accountability is relatively straightforward. Investigations determine how an incident happened and who is responsible. Then, depending on the nature of the actions and the extent of the resulting damage, offenders can be disciplined, fired, or charged with crimes. Pursuing accountability punishes those whose actions led to the destruction of life and property and dissuades others from making similar choices.

The discourse gets messy, however, when the focus shifts to institutional change. Often, advocates for more government control will seize on any bad thing done by a company to attack markets. That’s exactly what we’re seeing with Boeing.

The January blowout reportedly happened because Boeing workers failed to properly reinstall a door plug—which gets placed over doors that the airline decides not to use—after removing it to fix some rivets on the underlying fuselage. While that appears to be a one-off mistake, a subsequent investigation found faulty rivets on other fuselages.

Those issues have brought aspects of Boeing’s 737 manufacturing process under scrutiny. Specifically, the company was criticized for outsourcing much of the aircraft’s construction to a number of other firms to save on assembly costs. One of these subcontractors allegedly fastened the faulty rivets.

But Boeing’s own assembly process hasn’t escaped criticism. Many are blaming the door plug installation error on an industry practice called “traveled work.”

Aircraft like the 737 are built on an assembly line. Each plane moves through a series of stations, which allows them to be put together quickly in a specific order. Planes spend roughly twenty-four hours at each station. But as aerospace reporter Sharon Terlep explains, “Sometimes, a missing part prevents workers from finishing the designated job. Leaving the plane sitting in place would slow the entire production line. So it moves ahead and the part gets added or repair is completed somewhere down the line.”

That is “traveled work.” And, together with outsourcing, it is being used to put the blame for Boeing’s 737 issues on the company’s greed and drive for profits.

To be fair, there are a lot of problems with Boeing that go far beyond the durability of its door plugs. The company is one of the top weapons manufacturers, which, in this day and age, means it spends a tremendous amount of money lobbying Congress to expand its war-making activities far beyond anything that could seriously be called “defense” and to use Boeing planes and weapon systems when doing so. As a result, nearly half of Boeing’s revenue comes directly from the federal government.

And the civilian side of the company relies on the government too. Boeing is one of the biggest beneficiaries of the Export-Import Bank, which provides the company with credit and loan guarantees to help it sell planes in other countries. But the government does more than that. As economist Veronique de Rugy spelled out in an article on the topic,

Boeing’s commercial sales are often brokered by the U.S. government. For example, Air India’s recent order of over 200 Boeing jets was announced by President Biden. President Trump announced Qatar’s purchase of five Boeing 777 freighters in 2019. President Obama was present when Vietjet Airlines signed a deal to purchase 100 Boeing 737 MAX airplanes, and he even once quipped that he deserves a gold watch for selling so many Boeing planes.

Boeing also enjoys loads of subsidies from state and local governments across the country. And it has even gotten Washington to block competitors from charging prices that Boeing thought were too low.

So, sure, Boeing executives are engaged in a blind scramble for profits. But that only becomes a problem when the government protects the company from competition or gives it taxpayer money—exempting it from the feedback and accountability of the profit-and-loss system. When the government is not involved, Boeing is working to provide airlines with enough planes to offer travelers the convenient, affordable, safe flights they demand.

On a few occasions this year, they have failed on the safety front. And the market has punished them for that. If charges are brought, it is probably also deserved. But safety isn’t the only priority. And those acting outraged over Boeing’s unwillingness to keep stopping the assembly line until every problem is fixed should understand that what they are calling for would mean fewer flights available, more layovers, and higher ticket prices.

If there is going to be air travel, there will be risks. The key is to provide consumers with the flights they want at a price they can afford while minimizing those risks. It’s a delicate balance that the profit-and-loss system does well to incentivize when it’s allowed to function.

In short, it’s important to attack bad companies for the right reasons. Boeing doesn’t deserve criticism because it participates in the profit-and-loss system—that’s the reason it’s experiencing this righteous economic pain. It deserves criticism for regularly getting the government to exempt it from the profit-and-loss system.

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Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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