America actively protects its corporations and key industries from threats at times by destroying the competition and at other times by subsidizing those in trouble.
> Stake-driving when you intentionally under-estimate costs so that you can get the project started by telling politicians that it won’t cost that much. Once you get a legislature ‘put the stakes in the ground,’ it becomes too politically difficult to kill. You can tell the politician that, well, you’ve already put so much into the project, there were unforeseen costs, yada yada, you might as well finish it by topping up the amount needed. This form of political accounting means cost overruns aren’t actually mistakes, they are more a subtle form of accounting fraud perpetrated on decision-makers too embarrassed to admit they were snookered.
Fascinating stuff. This also applies to software project (mis)management
Although the author admits his thoughts on the matter are mostly speculation, I commend him for shining some light on a $100B project regarding nuclear weapons. There was a time when mainstream news outlets paid attention to projects of this size, and certainly anything to do with nuclear weapons. That time has passed, of course. And it's not just mainstream news. This HN post has 5 comments, just above it are 350+ complaining that juggling Netflix AND Prime Video is just too annoying. </rant>
I didn't see too much light being shined. The summary of the argument is that there is a military program worth $100 BN where the only 2 allowed bidders are Boeing and Northrop. Than, based on zero evidence, he speculates that the Pentagon will grant the program to Boeing and accelerate the payments as a form of bailout for the 737-Max debacle. He doesn't really hide the details, but it's worth pointing out that:
* this procurement program was initiated in 2016 [1] (prehistory as far as 737-Max is concerned)
* the "finalists", Boeing and Northrop were selected in 2017 (again prehistory)
* the $100 BN (actually wikipedia states $86) contract is for a period of 50 years. That is less than $2BN/year. Even accelerating this program, this would be an increased revenue of the order of $0.5 BN per year (at most), and much less net income (it's a wild guess here, but I believe the Pentagon gives money upon delivery of stuff, or at least upon hitting some milestones; acceleration of cash payments must be accompanied by acceleration of deliverables).
* the actual winner of the program will be announced at the end of 2020. So all the money we are talking here must be multiplied with a probability of winning the contract, which is nowhere close to 1 (you think Northrop does not have their own lobbyists?)
* as someone correctly pointed out in the comments here, Boeing already took a charge of $5BN. That is real dollars, today dollars. Not probabilistic dollars extended over a period of 50 years.
Also, here's my own little speculation. The Minuteman missile that is being replaced was built by Boeing, but the first stage (i.e. largest part of the missile) was build by Thiokol, later acquired by Northrop [2]. I think there is a very high likelihood that in the end the money will be split between Boeing and Northrop, and not go entirely to only one of them. Another bit of supporting evidence is that in 2017 the Pentagon granted both about the same amount of money for the Phase 1 of the project (about $300 MM) (see [1] again).
This seems like the type of FUD that would be spread by people that are looking to short the stock. Start to float an idea and put out a few provocative headlines. Next thing you know if enough of it is spread around it becomes a reality that people think about and act on.
The thing is, it depends greatly on how much Boeing ends up poisoning the well.
If, for example, people started circulating this whole MAX travesty enough as evidence that Boeing in it's current form is toxic; any political goodwill to grant contracts may legitimately dry up. The company may end up getting disintegrated, essentially rolling back the McDonnell Douglas merger. Regardless of the fact that pretty much does nothing to undo the toxicity inherent to government procurement.
Boeing honestly had to do only one thing to stay healthy. Don't screw up civilian aviation. A flub up anywhere else could be efficiently hidden. Not so, however, in Civil Aviation.
A subsidy to Boeing? Impossible! In the land of the free, the government respects free market and never interfere. Only these nasty Europeans dare cheating with subsidies to Airbus.
I want whatever this guy is smoking. Boing took out a $5.6 billion dollar line item charge in their q2 earnings report as an estimate for potential concessions to 737 max customers which is a lot but still less than half a years profit for them. There's no need whatsoever for the government to bail them out and the market seems to agree since they still have a 212 billion dollar market cap.
15 comments
[ 472 ms ] story [ 282 ms ] threadShouldn’t they ask the people for the money like the homeless do? ;) /jk
Fascinating stuff. This also applies to software project (mis)management
* this procurement program was initiated in 2016 [1] (prehistory as far as 737-Max is concerned)
* the "finalists", Boeing and Northrop were selected in 2017 (again prehistory)
* the $100 BN (actually wikipedia states $86) contract is for a period of 50 years. That is less than $2BN/year. Even accelerating this program, this would be an increased revenue of the order of $0.5 BN per year (at most), and much less net income (it's a wild guess here, but I believe the Pentagon gives money upon delivery of stuff, or at least upon hitting some milestones; acceleration of cash payments must be accompanied by acceleration of deliverables).
* the actual winner of the program will be announced at the end of 2020. So all the money we are talking here must be multiplied with a probability of winning the contract, which is nowhere close to 1 (you think Northrop does not have their own lobbyists?)
* as someone correctly pointed out in the comments here, Boeing already took a charge of $5BN. That is real dollars, today dollars. Not probabilistic dollars extended over a period of 50 years.
Also, here's my own little speculation. The Minuteman missile that is being replaced was built by Boeing, but the first stage (i.e. largest part of the missile) was build by Thiokol, later acquired by Northrop [2]. I think there is a very high likelihood that in the end the money will be split between Boeing and Northrop, and not go entirely to only one of them. Another bit of supporting evidence is that in 2017 the Pentagon granted both about the same amount of money for the Phase 1 of the project (about $300 MM) (see [1] again).
[1]https://en.wikipedia.org/wiki/Ground_Based_Strategic_Deterre...
[2]https://en.wikipedia.org/wiki/LGM-30_Minuteman#Replacement
If, for example, people started circulating this whole MAX travesty enough as evidence that Boeing in it's current form is toxic; any political goodwill to grant contracts may legitimately dry up. The company may end up getting disintegrated, essentially rolling back the McDonnell Douglas merger. Regardless of the fact that pretty much does nothing to undo the toxicity inherent to government procurement.
Boeing honestly had to do only one thing to stay healthy. Don't screw up civilian aviation. A flub up anywhere else could be efficiently hidden. Not so, however, in Civil Aviation.
(via "view source" on the page)