While the companies responsible for the door plug that blew out of a plane in midair 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 midflight 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. 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
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.
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, 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 its 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.
“In the early ’90s, Boeing was really an engineering company run by engineers,” Bill Lazonick, an economics professor at the University of Massachusetts Lowell, told us. But that changed in 1997 when Boeing acquired a rival plane manufacturer, McDonnell Douglas, in what experts said was then the tenth largest merger in American history.
According to Lazonick, Boeing’s then-CEO Philip Condit welcomed the merger because 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 cutthroat corporate operative who liked to say, “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 us 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 congressman Peter DeFazio (D-OR), onetime 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  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 us 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 Securities and Exchange Commission (SEC) filing, 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 that we 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 us, “We defer to Spirit for any comment.”
But the two companies remain closely intertwined. According to Spirit’s SEC filings from 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. Spirit’s new CEO Patrick Shanahan also previously worked at Boeing for more than thirty years, and Spirit’s senior vice president Terry George previously served as Boeing’s manager on the 737 program.
Executive Class Perks
Following the 737 Max crashes in 2018 and 2019, federal regulators grounded the US airliner. Between March 2019 and December 2020, in what was the longest-ever grounding of a US aircraft, Boeing paid an 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 that 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 in 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. Instead, executives are incentivized to drive stock prices up, thus increasing the value of their personal equity, often at great cost to the company.
In 2020, as the pandemic wreaked havoc on air traffic and Boeing cut more than 12,000 jobs, the company’s new CEO — David Calhoun, who, unlike Muilenburg, was not an engineer — declined most of his $1.4 million salary. But Calhoun, a former executive at global investment firm Blackstone, still 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.
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” from Yahoo’s finance writers who advise potential investors. By 2014, the company was paying billions in annual dividends. Such dividend payments reached their peak in 2019, with $4.6 billion paid 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 show.
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” and banned in the United States 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 US airlines spent 96 percent of 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 that he coauthored 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 at 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 in 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, despite the fact that Boeing and other major companies promised to invest their 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. 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 that would have required a majority of the company’s board members to have backgrounds in aerospace, aviation, or engineering. But with the blessing of President Donald Trump’s Securities and Exchange Commission, the board was allowed to omit the proposal from shareholder voting.
Another proposal filed 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.”