The Argument to Nationalize Boeing Explained

It has been a rough few years for Boeing (BA): Two fatal crashes of its best-selling 737 Max jets in 2018 and 2019, and subsequent fleet groundings, a mid-air panel blowout on an Alaska Airlines (ALK) flight in January — also involving a Max jet — resulting in ground stops, and a large-scale investigation, and most recently an incident involving a Latam Airlines flight between Australia and New Zealand, prompting Boeing to issue guidance on cockpit seats.

As the headlines keep coming, analysts and journalists are digging into how Boeing went from coveted to haunted by bad news. Its management has been criticized, and some have begun to wonder: Should Boeing be nationalized until it’s fixed?

We explain how this argument works.

What Happens When the Government Takes Over

The U.S. government has stepped up in the past to help companies, or whole industries, teetering on the brink of collapse, in the form of bailouts, a management takeover, or both.

Make no mistake, it’s not long ago that this has happened. Remember “too big to fail”?

•   In 2008, amid a global financial crisis, some $80 billion went to bail out automakers General Motors (GM) and Chrysler (STLA). Many economists say that without the infusion, the auto industry simply would likely have not survived. As a result of GM’s bankruptcy, the government’s investment was converted to a 61 percent equity stake, plus preferred shares and a loan, while Fiat took over the government’s 6% holding in Chrysler.

•   AIG (AIG) was also bailed out during the global financial crisis with a government commitment of $182 billion, according to the Treasury Department. The company remained under federal control until 2012 and paid back its debt, while the government actually profited from the bailout deal.

So is Boeing also too big to fail? Probably, given its standing as the largest U.S. airplane manufacturer, and one of the largest manufacturing companies to boot. After all, the government didn’t shy away from funneling money towards air travel during the pandemic, with U.S. airline companies receiving a $54 billion COVID-19 government lifeline which airline CEO’s have said saved the industry. It’s also worth noting that Boeing is already doing a lot of business with Washington, with a large share of its revenue coming from government contracts. But even more important is this: Boeing isn’t about to go bankrupt. This situation is very different from the crises companies failed during the great recession and the pandemic.

Latest Developments

So far, investigations have pointed at quality control issues, and accountability problems at the factories. Last week, Transportation Secretary Pete Buttigieg turned up the heat, saying Boeing has to “fully cooperate” with the investigations and “go through a serious transformation here in terms of their responsiveness, their culture and their quality issues.”

On March 4, the Federal Aviation Authority said its investigation of the Air Alaska incident “found multiple instances where [Boeing and manufacturing partner Spirit AeroSystems] allegedly failed to comply with manufacturing quality control requirements.” The agency has given Boeing 90 days to submit a plan to fix quality problems and meet safety standards.

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