March 3, 2024

Workers at a Boeing Supplier Raised Issues About Defects. The Company Didn’t Listen

The allegations come from a federal securities lawsuit accusing Spirit AeroSystems of deliberately covering up systematic quality-control problems, encouraging workers to undercount defects, and retaliating against those who raised safety concerns

Workers at a Boeing Supplier Raised Issues About Defects. The Company Didn’t Listen.

Weeks before the door plug blew out of an Alaska Airlines flight over Portland, Oregon, on January 5, grounding more than 150 Boeing aircraft, workers at the part’s reported manufacturer had been warning of safety concerns – but management ignored them.

Less than a month before a catastrophic aircraft failure prompted the grounding of more than 150 of Boeing’s commercial aircraft, documents were filed in federal court alleging that former employees at the company’s subcontractor repeatedly warned corporate officials about safety problems and were told to falsify records.

One of the employees at Spirit AeroSystems, which reportedly manufactured the door plug that blew out of an Alaska Airlines flight over Portland, Oregon, allegedly told company officials about an “excessive amount of defects,” according to the federal complaint and corresponding internal corporate documents reviewed by us. 

According to the court documents, the employee told a colleague that “he believed it was just a matter of time until a major defect escaped to a customer.”

The allegations come from a federal securities lawsuit accusing Spirit of deliberately covering up systematic quality-control problems, encouraging workers to undercount defects, and retaliating against those who raised safety concerns. Read the full complaint here.

Although the cause of the Boeing airplane’s failure is still unclear, some aviation experts say the allegations against Spirit are emblematic of how brand-name manufacturers’ practice of outsourcing aerospace construction has led to worrisome safety issues.

They argue that the Federal Aviation Administration (FAA) has failed to properly regulate companies like Spirit, which was given a $75 million public subsidy from Pete Buttigieg’s Transportation Department in 2021, reported more than $5 billion in revenues in 2022, and bills itself as “one of the world’s largest manufacturers of aerostructures for commercial airplanes.”

“The FAA’s chronic, systemic, and longtime funding gap is a key problem in having the staffing, resources, and travel budgets to provide proper oversight,” said William McGee, a senior fellow for aviation and travel at the American Economic Liberties Project, who has served on a panel advising the US Transportation Department. “Ultimately, the FAA has failed to provide adequate policing of outsourced work, both at aircraft manufacturing facilities and at airline maintenance facilities.”

David Sidman, a spokesperson for Boeing, declined to comment on the allegations raised in the lawsuit. “We defer to Spirit for any comment,” he wrote in an email to us.

Spirit AeroSystems did not respond to multiple requests for comment on the federal lawsuit’s allegations. The company has not yet filed a response to the complaint in court.

“At Spirit AeroSystems, our primary focus is the quality and product integrity of the aircraft structures we deliver,” the company said in a written statement after the Alaska Airlines episode.

The FAA did not immediately respond to a request for comment on its oversight of Spirit.

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COMING SOON: THE BOEING COLLAPSE?

Thread by @porterstansb on Thread Reader App

@porterstansb: A year ago @Porter_and_Co published a dire warning about a mega-cap American stock. This was the only mega cap stock we told investors to avoid. And it is no ordinary business. It is America’s most……

A year ago @Porter_and_Co published a dire warning about a mega-cap American stock. This was the only mega cap stock we told investors to avoid. And it is no ordinary business. It is America’s most strategically important company. We said it would soon “collapse.” 

Our January 27th 2023 headline? COMING SOON: THE BOEING COLLAPSE. How did we know? For the last 20 years there hasn’t been a company in America that’s embraced more bad ideas – from financial engineering to ESG – than Boeing. 

In 1997, Boeing merged with fellow aerospace manufacturer McDonnell Douglas in a $13 billion stock swap. It was a match made in hell. Boeing was known for quality, and McDonnell was known for financial engineering – with a focus on cost cutting and the company’s share price. 

Although the Boeing name survived, it was the McDonnell Douglas attitude that prevailed. McDonnell CEO Harry Stonecipher, who took over day-to-day operations at Boeing, immediately took a carving knife to Boeing’s highly-paid engineering staff. 

And in May 2001, Boeing management made a physical break with its engineers: manufacturing headquarters stayed in Seattle, while corporate moved to downtown Chicago, 1,700 miles away. That split symbolized the growing distance between builders and bosses. 

To say that the company’s engineers were disenfranchised doesn’t describe it: Boeing’s entire culture was erased. 

CEO Stonecipher even bragged about what he’d destroyed: “When people say I changed the culture of Boeing, that was the intent, so that’s run like a business rather than a great engineering firm.” 

Today both Boeing’s CFO Brian West and CEO David Calhoun are formerly senior GE finance people. And they’ve done to Boeing what they did to GE: Destroy the balance sheet. 

From 2010 to 2019 Boeing spent $44 billion (!) on buying back its own shares, while adding $50 billion in debt. This reduced the share count by 23% and sent the stock price up 200%. But the underlying business…? 

Bean counters can’t build airplanes. And Boeing’s planes started falling out of the sky. As a result, free cash flow plunged to negative $4.3 billion annually by 2019. 

Today bankruptcy grows more certain. Cumulative net income over the last three years is negative $20 billion. And the company has $52 billion in total debt. Interest expense is currently $2.5 billion a year, but will move much higher as Boeing’s debt will be downgraded to junk. 

But — never fear! Investors have nothing to worry about with one of America’s greatest and most important companies spiraling towards bankruptcy (like their planes spiraling towards the ground) because Stephanie Pope will save the day! 

Stephanie Pope is the chief operating officer of Boeing. She holds a bachelor’s degree in accounting from Southwest Missouri State University. And an MBA from another intellectual powerhouse, Lindenwood University. She has zero engineering background. 

Why would someone with this kind of background be placed in charge of operations of the world’s leading aerospace engineering firm? Maybe because she is the executive sponsor of Boeing’s Women Inspiring Leadership, a group dedicated to “increasing gender diversity awareness.” 

Boeing’s planes keep falling apart. These outcomes are the results of years and years of bad ideas – starting with the intentional destruction of Boeing’s engineering culture, followed by GE-style financial engineering, and now the company’s full embrace of modern Marxism – ESG. 

Like we predicted a year ago, Boeing is going to collapse. When its debt gets downgraded, the stock will drop by more than 50% to below $100. And then, just like we warned about GE and GM, this once impregnable icon of capitalism is heading for bankruptcy. 

Is this just piling on because of a freak accident? Nope. We reiterate our call two weeks ago. On December 22nd Porter & Co. updated its “Naughty List” – a list of 10 stocks we predict are going “straight to hell.” The first company on our list? Boeing. 

Boeing is a wonderful metaphor for our entire society. When we promote people because of their political views (or their race, or their sex) instead of their competencies, we get planes that fall out of the sky. When will the madness end…? 

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