Boeing’s attack on the Bombardier fly-by-wire regional jet

“How Boeing Tried to Kill a Great Airplane—and Got Outplayed” (Daily Beast) has a lot of good background on the Bombardier CSeries (Airbus A220), an evolution of the Canadair Regional Jet that I used to fly. I knew that the airplane had a geared turbofan engine for fuel efficiency, but I hadn’t realized that it was fully fly-by-wire (as long as the software works, impossible to have a Boeing 737 MAX-style catastrophe).

The article shows that critical importance of political connections in the U.S. business world:

Boeing’s formidable Washington lobbying machine swung into action. Dennis Muilenburg, the Boeing CEO, had already cozied up to President Trump by agreeing to cut the costs of the future Air Force One jets. In September 2017, the Commerce Department announced a killing blow to Bombardier, imposing a 300 percent duty on every C Series sold in the U.S.

The story of how Airbus outfoxed the high-paid Boeing executives is interesting.

One thing that the article does not explain is why Boeing executives moved the HQ from Seattle to Chicago. Why would high-paid workers want to be in Illinois with a 5 percent income tax rather than in Washington State with no income tax? (the family law is radically different in the two states as well; Illinois offers plaintiffs unlimited child support profits while Washington caps revenue at about $400,000 (tax-free) for one child)

I’m not sure that I agree with the conclusion:

Boeing provides no end of a lesson in how a great company can lose its moxie because of an indecent lust for short-term gain. It used to be the classic American can-do company. Now it can’t do anything right.

How do we know that Boeing is imploding due to a decision to seek short-term profits? Since the company’s problems are primarily engineering failures, why couldn’t it be that the quality of engineers the company is able to hire is not as high as in the 1960s? Americans with excellent quantitative skills have a lot more career choices today, most of which pay better than working at Boeing.

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Crazy cheap solar power plant

“World’s Largest Solar Power Plant Switched On” (Forbes):

The $870 million project was the result of a competitive tender process that will see electricity from the site sold to the Emirates Water and Electricity Company (EWEC) for around 2.4 cents per kWh, a record at the time of the auction and a record for any completed solar project. It was built by the Indian firm Sterling & Wilson with nearly 3000 people working on site during the peak of activity.

Can this be right? These profit-driven folks can recover their $870 million by selling power at 2.4 cents/kWh? That’s more or less free (the average cost in the U.S. to consumers is about 13 cents/kWh, which of course includes distribution).

Most parts of the U.S. are not as sunny as the UAE, but some parts are. Could we build a monster plant like this in Arizona or Nevada and run the power back to the cloudy East Coast? A friend who used to run a mutual fund that invested in this area said, “It would be a no-brainer economically to run a DC high voltage line from wind farms in Oklahoma to New York City. You could shut down every fossil fuel power plant in New York. But the U.S. power grid is fragmented and the people who stand to benefit from that have enough politicians in their pockets to keep it fragmented. So you’ll never see that power line built.”

Vaguely related: This investor considers Jeff Immelt to be the most incompetent executive in recent American business history. “GE actually made windmills so they knew that the price was going to drop below that of coal-fired power plants,” he said. “Yet still, GE bought Alstom, which has been disastrous. Even if the market for fossil fuel plants had held up, GE was locking itself into French labor, which any rational businessperson would seek to avoid. It is fair to say that the folks at Alstom were a lot smarter than anyone at GE.”

For the rest of the world, where they aren’t as plagued by cronyism in power transmission as we are, will it be time to go nuts with electricity (cars, planes, heat pumps, etc.)?

Also, does this mean we don’t have to worry about about climate change and CO2? Who is going to bother burning fossil fuels for any reason if they can get electricity for 2.4 cents/kWh plus reasonable transmission fees? (Aviation? Just turn the electricity into hydrogen and then run your electric motors off a fuel cell!) We were terrified in the 1970s about burying ourselves in nuclear waste. Then it turned out that we couldn’t operate nuclear plants economically, so the amount of waste generated was much smaller than anticipated (we just burned natural gas and dumped out CO2 instead!).

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Vendor of Chinese-made items congratulates Team America

From just now, a graphic to celebrate the U.S. Women’s Soccer Team:

The products are made in China. The taxes are paid (sort of) in Ireland. But the soul of the enterprise is red, white, and blue?


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Does it make sense for Boeing to rebrand Embraer?

“Boeing drops Embraer name from Brazil commercial jet division” (Reuters):

Boeing Co on Thursday said that after taking over Brazilian planemaker Embraer SA’s passenger jet unit, it will call the division Boeing Brasil – Commercial, dropping one of Brazil’s most iconic company names.

The name change comes after Boeing agreed to pay $4.2 billion to buy 80% of Embraer’s operation making passenger jets with fewer than 150 seats. Embraer will retain a 20% stake. That division is still Embraer’s most profitable and considered a gold standard of Brazilian engineering.

Boeing has not made a decision yet about whether to rebrand the small and mid-sized planes, which currently carry the Embraer name followed by a model code.

Given the recent 737 MAX debacle, a far worse failure of engineering design than anything Embraer has ever done, does this rebranding make sense?

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Shareholders victimized by managers who hired men

“The Company That Sells Love to America Had a Dark Secret” (nytimes)

Dawn knew better. While she was acting manager, she had access to payroll forms and had seen some discrepancies: in particular, that a male sales associate who was recently recruited from a tile store was making $2 an hour more than Marie. The egregiousness of the manager’s lie bothered Dawn. That night, after the manager went home, she closed the door to the administrative office and took out all the payroll records and spread them out over the desks. One by one she saw it: There were seven women and five men who were counted as full-time sales associates. In only one case was a woman making more than a man, and it was only when you compared the highest-paid woman with the lowest-paid man. The women’s hourly wages averaged $10.39, and the men’s averaged $13.40 — so that on average, a woman working a 30-hour workweek for 52 weeks each year would make $16,208.40 before bonuses, while a man working the same amount would make $20,904. The men did not have more experience, nor were they quantifiably better salespeople.

There is a precise algorithm that lives in the heart of every woman, one that alerts her when the injustice she is experiencing outweighs the joy. Dawn saw those payroll records and knew she couldn’t stand for it anymore.

In other words, the company had to pay men more per hour to do the same job and decided to lower their profits, and shareholder returns, by hiring men rather than lower case equally qualified and productive women. They did this even though men, as a class, actually had lower value to the company:

Most of their customers were men; men are the ones who buy most jewelry, and so the female managers weren’t surprised when they were explicitly told whom to hire. “You hired women,” said Michelle, who became a district manager during her more than 20 years at the company and who, like many of the women I spoke with, preferred to be mentioned by only her first name. “Good-looking women, because men were the customers.”

If we believe that the managers of this company actively worked against shareholder interests by hiring men at premium wages, why not allow shareholders to tweak the corporate by-laws so that a public corporation can’t hire anyone who identifies as a man?


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The politicians who lowered Stop & Shop workers’ market-clearing wages now support their strike

One of our local supermarkets is now crippled: “New England Stop & Shop strike enters ninth day, as stores sit empty and unstocked; With support from Warren, Biden and Buttigieg, 31,000 striking workers say the grocery giant’s proposals would mean more expensive health care and worse retirement benefits.” (NBC):

Stop & Shop’s parent company, Ahold Delhaize, reported profits in the billions but is asking workers to pay more for their insurance and cutting their retirement benefits, according to Erikka Knuti, spokesperson for United Food and Commercial Workers (UFCW), which represents the striking workers.

Knuti said 75 percent of workers at Stop & Shop are part time, working multiple jobs and barely “cobbling together” a living wage.

On April 12, Massachusetts senator and Democratic presidential contender Elizabeth Warren visited her striking constituents.

“Do not cross the picket line,” Warren said, addressing potential shoppers. “Understand people on the picket line are not just fighting for their families. They’re fighting for all our families. They’re fighting for basic fairness and equality in this country.”

Since Warren’s remarks, Sen. Amy Klobuchar, D-Minn., Mayor Pete Buttigieg of South Bend, Indiana, and former Vice President Joe Biden have also joined workers on the picket line.

As a proud former union worker myself, I can sympathize with these folks who work all day on their feet for low wages. (With proper planning, there are a lot of easier ways to make money in Massachusetts!)

But I’m wondering if the workers’ primary enemies aren’t the very politicians who are showing up to “support” them. What better way to lower the market-clearing wage for a low-skill supermarket worker than to open the floodgates of low-skill immigration? Forming a union and striking might bump the paycheck slightly, but it can’t undo the reduction caused by tens of millions of immigrants and their children competing for the same jobs.

My neighbors’ Facebook feeds are lit up with the virtuous recounting their heroic tales of driving to Whole Foods, for example, instead. Yet Whole Foods has fought unionization for decades and the founder compared unionization to herpes.

Given that Stop & Shop regularly hires and trains new workers, I don’t know why the stores are running on such a barebones level. What stops the company from hiring and training replacement workers? (this Obama Administration ruling?) How much training does a person who stocks shelves get?


  • “Labor Board Tells Boeing New Factory Breaks Law” (nytimes, 2011), in which central planners in Washington, D.C. determined whether or not a company could build a new factory in order to escape a union: “In what may be the strongest signal yet of the new pro-labor orientation of the National Labor Relations Board under President Obama, the agency filed a complaint Wednesday seeking to force Boeing to bring an airplane production line back to its unionized facilities in Washington State instead of moving the work to a nonunion plant in South Carolina. In its complaint, the labor board said that Boeing’s decision to transfer a second production line for its new 787 Dreamliner passenger plane to South Carolina was motivated by an unlawful desire to retaliate against union workers for their past strikes in Washington and to discourage future strikes.” (see also Licence Raj)
  • “20 women slept with me to get promotion” (life in an English supermarket)
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Happy Tax Day and welcome to the new world of Qualified Business Income

I think that 2018 will be remembered as the breaking point at which the federal tax code become too complex for anyone other than a full-time accountant to understand.

One of the brand new areas is the 20-percent discount for pass-through income from LLCs and S Corp. I think the goal of this is to prevent everyone from forming a C corporation and paying tax at the new corporate tax rate, then eventually taking money out via a dividend and paying tax at the qualified dividend rate (21 percent federal for the corporate tax, 20 percent for dividends, plus another 3.8 percent for Obamacare, plus whatever a state might charge (e.g., 13 percent for California)).

The 20 percent discount, however, is limited to something like the first $157,500 of income. So it is progressive! The mason or plumber gets the full discount while the business consultant probably won’t.

How can you tell how much tax you’re going to pay? You need to calculate the wages paid by the business and also “the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business” and then plug those into a formula (IRS explanation):

A qualified trade or business is any trade or business, with two exceptions:

1.Specified service trade or business (SSTB), which includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers

2. Performing services as an employee

Q6. The SSTB limitation discussed in Q&A 5 does not apply if a taxpayer’s taxable income is below $315,000 for a married couple filing a joint return and $157,500 for all other taxpayers; the deduction is the lesser of:

A) 20 percent of the taxpayer’s QBI, plus 20 percent of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income B) 20 percent of the taxpayer’s taxable income minus net capital gains.

If the taxpayer’s taxable income is above the $315,000/$157,500 thresholds, the deduction may be limited based on whether the business is an SSTB, the W-2 wages paid by the business and the unadjusted basis of certain property used by the business. These limitations are phased in for joint filers with taxable income between $315,000 and $415,000, and all other taxpayers with taxable income between $157,500 and $207,500. The threshold amounts and phase-in range are for tax-year 2018 and will be adjusted for inflation in subsequent years.

Got it? If so, please explain this to the rest of us!

(“Section 199A: unadjusted basis of qualified property” by an Arizona CPA is helpful. It says that you go back 10 years in calculating the value of property used, unless there is a longer applicable recovery period “under Sec. 168.”)

If your brain doesn’t explode from all of the paperwork, an accountant friend says that, due to the 20 percent discount, it always now makes sense to have an LLC or S Corp. (as opposed to a Schedule C sole proprietorship) if you’re going to be doing any kind of profitable business.

Separately, I have noticed a trend of Massachusetts friends and neighbors spending more time in Florida (or outright moving to Texas). Some of them will spend 1 day every four years voting virtuously for a Democrat, but 183 days every year living in Florida so as to skip out on the no-longer-deductible Massachusetts income tax.

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Now that the road network is useless, why aren’t subway system operators rich?

The other day I had to be in downtown Boston for a 9:00 am meeting. Our road network melted down circa 2005 and there is no way to know if a 20-mile trip from the suburbs will take 45 minutes, 1.5 hours or longer.

I decided to do the 15-minute drive to the Alewife parking garage, which required about 40 minutes when started at 7:30 am. As there was no way to know how long the next phase of the journey would be and I was going to fortify myself with a Dunkins coffee (sold right in the station, unlike other transit systems that try to discourage eating/drinking), it seemed a prudent time to use the restroom in the massive building (replacement cost $200 million?):

Note that at least one plumbing fixture and the only soap dispenser are missing.

This is where the trains start so I was able to get on and find a seat. At the first stop, Davis Square, enough people got on to completely fill the car:

Nobody could get on at Porter, Harvard, or Central. Only after some biotech slaves go out to stream into the new towers of Kendall Square did the train have enough room to accommodate folks waiting on the platforms. (I later learned that the pro tip for those commuting in from Porter or Harvard is to head outbound to Alewife first and then come inbound.)

I made it to my destination on time and was wrapped in an atmosphere of comparative calm:

(Of course, I criticized them for their cisgender-normative prejudice in assuming that it is only “mothers” who might want to use a room for feeding babies. See “Breastfeeding as a trans dad: ‘A baby doesn’t know what your pronouns are’” (Guardian), for example.)

As the monopoly owner of the only means of reasonably fast and reasonably reliable transport between 7 am and 7:30 pm in the Boston area, I would expect that the MBTA’s financial condition would improve every year as the roads deteriorate. Shouldn’t they be able to extract huge $$ from desperate riders? If they want to preserve the low-cost-but-can’t-get-on-the-train option they can do that at the current fare ($2.25 or $2.75 depending on how it is paid for; see But they could also run VIP trains in between that cost $10/ride.

Subjectively it seems as though the trains are packed to the point where they couldn’t get a single additional rider on. Yet, from November 2018: “T notes: Ridership, even at peak times on Red Line, continues to decline”. Maybe they are running fewer trains per hour?

Readers: How is it possible that a system that has an amazing irreplaceable paid-for-100-years-ago asset (the tunnels) can’t be profitable in an environment of ever-worsening surface traffic jams?


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Evaluating trustworthiness; lessons from Theranos

From Bad Blood, the authoritative book on the rise and fall of Theranos.

[Jim Mattis, U.S. military hero and Theranos corporate board member] went out of his way to praise her integrity. “She has probably one of the most mature and well-honed sense of ethics—personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated,” the retired general gushed. Parloff didn’t end up using those quotes in his article, but the ringing endorsements he heard in interview after interview from the luminaries on Theranos’s board gave him confidence that Elizabeth was the real deal. He also liked to think of himself as a pretty good judge of character. After all, he’d dealt with his share of dishonest people over the years, having worked in a prison during law school and later writing at length about such fraudsters as the carpet-cleaning entrepreneur Barry Minkow and the lawyer Marc Dreier, both of whom went to prison for masterminding Ponzi schemes. Sure, Elizabeth had a secretive streak when it came to discussing certain specifics about her company, but he found her for the most part to be genuine and sincere. Since his angle was no longer the patent case, he didn’t bother to reach out to the Fuiszes.

Background: Roger Parloff, legal affairs reporter for Fortune, was intrigued by a story about Theranos hiring David Boies to sue a guy who had a patent that they would have needed to license if the blood testing machines had actually worked. Boies was given a fat slice of Theranos equity and a board seat in exchange for doing the company’s legal bidding. The author describes the lawsuit as entirely meritless, alleging that the inventor had somehow gotten hold of proprietary Theranos info because his son was a partner at the same huge law firm that had filed some patents for Theranos. The inventor spent $2 million on legal defense before caving in. (The big multi-office law firm’s records manager investigated the allegation and couldn’t find anything to suggest that the son/partner had ever accessed any Theranos-related information or even knew at the relevant time that the company was a client.)

The resulting puff piece hugely boosted the public profiles of Theranos and Elizabeth Holmes:

The story disclosed Theranos’s valuation for the first time as well as the fact that Elizabeth owned more than half of the company. There was also the now-familiar comparison to Steve Jobs and Bill Gates. This time it came not from George Shultz but from her old Stanford professor Channing Robertson. (Had Parloff read Robertson’s testimony in the Fuisz trial, he would have learned that Theranos was paying him $500,000 a year, ostensibly as a consultant.)

Elizabeth was also quick to embrace the trappings of fame. The Theranos security team grew to twenty people. Two bodyguards now drove her around in a black Audi A8 sedan. Their code name for her was “Eagle One.” (Sunny was “Eagle Two.”) The Audi had no license plates—another nod to Steve Jobs, who used to lease a new Mercedes every six months to avoid having plates. Elizabeth also had a personal chef who prepared her salads and green vegetable juices made of cucumber, parsley, kale, spinach, lettuce, and celery. And when she had to fly somewhere, it was in a private Gulfstream jet.

To me so far the strangest thing about the story is nobody questions the premise that sending every human for more frequent blood tests would result in healthier humans. Anyone who has ever had an encounter with the medical system knows that test results are generally inconclusive. What difference does it make if the doctor gets a result from a legacy Siemens machine that requires a venous draw or an amazing Theranos machine that requires only a pin stick.

Even if Theranos had succeeded technologically, I can’t figure out how it would have made people healthier.

Circling back to the above quote, this is a good reminder that humans are terrible at figuring out who is lying!

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