On Boeing, Taxes, and Modern Heroes: Disparate Thoughts

James McNerney, CEO of Boeing

On Boeing, Taxes, and Modern Heroes: Disparate Thoughts

Boeing Corporation, Chicago-based industry and member of the Civic Committee of the Commercial Club of Chicago, is in the news.

The legislature in the State of Washington has decided to pay the extortionist fees of nearly $9 billion in tax breaks through the year 2040 to try to persuade CEO James McNerney of Boeing to remain in the local area of Tacoma and not move his airplane manufacturing business elsewhere.  These are fees the taxpayers themselves will cough up in the next 27 years to prevent a possible corporate decision to move away and build items somewhere else.  Boeing has been shopping around the United States to find the best “deal” when it comes to manufacturing the 777X, Boeing’s new design

(http://www.huffingtonpost.com/2013/11/15/boeing-state-taxes_n_4281100.html?view=print&comm_ref=false).

The last of our World War II vets are now fading away, falling into the dark ground like a gentle rain dropping from our history.  The Greatest Generation is marching quietly into cemeteries and graveyards, having given of themselves for the most noble of causes. 

On Wednesday, November 13^th, 31,000 of Boeing’s machinists union cast their votes on the offered contract by McNerney to commit to the company’s position and the resultant agreement to manufacture the 777X.  When asked directly about the 777X offer, McNerney characterized the workers association as part of the team, but one he’d be willing to relinquish if the vote were to go the wrong way.  “We hope the team stays together, but we will consider other alternatives if the vote goes negatively,” McNerney said. “I’m not prepared to say we’re moving in one direction or another. The big thing is that this airplane we want to build is a spectacular airplane that our customers want. Where and how we build it will be decided over the next few months”(http://missoulian.com/news/local/boeing-ceo-discusses-leading-company-into-challenges-of-future-in/article_2f01b6fc-4c9f-11e3-81a1-001a4bcf887a.html).

In World War Two, over 16 million Americans forsook their chances at a peaceful and safe life, and left to fight in European or Asian theaters, while nearly 2 billion humans in all threw themselves into the endless conflict. Nearly half a million American men and women perished.  63 million people were consumed during the war. Blood covered the world like a warm blanket for nearly a decade.

Long before McNerney’s stewardship, Boeing had moved from the deliberate concentration on sea-planes for the owner’s delights and the Navy’s needs in World War One to single wing, metal covered wood frame planes with retractable landing gear, increasing speeds and versatility, and the unfortunate likelihood of crashing. Nevertheless, by 1938, Boeing developed the very more safe commercial plane called its B-307 Stratoliner (later called Model 17).  Advancements included four powerful prop engines (and a capability to fly two or even one engine if necessary) and the ability to fly above weather in pressurized cabins at nearly two miles in altitude. 

That was Boeing then, but certainly not today.  McNerney tells anyone who will listen that Boeing faces a very different, competitive world today - one he calls “vexing” in a recent presentation at the University of Montana.  “McNerney also named …slowing growth and aging population in mature markets, and the increasing costs of regulatory regimes around the world, including those at home.”  Regulatory regimes are free-market code for a “vexing” evil called taxation and government oversight/regulation. 

381st Bombardment Battalion early in the war.

My brothers and I put our father into the ground this last spring, suffering through an echoing call of taps and shocking percussive burst of honor guard rifle shot while we sobbed with each other.  He was not only our father; he was our Achilles.  And for us, even though Dad did not speak of war, we had built his exploits in the battles over the skies of Germany into material suitable for Homer or Virgil.  My father flew a Boeing.  It was their Model 17, also known as a B-17, the Flying Fortress.  He flew 29 daylight-bombing missions over flak-infested targets and the skies of Germany filled with young and still confident Luftwaffe yearning to earn their diamond flying clasps.  One of his early missions was the desperate second attempt to stop ball-bearing manufacturing in Schweinfurt, Germany, a ridiculously bad idea by Curtis LeMay and others to throw thousands of American lives a second time into the furious combination of anti-aircraft and fighter plane resistance without fighter protection in order to prove the first mission over the same target less than a complete defeat.  The brutal second run over Schweinfurt was known by the participants as Black Thursday. was by The brass publicists considered the loss of nearly 60 of 290 B-17’s as “incidental to their successes.”  My father watched them hose out the remains of their gunner when the wounded plane arrived home.  He was 19 years old.

And under McNerney’s leadership at Boeing, his pursuit of unregulated and unfettered success with disdain for any taxation (that is, payback to workers, resources used and unused, local people and their needs, protection by local and federal government, etc.) moves through our legislatures like a Blitzkrieg on an open field.  According to a late report by the CTJ (Citizens for Tax Justice), a non-partisan advocacy group for tax fairness, Boeing is one of many companies that paid no tax to the United States people.  In fact, Boeing received money back in the form of federal subsidies and perks from the Congress.  How much?  In the three years leading up to 2012, Boeing’s average federal tax was – 1.8% on $9.7 billion in earnings.  You do the math…  But that’s just on the federal level.  McNerney’s regulatory enemies may be waving the white flag in Congress but a true warrior knows his battle has many fronts - vexing state and worker levels too. (http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf)

My dad was an Indiana kid, born to an assembly-line worker with a modest pension in South Bend, Indiana.  While his father crafted Studebakers, his mother, an ex-flapper girl, doted on her son and complained she “coulda been in pitchers.”  They struggled by in a two-story clapboard house on Leland Avenue alongside the St. Joseph River.  A simple but smart kid, the unbelievable luck in surviving the war became a once-in-a-lifetime chance to go to college and become a member of the middle class.  He took it and worked his own way into business, something no family member had done before.

Boeing CEO James McNerney, graduated from New Trier High School in Winnetka, Illinois, in 1967.  His father was CEO of Blue Cross/Blue Shield and he was a star baseball athlete, playing at Yale.  In fact, at Yale he was a fraternity brother of George W. Bush.  After Yale, McNerney entered the Harvard Business School.  It was a short hop to the next success.  McNerney worked his way from up to highest positions in Proctor and Gamble, General Electric and now Boeing.  Interestingly, all three companies also represent evolutionary levels of the dark art of tax avoidance. 

According to CNNMoney (http://finance.fortune.cnn.com/2011/10/19/procter-gamble-tax-avoidance/ ),  P&G has long followed a clever “legal” practice of using Reverse Morris  Trust Transactions to avoid $billions in tax consequences, even though Congress thought they’d closed the loophole in 1997.  According to the Institute for Policy Studies, General Electric paid no taxes at all on nearly $88 billion over ten years from 2002-2012

( http://www.ips-dc.org/reports/corporate_tax_dodgers).

Return from a run over Frankfort, Germany.

We were so proud of our father that we mythologized his designing the insides and outs of the most wonderful plane in the word – the Boeing 17.  We argued for hours over the merits and deficits of Liberators, and Mitchells, and the Superfortresses that dropped the Big One.  Models of B-17’s hung in the spaces of our bedroom, and models in mid-assembly lay on desktops stained and stripped by glue and paint.  We imagined standing in the fuselage for hours in bulky flight clothes ankle deep in spent cartridges the size of our fingers as Messerschmitts slid sideways through our formations at 500 miles per hour.  In reality, my father battled the fear evident on his suit fronts after each mission, watched his own blood freeze on his clothing at 30,000 feet when wounded on two occasions, and marveled at his own amazing fortune each mission. 

McNerney, on the other hand, is a modern warrior of the business elite, and he knows exactly how to run his battles – whether Proctor and Gamble, General Electric, or now Boeing.  Take it or leave it, preferring to work, as he says “without unions as a middle man.”  Lately, McNerney offered the workers in the area off of Puget Sound an opportunity to be part of the building of Boeing’s new 777X, but McNerney also demanded that workers give up pensions, increase their health care payments, and agree to a long-term salary increase of only 1% every other year.  Afterwards,  the machinist union’s president declined, calling the offer a “piece of crap.” (http://www.dailykos.com/story/2013/11/16/1255927/--This-Is-How-The-Middle-Class-Dies).

McNerney has begun searching for another more willing and compliant state.  By the way, according to one source, McNerney’s current salary (without extras and pension promises) is over $21 million per year. 

Today’s warrior.