An Antitrust Breakup Between Boeing and McDonnell Douglas Starts to Make More Sense

Boeing’s 1997 purchase of rival McDonnell Douglas to create a single US aircraft designer and manufacturer was inexplicable even given the calculus of the time. It seems obvious, not just in hindsight, that antitrust law was enacted just for the purpose of preventing mergers between oligopoly players to create monopolies. While it was true that McDonnell Douglas was struggling, mostly because of the Defense Department’s stupid practice of winner-take-all programs and Boeing’s superior political influence in both the commercial and defense market, it was also clear that a merger would eliminate most competition in the U.S. commercial aerospace industry.

That the merger allowed Boeing to prevent customers from playing it against McDonnell Douglas in the commercial aircraft market is unquestioned. That it did nothing ease the commercial pricing pressure because of foreign government controlled rivals such as Embraer, Airbus, Bombardier, and Comac is also well documented. So if the elimination of McDonnell Douglas (itself the product of the 1967 merger of McDonnell Aircraft and Douglas Aircraft) did nothing to alleviate competition, what was the point?

The short answer is production swings and military contracts.

While McDonnell Douglas was still in business, both Boeing and McDonnell Douglas suffered wild wings in aircraft production, both commercial and military, that was hard on workforces in the localities in which each manufacturer operated (mostly Seattle and Los Angeles at that time). Layoffs were common as military production would come to a halt for certain models or as orders flagged for aging commercial models while millions (or even billions) of dollars were being spent on the development of new models.

The elimination of McDonnell Douglas also meant that Boeing needed to spend less on research and development in military aircraft, while getting the Defense Department to foot the bill. This had led to an explosion in development and product costs of new airframes and a sharp slowdown in innovation. While it is true that Lockheed Martin (a product of the 1995 merger of Lockheed and Martin Marietta) and Northrop Grumman (a product of the 1994 merger of Northrop Aircraft and Grumman Aerospace) competes with Boeing in the military aircraft arena, Northrop and Lockheed are really system program managers that are agnostic of platform (air, land, or sea), while Boeing is almost exclusively an aerospace player (1).

Twenty years later Boeing continues to flex its political muscle and monopoly position stifling potential competition, both domestically and internationally. Not one new domestic airframe competitor of any consequence has been founded in the two decades since the FTC and Justice Department’s fateful decision to allow the Boeing and McDonnell Douglas merger.

The merger has also suppressed technological advancement. The Space Shuttle program was canceled in 2011 without a successor vehicle. Satellites are still launched on Atlas rockets–a platform developed in the late 1950s, itself an adaptation of the Nazi Germany’s V-2 development in the 1930s and 1940s (2). The last moon landing was in 1972. Only one new generation combat fighter (the F-35) has been developed since 1992 (and not by Boeing). The U.S. did not replace the Skylab space station, which burned up in re-entry in 1979, and instead shares the International Space Station (ISS)–a platform that it reaches by paying the Russian government to lift its astronauts into orbit. No close combat aircraft like the A-10 has been developed–since 1966.

It seems fairly obvious given these lack of organic technological development and competition in the aerospace market that Boeing (and perhaps even Lockheed and Northrop) are prime candidates for an antitrust breakup. And that means both a breakup of both the military and the commercial sides of Boeing. Call the new companies “Boeing” and “McDonnell Douglas”. Or call them “Darth Vader” and “Death Star”.  Whatever the names used, it has to result in a better situation for the U.S. commercial and national security interests. It certainly couldn’t be any worse.

(1) Boeing, along with Science Applications International Corporation, were the prime contractors of the U. S. Army’s Future Combat Systems program. The program, intended to develop new armor platforms to be integrated into a satellite and wireless driven battlefield command structure at the brigade level. That neither prime was experienced in developing armor and artillery apparently was overlooked. After seven years and $20 billion, the program was canceled by the Obama Administration, mostly to adjust to the updated realities of stateless combatants and the collapse of the Soviet Union. The Army received virtually nothing of value from the program, which as a bonus had also starved the service of much needed funds for years and likely reduced its combat effectiveness in the Afghanistan and Iraq theaters. 

(2) One important exception to this is the Space Exploration Technologies Corporation (SpaceX), which in the space of only ten years has managed to take over the international market for small and medium payload satellites, as well as the delivery of freighters to the ISS. SpaceX, however, does not develop airframes and provides little in the way of military technology. 

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