Connect with us

Current Affairs

Zimbabwe: The State Of Crisis

mm

Published

on

Zimbabwe put Emmerson Mnangagwa in power hoping he would revive its battered economy. This expectation is on a downward spiral as harassed citizens take to the streets.

A mere 14 months ago, people sang and danced on the streets in jubilation. After 37 years at the helm, Robert Mugabe had finally resigned. The masses sang struggle songs saying “true independence” had finally arrived. They hoped his successor, Emmerson Mnangagwa, would bring back Zimbabwe’s dim and distant economic boom.

The optimism was misplaced. The country’s economic condition has been gradually worsening since.

On January 12, horror set in.

President Mnangagwa announced an overnight fuel hike of 150%. It now costs $3.31 (local bond note) to buy a liter of fuel. Of that, 78% goes to taxes, making fuel in Zimbabwe one of the most expensive in the world. If you drive a 40-liter petrol tank car, you will now spend $265 (local bond note) on just two tanks of petrol, per month, when an average Zimbabwean earns a mere $300 (local bond notes).

“That the fuel increase will only trigger a wave of price hikes on each and every other item on the shelves is as obvious as the incapacity of Zanu-PF to govern and lead a prosperous Zimbabwe,” says Jacob Mafume, National Spokesperson of the Movement for Democratic Change (MDC).

The shocking fuel hike comes when most of Zimbabwe’s fuel stations have been dry for weeks.

“I have to spend one day a week in a fuel queue and I lose valuable time. I spend six to 11 hours in a queue at a time. I am even forced to do some of my work while in the queue, otherwise I won’t be able to go to work or take my kids to school. What’s worse is that this fuel is not unleaded, it is actually blended with ethanol which means it doesn’t last,” says Zimbabwean resident Grace Zulu.

The fuel hike pushed citizens to the edge and drove the Zimbabwe Congress of Trade Unions (ZCTU), the umbrella body for all Zimbabwean workers, to call for people to stay home for three days, in protest.

“The government has officially declared its ‘anti-workers, anti-poor and anti-people’ ideological position by increasing fuel prices. Workers’ salaries have now been reduced to nothing and our suffering elevated to another level. We must and will mobilize and fight for our survival,” said the ZCTU in a statement.

Instead of dealing with the mounting anger of Zimbabweans, after the hike announcement, Mnangagwa jetted off on a five-nation tour that started in Russia and was expected to end at the World Economic Forum in Davos, Switzerland. At the time of going press, Mnangagwa had eventually cancelled the trip but these were the reactions of citizens prior the announcement.

“He doesn’t even care about us or what is happening in the country. He has money and his family is set for life while we all struggle to make ends meet.

“He should be here right now dealing with this and coming up with solutions that will work, instead of trying to convince countries we don’t know to put money [back] in the country. Even I know that in this state, Zimbabwe in un-investable,” she laments.

Angry citizens, like Zulu, took to the streets around the country in protest. Among them is Nomathemba Ngwenya, a 30-year-old unemployed Masters in Philosophy graduate.

“I can’t believe this is happening. I knew that Mnangagwa wasn’t going to be great but I didn’t expect things to be this bad. We are struggling and since he came into power, the situation has been worse. I am protesting today because I am tired of this and the government has to hear us,” Ngwenya says.

In Bulawayo, in southwest Zimbabwe, schools, taxi-ranks and work places were empty. Protesters had blocked roads, burned tyres and marched around the city center singing “Into’ yenzayo siyayizonda” meaning, “we despise what you are doing”.

Government responded by deploying police and soldiers armed with tear gas and guns. It caused panic, violence, looting and the protest expanded to residential areas.

“The situation is bad here. Some people took advantage of the situation and looted shops. When police came, they burned the police car and everything got worse. I could feel the tear gas in my throat and eyes from my home. Many people were wounded during this whole thing. The government just needs to act in a way that benefits its citizens,” says Bulawayo resident Mbongeni Mabhena.

With no positive response from the government, the marches spread to other cities.

In Epworth, an impoverished township in the southeast of capital Harare, residents woke up to blocked roads and marches which also escalated to violence.

“A stay-away had been suggested instead of a protest because the state loves to infiltrate demonstrations and cause violence as a pretext. It is possible that it was caused by protesters themselves but there are signs that the state was involved, for example, when there is someone carrying an AK-47, which is unheard of in Zimbabwe because of strict gun control,” says Doug Coltart, a Zimbabwean political activist and lawyer.

Loud cracks echoed around Bulawayo, Harare and even relatively smaller cities like Mutare in eastern Zimbabwe. People were injured,  they had gunshot wounds and lives were lost. It marked a fast developing week of shocking news in the poor southern African country. 

“I can’t believe this is happening. The president should be here sorting this out. He even left the vice president, who was a general in the army and was instrumental in the overthrow of Mugabe, in charge. Of course, he is going to send the army. That’s the kind of language he understands,” says Ngwenya who spends hours reading about Zimbabwe’s current and historical politics.

“Soldiers are in the townships beating up people who are protesting and even getting into people’s private homes. At this time, my understanding is that over 200 people have been arrested and at least five have lost their lives.”

As the protest grew, the #ShutDownZimbabwe trended on social media. History had begun to repeat itself.

Just like in the Mugabe regime where speaking up against the government was met with censorship, Mnangagwa’s government allegedly sent an order to mobile networks to shut down the internet in an effort to silence people.

There was confirmation of this order from Zimbabwe’s largest telecommunications company, Econet Wireless.

Founder, Strive Masiyiwa, said on social media the company was issued a warrant, to disconnect internet services, by the Minister of State in the Office of the President.

“We are obliged to act when directed to do so and the matter is beyond our control,” Econet said in a text message to customers, adding that all networks and providers had suspended their services.

“Failure to comply would result in three years’ imprisonment for members of local management in terms of section 6:2 (b),” Masiyiwa said.

“I have had no network for most of the day and I’m not sure how long it will last. Mnangagwa encouraged us to speak out when he was orchestrating a coup but now that he is the one in hot water it becomes a problem,” Zulu says.

After two days of chaos, Mnangagwa finally broke his silence.

“As I have said numerous times, everyone in Zimbabwe has the right to express themselves freely – to speak out, to criticize and to protest. Unfortunately, what we have witnessed is violence and vandalism instead of peaceful, legal protests.

“There can be no justification for violence, against people and property. Violence will not reform our economy. Violence will not rebuild our nation,” he said in a statement from Russia.

He said he traveled abroad to get investors vital for the economy. He claimed the response has been positive.

“Alrosa, the world’s largest diamond company, has decided to launch operations in Zimbabwe, and we have also signed a series of important agreements that will lead to investment, development and jobs.”

Although the fuel increase was the straw that broke the camel’s back, for months leading to the protests, Zimbabwe has been facing its worst economic crisis in 10 years.

  The economy has been in meltdown since the July 30 peaceful election which turned violent. The army and police clashed with demonstrators who again took to the streets amid allegations that the ruling Zanu-PF party had rigged the vote. Six people died and hundreds were injured causing uncertainty and doubt to the investor community.

“The signs have been there from the beginning. This crisis is caused by the Mnangagwa administration in the months leading up to the elections. There was never a sign of real improvement, it’s been a disaster from day one,”  Coltart says.

Many were sceptical but hopeful when Mnangagwa took over.

Mnangagwa had previously served as Mugabe’s right-hand man. Earlier in his life, he played a role in the fight for independence. He was part of a gang called ‘The Crocodile Gang’ and was known for his ruthlessness which later earned him the nickname, Crocodile.

There have been diverse accounts of Mnangawa’s reputation. A book by Ray Ndlovu, published in 2018 called In The Jaws of the Crocodile recounts these incidents.

Mnangagwa has been accused of bringing his ruthlessness to independent Zimbabwe. He is also accused of overseeing some of the state-sponsored crimes during Mugabe’s reign. When he was fired by Mugabe, he orchestrated a coup d’état with the help of the military led by now vice president, Constantino Chiwenga.

  “Zimbabweans were just pawns in a fight between Mugabe and Mnangagwa. I don’t believe he ever had an intention to fix the problems we have in this country. If I see a queue, I just get in it before I even ask what it is for because there is a shortage of even cooking oil,”  Zulu says.

The Currency Crisis

One of the problems the president inherited from Mugabe is a currency crisis.

Zimbabwe abandoned its currency in 2009 and adopted foreign currencies like the South African rand and the United States (US) dollar. Amid foreign currency shortages, in 2016, it introduced the bond note which the government claims is equivalent to the US dollar.

“There was a lot of hope for a lot of Zimbabweans not because they thought the new administration would do much better but they were just so desperate for change. You would think that any administration that came after that would have its ear to the ground in trying to fix the issue for the ordinary citizen but there is no evidence of that,”  says citizen Kukhanya Ndlovu.

Hyperinflation worsened.

The bond note is being sold on the black market for $3 and inflation is at nearly 21%. Problems are compounded by the high unemployment in the country, but even those who have jobs are not paid enough. Zulu, for instance, is a secretary who earns about 450 bonds per month.

“When you are on the ground, you understand how Zimbabweans are suffering and have been suffering for a long time. For some reason, the government doesn’t get it. At some point, something gives and something has to break,” says Dr Nkosana Moyo, a politician, economist and former Zimbabwe Minister of Industry and International Trade.

It gets worse.

Companies continue to shut their doors or demand hard currency. Bulawayo, once the country’s industrial hub, has closed a significant number of its factories. The spaces are now used as places of worship.

One of the latest companies to put a seal on its doors is National Foods, one of the largest manufacturers and marketers of food products. There is also Olivine Industries, which manufactures soap and cooking oil. It has suspended its production and put workers on indefinite leave because it owes foreign suppliers $11 million.

“The company has struggled to restart its manufacturing operations in January 2019 for lack of imported raw materials. As such it remains closed,” says Olivine Industries in a statement.

There is more.

As of January 4, Zimbabwe’s largest brewing company, Delta Corporation, started selling only in hard currency to keep its doors open.

“Our business has been adversely affected by the prevailing shortages in hard currency, resulting in the company failing to meet your orders,” it says also in a statement.

It is clear that for money to work, people have to believe in it. No one believes in the bond note or its 1:1 valuation. The government itself doesn’t seem to believe it.

“When the president announced the new fuel prices, he implied an exchange rate of 1:3 between the dollar and the bond note. It signals that there is no honesty in how the government is communicating with the population. This crisis is more painful and almost unforgivable because it indicates no lessons were learned from 2008,” Moyo says.

In 2008, Zimbabwe suffered a staggering inflation rate of 80,000,000,000%, printing notes up to 100 trillion. When the Zimbabwean dollar tanked, life savings vanished from the banks; shops were empty and ATMs dry. In 2019, the panic and kneejerk reaction has seen people holding on to their US dollars and moving them out of the country.

“People have forex but it’s not with the government structures because people don’t trust banks because of what happened in 2008 where there was a shortage of everything and hyperinflation was terrible. Part of the crisis is exaggerated, people have the forex,” says former Deputy Information Minister in Robert Mugabe’s cabinet, Bright Matonga. 

The government is encouraging people to bank their foreign currency. It says it has now started foreign currency bank accounts which it claims are safe.

“The legislation protects your account. Back then, they used to be able to raid your account but now they can’t. You can bank your US dollars and can go to the bank and withdraw all of it,” Matonga says.

According to Finance Minister Mthuli Ncube, the country also plans to bring back the Zimbabwean dollar in the next 12 months. Many Zimbabweans think it won’t work.

“Currency is a symptom, not the cause. It doesn’t matter what currency we adopt, we are going to end up right at the same point as long as we don’t have a government that understands what needs to be done. Our problem is the irresponsible behavior of government. How do you run a country which has a budget of more than 90% which is in recurrence expenditure? How do you run a country with a government that doesn’t understand that taxes should be a small fraction?” Moyo asks.

The protests came just days before the World Economic Forum gathering in Davos. Mnangagwa was set to appear under the banner of his “Zimbabwe is Open for Business” mantra. This year, he also visited Azerbaijan, Kazakhstan, Belarus and Russia in a bid to attract investments. Prior the cancellation of the trip there was public pressure, as citizens felt aggrieved about his decision to attend.

“Instead of accepting its gross failure to turn the economy around, the cartel now basks in the pretence of ‘mega deals’in curious corners of the forgotten world such as Uzbekistan, Kazakhstan, and other places you may have never heard of,” Mafume says.

Moyo believes nobody is going to invest money in Zimbabwe until Zimbabwe shows a behavior that is conducive for investment and that it can manage its own finances.

“These mega deals are not coming. What people are talking about are indications. People are interested in Zimbabwe but investors will look for certain signals, without which they will not put money in the country,” Moyo says.

“What product is he taking to Davos? Does he really think investors around the world are stupid enough not to see that they shouldn’t put their money into the country? Last year, he shouldn’t have even gone to Davos. I don’t know why he is even going to all these countries. It’s totally nonsensical.”

Gaining people’s trust is one of the few things Matonga and Moyo agree on.

“The leadership should come from the top so people see the seriousness of the mantra that Zimbabwe is open for business. We need to get trust with our own people here at home and then get trust from Zimbabweans in the diaspora, because they bring in a lot of foreign currency, then we can go out,”  Matonga says. 

In fact, Moyo believes, with this government, there is no sector that is safe to invest in.

“At a country level, there is stupidity. If all you see is irrationality and kleptocracy, how can anything survive under it?”

Moyo argues that Mnangagwa should first build an environment that is conducive for investment  before wasting money on travel to sell a product that won’t be bought.

“In terms of investment, if I was the president, I would have approached two categories of investors. One would be someone who is already invested in Zimbabwe and then regional investors who are primarily South African. These are people who understand the environment and would help the economy to begin to take off.”

On the other hand, Matonga blames the economic sanctions, and not the government, for Zimbabwe’s downfall.

“Whoever wants to bring money into Zimbabwe has to get clearance from the United States government. As long as the sanctions remain, it’s going to be difficult to effectively deal with business challenges. The root of all our troubles is the sanctions,” Matonga says.

Coltart, who lived in SA and the US for eight years before returning  to Zimbabwe to be an activist and human rights lawyer, sees the errors in policy as the biggest culprits for lack of investor confidence.

“As Zimbabweans, we want stability and investment but what is clear is that the government doesn’t know how to do that. Their policies are wrong, they waste government funds and the wrong cabinet is in charge,” Coltart says.

Matonga, who now has a company that assists people looking to invest in Zimbabwe, maintains that Zimbabwe is open for business.

“We are currently going through a process of trying to put our house in order. It is a very difficult process but the new minister is trying to put in systems to make sure business is done properly. This process is painful but it will take time for us to see results,” Matonga says.

Coltart encourages the government to fix policy issues, hire people dedicated to reviving the country’s economy and to find reputable investors in mining and agriculture.

“We need credible investors in mining and agriculture but a government like ours attracts the worst kind of investor, like sharks who go into a crisis situation in order to make a huge amount of money because no one else will go there. Typically, that kind of investment is not good for the country,” Coltart says.

Matonga shares a similar sentiment about investment focus areas.

“Yes, we need to invest more in agriculture so we can start importing to the region; we need to invest more in mining so  we have enough gold reserves to support our currency. The tourism sector is doing very well,” Matonga says.

He, however, believes it’s unfair to say Zimbabwe isn’t attracting investors and that the government isn’t doing its job.

“There are a lot of massive deals that have come into the country. For one, there is an electricity deal that happened and soon Zimbabwe will be selling electricity throughout the region. Our tourism sector is also doing very well. This December, it was booked 90%. The investors are listening to us because also our new minister is credible. He is being invited all around the world to speak about opportunities in Zimbabwe,” he says.

The challenge so far has been that if investments are made, it becomes a struggle to retrieve money because of cash shortages in Zimbabwe.

“I had planned to expand my farming logistics business into Zimbabwe but the problem is that I would have invested in rands and people would have paid me in bond notes and I wouldn’t have been able to use that money anywhere outside Zimbabwe, which is where I actually need to use it,” says South African entrepreneur Mark Zondo.

To make matters worse, even the bond note is scarce. According to Reserve Bank governor, John Mangudya, in 2017, 96% of transactions in Zimbabwe were electronic. So if you are a business operating in Zimbabwe, you would have money in a mobile money account or bank account but not in hand.

Matonga says this is not the ideal situation but things have improved.

“Doing business in Zimbabwe is easier than it was in the past. For example, the government removed the indigenisation law that demanded that a foreign investor had to partner with a local to start a business. If you are a company that imports and exports, you can also get at least 50 percent of your foreign currency in hand to be able to continue running,” he says.

Although that’s the case, investors will have to take the remaining 50% cutting into their profits.

Matonga insists the government is doing well. “The minister of finance has closed the loopholes and even the rate on the black market is going down. He has also introduced a two percent tax in mobile transactions and has collected more than $550 million which means we are able to fund government projects, road construction, infrastructure development,” he says. He blames the current fuel shortages on the increase on car imports.

“This time last year, we had about one million cars on the road and now we have about 1.7 million. In the last six months, Zimbabweans imported about 700,000 vehicles which has now put a strain on the forex,” Matonga says.

He, however, agrees that there is a currency strain crippling the country.

“When you don’t have your own currency, it is extremely difficult. If you want to import necessary raw materials or equipment, it’s difficult to get foreign currency. You have to get it on the informal market where the rates are three times higher,” he says.

Moyo, who ran against Mnangagwa during the presidential elections, says he was called by Mnangagwa to help boost the economy, but their relationship was short-lived. 

“I allowed myself to be invited into government and I joined. I then realized I couldn’t work for this government. The way the land issue was handled and the way occupation of industries was taking place in a similar manner, I just felt it was going the wrong way. The policy positioning of Zanu-PF was unstrategic so I told the president I wasn’t going to work for an administration like that,” Moyo says.

“He said he brought me in to make those changes but I had enough evidence because of the number of times I had gone to him and asked him to do certain things which he would agree with and never do them.”

According to Moyo, the evidence to date shows Mnangagwa is not capable of taking a step back and actually fixing the country. It is up to the people to fix Zimbabwe.

“There is desperation. Young men are spending their days playing board games while drunk on alcohol or high on drugs. When I asked them about it, they would tell me that’s the only way they could retain their sanity because there are no jobs. People are doing things they would otherwise not do. We as a nation have committed a crime against our youth,” Moyo says.

Last year, for the first time in 37 years, the country went to the polls to choose a leader and 133 parties took part in the elections, and 23 candidates ran for the presidency. Mnangagwa won by 2,460,463 votes (50.8%), followed by the MDC’s Nelson Chamisa with 2,147,436 votes (44.3%).

“Zimbabweans need to learn what democracy really is. We need to learn that elections mean choosing the person who will solve the problems that are confronting the country at that point in time. We need to take responsibility for our actions, ” Moyo says.

Taking responsibility places the burden on the people to drive change towards the direction they want it. This has been done before. Perhaps another 37-year wait might be too late.

Current Affairs

Here’s How The US Claims The Assange-Manning Conspiracy Worked

Published

on

By

The U.S. government has disclosed more of its case against WikiLeaks cofounder Julian Assange. It hinges on a claim he and Chelsea Manning worked together to crack a password for a computer storing sensitive government files.

An affidavit unsealed Monday outlining the case against Assange said he conspired with Manning when they discussed working together to crack a password “related to two computers with access to classified national security information.” More specifically, the password belonged to a user called FTP (not to be confused with an FTP server) on two Windows computers that Manning could access from a base in Iraq, the government said.

The FTP account wasn’t associated with any specific individual, and the government alleged that if Manning had used it to pilfer files and hand them over to Wikileaks, she could have foiled investigators looking into who was behind the leaks.

“Although there is no evidence that the password to the FTP user was obtained, had Manning done so, she would have been able to take steps to procure classified information under a username that did not belong to her,” the affidavit read. “Such measures would have frustrated attempts to identify the source of the disclosures to WikiLeaks.”

The alleged conspiracy to crack the password took place in March 2010, two months after she’d walked out of the Iraq base with classified war reports from Iraq and Afghanistan. She was later convicted and served seven years in jail for downloading tens of thousands U.S. military documents and diplomatic cables.

How passwords are cracked

The reason any password had to be cracked in the first place was the use of what’s known as a “hash.” Microsoft’s Windows operating system doesn’t store passwords in plain text. That’s to prevent hackers who find a way on to the computer from seeing and stealing them. Instead, Microsoft makes life harder for cybercriminals and snoops by turning that plain text into scrambled code. That string of letters and numbers is known as a “hash value” and it’s created when an algorithm is applied to the plain text of the password.

For an attacker to get at the plain text it’s possible to do a so-called “brute force attack.” The process for this is basic: The hacker creates a huge list of guessed passwords through the same hashing algorithm used by Windows to find a matched hash value for the hidden password. Once the same hash value is calculated, the password has been found.

Sometimes a password will be too complex for guessing to work in a short enough time frame. That’s where “rainbow tables” come in. These contain a massive number of hash values for previously calculated passwords. Hackers use them to do a quick comparison of the hash they have with the ones in the table, in the hopes that it’s already been seen before and a match is available.

“In computing terms we call this a time/memory trade-off. Rather than spend time on a task, we pre-calculate parts of it and store them somewhere, essentially trading time for memory,” says Tom Wyatt, senior penetration tester at cybersecurity provider Bulletproof. “These tables can be calculated or downloaded from various online sources, and it simply boils down to paying for storage for it all; even in 2010 this was fairly cheap and entirely possible.”

But Microsoft goes one step further in protecting those hash values by splitting them in two, storing the parts in separate files. Here’s where a little trick comes in handy: A hacker might be able to recover those two separate pieces by rebooting a Windows PC using a CD with the Linux operating system. Back in 2010, it was possible to do that and recover the full hash value.

Ken Munro, a penetration tester with Pen Test Partners, told Forbes the technique still works, as long as there’s no additional layer of security over it, such as full disc encryption. “Whilst the technique still works, it’s quite rare to find systems that don’t now have full disc or similar encryption,” he added. (Microsoft hadn’t responded to a request for comment at the time of publication). According to the government’s telling of the story, evidence suggests Manning tried, and very possibly failed, with this technique. In a footnote in the affidavit, the government said Manning hadn’t provided Assange with the full hash, only one of the two halves required.

It’s alleged Manning passed what she thought was a hash value to Assange. The Wikileaks chief then said he would pass it on to a specialist in cracking, according to chats over the Jabber encrypted communications app, as provided in the affidavit. But, as per the investigators’ claims, there was some confusion: Manning said she wasn’t even sure what she handed to Assange was the hash value they wanted. Assange messaged Manning to ask if there were “any more hints” about the hash and that he’d had “no luck so far,” according to the government account. From there it’s unclear what happened. The government admits it didn’t know whether the password was ever cracked.

Not that it changes much for Assange: The charge is that of conspiracy. If he did offer assistance to help Manning gain access to U.S. government systems and encouraged the then intelligence analyst to leak files, the charge still stands. Manning, who served seven years in jail before being pardoned by President Barack Obama, is back behind bars for refusing to testify in the investigation into Wikileaks. Her lawyer had not responded to a request for comment at the time of publication.

Assange’s lawyer, Jennifer Robinson, couldn’t be reached for comment at the time of publication. She told Sky News yesterday that the indictment against her client showed “the kinds of communications journalists have with sources all the time.” Following Assange’s arrest, however, various journalists have said on Twitter that any incitement to hack organizations or steal documents was far from normal and risked breaking the law.

Meanwhile, the fallout from Assange’s arrest continues. According to Reuters, Ecuador’s telecommunications vice minister Patricio Real said the government’s networks had been hit by a mass of cyberattacks after it decided to revoke Assange’s asylum status. He claimed various government websites had been slammed by 40 million hacking attempts per day, double the number it typically sees.

-Thomas Brewster; Forbes Staff

Continue Reading

Current Affairs

Boeing CEO Dennis Muilenburg Faces Mounting Pressure From 737 MAX Crashes

mm

Published

on

By

Dennis Muilenburg has earned a reputation as a high-energy CEO, bicycling 140 miles a week, sometimes taking groups of employees along for high-speed bonding sessions. The 55-year-old may need every ounce of energy he’s got as he faces one of the worst crises for Boeing in over 50 years: two crashes that killed 346 people, linked to the automated flight controls of the 737 MAX and leading to the grounding of the company’s bestselling plane.

The stakes for Boeing, and its CEO, are huge. The 737 accounts for 33% of Boeing’s revenue and almost 50% of its profit, according to Berenberg analyst Andrew Gollan. Deliveries have been halted since the plane was taken out of service worldwide after the March 10 crash of an Ethiopian Airlines plane, airlines are demanding compensation, and the company faces scrutiny from Congress, a Department of Transportation inquiry and a federal criminal probe. The stock (BA) has fallen 10%. Lawsuits filed by relatives of the dead and shareholders could take years to conclude.

Over the past few weeks, the 34-year Boeing veteran has been traveling heavily to shore up support from airline customers and investors. An aerospace engineer by training, Muilenburg has kept a close eye on the Boeing team rewriting the faulty flight control program; last week he went up in a plane that tested out its effectiveness.

But many observers are giving Boeing and Muilenburg poor marks for their public handling of the crisis. Until late last week, Muilenburg was largely invisible and the company’s public statements, while expressing sympathy for family and friends of the deceased, were short on substance.

“I give them a B,” says Jeffrey Sonnenfeld, a professor of leadership at the Yale School of Management. Muilenburg needs to put a human face on Boeing, he says, and get out in public and engage with the media to try to correct misperceptions and address the many questions about what went wrong, even if he doesn’t have ready answers to offer.  

Muilenburg hasn’t shown the media sophistication of his predecessor, Jim McNerney, who’d previously helmed GE’s prized aircraft engine division and 3M. “He’s got a catastrophe as his training ground,” says Sonnenfeld.

Preliminary reports from the investigations into the crashes of Lion Air Flight 610 in October and Ethiopian Airlines Flight 302 last month suggest that the pilots of both planes struggled to counter a flight control program called MCAS that erroneously pushed the planes’ noses down due to malfunctioning angle-of-attack sensors. After Ethiopian investigators released their report last Thursday, Boeing put out a video statement by Muilenburg in which he said Boeing accepted responsibility for the role that MCAS played as one of the “chain links” in the two accidents.

Aviation regulators in other countries have questioned the Federal Aviation Administration’s certification of the MCAS system and its initial reluctance to pull the 737 MAX out of service; several have said they won’t just take the FAA’s word that it’s safe to fly again, making it uncertain when the plane will return to the skies worldwide.

With the prospects of a quick resolution fading, Boeing announced last Friday it would throttle back 737 production to 42 a month from 52—a sharp reversal from its plan to raise output to 57 by the summer.

Analyst Richard Epstein of Bank of America/Merrill Lynch downgraded the stock to neutral Monday, estimating that Boeing likely won’t be able to resume deliveries for six months and won’t get back on pace until 2021, reducing earnings through 2023 before interest and taxes by $13.7 billion.

Whether Muilenburg’s job is threatened or not may depend on the stock price, says Richard Aboulafia, an aerospace analyst with Teal Group.

The board is loyal to Muilenburg, observers say, and his record so far has given them little reason to doubt having signed off on then-CEO and chairman McNerney’s decision to promote him to the top job in 2015 at age 51.

Engineer With Focus On Financial Discipline
US-aviation-ACCIDENT-BOEING
Workers stand under the wing of a Boeing 737 MAX airplane at the Boeing Renton Factory in Renton, Washington on March 27, 2019. Boeing gathered hundreds of pilots and reporters at its factory to unveil a fix to the flight software of its grounded 737AFP/GETTY IMAGES

The hard-charging, detail-oriented engineer presented a strong contrast to McNerney, a liberal arts major at Yale and Harvard M.B.A. who rose up through the ranks at General Electric when it was a star factory under Jack Welch. Native to Iowa, Muilenburg grew up milking cows every morning on his family farm and graduated from Iowa State before going straight to work at Boeing. Health-conscious and rail thin, he drinks Diet Mountain Dew to get a calorie-free caffeine fix and has been known to order turkey sandwiches with no mayo.

Though he’s cut head count, Muilenburg has cultivated a more positive relationship with the workforce than McNerney, who clashed with the machinist’s union and infamously joked of workers “cowering” from him.

However, Muilenburg has followed in McNerney’s footsteps with a laser focus on financial discipline, including boosting profits by wringing discounts from suppliers. Muilenburg has even gone a step further, moving to make more components in house and aiming to more than triple sales from lucrative aftermarket maintenance and services to $50 billion a year.

Like his two predecessors, Muilenberg has continued to sweeten the pot for investors, devoting roughly 95% of operating cash flow to the company’s steadily rising dividend and share buybacks.

The stock has taken off, climbing fourfold from February 2016 to a peak of $446 at the beginning of March, compared with a 63% rise for the Dow industrials over the same period. The March selloff has only pushed the stock back to where it stood at the end of January.

But to Aboulafia, the flawed design of the MCAS flight control system, combined with the continuing problems with the KC-46 tanker and delays in the crewed space-launch program are further evidence for criticism he’s leveled at Boeing for almost two decades: that the company’s focus on shareholder rewards has come with a “deprioritization and perhaps under-resourcing of engineering.”

Boeing says it’s maintained R&D spending at a steady level and has a healthy corps of 56,000 engineers.

The question of how MCAS was certified has raised concerns over whether Boeing has gained too cozy a relationship with the FAA; a wildcard going forward is whether any evidence of wrongdoing will emerge.

If whistleblowers had any damaging information we likely would have heard it by now, says Mark Dombroff, an aviation attorney at LeClairRyan and former head of the Department of Justice’s aviation division. He expects that the DoJ will seek to determine within 90 to 120 days whether there’s a case to pursue.

Aviation experts are optimistic that Boeing’s software patch and training revisions will solve the 737 MAX’s safety problems. Boeing’s disclosure this week that it logged zero orders for the MAX in March generated negative headlines, but with a whopping 15,000 total narrow-body orders placed over the past seven years, there aren’t really any airlines left with sizable needs, says Aboulafia, with the notable exception of Chinese carriers. Any trade deal between the U.S. and China that would change the balance of trade will likely include Boeing sales.

Boeing’s last major crisis came in 2013, when the 787 was grounded for three months due to battery fires, two years after the plane entered service following years of production snafus and spiraling costs. While the financial stakes were large, no lives were lost. The last time Boeing faced a safety crisis of a comparable nature to the current one was the mid-1960s, when four new 727 jets crashed in a span of four months.

Like then, Boeing faces the task of convincing a fearful public that the MAX will be safe to step into again. Sonnenfeld says Muilenberg needs to take a page from James Burke, the late CEO of Johnson & Johnson, who pulled off the tall task of convincing Americans that Tylenol was still safe after seven people were killed by cyanide-laced capsules in 1982. “It’s going to take the CEO to be out there.”

-Jeremy Bogaisky; Forbes Staff

Continue Reading

Billionaires

Jeff Bezos To Give MacKenzie 25% Of His Amazon Stake, Worth Tens Of Billions, In Divorce

mm

Published

on

By

Jeff Bezos, founder and chief executive of Amazon, announced on Thursday that he will transfer roughly 4% of the company’s stock to his wife, MacKenzie, most likely by early July. The couple are in the process of finalizing their divorce.

Those shares are worth more than $35 billion as of 1:30 p.m. Eastern Time on Thursday. That would make MacKenzie the third-richest woman in the world, behind L’Oréal’s Francoise Bettencourt Meyers, who is worth an estimated $52.9 billion, and Walmart’s Alice Walton, who is worth $45 billion. She would rank as the planet’s 26th-richest person, ahead of Nike’s Phil Knight.

Jeff Bezos will remain the world’s richest person, with a net worth above $110 billion, per early Thursday afternoon stock prices. Bill Gates is the world’s second-wealthiest individual, boasting an estimated $99.5 billion fortune.

While still pending, the Bezos divorce settlement will likely be the largest in world history. Other divorces of the ultrarich include Steve and Elaine Wynn (she received an estimated $850 million settlement), as well as Bill and Susan Gross (she received a $1.3 billion settlement).

In a statement posted to his Twitter account, Jeff Bezos said, “In all our work together, MacKenzie’s abilities have been on full display. She has been an extraordinary partner, ally, and mother.”

MacKenzie posted a tweet of her own, saying, “Grateful to have finished the process of dissolving my marriage with Jeff from each other. … Happy to be giving him all my interests in the Washington Post and Blue Origin, and 75% of our Amazon stock plus voting control of my shares to support his continued contributions with the teams of these incredible companies.”

The couple filed a petition for divorce on April 4, and they expect an official decree to be issued in early July, they said in an SEC filing that outlined the transfer of shares. The filing noted that Jeff Bezos will continue to exercise voting control over MacKenzie’s shares, unless she sells them on the open market or gives them to qualifying nonprofits.

If MacKenzie transfers shares, the recipient of the stock must sign a similar agreement granting Jeff Bezos voting control.

The couple announced their divorce in January, following 25 years of marriage. Their separation stirred a tabloid frenzy, as intimate text messages between Bezos and his romantic partner, Lauren Sanchez, a TV anchor, were leaked by the National Enquirer.

Bezos subsequently published an open letter accusing American Media Inc., which owns the National Inquirer, of extortion and blackmail. AMI has denied wrongdoing.

Bezos also hired a team of investigators to determine who accessed his private messages. His consultant Gavin De Becker ultimately accused the Saudi Arabian government of illicitly gaining access to Bezos’ cellphone. Saudi officials have denied that allegation.

-Angel Au-Yeung; Forbes Staff

-Noah Kirsch; Forbes Staff

Continue Reading

Trending