|
|
|
|
|
|
|
|
|
|
Op-Ed: Wings, Subsidies and more: Boeing Shoots itself in the Foot, Again |
|
|
|
(Source: Defense-aerospace.com; published Dec. 2, 2003)
by Giovanni de Briganti, editor, defense-aerospace.com
|
|
|
|
PARIS --- With each passing week bringing more bad news for Boeing, it is increasingly difficult to distinguish routine business setbacks from those that are potentially so serious as to pose a deadly risk for the company.
Phil Condit’s Dec. 1 resignation could be assigned to either category: his track record has not been stellar, but then again the board’s decision to hand the reins to two retirees, Harry Stonecipher, 67, and Lewis Platt, 62, will not bring new thinking to the executive suite.
In fact, Stonecipher’s real qualification for the job is hidden deep down in Boeing’s announcement of his appointment: “During his seven and a half years at Sundstrand, Stonecipher repaired the company’s seriously damaged customer relationship with the U.S. Department of Defense.”
Boeing might have added that Stonecipher also convinced Condit to pay $16.3 billion for McDonnell Douglas, a company with an old product line and few serious prospects. Boeing urgently needs Stonecipher’s first qualification, and the second might well come in useful if the new management cannot turn the company around.
But just before bailing out – or being bailed out – Condit made one decision that is in the “deadly risk” category, and that Stonecipher and Platt should review urgently.
It has now become clear that Boeing needed to lease 100 tankers to the US Air Force not to help it weather the post 9/11 aviation recession, as stated at the time the deal was unveiled, but to finance the development of a new airliner. Having lost the Joint Strike Fighter competition, and buffeted by the airline recession, Boeing had no comparable source of cash to tap for new product development. Hence the tanker lease, which in its original form was to generate upwards of $6 billion in profits, close to what Boeing will have to shell out to develop what is today called the 7E7 Dreamliner.
But with the lease running into mounting difficulties, Boeing had to find another source of cash, and so decided to offer risk-sharing (and cash-generating) partnerships to three Japanese industrial groups. Therein lies the potential kiss of death.
Wings are the most high-tech parts of any airplane, and in any cooperative program the wing-maker holds the real power, as most of the remaining parts can be made by any metal-basher. British Aerospace (now BAE Systems) plays over its weight within European aerospace because it designs and makes the wings for all Airbus aircraft as well as for the Eurofighter. Conversely, Germany’s aircraft industry faded away in the 1970s and 1980s because it allowed its wing-making expertise to move to BAE and to Aerospatiale (for the Transall airlifter, the Tornado fighter and the Alpha Jet trainer).
For the Dreamliner, Mitsubishi and Fuji will take over design and production of the wing. As no other new airliner or combat aircraft is visible on Boeing’s horizon, the company’s in-house wing-making expertise will inevitably disappear as its designers and workers retire.
An aggravating factor is that, by asking for Japanese government money to pay for their share of Dreamliner development, Boeing’s three Japanese partners leave themselves – and the entire project – open to European allegations that this would constitute illegal subsidies. The European Commission has promised to look at the deal very closely, and Airbus’ corporate parent, EADS, has already said it would sue to block the arrangement if it was judged illegal.
Losing control of wing technology in exchange of cash, when this very cash could ultimately be blocked by insurmountable legal obstacles, does not appear to be a very smart decision on Boeing’s part. In fact, Boeing’s offer of a 35-percent share to Japanese risk-sharing partners contains the technical and legal germs which could ultimately kill off the Dreamliner project before it gets off the drawing board, which in turn would ultimately bankrupt Boeing’s airliner business.
At present, this consists of the 737, 747, 757, 767 and 777 models. The middle three programs will soon be closed down for lack of customers, and only three 777s were ordered this year, down from 32 in 2002. Boeing’s best-seller is the 737, and it is keeping Boeing Commercial Airplanes in business.
But the 737 first flew in 1967 – 36 years ago -- and its domination of the budget airline market is eroding as more customers switch to the Airbus A320 family. In 2002, EasyJet ordered 130 A139s while this year budget airlines JetBlue ordered 65 A320s, Frontier Airlines ordered 15 A319s, Aer Lingus ordered seven A320s and Qantas just ordered another 23. The continuing loss of these orders spells seriously bad news for Boeing.
Any one of the trials visited on Boeing in the past couple of years – Airbus’s growing acceptance by the market; the loss of the JSF competition; the disqualification from US Air Force space launch orders and the loss of $1 billion in launch contracts; the massive down-scaling of the US Air Force’s tanker lease; rampant allegations of ethics lapses; the layoff of more than 30,000 workers – would pose grave problems to any big company. Most could be written off to bad luck, incompetence, or complacency, or to a mixture of all three.
But giving away wing design to Japan in exchange of an (uncertain) dollop of cash is the modern aeronautical equivalent of swapping one’s inheritance for a plate of lentils or, to use an appropriately Japanese metaphor, of corporate hara-kiri.
Do you have any comments? Write to the author at editor@defense-aerospace.com
-ends-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
