EVEN before being expanded to produce the new 777 airplane, the
Boeing Company's assembly plant north of Seattle was the world's
largest building (in cubic feet). This Everett plant, where many
workers ride bicycles to get around, symbolizes the huge investment
risks Boeing has taken to become the world's premier commercial
The aerospace business is so capital-intensive that the world
market can only support about three companies, analysts say. For
now, Boeing holds an undeniable leadership position: 55 percent
market share, lowest production costs, and the cash flow to support
almost $2 billion in research and development (R&D) annually. Yet
aerospace is a strategic business no major industrial nation wants
to overlook. That makes aircraft manufacturing a game of politics
and economic efficiency. The business is "plenty competitive,"
and efforts by Japan and China are likely to make it more
challenging, says aerospace analyst Wolfgang Demisch of BT
Securities in New York.
"As we look to the future," Boeing chairman Frank Shrontz said
recently, "it's clear that competition will only increase as more
companies and nations seek to expand their aerospace capabilities.
Information moves too quickly, and valued technologies are too
perishable, for Boeing ... to assume its past is a guarantee of its
Consider what the European consortium Airbus Industrie has done
since its 1970 founding with subsidies from Germany, France, and
Britain. Airbus has knocked McDonnell Douglas Corporation out of
second place and now has about three times McDonnell's market
share. (McDonnell holds about 10 percent of the market.) In the
first half of this year, Airbus beat Boeing with 76 new orders to
DESPITE a 1992 agreement between the United States and Europe
that capped the level of subsidies allowed, Airbus can still
receive up to one-third of the development cost of new airplanes
from European governments.
Now Asia, the world's fastest-growing market for aircraft, wants
to get its share of jetliner production. The Russian aircraft
industry, which has been hobbled by overall economic breakdown, is
a wild card in the region.
With the image of an Asian version of Airbus easy to conjure up,
Boeing is forging what some analysts view as preemptive alliances.
This month, for example, the company announced a $100 million
expansion of its investments in China - for building tail sections
of the 737 (Boeing's smallest jetliner), and for spare-parts and
training facilities. China, already one of Boeing's biggest
customers, is expected to buy $65 billion worth of aircraft over
the next two decades, notes Bill Whitlow, an analyst with Pacific
Crest Securities in Seattle.
Boeing is also discussing plans with Japanese and Chinese firms
for a new 100-seat airplane that would be built in Asia. The
company bought fuselage sections from Japanese suppliers in the
1980s. The new 777 adds a carbon-composite tail rudder from
Australia and some new components from European sources.
All this outsourcing worries Boeing's work force here in "jet
city." Every bit of work contracted out costs jobs. "Our goal is
... to see that the plane is really made here and not just
assembled here," says Seattle-based Connie Kelliher, a spokeswoman
for the International Association of Machinists.
The union's work force for Boeing in Washington State has fallen
from 44,000 in 1989 to 28,000 today. Though the drop is mostly the
result of a deep slump in orders by airlines, Ms. Kelliher says
outsourcing is also to blame. Mr. Demisch says Boeing's strategy is
to help Asian aerospace companies develop and, thus, "the issue of
national airplanes will gradually be superseded." McDonnell
Douglas, he says, is already building planes in China and is
looking for equity partners to launch the MD-12 to compete with
Boeing's 747. …