For Boeing, Competition Means Alliances Partnerships Help Aspiring Asian Aerospace Firms but May Enable Company to Stay No. 1
Mark Trumbull, writer of The Christian Science Monitor, The Christian Science Monitor
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 jetmaker.
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 future."
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 Boeing's 53.
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. …