Boeing vs. Airbus
In 1910, William Boeing went to the first “air meet” in Los Angeles, hoping to ride in one of the new airplanes. He didn’t get to go in one of their planes, but you have probably traveled in one of his. Boeing, until last year, was the largest airplane manufacturer in the world—a symbol of American strength and power. Its contribution was critical in World War ii, with its Seattle plant turning out as many as 16 planes in a single 24-hour period. Competitors have come and gone, but Boeing has always come out on top—until now.
In 2003, the European consortium Airbus delivered more aircraft than Boeing for the first time. On the surface, the numbers might not seem outstanding: Airbus delivered 305 planes versus 281 by Boeing. But if a single aircraft is worth $200 million (the Airbus a380 sells for us$270 million), then the actual difference is about $4 billion. Besides beating Boeing in terms of sales and profit, Airbus, an outgrowth of the German Messerschmidt Corporation, also gained ground in other key areas, as we will show.
But so what? A European competitor did better than a U.S. company last year. Why should Americans be concerned? After all, according to the Airbus website, becoming competitive against the U.S. in this market is why Airbus was founded: “Airbus was established in 1970 as a European consortium of French, German and, later, Spanish and UK companies as it became clear that only by cooperating would European aircraft manufacturers be able to compete effectively with the U.S. giants.” A similar premise is a major reason for the existence of the EU itself.
So, again, why does it matter if Airbus is on the rise?
A closer look at the performances of Boeing and Airbus in 2003 reveals evidence of a growing trend: The U.S. is losing dominance in a strategically critical area of industry, security and national economy.
A Strong Foundation
Airbus’s skyrocketing performance has not come about overnight. For some years, the company has been positioning itself for growth and in the process has received massive support from European businesses and governments. More than a decade ago, Washington filed several formal complaints, saying that European governmental support of Airbus was tantamount to illegal export subsidies. The first formal complaint arose over an order by Indian Airlines for 19 a320 aircraft. “Boeing and the U.S. government accused Airbus of selling the a320s at less than cost, and putting political pressure on the Indian government, violating Articles 4 and 6 of the gatt [General Agreement on Tariffs and Trade]” (International Business Environment—Text and Cases, 1995, Prentice Hall).
In 1991, the U.S. filed a new complaint against Germany for providing the German part of the four-nation Airbus consortium a subsidy of dm390 million (us$470 million). Later in the year, “The U.S. Commerce Department claimed that altogether the four governments had provided up to $26 billion (in real terms) in subsidies to Airbus since 1970” (ibid.).
Frank Shrontz, then ceo of Boeing, showed concern when he stated, “Just think what we could have done with a $10 billion-plus subsidy.” “Boeing’s current financial position looked strong [in 1991], but Shrontz pondered the direction of the company’s strategy and how well placed it was for the future” (ibid.). Now we can clearly see that Mr. Shrontz was right to worry. Airbus, which was not as serious a threat at the time, is now outpacing Boeing! Although the World Trade Organization became much more stringent with its regulations concerning subsidies after 1992, Airbus had already gained the advantage.
Airbus has clearly set its sights on U.S. dollars.
Already, certain U.S. commercial airlines are ordering Airbus planes. In August last year, Frontier Airlines placed an $825 million order for 15 of the a319 narrow-body jets from Airbus. According to Noel Forgeard, Airbus president and ceo, “It’s no secret that this is a challenging time for the airline industry, especially in the United States. … But Frontier is demonstrating that the path to recovery is with the most efficient aircraft possible run by a team that is focused on customer value. We are proud Frontier is continuing on its path toward an all-Airbus fleet” (Defence Systems Daily, Aug. 22, 2003).
If many more U.S. airlines switch to foreign products, it will hurt not only Boeing, but also a significant portion of the American economy as billions of U.S. dollars—and thousands of jobs—flow out of the country. The Air Force secretary estimated that one tanker deal alone can create 39,000 new jobs (Knight-Ridder, March 28).
Airbus is not merely seeking to compete in the commercial airline sphere. Note the developing competition over U.S. military manufacturing: “Not content with overtaking U.S. rival Boeing as the leading commercial aircraft manufacturer, European company Airbus is now musing over the possibility of selling aircraft to the U.S. Department of Defense. Airbus chiefs are considering establishing a factory in the U.S. that could convert or assemble the company’s family of commercial jets to suit military applications,” wrote Defence Systems Daily last summer. “Clearly, the U.S. defense market is an attractive one at a time when the commercial aerospace industry is in such dire straits, and Airbus is beginning to explore the opportunities for defense contracts with the company’s military wing, currently working on its first major platform, the a400m cargo plane. However, the possibility seems a distant one, as the level of outrage that would be felt were any Pentagon contract to go the way of Airbus over Boeing might border on the cataclysmic” (June 25, 2003).
Although so far unsuccessful in this initiative, late last year a new statement made military bids by Airbus sound more realistic. According to the chairman of Airbus’s parent company eads (European Aeronautic Defense and Space Company) North America, “In the United States, we have made clear to Air Force authorities that we intend to compete aggressively for all future tanker buys—a commitment which has been acknowledged and supported by the Air Force” (ibid., Sept. 17, 2003).
In fact, eads is developing technology specifically designed for the U.S. Air Force, in addition to various other air forces. According to CompanyNewsGroupe, “eads can offer different aircraft using different refuelling technologies to meet the special requirements of air forces worldwide” (Dec. 9, 2003). Last December, eads ceo Rainer Hertrich said his company was developing a flying boom for the U.S. Air Force to equip the a330-200. “With an investment of €80 million we are getting ourselves ready for future competition in the U.S.,” he said (ibid.).
Airbus has already scored a major success this year by winning a $24 billion, 27-year deal to refuel British air tankers (Economist, January 24). This is all the more significant considering that, until recently, Boeing had been the only entry in the air refueling market.
Airbus’s intentions are clear. As it increasingly undercuts and outperforms Boeing, it will become harder for the U.S. to resist its advances. If U.S. military contracts were to go Airbus’s way, an already weakened American economy would be harmed by the loss of multi-billion dollar contracts to a foreign company. One of the main reasons Boeing became such a rich, powerful company in the first place is the U.S. resolve to produce military products domestically. What’s more, to rely on foreign sources for military goods is inherently dangerous.
A Shaky Boeing
Boeing’s downhill slide accelerated after Sept. 11, 2001. The airline industry as a whole was badly hurt by the terrorist attacks. Even today, air travel in the U.S. is down from 2000 levels. As a result, air travel has also suffered internationally. However, Airbus has rebounded much faster than Boeing.
As Boeing licks its wounds, it is considering moving many of its projects offshore. “Already Boeing has looked to reduce costs by outsourcing much of the manufacture of major assemblies to Japanese (35 percent) and European companies” (Defence Systems Daily, Dec. 16, 2003). While this option may be a self-preserving move for Boeing, it will undoubtedly hurt the U.S. economy as jobs and contracts move offshore.
Also, Boeing’s business strategy for the future follows a course directly opposite that of Airbus.
“Thirty years ago, the 747 jetliner was more than a symbol of prestige for the Boeing Co. It was the world’s largest, farthest-flying and most popular airplane, a tangible expression of American know-how and industrial might. It even wound up depicted on a postage stamp” (Washington Post, Dec. 7, 2003). During the 1970s, the idea of a jumbo jet was a major gamble for Boeing. The investment put into those airplanes, the largest in the world at the time, would have bankrupted the company if it hadn’t been successful.
Now, however, Boeing is banking its future on smaller, more fuel-efficient jets. Boeing’s marketing vice president, Randy Baseler, said, “On the global scale, we see market fragmentation—or ‘point to point’ operations—continuing, which means airlines will rely more and more on smaller airplanes” (Associated Press, Dec. 8, 2003). In support of that theory, Boeing has begun to accept orders for its new 7e7 Dreamliner passenger aircraft, which will carry 200 to 250 passengers. “The big selling point for the 7e7 is efficiency, with Boeing promising big savings in operating costs for the airlines” (Defence Systems Daily, Dec. 17, 2003).
Considering that Boeing once bet its company on the success of the jumbo jet—and won—it seems strange that it would now bet on smaller planes—especially when Airbus has taken the opposite stance. Its new superjumbo a380, the world’s largest passenger aircraft, has 555 seats. The Airbus vice president for market forecasts even remarked that Boeing seems to be “in a parallel universe,” and added that, in terms of number of orders, the a380 has had “the biggest market response to any jet” (Associated Press, op. cit.).
In the U.S., Boeing may be right to count on Americans demanding planes to handle point-to-point operations, although even that theory is yet to be proven. In Asia, however, Boeing faces a whole different ball game. According to Asia Times, “The fast-growing air freight business, which is increasingly delivering high-value electronics components from continent to continent, regards the freight capacity of the a380 … today as crucial.” Boeing’s aircraft simply do not have as large a freight capacity. The current analysis is that Airbus will control the super-jumbo market by 2020 if Boeing doesn’t come out with a new product—which it appears to have no intention of doing.
Boeing wrapped up 2003 in serious internal turmoil. In an attempt to end a scandal surrounding bids on an Air Force tanker deal, the company’s ceo, Phil Condit, resigned and has since been replaced by former coo Harry Stonecipher. The chief financial officer was fired. This scandal left the impression that Boeing had sought to gain the usaf contract by devious means. As a result, the Pentagon may well favor Airbus on future deals.
All this points to a dangerous trend for America. The U.S. is fast losing dominance in an industry that is critical to both its economy and national security.
The intensifying battle between Boeing and Airbus epitomizes the growing disparity between the United States and the European Union. As the Trumpet has continually forecast, Europe is rising, and the U.S. is falling—militarily and economically, just as your Bible prophesied (for more information, request our free book The United States and Britain in Prophecy). The fall of Boeing to Airbus is highlighting that fact before the world.