1019 The Boeing 787: Broken Dreams - Al Jazeera Investigations

The Boeing 787: Broken Dreams - Al Jazeera Investigations

Newsletter published on May 24, 2019

(1) The Boeing 787: Broken Dreams - Al Jazeera Investigations (3.4
million hits)
(2) I’m scheduled to fly next week and now I’m scared!
(3) Airbus and Boeing Are Signing Economic Suicide Pacts With China
(4) Economist: Why Boeing’s shares have not fallen further after the 737
MAX crashes
(5) Sensors linked to Boeing 737 crashes vulnerable to Failure; hit by
birds & airport equipment
(6) Outsourcing is killing Boeing - Eamonn Fingleton (2005)

(1) The Boeing 787: Broken Dreams - Al Jazeera Investigations (3.4
million hits)

From: Byron Allen Black <englishcorrection@gmail.com>

There is an excellent 2015 'whistleblower' documentary on Boeing's
union-busting and poor workmanship on YouTube:

https://www.youtube.com/watch?v=rvkEpstd9os

(2) I’m scheduled to fly next week and now I’m scared!

From: K (name & email withheld)
Subject: Re: Boeing outsourced. Substandard parts, made in China with
  non-aerospace material, installed in 777 and 737

Peter,

This is very frightening!  What in the hell are we supposed to think
about this?  Are supposed to stop flying on these planes? If thisIS true
why hasn’t POTUS done anything about it?  I don’t remember hearing
anything about this from our media.  Did I miss it?  I’m scheduled to
fly next week and now I’m scared!

Reply (Peter M):

 > I don’t remember hearing anything
 > about this from our media

Have a look at Epoch Times: https://www.theepochtimes.com/

It is run by Falun Gong supporters. I remember seing Chinese people
reading the Chinese-language edition on trains in Sydney, years ago.
There's also a Qld edition in English.

I don't necessarily buy their anti-China and anti-socialist line. (I
have switched my support from Trump to Sanders).

Epoch Times was said to be funded by the CIA. But it supports Trump,
whereas the Deep State opposes him, so I doubt that a CIA link still
applies. Anyway, they're better than the "mainstream" media, and have a
lot of stuff the MSM omit

Bloomberg is not bad: https://www.bloomberg.com/

 > I’m scheduled to fly next week and now I’m scared!

The chance of a mishap would be low.

To avoid all risk, we would not get out of bed each morning.

But it makes you think about the end we all face.

Boeing's policy of outsourcing was criticized by Eamonn Fingleton some
years ago. He complained that Boeing was allowing Mitsubishi to make
major components of the 787 Dreamliner, and that this would help
Mitsubishi - maker of the Zero in WWII - develop its own competing
commercial planes.

But until these latest articles, I did not realize that Boeing was
outsourcing to China too.

I'm surprised that Boeing's share price is holding up. Obviously, the
shreholders haven't cottoned on to the serious management issues at Boeing.

Boeing could not be doing more to help competitor manufacturers (in
Europe, China, Japan, Russia, Brazil).

It's a failure of Globalization. The Globalists are the real culprits.

(3) Airbus and Boeing Are Signing Economic Suicide Pacts With China

https://www.nakedcapitalism.com/2019/03/airbus-and-boeing-are-signing-economic-suicide-pacts-with-china.html

Posted on March 23, 2019 by Yves Smith

By Marshall Auerback, a market analyst and commentator.

Produced by Economy for All, a project of the Independent Media Institute

Airbus is considering whether or not to shift the assembly process of
its latest generation of A330 planes to China as part of a bid to
increase its market share in the world’s fastest-growing civil aviation
market.

The European multinational is following a trend started by Boeing, which
recently opened a new completion plant in China. On the face of it, the
decision by the two companies (which dominate the civilian aviation
market) makes sense: build where your biggest customer lives, especially
as China does not yet have a fully homegrown civil aviation industry
ready to compete globally. The benefits are many, including the goodwill
and esteem of the country that would be buying these planes. In the long
term, however, that might prove to be a costly miscalculation. Based on
its recent history (hereand here), it won’t take long for China to catch
up and largely displace both companies domestically in Beijing’s home
aviation market, as well as seizing a large chunk of the corporate
duopoly’s global market share. Airbus and Boeing could therefore be
making short-term decisions with negative long-term consequences for
their future profitability.

Given China’s formidable economic advancement, none of this should come
as a surprise to either Airbus or Boeing. Nor should it shock Western
governments. The problem is that everybody has historically been guided
by the naïve assumption that simply admitting China to organizations
such as the World Trade Organization (WTO) would induce Beijing to, in
the words of Philip Pan, "eventually bend to what were considered the
established rules of modernization: Prosperity would fuel popular
demands for political freedom and bring China into the fold of
democratic nations. Or the Chinese economy would falter under the weight
of authoritarian rule and bureaucratic rot." China has unquestionably
modernized, but its politically illiberal, dirigistepolity has, if
anything, massively moved in the opposite direction, strengthened by
that very modernization process that has done anything but falter.
Furthermore, the country has many aims and goals that are antithetical
to the long-term prosperity of Western companies and economies (as the
European Union is beginning to recognize).

Boeing and Airbus might simply become the latest Western sacrificial
lambs. Beijing has explicitly targeted wide-bodied aircrafts as one of
its 10 new priority sectors for import substitution in its "Made in
China 2025" document, so whatever short-term gains Airbus and Boeing
receive in terms of securing additional orders from China could well be
undermined longer-term. The resultant technology transfers and lower
labor costs will almost certainly give Beijing a quantum leap toward
competing directly and ultimately displacing both companies. Given the
merger with McDonnell Douglas, Boeing will continue its march toward
effectively becoming a branch of the U.S. Department of Defense, as its
civilian market share crashes, but Airbus doesn’t really have the luxury
of a military alternative, given the relative paucity of European
defense expenditures.

As if Boeing needed any further problems, the 737 fiasco represents the
latest in a series of setbacks for the company. Boeing’s 737 global
recall, coming on the heels of the initial launch problems of the 787
Dreamliner some six years ago (where the "demoduralization" of
production meant that Boeing "could not fully account for stress
transmission and loading at the system level," as Gary Pisano and Willy
Shih write), together illustrate the dangers of spreading manufacturing
too far across the globe: Engineers, notes CUNY fellow Jon Rynn, "need
to ‘kick the tires’ of the new production processes they design. So
while a market may be global, production and the growth of production
take place most efficiently" in relatively close geographic quarters.

American companies such as Boeing consistently underestimate the value
of closely integrating R&D and manufacturing, while underplaying the
risks of separating them (as recent events have demonstrated again to
the company’s cost). By deciding to expand its A330 production in China,
Airbus looks poised to repeat Boeing’s error, a potential miscalculation
that most European Union companies have hitherto largely avoided,
because the EU has prioritized domestic manufacturing/discouraged
offshoring more than its U.S. counterparts (in regard to the loss of
U.S. manufacturing jobs attributable to China, the American Economic
Review paper by Justin R. Pierce and Peter K. Schott specifically notes
that there was "no similar reaction in the European Union, where policy
did not change").

Beijing itself has historically balanced its purchases from both major
civil aviation manufacturers to ensure that it does not rely too heavily
on one aircraft supplier, which means that Airbus will likely benefit
from the void created by the 737 recall. All the more reason why the
European conglomerate should be wary of following the pied piper-like
expansion into China. (The 737 recall also complicates resolution of the
U.S.-China trade conflict, which had appeared closer to resolution in
light of Beijing’s proposal to buy an additional $1.2tn in U.S. exports
over six years. Boeing aircraft purchases featured heavily on Beijing’s
shopping list.)

But the longer-term challenges relate to China’s economic development
path and its corresponding move up the high-tech curve, which have
largely been characterized by mercantilist policies of protection and
heavy government subsidy. In this regard, the Chinese state has followed
a national development strategy first outlined in the mid-19th century
by the German economist Friedrich List, who argued that the national
government should play a crucial role in promoting, guiding, and
regulating the process of national economic advancement.

Protectionism, List argued, should play a role here as well during the
country’s "catch up" phase of technological development. List wrote the
analysis against a historic backdrop where Germany was beginning to
challenge the dominant economic power of its time, the United Kingdom.
So the defenders of Beijing might well point to his work to show that
there is nothing new about using the state as a principal instrument to
accelerate economic development and innovation.

However, List was analyzing two capitalist economies operating within
the context of a 19th-century gold standard global financial system,
which invariably circumscribed the scope of state involvement (the
finite availability of gold reserves limiting fiscal policy options). By
contrast, today the global economy operates under a fiat currency
system, and what therefore distinguishes China’s economic domestic
development from its 19th century predecessors is the sheer scale of
fiscal resources it can deploy in the furtherance of its economic (and
military) objectives. Some of these objectives might not be so benign to
the West longer-term.

Which points to another consideration for the West: for all of its
supposed embrace of capitalism, China is still primarily a
state-dominated economy, which eschews the disciplines of a free market
economy. This means it has the capacity (and ideological predisposition)
to use the national fiscal policy as a loss leader, absorbing losses
well beyond what would be tolerated in an economy dominated by private
enterprise (private companies, of course, can go bust). Beijing
underwrites its designated national champions by relying on a
combination of subsidies (some disguised, as they flow through
state-backed investment funds and the financial sectors) and "Buy China"
preferences to develop Chinese products, even though these policies are
contrary to the rules of WTO membership, which China eagerly joined in
2001. As the economist Brad Setser argues, "various parts of the Chinese
state compete, absorb losses, and then consolidat[e] around the
successful firms. Other countries… [might] worry about the [scale of the
cumulative] losses," notes Setser, but not the Chinese government, which
simply socializes the losses at the national level, and writes them off.

In this regard, Boeing and Airbus would do well to consider China’s
experience in the solar industry. Designating this as another strategic
sector for growth in the 1990s, Chinese solar companies, with the
explicit backstop of the state, ultimately raised enough funding via
debt to build sufficient solar capacity for the world three times over.
The overinvestment ultimately killed the cash flows of major Western
competitors and knocked them out of the business, leaving the market
free for China to dominate. Commenting on the trend, Scientific American
highlighted that "between 2008 and 2013, China’s fledgling
solar-electric panel industry dropped world prices by 80 percent, a
stunning achievement in a fiercely competitive high-tech market. China
had leapfrogged from nursing a tiny, rural-oriented solar program in the
1990s to become the globe’s leader in what may soon be the world’s
largest renewable energy source."

Here was a classic case of state-guided/supported commercial companies
receiving benefits that went far beyond anything in, say, Korea or
Taiwan, or even Japan in the earlier part of their development. Now this
trend is manifesting itself across the entire spectrum of the Chinese
guided economy, including agricultural equipment, industrial machinery,
telecommunications, AI, computer chips, and civil aviation. In another
disturbing parallel that Boeing and Airbus would do well to consider,
"[t]he timeline of China’s rise began in the late 1990s when Germany,
overwhelmed by the domestic response to a government incentive program
to promote rooftop solar panels, provided the capital, technology and
experts to lure China into making solar panels to meet the German
demand," according to Scientific American. Much like the German solar
companies, which shipped valuable manufacturing and technological
expertise to China, to sustain demand, Boeing and Airbus could well be
signing their economic death warrants by agreeing to offshore increasing
amounts of production in China to sustain their global market shares
(aided and abetted by their more market-oriented governments, which
frown on the idea of national industrial policy).

The same thing is happening in wind power in China, which is expected to
see offshore wind capacity grow from 2 gigawatts last year to 31
gigawatts in the next decade. China’s expansion here has already forced
Siemens and Gamesa to merge to cope with the rising competitive
challenge. As far as aviation itself goes, Setser makes the point that
"China may cut into the United States’ future exports by building its
own competitor to the 737 and also cut into Europe’s future exports if
Airbus decides to build the A330 in China and China buys ‘Made in China’
Rolls-Royce engines for the C929 and the A330." Even if this allows the
duopoly to maintain its dominance in global civil aviation, it is hard
to see how shifting manufacturing production of aircraft components to
China to get orders constitutes a "win" for the U.S. or European workers
who are already being displaced. And Boeing’s weak-kneed response to the
737 crisis will likely exacerbate the company’s problems going forward.

The bottom line is that both Western governments and Western
corporations have persistently underestimated the power of China’s
economic development model, and the corresponding economic threat that
it poses to the West’s own affluence. The usual criticism leveled
against the Chinese growth model is that a country that subsidizes its
industries ends up with inefficient industries, because heavily
protected local firms are shielded from global competition, ultimately
leaving the country that resorts to protectionism with inferior
products. The idea of national champions, built up via state dirigisme,
according to classic liberal economic doctrine, ultimately ensures that
economic efficiency and commercial considerations get squeezed out.
Rent-seeking and corruption become institutionalized, goes the argument,
so these national champions ultimately will not be able to compete in
the global marketplace. That was certainly the assumption of Milton
Friedman, who called the Chinese Communist Party’s state-driven strategy
"an open invitation to corruption and inefficiency." By contrast,
according to Defense and the National Interest, the governing
assumptions of capitalist economies is that "[t]he discipline of the
‘marketplace,’" not the state, is better suited to choose winners and
knock out losers "who cannot offer the prices or quality or features of
their competitors."

China represents the ultimate repudiation of these seemingly ironclad
economic laws. The country’s success has come across a slew of
industries: clean tech, notably wind and solar power, internet companies
(despite overwhelming censorship, China has corporate behemoths, such as
Alibaba, or Baidu, which rival Google in scale and scope), and more
recently, in the telecommunications sector (where Huawei has clearly
benefited from "Buy China" preferences created by the state via its
state-owned telecommunications enterprises and now is considered to be
the global leader in 5G telephony). In practice, therefore, there is no
reason why the same model cannot work with regard to civil aviation even
as Airbus and Boeing eagerly provide the rope with which they may hang
their respective companies in the future.

(4) Economist: Why Boeing’s shares have not fallen further after the 737
MAX crashes

https://www.economist.com/gulliver/2019/04/07/why-boeings-shares-have-not-fallen-further-after-the-737-max-crashes

Still flying Why Boeing’s shares have not fallen further after the 737
MAX crashes Investors and analysts like the dividends and share
buybacks. They may be underestimating the risks

by C. R.  {Gulliver?}

Apr 7th 2019

BOEING, AN aerospace giant, has been a darling of the American
stockmarket. Over the past three years its share price has tripled. In
2017 it was America’s best-performing industrial stock. In 2018 it was
the eighth-best. But the crash of a Boeing 737 MAX jetliner in Ethiopia
on March 10th—the second crash of this model in just five months—led to
the grounding of the aircraft type around the world and wiped nearly a
tenth, or around $25bn, off Boeing’s stockmarket capitalisation.

In the past few days the news from Boeing has been getting worse. On
April 4th Ethiopia’s transport ministry published a preliminary report
from its crash investigators. They said that the pilots followed the
procedures recommended by Boeing to prevent the plane from crashing.
They suggested the plane’s flight-control system was to blame for the
crash, not its crew. This system, including software to ensure the plane
does not stall—called the Manoeuvring Characteristics Augmentation
System or MCAS—was also seen by Indonesian investigators as contributing
to the crash of a Lion Air 737 MAX last October.

Later the same day Boeing’s chief executive, Dennis Muilenburg, admitted
for the first time that its software played a role in the crashes and
repeated that "we at Boeing are sorry for the lives lost in the recent
737 accidents". Then it emerged that the software fix Boeing had said
would be available last week to allow the planes to take to the air
again would be delayed, due to the discovery of a second problem
unrelated to the crashes. Some commentators predicted that it may now
take many months to fix the planes and get them flying again.

It would be easy to imagine that all this bad news would weigh heavily
on Boeing’s share price. In fact it has risen about 2% over the course
of the past week. According to Reuters, a news agency, 20 out of 25
analysts who took part in a survey still give the stock a positive "buy"
and "outperform" ratings. In part this is because Boeing is seen as "too
big to fail", because of the reliance of America’s Department of Defence
on its military aircraft. The 737 programme generates a third of
Boeing’s revenues and up to half of its overall profits, according to
Andrew Gollan of Berenberg Bank. But some analysts, such as Carter
Copeland of Melius Research, think the total financial damage could be
as little as $1bn, in which case Boeing’s share price may have fallen
too far.

Marc Szepan, a former executive at Lufthansa, now at Oxford University,
argues that the company’s executives and its analysts are
underestimating the financial risk posed by the crashes. First, airlines
have begun to refuse deliveries of new 737 MAX so long as it is
grounded. As Boeing gets paid for each one on delivery, this hurts its
revenues. And it emerged on April 5th that, as Boeing runs out of space
to store all the unwanted planes coming off its assembly lines, the
company is planning to slash production rates from 52 a month to 42,
instead of increasing it to 57 later this year as originally planned.
This suggests that Boeing’s executives think a return to
business-as-normal could take longer than they are currently letting on.

But that is not all. Boeing has begun to be hit by lawsuits from the
relatives of people who died on the two flights. If the cases turn into
a class-action suit, the company could end up on the hook for billions
of dollars in punitive damages. Mr Muilenburg’s admission that its
software is connected to the crashes is unlikely to help its defence
case. And it could be forced to pay compensation to existing users of
737 MAX jets for loss of earnings for the time they are grounded. TUI, a
European tour operator, estimates that the grounding could cost it €300m
($337m) if flights on its fleet of 15 737 MAXs do not resume by the end
of the summer.

The attraction of Boeing’s shares to many investors is less the result
of a careful assessment of the risks associated with the company, and
more of its policy of giving away 95% of the cash generated from
operations in dividends and share buybacks. "That’s all Wall Street
analysts care about," warns Scott Hamilton of Leeham Company, a
consultancy. One investment app favoured by many younger and less
sophisticated investors has said that their clients have been piling
into the stock since the crash.

But a prolonged grounding of the 737 MAX is likely to slash the amount
of cash the company generates, the very thing that has made its shares
so attractive to investors in recent years. For the share price, as for
the plane itself, the troubles may be far from over.

(5) Sensors linked to Boeing 737 crashes vulnerable to Failure; hit by
birds & airport equipment
https://www.bloomberg.com/news/articles/2019-04-11/sensors-linked-to-737-crashes-vulnerable-to-failure-data-show

Sensors Linked to Boeing 737 Crashes Vulnerable to Failure

Angle-of-attack devices hit by birds, airport equipment

Review of public databases reveal at least 140 incidents

By Alan Levin and Ryan Beene 11 April 2019, 12:36 pm AEST

The crashes of two Boeing Co. 737 Max jets in five months have focused
attention on a little-known device that malfunctioned, starting a chain
reaction that sent the planes into deadly dives.

Pilots have for decades relied on the weather-vane-like "angle of
attack" sensors to warn them when they near a dangerous aerodynamic
stall. But investigators are probing Boeing’s decision to enable the
sensors on the Max model to go beyond warning pilots and automatically
force the plane’s nose down.

A review of public databases by Bloomberg News reveals the potential
hazards of relying on the devices, which are mounted on the fuselage
near the plane’s nose and are vulnerable to damage. There are at least
140 instances since the early 1990s of sensors on U.S. planes being
damaged by jetways and other equipment on the ground or hitting birds in
flight.

In at least 25 cases in the U.S., Canada and Europe, the damage
triggered cockpit alerts or emergencies.

On April 1, 2012, a United Airlines 767-300 was taking off from San
Francisco when it struck a flock of western sandpipers, according to a
Federal Aviation Administration database. The birds damaged the left
sensor, scrambling the speed readings and auto throttle. The plane
returned to the airport.

A Republic Airlines Inc. flight was struck by a tundra swan as it neared
arrival into Newark, New Jersey, on Dec. 5, 2016, according to the FAA.
It damaged the angle-of-attack sensor and other equipment on the Embraer
SA EMB-170, rendering unreliable airspeed and altitude readings on the
regional jet. It landed safely.

Before the 737 Max crashes, the most recent accident involving the
sensors occurred when an Airbus SE A320 on a 2008 demonstration flight
went down off the coast of France killing all seven people aboard.
Moisture inside two of the plane’s three angle-of-attack vanes froze,
confusing the aircraft’s automation system, according to France’s Office
of Investigations and Analysis. The report also faulted the pilots for
multiple errors.

Examining such previous episodes is all the more important because of
Boeing’s decision to use a single sensor as the trigger for the
anti-stall mechanism on the Max known as MCAS, or Maneuvering
Characteristics Augmentation System.

"With that many pilot reports and with the unknowns that we’re dealing
with in these two accidents, that’s an important area to be
investigated," said James Hall, the former chairman of the U.S. National
Transportation Safety Board.

The FAA was aware of previous angle-of-attack failures and considers
such incidents when it evaluates aircraft designs for certification, the
agency said in a statement.

"As part of the FAA’s oversight of the continuous operational safety of
our nation’s aviation safety system, the agency continues to monitor,
gather and evaluate all available information and data regarding the
performance of aircraft and related components," the agency said.

The 737 Max, Boeing’s best-selling plane, has been grounded worldwide
since last month. The Chicago-based aircraft maker is redesigning the
software so MCAS won’t react to a single sensor reading and can be more
easily overcome by the pilot, among other things.

The company didn’t respond to questions about how it took such incidents
into account while designing MCAS. The company believed the sensors were
highly reliable and that pilots could handle the MCAS in an emergency so
Boeing built less redundancy into it, it said in a statement.

"In designing flight control and other airplane systems, our industry
follows a set of established and accepted assumptions and processes,"
the company said. "The design and certification of the MCAS flight
control law adhered to these processes and assumptions."

In the Oct. 29 crash of a Lion Air 737 Max off the coast of Indonesia, a
malfunctioning angle-of-attack sensor that had just been installed sent
erroneous signals indicating the plane’s nose was pointed too high
relative to the oncoming air. That prompted MCAS to push the nose down
more than 20 times until pilots lost control and it plunged into the
Java Sea, killing all 189 people aboard.

On March 10, the same safety system on a 737 Max operated by Ethiopian
Airlines was activated after an angle-of-attack sensor on the jet failed
suddenly at liftoff. After about six minutes in which MCAS pushed the
nose down several times, the plane went into a steep dive and crashed at
high speed with 157 passengers and crew.

In both accidents, there were steps pilots could have taken to avert a
crash, but they failed to do so, according to preliminary reports. One
possible reason was that the erroneous angle-of-attack readings
triggered numerous alerts and warnings that may have have been
distracting. Boeing Reprograms 737 System Linked to Crashes

A software update will prevent a single sensor from activating the
Maneuvering Characteristics Augmentation System. The data from both
sensors will be considered.

Sources: Boeing, Mentourpilot

The stall warning set off a "stick shaker" in which the control column
shakes violently and produces a loud noise to get the pilot’s attention.
The pilots also began receiving erroneous airspeed and altitude
readings, according to the preliminary crash reports.

"This is a breeding ground for confusion," said John Cox, president of
consulting company Safety Operating Systems who participated in dozens
of airline accident investigation as a pilot union representative. "They
are task saturated. When you get task saturated, your ability to problem
solve drops by about fifty percent."

The reason a single sensor failure can cause so many problems is its
data feeds multiple systems on the plane, said Peter Lemme, a former
Boeing engineer who worked on other aircraft models.

Overall, the sensors have high reliability and there are few examples of
them causing crashes. The number of angle-of-attack failures in public
databases are relatively small compared to the hundreds of millions of
airline flights in recent decades. Nevertheless, they offer a window
into how extensive an emergency such a failure can create.

"I don’t think it’s commonly known that there have been that many
documented events involving a loss of AOA indicator in flight associated
with stick shaker and air data anomalies," said Jeffrey Guzzetti, the
former director of the FAA’s Accident Investigation Division.

While investigators haven’t identified why the Ethiopian Airlines plane
suddenly suffered a sensor failure just as it left the ground, that
pattern, revealed in the flight recorders recovered from the wreckage,
could be explained by a bird strike. FAA Database

The FAA’s database of bird-plane encounters, as well as accident reports
in the U.S. and other nations, contain dozens of such episodes.

On May 28, 2016, for example, a Cargolux Airlines International SA
747-400 was taking off in Calgary, Canada, when pilots heard a loud bang
followed by a stall warning. After landing, mechanics found the right
sensor was missing and saw evidence it had been hit by a bird, according
to the Transportation Safety Board of Canada.

A NASA-operated repository of anonymous pilot reports, called the
Aviation Safety Reporting System, contained similar instances in which
sensors were damaged by birds, airport jetways or undetermined causes.
Regretted Flight

One March 2016 incident closely resembled the recent crashes, except
that the plane, an earlier 737-800 model, wasn’t equipped with MCAS and
the pilots maintained control.

As soon as the plane got airborne, the captain, seated on the left side,
got the loud thumping noise and vibrating control column warning that
the plane was about to stall, according to the NASA report. The
captain’s airspeed and altitude displays disagreed with the copilot’s,
indicating an error and setting off additional alerts. All of those
symptoms occurred on the two recent Max crashes.

The pilots opted to continue onto their destination in spite of the
multiple failures. Both the captain and the copilot said that they
regretted continuing the flight and didn’t realize that they had
violated their airline’s procedures by disabling the stall warning.

"A return, while considered, should have been accomplished," said the
captain.

Only after they landed did they realize that the captain’s
angle-of-attack vane was bent for unknown reasons.

— With assistance by Julie Johnsson, and Todd Shields.

(6) Outsourcing is killing Boeing - Eamonn Fingleton (2005)
https://apjjf.org/-Eamonn-Fingleton/1769/article.html
Boeing, Boeing Gone
How an American titan clipped its own wings
By Eamonn Fingleton
Eamonn Fingleton is the author of Unsustainable: How Economic Dogma is
Destroying American Prosperity.
Asia-Pacific Journal
April 27, 2005
Volume 3 | Issue 4
ONE EVENING A GENERATION AGO, several up-and-coming aerospace executives
gathered to commune with the Boeing aircraft company’s chief executive,
Thornton Wilson. The discussion turned to Boeing’s vaunted expertise in
making aircraft wings. Wilson evidently came across as boastful—so much
so that a young General Electric executive named Harry Stonecipher
suggested that Boeing was arrogant. "And rightly so," came Wilson’s
serene reply.
The exchange, which was recorded in Fortune magazine a few years ago, is
worth recalling partly for what has happened to Stonecipher in the
meantime—and partly for what has happened to Boeing.
In a remarkable twist of fate, Stonecipher now fills Wilson’s old job at
Boeing. But whereas the Boeing that Wilson led in the 1970s utterly
dominated the skies, today’s Boeing is another matter. Its once
masterful technological leadership is gone and, in an orgy of
indiscriminate outsourcing, Stonecipher is presiding over the
destruction of what remains of Boeing’s erstwhile manufacturing
greatness—not least the world-beating wing business that was the apple
of Wilson’s eye.
As the American press has latterly come to realize, Boeing is an
embattled company. But while the media has focused on a defense
contracting scandal that has recently engulfed the company, this is a
tempest in a teacup compared to the real story: the unpublicized tragedy
of Boeing’s declining competitiveness. After decades of shortsighted
management, Boeing has become so hollowed out that the impact is clearly
visible in America’s rapidly worsening trade deficits. Indeed, respected
experts fear Boeing is already so enfeebled that it may be forced to
exit its core business in commercial airliners within a decade. This in
turn would undermine its defense business, with distinctly ominous
implications for America’s longterm security. Just how important that
business is can be judged from the fact that, after decades of industry
consolidation, the Boeing group now subsumes most of the contractors
that executed the Apollo moon project.
Part of the problem is that Airbus, a puny also-ran in Wilson’s time,
has recently leapfrogged to global leadership in airliner sales. But a
larger part is a sea change in Boeing’s concept of itself. In a
philosophical metamorphosis whose significance has been lost on the
American press, Boeing is now pleased to call itself a "systems
integrator." An unfortunate echo of the New Economy bubble, this
self-description effectively reduces America’s most Olympian
manufacturer to the level of a thousand catch-as-catch-can soft
  ware consultancies. Boeing’s top management has presided over one of
the most lamentable downsizing programs in American corporate history.
Not only has the Boeing group cut 77,000 jobs in the last seven years,
but it has euthanized its research and development department—all this
while spending $10 billion to "enhance shareholder value" in a buy-back
of one-sixth of its outstanding stock.
The key to the new Boeing is a Faustian bargain with Japan. In a rerun
of earlier American industrial implosions, Boeing has come to rely more
and more on Japanese contractors for its most advanced engineering and
manufacturing. Heavily subsidized by the Tokyo government, Boeing’s
Japanese partners are delighted to lowball their contract prices and
spend heavily on the sort of advanced research and development that in
happier times Boeing would have eagerly—indeed jealously—reserved for
itself.
All this powerfully props up Boeing’s short-term profits. But what’s in
it for Japan? Plenty. Not only have Boeing’s orders long kept Japanese
factories nicely ticking, but recently, in a stunning move that has
hitherto gone virtually unnoticed in the United States, Tokyo has
prevailed on Boeing to transfer large quantities of previously secret
American aerospace know-how to a govemment-funded Japanese aerospace
consortium. Adding salt to the American economy’s wounds is that much of
this expertise was built with help from U.S. taxpayers.
In effect, Boeing is burning the family heirlooms to keep the house
warm. First into the fire went some throwaway items from the attic,
quickly followed by the Empire chaise and the Chippendale chairs. Now if
labor union officials are to be believed, Boeing is torching the
Vermeers and Canalettos, despite the fact that many of these are held in
trust for an absent relative—an agreeable bag- holder by the name of
Uncle Sam.
Boeing’s deeply embittered engineers prefer an even more
controversial—if distinctly vulgar—metaphor. Outraged at the prone
position they have been asked to adopt towards their
information-gathering Japanese counterparts, they have been quoted by
author Karl Sabbagh as referring to Boeing’s technology-transfer deal
with Japan as the "open kimono" policy. The erstwhile titan of the
American aerospace industry is, of course, the one in the kimono.
Just how far Boeing has fallen will be extensively documented later this
year when the aerospace experts David Pritchard and Alan MacPherson
publish a scholarly analysis of Boeing’s "systems integration" policy.
Their paper, which is being reviewed for publication by the UK-based
journal R&D Management, is likely to cause a firestorm in Washington.
Here, based on an advance look at the draft, are some of their findings:
o More of the 7E7, Boeing’s major new plane due for launch in 2008, will
probably be built in Japan than in the United States.
o In total, nearly 70 percent of the 7E7’s manufacturing content will
come from foreign sources. This compares with foreign content of just 2
percent in the Boeing 727, which was launched in the 1960s.
  o The Boeing 777—the most advanced Boeing so far launched—contains
about 30 percent foreign content. There is no domestic production for
the plane’s center wing box or its aft and forward fuselage sections.
o Boeing’s product line is rapidly aging and its backlogs are low—a
signal that further precipitous drops in output are ahead. Production on
four of its six commercial product lines (the 747, the 757, the 767, and
the 717) is likely to cease within the next few years. This would leave
only the 737 and 777 in production until the 7E7 comes on line.
o Boeing spent a mere 3.5 percent of its revenues on research and
development in 2003. By comparison, Airbus spent 9.5 percent. Boeing
allocated only 1 percent of its 2003 revenues to capital investment,
compared to Airbus’s 9.1 percent.
o Boeing’s technology transfers to Japan include vital new-materials
know-how acquired in long-running joint research programs with NASA. The
materials concerned are composites used in both wings and fuselage.
o Boeing has become so hollowed out that its sales should no longer
qualify for lucrative federal export incentives such as Ex-Im Bank loans
and foreign sales corporation tax status.
As Pritchard and MacPherson point out, a particularly telling indicator
of Boeing’s decline is that the Japanese will make most of the wings for
the 7E7. Not only that, Boeing seems set to transfer wing-making
know-how to a Japanese- govemment-sponsored consortium.
In outsourcing the 7E7’s wings, Boeing is crossing an economic Rubicon.
Apart from the Boeing 717, which was not a true-born Boeing, no Boeing
plane has ever flown on foreign wings.
  (The 717 is a souped-up DC9, and its presence in the Boeing catalog
reflects Boeing’s takeover of McDonnell Douglas in 1997. McDonnell
Douglas, it should be added, pioneered many of the eat-the-seed-corn
tactics Boeing has now embraced.)
In the past, Boeing always maintained a tight grip on the wing-making
process. Whereas in the 1980s and 1990s it let Japan make an increasing
array of wing subcomponents, these were merely assorted "widgets"
churned out to Boeing designs. Now a Japanese aerospace consortium will
have design control and will make its own decisions about which
contractors and subcontractors make the myriad widgets. If past is
prologue, Boeing will never again regain control of wing-making. For one
thing, the Japanese suppliers will have the advantage henceforth of more
modem tools and a generally more advanced understanding of the technology.
It is hard to exaggerate the significance of all this. As was obvious to
Thornton Wilson all those years ago, Boeing’s erstwhile global dominance
in jet planes was founded on its wingmaking secrets. Indeed, when
Japanese contractors began to take on an increasingly important role in
making aircraft components in the 1980s, Boeing instituted elaborate
procedures to control the movements of visiting Japanese engineers at
its offices and factories. As Louis Uchitelle of the New York Times
recorded in 1989, Boeing’s prime concern was to hide its wing-making
secrets from industrial spies.
In truth, the challenges entailed in designing and making wings for
large passenger jets are far more daunting than lay observers might
imagine. The challenge is to make the final design both strong and
light, a delicate balancing act that is not made any easier by a further
requirement: everything must be machined to tolerances measured in
thousandths of an inch. The slightest dimensional error can produce
disproportionate aeronautical consequences. Just how disproportionate
can be gauged from a well-known law of aeronautics: air resistance
increases with the square of an object’s speed. Thus the resistance
encountered at 500 miles per hour is fully 100 times greater than at 50
miles per hour.
It is therefore hardly overstating things to say that the wings are to a
plane what the sound box is to a violin— its defining feature. Just as a
violin is not a Stradivarius without a sound box made in Cremona by
Antonio Stradivari, a plane can hardly be considered a Boeing without
wings made in the United States by the Boeing company.
Perhaps the best indicator of the challenges involved in making wings
for large passenger jets is that, apart from the United States, only one
nation, Britain, boasts a serious record in the field. British
Aerospace’s wing-making capability is one of Britain’s few remaining
world-class manufacturing businesses. Its technology, in turn, has been
a key driver of the success of Airbus, which is backed by the
governments of France, Germany, Spain, and, of course, Britain.
Wing-making is one of the most advanced sub-sectors of one of the
world’s most advanced manufacturing industries. But since the United
States has been in general retreat from advanced manufacturing for three
decades, why should we care what happens to what remains of America’s
manufacturing heritage? Manufacturing matters for three key reasons:
1. Manufacturing jobs generally provide better wages than equivalent
service jobs because worker productivity is generally leveraged by more
capital and more proprietary knowhow.
  2. Manufacturing provides an abundance of jobs for people of ordinary
ability as opposed to the Ph.D. types who get many of the jobs at, say,
Microsoft. It thus closely matches the job-creation needs of society.
3. Manufacturing companies are big exporters. In my book, In Praise of
Hard Industries, I calculated that per unit of output American
manufacturing businesses export about eleven times as much as service
businesses.
Few manufacturing businesses score better on these three criteria than
the airliner industry. Even if it were not so closely intertwined with
America’s national defense, the industry would still be of pivotal
geopolitical importance. The point is that it has long been America’s
biggest export earner. Unfortunately, America’s imports of aircraft and
aircraft parts now equal 45 percent of its exports, up from just 5
percent in the 1960s.
Boeing’s resort to outsourcing explains much of the increase—and it
comes at a time when Americans are rediscovering the importance of
trade. For a while in the 1990s, it became fashionable to say that "the
trade deficits don’t matter" and that the U.S. could with impunity allow
its export industries to die on the vine, but this is now becoming
widely recognized as a self-serving canard of the foreign-trade lobby.
Certainly the Bush administration can hardly feel secure in the
knowledge that the only thing standing between the dollar and total
collapse is a massive support operation by the Japanese and Chinese.
As Jack Davis, a prominent advocate of an American manufacturing
revival, points out, the ramifications of Boeing’s decline extend beyond
aerospace. "We’re not just losing the airliner industry, but all the
scientific, engineering and technological know-how that goes with it,"
says Davis. "We are talking here about advanced composites, glass,
aluminum, titanium materials technology, the castings and foundry
industries, precision tooling and machining, not to mention avionics.
And since these technologies are used in jet fighters, bombers, tankers
and space vehicles, we’re hitting the defense industry as well as the
commercial aerospace industry."
The most devastating aspect of Boeing’s implosion is what it says about
America’s overall economic strategy. A principal element of that
strategy has been free trade. And for proponents of free trade, Boeing
has long been Exhibit A—supposedly unimpeachable evidence that advanced
American manufacturers have little to fear and much to gain from the
globalists’ New World Order.
When some of us in the 1980s and 1990s warned that "one-way free trade"
was gutting American manufacturing, we were dismissed as Chicken
Littles. American manufacturing was not declining, we were told, but
rather triumphantly reinventing itself. Free trade might sweep away
inefficient, low-tech manufacturers—"buggy-whip makers" in our
opponents’ favored terminology—but America was going from strength to
strength in more advanced industries such as aerospace. And true enough,
all through the 1980s when the alleged buggy-whip makers—companies like
Zenith, Xerox, and Chrysler— fell like ninepins before foreign
competition, Boeing seemed like a gratifying exception—to anyone who did
not look too closely. As late as 1990, Newsweek described concern about
Japan’s targeting of various aerospace technologies as "overwrought" and
opined that America enjoyed "a lead over Japan that would be difficult
to squander."
Of course, as far as Boeing is concerned there is no problem. It paints
its downsizing not only as inevitable but as a good thing. Unfortunately
its excuses are, for the most part, transparent nonsense.
Start with the notion that it is now a "systems integrator." To those
who can’t see through business jargon, a "systems integrator" may sound
more impressive than a mere manufacturer. In reality, it is a cop-out,
as a glance at some of the industry’s other systems integrators makes
clear. Embraer of Brazil is a systems integrator. So is Aviation
Industries of China. Like the new Boeing, these companies lack the
advanced knowhow and machinery to make key components in a modem
first-world plane. Instead they must import such components from more
advanced manufacturers in Japan and Europe.
Boeing’s outsourcing is often excused as merely reflecting a desire to
have routine, low-skilled work done cheaply in low-wage countries. This
might make sense if Boeing were moving jobs mainly to India or
Bangladesh. In reality, an estimated 50 percent of Boeing’s for-
eign-sourced work is done in Japan. While in the 1970s and 1980s
companies like Zenith and Xerox had some excuse for going to Japan, any
shift of American work to Japan now seems like an admission of
managerial failure. Measured against the dollar, the yen today stands at
more than two-and-a-half times its level of 1985. Once a cheap-labor
country, Japan today ranks virtually at the top of the world wages table
with wage rates between 10 and 30 percent higher than in the United
States. Boeing’s decision to buy more and more from Japan is therefore
the economic equivalent of water running uphill.
The plot thickens when you realize that foreign outsourcing has not
always been a factor in the American aircraft industry. In fact, in the
1950s, the heyday of America’s domination of the skies, American planes
were made virtually in their entirety with American labor, despite the
fact that American wages were then six times those in Japan and four
times those in Germany.
Boeing’s first experiment with foreign contracting came in the 1970s
when, in a quid pro quo for plane purchases by a government-owned
Japanese airline, Boeing undertook to buy some Japanese-made components.
Similar side deals—known as "offsets"—were soon concluded with other
industrially ambitious nations.
Although the early offset deals were small, they proved to be the thin
end of a rather thick wedge. By the 1980s, the Japanese alone were
making 15 percent of the Boeing 767, and that is modest compared to the
plans for the 7E7. Japanese manufacturers are officially expected to
make 35 percent of the plane, but unofficial estimates put their share
far higher because in addition to delivering huge fully assembled
sections, the Japanese will supply many of the subcomponents needed by
Boeing’s American and Italian suppliers. An exact calculation is
impossible because an undisclosed proportion of the work will be
conducted abroad by Boeing itself (in Boeing-owned factories in Canada
and Australia), but Pritchard and MacPherson are probably erring on the
low side in suggesting that 70 percent of the new plane will be
manufactured outside the United States. While the final assembly work
will be done in Seattle, the choice of this location was a token gesture
aimed at capturing state tax breaks and cannot cover up the fact that
the most sophisticated passenger jet ever built will probably be more a
Japanese product than an American one.
The earliest negative impact of the offset system was felt as far back
as the 1970s, when Boeing’s once flourishing roster of American
suppliers began to lose orders. One by one such component makers as
Avco, Convair, Douglas, Fairchild, Grumman, Lockheed Martin, Northrop,
and Rockwell have since been forced to exit the passenger jet business
or have even had to shut down entirely. The roster was down to just two
as of 2003, compared to ten in the 1970s.
Boeing argues that large offsets have often been essential in capturing
lucrative export orders over the years. But this is contradicted by
Airbus’s record. While consistently stonewalling the more damaging
requests for offsets, Airbus has nonetheless thrived. As Pritchard and
MacPherson point out, Airbus has generally sourced components for each
new model initially from within Europe. Only at a later stage in the
cycle does it contemplate sourcing from non-European suppliers. By that
time, Airbus’s European suppliers will have moved on to more advanced
work on newer Airbus models.
To be sure, in resisting offset requests, Airbus has enjoyed powerful
support from European governments. Rather than countenance the transfer
abroad of advanced manufacturing jobs, Airbus’s government backers have
often dangled landing rights at key European airports. They have also
used geopolitics to their advantage, particularly in the Middle East,
where they capitalize on anti- American feeling.
As for Boeing, although it cannot copy Airbus’s tactics in detail, it
has often wasted the considerable geopolitical leverage it enjoys. Take
the Japanese market, which happens to be the world’s second largest.
Boeing has rarely needed to give away jobs to secure orders from Japan.
Quite the contrary, Japan has been more or less a captive market. After
all, as the Atlantic’s James Fallows has pointed out, U.S.-Japan trade
imbalances have long been so large that Tokyo has felt obligated to find
ways to boost its purchases of American goods. In the absence of
compelling technical reasons to buy European, therefore, Japan’s highly
regulated airlines surely had little choice but to buy American. After
all, by dint of scale economies, Boeing enjoyed a commercial edge over
Airbus well into the 1990s. Certainly, while the transfer of jobs to
secure orders has been merely lamentable, the transfer of advanced
technology has been utterly inexcusable. Given that Boeing was safe from
undercutting by Airbus, it could easily have resisted the more
outrageous technology requests, particularly those from Japan.
What is undeniable is that Airbus’s refusal to sacrifice jobs and
technology has done little to hold it back. Airbus passed Boeing in
deliveries of new passenger jets in 2003. Part of the story is an
enormous advance by Airbus and part of it is a sales implosion at
Boeing. With the help of subsidies from European governments, Airbus’s
deliveries of completed aircraft increased from fewer than 100 in 1990
to more than 300 in 2003. By comparison, Boeing’s deliveries slumped
from more than 520 planes in 1990 to fewer than 290 in 2003.
All this is a far ciy from the 1980s, when the combined share of Boeing
and McDonnell Douglas sometimes accounted for close to 90 percent of all
orders, leaving a Lilliputian Airbus with a few remaining crumbs.
Perhaps the most telling indicator of the scale of Boeing’s fall is
that, at the time of Boeing’s takeover of McDonnell Douglas in 1997, the
two companies together accounted for 77 percent of all planes then in
service.
  Even before the decision to outsource the 7E7 wing work was announced,
there had been hints that Boeing’s top executives were rapidly tiring of
the passenger-jet business. Certainly they have given every sign of
preferring to develop service businesses, notably a new
telecommunications subsidiary named Connexion by Boeing. Following in
the footsteps of General Electric, General Motors, IBM, and other
erstwhile American industrial icons that have dramatically downsized
their manufacturing workforces in recent years, Boeing has also been
developing a financial services subsidiary.
Top executives inevitably put a brave face on all this, professing to
see the new services as high-growth add-ons to the main manufacturing
business. Nonetheless, there are strong grounds for questioning the
long-term wisdom of Boeing’s passionate embrace of services. Experience
elsewhere suggests that such diversification is a short-term solution
that inevitably dissipates much managerial time that would be better
invested in the main business.
A further straw in the wind is that Boeing has been increasingly
emphasizing defense contracting. In 2003, for the first time in several
decades, Boeing’s defense division outsold its passenger- jet division.
While rising defense sales provide some respite for what remains of
Boeing’s beleaguered manufacturing workforce, the economic subtext is
hardly flattering. Just as patriotism is proverbially the last resort of
scoundrels, defense contracting tends to be the last resort of corporate
America’s also-rans. The point is that defense contracting is not only
generally sheltered from foreign competition, but it is often priced on
an all-forgiving cost-plus basis. This is how a faltering McDonnell
Douglas could continue as a major defense contractor long after its
passenger-jet business had imploded.
The zest for innovation has largely disappeared at Boeing. This need not
have happened. After all, when Airbus got its start in the late 1960s,
American companies utterly dominated the world aerospace industry—and
few American aerospace companies held more high cards than Boeing.
Capitalizing on a treasure trove of aeronautical secrets acquired from a
defeated Germany at the end of World War II, Boeing had led the United
States into the jet age. Thus it was that Boeing developed one of
America’s first jet-powered bombers, the B-47. Then in 1958 Boeing
launched the world’s first successful passenger jet, the Boeing 707. By
the mid- 1960s, Boeing had become the leading maker of passenger
planes—from which position it proceeded to bet the company on the 747
jumbo. Launched in 1969, the 747 nearly bankrupted Boeing but went on to
become a sensational commercial success. Still, the trauma of the 747’s
birth seems to have cast a permanent shadow over the company’s
previously entrepreneurial culture. The era of visionary gambles at
Boeing was over. As of the early 1990s, Airbus’s chief strategist, Adam
Brown, was openly taunting Boeing for having become "reactive." Brown is
hardly an unbiased source, but it is indisputable that Airbus has led
the industry in several notable innovations over the last three decades.
The pattern started with Airbus’s first plane, the A300. When it entered
service in 1974, the A300 was the world’s first twin-engine wide-body.
The twin-engine format slashed airline operating costs compared to the
three-engine and four- engine formats of earlier wide-body planes.
Airbus again stole a march on Boeing in 1988 when it introduced
so-called fly- by-wire. Fly-by-wire is the industry term for
computerized navigation controls, a concept pioneered in military
aircraft in the early decades after World War II. It was later installed
on the Anglo-French Concorde and, despite Concorde’s dismal commercial
failure, the technical success of the Concorde navigation system
encouraged Airbus to use it on the A320. Boeing did not follow until
1994, when it introduced a limited version of fly-by-wire on the 777.
Fly-by-wire is important partly because it is a major weight saver.
Moreover, it facilitates "interoperability." This is the industry term
for standardized controls installed across a family of aircraft—a
pilot-friendly feature that enables airlines to save millions on
training costs.
Boeing’s woes over the years were compounded by its engineers’
reluctance to move to computer-aided design. Again Airbus pioneered the
concept and reaped early efficiency gains. One lasting consequence is
that it was a French company, Dassault, that came to dominate the market
for aircraft-design software. Even Boeing now buys software from Dassault.
If anything, Boeing has become even more cautious since it took over
McDonnell Douglas, which had long been notorious for its failure to
innovate—a trait that, as Fortune magazine has commented, allowed Boeing
"to all but blow it out of the airliner business." Led by Harry
Stonecipher, many of McDonnell Douglas’s people have succeeded to top
jobs at Boeing.
Boeing has been reluctant to develop new planes. Of four new models
mooted in the last 15 years, it has killed three. Most notably, in the
wake of the Sept. 11 attacks it shelved the so-called Sonic Cruiser, a
glamorously positioned plane that would have cut the flight time from
New York to London by nearly one third.
Even more significantly, in March 2001 Boeing cancelled longstanding
plans for a superjumbo that was to have superseded the ageing 747. As a
result, Airbus, which announced in 2000 that it was going ahead with its
own superjumbo, has a clear run at establishing a highly lucrative
monopoly that looks certain to kill off the Boeing 747, for two decades
Boeing’s cash cow.
The Airbus superjumbo, to be known as the A380, will make aviation
history as the world’s first four-aisle plane. It will also be the first
full double-decker passenger jet. Carrying 555 passengers in its launch
version in 2006, it is expected in later models to carry as many as 840.
Responding via e-mail (the company declined to be interviewed), a Boeing
spokesman made light of the problems. Boeing’s research cuts, for
instance, merely reflect a cyclical low, he said. The fact is, however,
that research spending relative to total revenues is now far lower than
at a similar cyclical low in the latter half of the 1980s (and it is
running at less than half the rate of the mid-1990s). Even if spending
increases as the 7E7 project goes forward, Boeing’s share is likely to
be quite small: the point is that much of the burden will be shouldered
by foreign partners.
Boeing plays down the importance of know-how transfers to Japan and
maintains that much U.S. taxpayer-funded research being transferred is
already in the public domain. Stan Sorscher, an official of Boeing’s
main white-collar union, acknowledges that while there is some truth in
this, Boeing’s work with NASA has yielded much tacit knowledge that is
not published. Such knowledge is often where the real national economic
advantage is and its transfer represents a serious loss to the American
national interest. Because Boeing no longer sees a future in making key
parts of its planes, it no longer seems to put a high value on practical
production know-how. By contrast, for the Japanese, focused as always on
boosting their labor productivity in advanced manufacturing, such
know-how is pure gold.
  Boeing also plays down the importance of its wing deal with Japan. It
would appear that Japan’s participation will be less comprehensive than
originally indicated in 2003. But if the Japanese wing builders are
really now to play Robin to Boeing’s Batman, it is puzzling that this
has not been more widely publicized. As of late December the Seattle
Times’s well-informed aerospace correspondent Dominic Gates was still
flatly stating that the 7E7’s wings would be made in Japan.
It seems clear that nothing much has changed apart from the spin that
Boeing wants to put on the deal. Certainly changing political realities
dictate a different spin. After all, Boeing’s room for maneuver is
increasingly being constrained by the Pentagon scandal. Meanwhile, on
the Japanese side, the fact that America’s huge trade deficits are
suddenly again on Washington’s front burner will not have gone unnoticed.
That said, Boeing has a point in arguing that not all its problems are
of its own making. What is important now is not so much allocating blame
as reversing the company’s power dive. While there is plenty of room for
debate about detailed measures, it is clear that absent a changed
mindset—both at the national level and at the company level— Boeing’s
fate is sealed.
Of course, Boeing’s problems are part of a much larger syndrome of
decline in American manufacturing. If the United States wants to retain
control of its economic and political destiny, a whole litany of changes
is necessary to reverse the globalist drift of American manufacturing
policy. But at the end of the day, such changes are all moot if American
policy makers do not change their fundamental mindset. Quite simply,
laissez faire is not enough in an industry as concentrated and
geopolitically significant as aerospace.
As for America’s policy on aircraft trade, this seems doomed to failure.
It consists after all of little more than beseeching the Europeans to
stop subsidizing Airbus. In years gone by, when Airbus was much smaller
and the United States enjoyed more influence, there might have been some
hope of being heard. But that time has gone. Even if Boeing could claim
that it is without sin in the matter of taking government largesse, it
is unlikely the Europeans would listen to American pleas.
Under these circumstances, Washington needs to take a more radical
approach. On the Left, many observers advocate a wholehearted industrial
policy for the aircraft industry. But perhaps a better solution—and one
certainly more in accord with America’s capitalist tradition—is an idea
put forward by economist Pat Choate. Choate, author of Hot Property, a
forthcoming book on the theft of American intellectual property,
suggests a "sphere-of-influence" approach similar to that which applied
in the chemicals industry in the first half of the last century.
Basically, the concept is to let Airbus have the run of the European
market while Boeing would have North America. These spheres of influence
would be defined by tariffs on both sides. In third-country markets, the
two companies would be free to compete on level terms and this
discipline would provide a strong incentive for efficiency.
Given the especially open nature of American democracy, many policy
options are likely to be considered—and hotly debated. What everyone can
agree on is that it is now past time for something that hitherto has
been sorely absent: leadership