RichardAboulafia.com 

:: June 2004 Letter ::

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Dear Fellow Restaurant Meal Deducters,

We live in a perfect world. People who are both aviation experts (me, purportedly) and gluttons (me, definitely) get to visit the two world jetliner capitals, and both happen to offer world-class dining in convenient proximity to business, providing ample reasons to expense our dinners. But the two restaurant scenes are very different.

In Toulouse, you have no idea what’s going on behind the scenes in a restaurant. The kitchen door stays closed, but voila, when it opens the waiter comes out with something you’d trade your Renault for. Even (well, especially) the mystery stuff with funny duck parts tastes great. Meanwhile, in Seattle, restaurants pursue an absurd mania for openness and transparency. Exposed brick kitchens and food prep areas, published cookbooks, and approachable chefs (extra thanks to chef Alan at the excellent Queen City Grill for taking the time to write down his bread pudding recipe for my wife) are all on display.

This restaurant technique difference is obliquely reflected in (caution: really strained metaphor coming here) business practices at both jetliner companies. Look at Airbus’s financial French kitchen. Try to penetrate their web of finances and European government support, or to verify their “repayable” loans (yes, the A320 loans have been repaid, but no one wants to talk about the A300/310/330/340). At the end of the day, the company is profitable, but who really knows what all the cash inputs are? And the recent Franco-German announcement that it would work to create more European “Industrial Champions” guarantees that we’ll see more opaque state support, not less.

By contrast, Boeing’s government support, while less direct, is kind of hiding in plain sight, like the All Clad pots lining the kitchen of a Seattle café. Japan is busily debating the extent of government 7E7 industry loans, with public references to earlier 777 and 767 loans. This Japanese financing (which might just violate WTO) has been covered extensively in the media. Similar debates are underway elsewhere, especially Italy. The very public KC-767 tanker deal could have worked out differently, providing the company with a sizeable boost. And of course, Boeing is just fresh from its 7E7 production line subsidy beg-a-thon triumph (I really wish I’d learned this trick as a kid, waiting for my $5 weekly allowance; all I needed to do was accuse my dad of being “anti-business” and just wait for him to write me a $10,000 check).

In short, Boeing long ago decided that when it comes to public money, joining ‘em was way better than beating ‘em. That pretty much obviates any trade complaint they might make. Even if the 1994 WTO agreement superseded the 1992 US-EU bilateral (the bilateral which makes some aircraft development cash legal), Boeing is also vulnerable to action.

So, it was a complete straight-outta-left-field surprise when CEO Harry Stonecipher made headlines at an investors’ conference, saying "we will raise the rhetoric on that subject [Airbus subsidies] because we're kind of sick and tired of it, it's gone on long enough." Boeing has long had a weird attention deficit problem regarding these subsidies, but recently the company seemed to have forgotten the subject altogether. What can Harry be thinking?

First, Boeing’s frustration is kind of understandable. If A380 development depended on commercial paper or company cash flow, the program wouldn’t have gotten past the flying bowling alley demo phase. It must really tax Boeing’s patience to watch its prize 747 legacy driven to an early grave by some bloated airborne welfare queen.

Second, it’s a story to tell investors: “Things will be better once we call those WTO cops.” And investors, particularly naïve ones, really like stories. Look at Krispy Kreme’s recent “the Atkins diet wiped out our profits” claim.

Third, political sympathy for manufacturers is easily generated in these job-hemorrhaging times. The tanker fiasco certainly shows that political support can come in handy. May as well bank some sympathy now by blaming France. Even before Stonecipher’s comments, Senator Patty Murray had made a sympathetic, pro-tanker speech using the Airbus subsidies as a rationale for making the deal go ahead (http://murray.senate.gov/news.cfm?id=221196).

And finally, it’s good for union relations. “Our problems don’t come from a decade of jetliner product line underinvestment and a shareholder-focused strategy; they come from those darn foreigners. It’s us against them.” That’s an oversimplified message anyone can relate to, if they try not to think.

The bottom line is that if there really is a WTO catfight, Boeing’s transparency is a weakness. Any Boeing WTO complaint would go absolutely nowhere, and it could easily backfire. After all, Boeing’s kitchen is quite exposed, and the cupboard is far from bare.

Away from metaphorville, June’s supplement includes the Regional and Trainer overviews, a dreaded F-35 JSF update, A340, A400M, PC-9/T-6, LCA, and Bell’s 412/UH-1. As ever, call with requests. And enjoy your summer.

Yours, ‘til I Get A Look Under The Cassoulet pot,

Richard Aboulafia

 

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