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:: April 2008 Letter ::

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Dear Fellow Problem Avoiders,

A time machine. A perpetual motion device. A talking camel. Despite the best efforts of brilliant inventors, many great concepts have eluded mankind’s grasp. But the most elusive of all is the Somebody Else’s Problem field. This ingenious device was imagined by Douglas Adams in his Hitchhiker’s Guide To The Galaxy series. It enables the person pressing the button to make his Problem Somebody Else’s. If you’re about to get hit by an asteroid, or if you were foolish enough to start a low cost airline based in Columbus, Ohio, you need an SEP button. Press it and Someone Else gets crushed by a flaming rock, or goes bankrupt.

Boeing proceeded with the 787 as if it had an SEP field around it. Aggressive schedule? That’s the risk-sharing partners’ problem. Technical capability to deliver integrated structures as planned? SEP. Cash? That’s the partner’s problem too. Since these are all the partner’s problems, there’s no reason to verify that their capabilities and finances are up the task. The partners would deliver on time, and have everything up to production-conforming standard, with a complete manufacturing process put in place.

The SEP field, of course, stubbornly refused to deploy. That aggressive schedule resulted in traveled work, nonconforming deliverables, and a flimsy production system. This schedule, in short, is now very much Boeing’s problem. But earlier this month they dealt with these problems by creating a much more reasonable plan. Boeing also purchased Vought’s half of Global Aeronautica, and stopped treating the Vought capitalization problem as Somebody Else’s. These moves were taken after the SEP schedule did its damage, resulting in a 15-18 month delay, and hundreds of millions of dollars in lost revenue and penalty payments.

Boeing now faces a grim choice. They can satisfy aggrieved 787 customers by building new 767-300ERs, but in a few years they’d need to deal with these planes’ feeble long-term residual values on the company’s books. Or, they can watch 787 customers use their penalty payments to lease A330-200s, benefiting Airbus.

The damage done by Boeing’s noncompliant SEP should be kept in perspective. Airbus is still reaching for the SEP button. Even if they can’t make their problems Somebody Else’s, they can at least hope to offload some of the burden.

The only way to restructure Airbus is to open the borders, allowing access to the cash and technology needed to create the A350XWB. Instead, European politicians and unions want to limit Power8 partner companies to those with the right passport. Latecoére is a fine company, but putting them in charge of Airbus’s French sites is like putting one lifeguard in charge of the Great Barrier Reef. As this is written, both parties are grimly backing away from this deal, predictably blaming the euro for their problem.

Over in Germany, EADS’s flirtation with MT Aerospace was mercifully brief. It ended in March after Airbus suddenly noticed that it was a really foolish idea (as ever, the strong yet hapless euro took the blame). A sub-$200 million company that builds high tech components, MT makes Latecoére look like Toyota (I asked Phil Finnegan, Teal’s company analyst, if he was going to write an MT report; wisely, he hit the SEP).

After the MT gambit ended, Airbus CEO Tom Enders wisely reiterated that site divestitures were “part of a long-term business strategy to which we are fully committed.” Airbus is starting to hint darkly about further A380 production and A350 XWB service entry delays due to restructuring uncertainties. Meanwhile, Europe’s politicians and unions continue on their merry way, believing that business is too important to be left to businessmen. They’re leaving the consequences to Somebody Else — Airbus.

Then there’s the US tactical aircraft problem, which also clearly belongs to Somebody Else. With old F-15s energetically disassembling in the sky, a fleet that’s racing through middle age faster than…well…me, and an aircraft replacement plan struggling to reach a turtle’s pace, there would appear to be a crisis. In fact, it was obvious seven years ago when aircraft usage quadrupled while all the defense cash went to vehicles and helicopters.

The options are simple: buy more planes, pay a lot more for upgrades and maintenance, or cut forces. Yet no one is discussing any of the options. For classic buck-passing silliness, check out F-22 funding in the FY 2009 budget. DoD, faced with the choice of either providing long-lead cash for an FY 2010 buy, or providing money for a line shutdown, chose neither. In a stunningly passive aggressive move, they left it blank. SASC Chairman Carl Levin (D-Mich.) boldly stated, “Relevant to the [F-22’s] future, we left it up to the next president.” SEP.

Of course, SEP won’t resolve the fighter crisis. This problem is a painful but necessary choice between a resource surge or a force reduction to accomplish a goal that might be impossible, and it’s being put off until the next administration. Kind of like Iraq.

Meanwhile, there’s the biggest SEP foolishness of the month. United Airlines, rather than manage itself in a coherent way (i.e., with a business plan other than sitting around burning piles of cash), continues to try to put its problems in the hands of Somebody Else’s Airline. Continental this month walked away. So, it’s on to USAirways, where ego might just override common sense.

While we’re waiting the big airline convergence, this month’s Aircraft Briefing updates include a new Business Aircraft overview, plus updates of the F-15, Eurofighter, Mirage 2000, Gripen, T-45, V-22, P-3, EC 135, EA-6B, and the Challenger/Global Express. Have a good month.

Yours, Until My Procrastination Problem Becomes Somebody Else’s,
Richard Aboulafia

 

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