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:: June 2002 Newsletter ::

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Dear Fellow Party Crashers,

Of all the parties thrown in this industry, Harry Stonecipher’s retirement was easily the most lavish. The idea of throwing a massive celebration on board a company 747 converted to a flying ballroom, circling the globe while various world air forces sent up escort planes as a salute, was nothing short of inspirational. Stopping at the Egyptian pyramids for sunset was easily the highlight.

Actually, I wasn’t at the party. And for all I know, Mr. Stonecipher’s retirement was commemorated by a grim ceremony at a Holiday Inn lounge (cash bar, of course) with Phil Condit glumly forking over a Rolex, while a couple dozen middle management types looked on with the sort of polite boredom they reserve for 737 handover ceremonies to Air BatGuano. Either way, however, Harry’s tenure at Boeing tells the recent history of that company. He stamped out legacy loyalties, and got the company through some real emergencies. But Boeing is now a very different company.

Talking with SPEEA Union kingpin Stan Sorscher (okay, he’s got a PhD in physics, and is not at all like those guys who fought Marlon Brando in On The Waterfront) you get the impression that Boeing’s engineers have one overarching fear: The company has been infected by the same virus that killed McDonnell Douglas. Boeing is now about short-term profits, willing to dispense with core skills and capabilities in order to make the numbers. The result is an emphasis on legacy products and fleets, guaranteed military programs (like the excellent Korean F-15 sale), and low-risk service initiatives. And of course, the company now values its people as much as any other large American corporation; every bit as much as it values the environment and the community (i.e., not at all).

Some of Boeing’s new approach since the MD merger was simply inevitable, despite the pain it sometimes inflicts on workers. Emphasizing financial and aftermarket services, cutting down on money-losing “must win” sales, increased outsourcing, and mercilessly slashing costs are all necessary and useful moves. Boeing is a business, and it needs to focus on making money first. But Boeing is also an aircraft builder—despite all of the company’s new initiatives, jetliners are still well over half the business. The JSF loss, misadventures in the space business, UCAV uncertainty, and other factors mean jetliners will continue to be the majority. And there’s no denying that Boeing’s jetliner market share is eroding. Predictably, Boeing’s Independent Research and Development (IRAD) money has been stagnant for the last five years. The 777 was the last new jet the company built. It has been a brilliant success, almost a war-winner. But would the company today make that kind of forward-looking investment?

And without new products, Boeing’s jetliner share will be below 50% by 2010. I still regard the A380 as a money loser, but it will grow Airbus’s market share. So will the A340-500/600 and A318, despite their troubles. The company is starting to talk about an A300/310 replacement family, to be initiated as soon as A380 development work declines. Meanwhile, the A330-200 is proving more competitive against the 767 than anyone predicted. Boeing is up against a very aggressive opponent.

What will Boeing do? Sonic Cruiser is one response. But for all the hyperconfident pronouncements and Star Trek-like demo models, it is entirely possible that this wonderful idea will go nowhere. There’s talk of alternative new jetliner designs and technologies, but the real issue, again, is development costs. If they can’t find the IRAD for the 767-ERX program, how can they raise $12 billion or more for Sonic Cruiser, or half of that for a less ambitious but still high tech plane?

The other response put forth by Boeing concerns the competition. They really think that Europe can’t do this forever—that some economic crisis point will be reached, negatively impacting EADS/Airbus’s ability to generate new products and aggressively compete for (and finance) new sales. This is a good point—Airbus, supposedly the cash generator at EADS, has a dismal next few years ahead. And EADS’s shareholders could easily decide to take their cash elsewhere. But then again, Europe does things differently, and it is entirely possible that EADS, and/or Airbus, will ride out the crisis just fine. Hell, France’s economy is completely inexplicable by conventional standards. It should be Europe’s Argentina, yet they pull through somehow (and live very well). And Boeing, thanks to its new emphasis on customer finance, could conceivably have a few crises of its own lurking in the balance sheets.

Sonic Cruiser and Europe’s conversion to a market economy are good things for Boeing to hope for. But again, these are far from sure things. What’s Boeing’s Back Up Plan? If Sonic Cruiser doesn’t happen (for technical or financial reasons), and if Europe doesn’t free itself from the socialist yoke and surrender to American turbo-capitalism, what will Boeing do?

That, of course, is a rhetorical question. I’ll follow it with a final sobering thought. Again, Harry helped steer Boeing through several huge crises, one or two of which could have taken the company down. But Boeing’s stock price? It’s lower than before Harry started. This means that all of Boeing and Harry’s work for the last five years has been like treading water. Now for the hard part—growing the business.

About this supplement. It’s got updates of the A340, 757, the Trainer overview, all the Gulfstream jets, two planes from India, the Tornado, and a few others. In July, I’ll updated the Regional Aircraft and Rotorcraft overviews, plus the 747, ERJ-170, the Hawker and Learjet families, CH-47, Dash 8, and others. Call with any requests. And enjoy the summer.

Yours, ‘Til I Start Getting Invited To The Really Good Airborne Parties,

Richard Aboulafia
 

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