Something bad happened to the American aerospace industry last week. The balance tipped in favor of its most important competitor, Europe. Moreover, this was mostly the result of U.S. industry errors, as well as those of the U.S. government.
On May 16, Britain announced intends to arm its new Eurofighters (manufactured by a four-nation European consortium), which enter service next year, with a European-made long-range, air-to-air missile, yet to be produced.
This is a serious blow to America’s Raytheon, which loses not only a billion-dollar sale, but its monopoly in such missiles, since Britain’s order for the rival Franco-British Meteor missile–made by a Matra-Bae Dynamics consortium–was essential to the project’s launch. The U.S. had put pressure on the Blair government to buy American, including two direct White House interventions.
The Blair government also rebuffed U.S. pressure to buy American C-17 military cargo aircraft. Instead, it will lease four to meet short-term needs but will invest $5.2 billion in an Airbus Industrie project to construct a European military transporter, the A400M, to be delivered in 2006.
Airbus has also announced that Singapore Airlines is negotiating to buy up to 16 of the new superjumbos, carrying 550-plus passengers, which Airbus also wants to produce.
Emirates Airline has already confirmed an order for 12 of what would be the biggest jetliner in service, carrying a third more passengers than the Boeing 747 and with a longer range.
Three other Pacific airlines and two in Europe also are reportedly in negotiations, and the odds are high that Airbus will launch the project. If it does so, Boeing will lose its monopoly on very large airliners, whose profits have, in the past, subsidized smaller Boeing aircraft selling against Airbus products.
Last year, Airbus sold more planes than Boeing–476 as against 391. So far this year, Airbus has booked 55 percent of world orders for large commercial aircraft.
Yet another problem is that the planned U.S. superfighter for the 21st Century, the $200 billion joint strike fighter project, is in trouble. More than 3,000 are supposed to be produced for the U.S. Air Force, Navy and Marine Corps. In export markets, it was expected to squeeze European manufacturers out of the high end of the fighter market.
The project is so huge that the Pentagon is considering splitting it between the two design competitors, Boeing and Lockheed Martin, rather than risk that the loser in the design competition will be forced out of business.
However the multi-role JSF was conceived by Clinton administration civilians, and neither the Air Force nor the Navy really wants it. Only the Marines want the JSF. But as any Marine will concede, the Marine Corps is not a Pentagon heavyweight and usually has to make do with equipment made primarily for another service.
The JSF program has nonetheless become so important that one industry figure, Richard Aboulafia of the Teal Group, calls it “more a national industrial strategy than a combat aircraft program.” The reluctant services may be forced to take it, even though it is a risky project. There is a long record of design problems and cost overruns on such leading-edge technology programs.
Technology-export restrictions imposed by the Pentagon and Congress, and the newly reaffirmed European disposition to buy European (Eurofighter or the French Rafale, both later-generation fighters than anything in the current U.S. inventory), seem likely to restrict the JSF’s export appeal. Yet current cost projections rest on the exceedingly ambitious assumption that 20 to 30 foreign countries will buy as many as 3,000 JSF.
Error is mainly responsible for the U.S. industry’s difficulties. Boeing underestimated Airbus until it was too late. Boeing’s basic designs date from the 1950s. The 747 is a 1960s airplane. Airbus started manufacturing in the 1970s. Its basic technology has a two-decade advantage, despite Boeing updates.
Boeing needs new-generation aircraft. But Pentagon pressure in the 1990s forced American industry mergers that left manufacturers under Wall Street’s control. Where is Boeing to find the money to develop a basically new range? Wall Street wants quarterly profit performance, not a huge internal investment whose payoff is a decade or more away.
Direct government subsidy is ruled out by World Trade Organization rules and the very agreements the U.S. insisted upon to limit European subsidies for Airbus. No wonder management has been moving the firm away from complete dependence on aircraft manufacturing.
The other U.S. aerospace manufacturers also now answer to Wall Street, rather than the Pentagon. Their markets have shrunk since the Cold War ended. An expected boom in European export orders, connected to NATO expansion and modernization, has not arrived.
American military aerospace prospered when Russia was the competitor, and manufacturers served the Pentagon. By forcing mergers and “globalization” on to the industry, the Pentagon undermined it. By refusing to take Airbus seriously, Boeing undermined itself. All this is likely to become a political problem for the president and Congress elected in November.
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E-mail: wpfaff@easynet.fr
