- The Washington Times - Saturday, February 10, 2007

BOEING VERSUS AIRBUS: THE INSIDE STORY OF THE GREATEST INTERNATIONAL COMPETITION IN BUSINESS

By John Newhouse

Alfred A. Knopf, $26.95, 255pages

REVIEWED BY JAMES SRODES

I confess a preference for the old American business model where both executives and shop floor workers had a close personal identification with the products they made. This was before corporatists like General Electric’s Jack Welch began to preach that one should not get too close to products, indeed should be able to make anything, but most of all to make a profit.

Among my joys as a business reporter was having Goodyear CEO Charles Pilliod shoulder a tire stamper aside from his machine to show me just how one seated the steel belt on a radial tire; that’s where he had started. I once passed tools to Detroit auto legend Semon “Bunkie” Knudsen while he tuned his car in his home garage.

Then there was Boeing chairman, legendary Thornton (aka “T”) Wilson, who interrupted an interview to drag me up a flight of stairs to the roof of the old headquarters at Boeing Field in downtown Seattle to watch an experimental variation of their breakthrough jumbo model 747 make a maiden takeoff. “Come on, baby,” he cheered. “Get up there! Get up, damnit!”

Wilson’s ghost is one of the characters in John Newhouse’s tale of how Boeing triumphed over its two American competitors — McDonnell Douglas and Lockheed — only to lose its way in the 1990s to an ungainly contraption that was part European envy and statist jobs creation known as Airbus.

These days the tables have clearly turned, and Mr. Newhouse tells a compelling story of how Boeing fought its way back and today sits upon a precarious advantage over its European Community rival that could last a full decade — or perhaps just a few years. Mr. Newhouse brings several advantages to the task. His smoothly accessible writing style was honed through nearly 20 years of writing on foreign policy for the New Yorker.

He has a deep knowledge of transatlantic politics and the aerospace industry learned from a second career in arms control and disarmament diplomacy and from his 1982 book on the early race for big jet development, “The Sporty Game.”

“Boeing versus Airbus” is more than a business adventure story. Mr. Newhouse gives us a tutorial on a number of important issues that affect all participants in the global marketplace. One such is the acceleration of change and the pressure to make high-risk decisions that bring either very short-term advantages or very long-term penalties.

Plane makers make planes to sell to airlines whose traditional mantra was to carry more passengers more revenue miles more quickly. This held true in an era when there were a few national flag-carriers who dominated the international routes and whose passengers were upscale, comfort seekers.

The fairly recent hub-and-spoke plan that funneled passengers from smaller airports to central major airports plane changes was a bid by the big carriers to capture regional passengers keep their big planes filled to farther a-field destinations. Now that appears to be changing as a new generation of airlines, the new cheaper carriers who fly direct point-to-point routes, are thriving in burgeoning economy-minded markets in Asia, Europe, the Mid-east, and Mid-America.

This globalization of the passenger airplane market has brought its own pressures for virtually customized aircraft at a time when development and production costs have grown at a life-threatening pace. Creating the right mix of products in this arena takes vision, discipline and a huge measure of luck. Mr. Newhouse gives a graphic example of how Boeing, instead of trying to build an even bigger jumbo to top its 747 model, took a risk to produce a midsize wide-body (290 seat) 787 Dreamliner at a cost of $8 billion.

Airbus went the other way. It decided to launch two new designs: the A350 to compete with the Boeing 787, and a much heralded “super-jumbo” A-380 that would be a two-decker that could haul up to 555 passengers — a claustrophobic nightmare of potentially catastrophic consequences that by itself cost $16 billion to build.

Or at least to get started building. Airbus has had to start over again with the A350 whose design was spurned by crucial advance order customers. And the A380, which was supposed to be delivered, after delays, no later than last summer, is now running so far behind schedule that a growing number of airlines are both canceling orders and threatening to sue for damages.

Mr. Newhouse also underscores the dependency of both Boeing and Airbus (and most global market manufacturers, for all that) on government support — and the risks involved. At the same time, the makers are being impelled to outsource what is the most critical of their new technological advances to foreign partners — with risks that can too often outweigh the advantages.

Here Boeing has been fortunate. It has one government to answer to, specifically to the Pentagon whose military orders and development subsidies underpin the advancement of passenger plane designs. And its partnerships with Japan and Italy in the development and assembly of new non-metallic, layered carbon fiber reinforced plastic for both the 787 fuselage and wings brought both financial support and an inroad into future sales in those markets..

Airbus, by contrast, is a nine-nation consortium more unified by distrust than common purpose. Crucial development decisions became mired in disputes between French and German executives who fought over the design and manufacturer of each component more for political reasons (such as jobs creation) rather than for improved design. Moreover, the subsidies Airbus receives from partner governments (mostly the French) have become a political target of trade liberalization negotiations.

But where “T” Wilson’s ghost must be laughing, is Mr. Newhouse’s final point that some things remain the same; particularly the essential role that a sharply focused and powerful chief executive must play in controlling these disparate threats, pressures, and potential advantages. Airbus has spent a decade shuffling bosses in and out of the chair. Boeing struck it lucky when it lured super-CEO James McNerny from 3-M Company in 2005 and the rest of the turnaround came quickly. Very quickly.

James Srodes is a former Washington bureau chief for both Forbes and Financial World magazines.

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