Why US transport producers failed
Defense analyst Loren Thompson picks up the old refrain about Airbus subsidies running McDonnell Douglas and Lockheed out of the commercial airliner business. We add our thoughts at the end of his article.
By Loren Thompson
Airbus subsidies have destroyed thousands of US jobs
Monday, December 21, 2009
In a few days, the world’s two major producers of commercial transports (jet airliners) will release their order and delivery results for 2009. The results will show that European champion Airbus delivered slightly over 50% of all planes built, while greatly exceeding American champion Boeing in the number of new planes ordered. It’s been going this way pretty much since the decade began, because after 40 years of subsidies from European governments, Airbus now has a complete family of transports that can aggressively compete in virtually any capacity/range category with Boeing.
At the beginning of the previous decade, meaning in 1990, U.S. producers had 85% of the global market and Airbus had 15%, because at that point the European consortium couldn’t compete in most categories. But in a mere 20 years, two of the U.S. producers (McDonnell Douglas and Lockheed) have been forced out of the commercial-transport market and the sole surviving U.S. producer has been reduced to a minority share of global shares. As a result, tens of thousands of American aerospace jobs have disappeared, and tens of billions of dollars in export earnings have been lost.
This posting isn’t about why policymakers should take illegal subsidies into account in comparing the Airbus and Boeing planes being proposed as a future Air Force tanker. I’ll talk about that some other time. It’s about something more basic: a political system that is so insular and disorganized that it allows its great industries to be destroyed one by one through unfair, anti-competitive behavior without even noticing, much less acting. We have seen similar decay in steel, in electronics, in shipbuilding, in chemicals, in paper and in autos — and the net result is that America now runs a trade deficit in manufactured goods of over a billion dollars per day. Needless to say, this has not been a positive development for the U.S. dollar’s role a reserve currency.
What bothers me, and no doubt Boeing, is how European governments have been allowed to deliberately and systematically destroy America’s global lead in jet airliners without any real sense of outrage in Washington. The European governments and Airbus routinely issue dishonest statements about how Boeing gets unfair assistance too, but when the time came to lodge a case with the World Trade Organization, they didn’t even allege that Boeing gets the kind of launch aid that has enabled Airbus to undercut Boeing on price. Instead, they referred to more modest types of aid that Airbus gets too.
The lesson of all this is that when countries have been Number One in the world for as long as America has, it takes a while to grasp that the global alignment of power is changing. We were indifferent when Japan kicked American auto companies out so Toyota would have a protected home market, and we were barely aware when China built up its steel industry to five times the size of ours. But if we don’t start getting our act together on demanding fair treatment of our exporters — starting with Boeing — then we shall not be Number One for much longer.
McDonnell Douglas failed in commercial aviation because of a failed business model that over-relied on derivative aircraft instead of new airplanes. The last truly new airplane MDC designed and built was the DC-10; the MD-11 was a derivative of this airplane and not very well executed at that.
The MD-80 was a derivative of the DC-9, which was introduced in 1965. The MD-90 was a derivative of the MD-80. When American Airlines signed an exclusive supplier agreement with Boeing in about 1996, then CEO Bob Crandall was asked—by us—why didn’t American buy the MD-90 as the natural follow-on to its MD-80 fleet, then and now the world’s largest with a single airline. Crandall’s succinct response: the MD-90 was old technology.
This is why MDC exited the commercial airliner business. It’s military side of the house was equally challenged.
As for Lockheed, this company exited the airliner business following the Lockheed Electra in 1962, a four engine turbo-prop—some 12 years before Airbus was a reality. It reentered the airliner business in 1972—two years before the first Airbus A300B2 entered service–with the L-1011 TriStar, a direct competitor to the DC-10 that was so identical in size and performance that the two airplanes split the market and neither MDC nor Lockheed made money on their airplanes. Furthermore, Lockheed nearly went bankrupt because Rolls-Royce, the sole engine provider, did go bankrupt. Rolls had to be bailed out by the UK government and Lockheed was bailed out by the US government. Airbus had nothing to do with either event.
Thus, the reality is that Lockheed survives today because of a US government bailout.