The Limits of the Airbus Challenge
PIERRE-HENRILAURENT
TRANSATLANTIC COMPETITION The Limits of the Airbus Challenge BY PIERRE-HENRI LAURENT TO HEAR MANY who follow Such matters in this country and across the Atlantic tell it, the latest proof of...
...it would leave Airbus vying for third-generation aircraft sales from an untenable position behind the competition...
...For all of its problems, Airbus Industrie is surely an important force in the global commercial airplane market that should not be taken lightly...
...Indeed, last year the British, French, German, and Spanish combine surpassed in total sales one of its major U.S...
...Airbus suffered a blow last October, for example, when the Bush Administration decided to delay the rigorous enforcement of Stage 3 regulations on jet noise and pollution...
...It is anticipated, too, that the twin-engine 777 will outfly its European counterpart, the A330, by over 1,000 miles...
...As Daniel J. Shine of the Arthur D. Little consulting firm has emphasized, "although the A340 model is projected to be capable of a 6,000-7,000 nautical-mile range, it is smaller than the 777 and half again smaller than the 747...
...The difference is that their easier access to capital and longer list of backorders will enable them to get through the lean period...
...If one considers only passenger capacity, the 295-seat A340 fares poorly against the MD11 (330 seats), the 777 (350-410 seats), and the jumbo 747 (over 500 seats...
...Boeing's commercial aircraft backlog," says William B. Whitlow of Seattle's Gallagher Capital Corporation, "makes it immune to a significant impact from the current recession...
...As the year began, there were strong indications that the Europeans would restrict their farm subsidies, thus resolving a large snag in the GATT negotiations and bringing the close of the Uruguay Round in sight...
...One-fourth of the American planes, mostly the first-generation widebody Boeing 727s and McDonnell DC9s, would have had to be fairly quickly replaced with acceptable alternatives like the 747, Airbus A340, McDonnell MD11, or other Stage 3 models...
...Finally, high-priority support for the Commonwealth of Independent States and other newly liberated Eastern European lands has required large capital outlays by both the EC and its individual members that threaten to have an adverse impact on Airbus...
...Yet the emergence of a new world-class competitor does not necessarily mean America's decisive pre-eminence in aerospace will shortly be over, nor does it signal that U.S...
...Though cost-benefit analyses on a 700-seater are yielding very questionable "bottom lines," Airbus is being strongly urged to enter the race, if not to lead it...
...Whether the cap on aid to Airbus becomes 45 per cent of production costs (the figure proposed in last summer's talks) or lower, the crucial fact is that the era of virtually unlimited state funds for Airbus is about to end-and not long from now...
...Europe has captured roughly a 25 per cent share of international commercial aircraft sales (if contracts, options to buy and scheduled deliveries are all counted...
...First, McDonnell Douglas will probably succeed in securing some government support for its severely slumping civilian jet division...
...THE coNSORTiuM's effort promises to be hobbled for a number of additional reasons...
...This is especially a problem in Germany, where reunification is absorbing immense sums of money...
...Taiwan Aerospace signed a controversial tentative agreement that would help underwrite McDonnell's MD12, and Japanese firms may contribute one-fifth of the research and development bill...
...The industry giants are all contemplating mammoth 700-passen-ger projects...
...MORE SIGNIFICANT over the long term is Airbus' post-sales performance...
...The reduced market is a greater hardship for the Europeans, who are intent upon improving their position, than for the Americans, who are largely content to hold their ground...
...The Europeans were looking forward to the opportunities the initial timetable would have afforded...
...These include: Federal aviation decisions, Airbus' after-sales servicing weaknesses, passenger capacity, and Asian financial participation in U.S...
...Airbus also faces a less tractable problem in the Stage 3 competition...
...Innovative wing designs and fuel tanks, a commonality of parts on all of its jets, and a fully digital "fly-by-wire'' computerized control system may make Airbus the most technologically advanced firm in commercial aviation...
...Most EC states are expected to experience slow growth well into the '90s, shrinking the jet market overall and pushing back the day when 600 Airbus jets are sold and paid for and the return on funds invested begins to come in...
...The weak global economy is a particular hindrance to Airbus...
...Third, British Aerospace is wobbling...
...Even the Europeans recognize that regardless of how technologically advanced and attractively priced their product may be, they cannot hope to become Number One with so serious a defect...
...This would not simply be compensation if the deal with Taiwan Aerospace is torpedoed by Congress...
...PIERRE-HENRI LAURENT, Professor of History at Tufts University, is a member of the Executive Committee of the European Community Studies Association...
...At least over the next decade, though, that is likely to be the upper limit, and several factors suggest it will not be easy to sustain...
...on the whole subsidization issue...
...civilian aircraft manufacture will soon no longer rank with the computer and biotechnology industries as a primary contributor to the nation's trade balance...
...rivals, McDonnell Douglas, andgrabbed over 30 per cent of the $40 billion annual jet market...
...The U.S...
...At the same time, the gloomy forecasts issuing from American business magazines, major dailies and scholarly journals are undulypessimistic...
...Consequently, the expected massive replacement of the Stage 2 certified planes will not occur...
...And of course, more passengers add up to greater profits...
...Cutbacks in the B-2 bomber and advanced fighters will force the company to redouble its efforts in the commercial airliner sector through accelerated 747 manufacture and 777 development...
...Second, there will be fallout from Boeing's military production losses...
...Its breakup or restructuring could jeopardize its 20 per cent share in the consortium...
...Some industry experts believe the servicing gap is beginning to close, but so far American experience and performance seem to be translating into more renewal contracts...
...At the moment the Americans appear to hold a financial edge...
...In an election year, the arguments of a large firm apparently seeking to help jump-start the economy and avoid layoffs can be unusually persuasive...
...In the opening battle between the MD11 and the A340 for the twin-aisle jet market, Airbus has jumped way ahead...
...The airplanes in service around the world-most of them over 20 years old-are being kept in the skies as long as possible...
...Furthermore, the craft has just recently begun flight tests and there are doubts being expressed about its living up to company claims...
...It has more than 250 orders compared with 150 for the MD11, which has been available for a year...
...A delay in super jumbo planning and development, runs the argument, is not a realistic option...
...Meanwhile, the four European governments involved in Airbus seem poised to negotiate a compromise with the U.S...
...That much is clear from the formal complaint it has lodged under the rules of the General Agreement on Tariffs and Trade (GATT), accusing four European Community (EC) governments of unfairly subsidizing their jet consortium...
...it would be aid granted in response to a powerful lobbying campaign...
...Federal regulations aside, there is reason to wonder whether Airbus will be able to benefit much from the obsolescence of first-generation jets in the current economic climate...
...Plane size is no minor selling point in a world where airport congestion is making narrow-bodied jets less desirable...
...One or both of the U.S...
...Certainly the American-based airlines have been reluctant to undertake major expenditures ($150 million for the 747, $110 million for the A340) in the short term, and that means limited prospects for the Europeans...
...According to several studies, including onelsy the Washington-based Council on Competitiveness, the consortium's maintenance assistance is substantially inferior to the service American companies offer...
...The practicality of the bigger planes (especially on Pacific routes) could ultimately outweigh any advantage the A340 might have because of its advertised Paris-to-Singapore range...
...Whatever proves to be the case, Boeing already has established that the 747 flies nearly as far...
...The Federal Airport Noise and Capacity Act of 1990 calls for U.S...
...fleets to meet much higher standards in those areas within a few years, but the deadline has been postponed until the year 2000...
...TRANSATLANTIC COMPETITION The Limits of the Airbus Challenge BY PIERRE-HENRI LAURENT TO HEAR MANY who follow Such matters in this country and across the Atlantic tell it, the latest proof of America's declining trade and technology competitiveness is the growth of the European aircraft producer known as Airbus Industrie...
...The sluggishness practically everywhere is likewise a concern to Boeing et al...
...companies will probably have Asian equity partners...
...But the biggest hurdle confronting Airbus in its quest for a larger share of the market may be producing a super jumbo jet...
...Official Washington is worried...
...So it is perhaps not surprising that Airbus is being touted not merely as a fierce challenger to the U.S., but as potentially capable of ending American hegemony in a vital commercial sector...
...The 727 may fade from view, but in all probability the DC9, DC10 and Lockheed's 10-11 will merely be modified to extend their lives...
...To be sure, in a relatively brief 20 years the European consortium has developed an impressive product line...
...This, plus the fact that today consumers base their purchases on their own evaluations of a plane's merits rather than its nationality, appears to explain the newcomer's market penetration...
...In its last five shopping rounds British Airways bought exclusively Boeing, while the U.S.' Northwest Airlines strongly favored Airbus during three rounds in the late 1980s...
...aerospace research and development...
...It is now second only to the world leader, Boeing...
...Still, assessments and particular needs vary...
...may well belosing its competitive superiority in a variety of international arenas, but its preeminence in aerospace is safe for the foreseeable future...
...Instead, the noisier jets are gradually being brought up to specifications by retrofitting...
...To continue pressing its challenge to the Americans, many Europeans believe, it has to do in the megajet category what it did with the A340: get into the fray early and design a superior aircraft that cannot be ignored...
...Theprotest is an acknowledgment that the newest player in the global airplane market has made substantial inroads against the longtime American pacesetters...
Vol. 75 • March 1992 • No. 3
