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.

http://www.lexingtoninstitute.org/airbus-subsidies-have-destroyed-thousands-of-us-job?a=1&c=1171

Our commentary:

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.

38 Comments on “Why US transport producers failed

  1. Between his flip flop act on the tanker award last year and articles like this, I wonder how this man was ever, and could ever in the future, be taken seriously.

  2. I can assure you, he is taken quite seriously by many in the Pentagon. He’s talking about something that needs to be discussed and is long overdue… Pointing out the fact that America’s Industrial base is eroding, and it’s becoming a serious national security issue, that needs to be addressed by Washington, sooner rather then later.

    • America’s industrial base is eroding but not because of anything Airbus did. Boeing’s outsourcing on the 787 is unprecedented and gets a free pass from the same people who whine about the tanker. Lockheed’s F35 is outsourced to European countries. Shipbuilding is outsourced to European and Asian concerns. Armor is provided to our troops by a British company. Weapons. Transports. Now even China is ready to buy Humvee.

      Thompson is right on the larger issue. He’s off base on this column above.

  3. “Airbus subsidies running McDonnell Douglas and Lockheed out of the commercial airliner business” ?

    Please, this is hair-raising nonsense.
    Lockheed is out of the commercial aircraft business since 1984 !
    And McDonnell Douglas was taken over by Boeing back in 1997. The company was weakened by the oil crisis and a miscarried take-over (Hughes Helicopters) and continually lost market shares.

  4. Soon, the preliminary WTO ruling on the reciprocal case EU vs US is going to be issued. Loren Thompson is up for a huge surprise.

    • And you know this how? I’ve read lots of opinions here, but I’ve never come across someone claiming have the ability to predict the future. What if the WTO dismisses the EU complaint? Or delivers a watered down, ambiguous ruling?

      • what if that is true of the US vs EU final ruling. What if pixies exist

        No one can guaranty the future – that’s what insurance is for. But there are lessons to be learned of the past – and I (being a man) don’t need contraceptive pills in my HMO plan.
        and the US government (at some or all levels) will be shown to have extended illigal subidies and anti competitive benefits to US aerospace companies.
        whether the findings will be severe or not has more to do with opinion than the ruling

  5. Scott, I’ll agree with you about about everything, except the Airbus point… And it appears that Boeing knows it went overboard on the amount of outsourced work on the 787 and is slowly pulling it all back in.
    The F-35s rear section is the only thing built outside the US, and that’s for political (There’s that word again) reasons. The aircraft can’t be regarded as outsourced. The UK threatened to pull out because the US was hesitant to provide the software code.
    Airbus was conceived and established by European governments, British, French, German and Spanish with a single goal… Ending America’s dominance of the aerospace industry. I think we agree on the major issues, but I think you’re over simplifying the details.

    • I’m finishing a piece on the F35 for Armed Forces Journal; internal components in addition to the rear fuselage are outsourced.

  6. My compassion is limited.

    Japan:
    The US autoindustry could not be bothered to produce cars fitting the japanese market.
    Only oversized _and_ no righthanddrive.
    Later the same industry could not be bothered
    to improve their product in light of better products
    sold in their home market.

    Steel:
    Trade barriers protected the US steel industry well beyond the usefullness of their production means.
    Everbody else had better steel mills and could produce better products for less money.

    Defense Products:
    Seemingly all defense sales overseas have been accompanied by gratifications to local politicians.
    forex F.J.Strauss: Starfighter, M104? The King of Belgium: Helicopters? …

    Outsourcing:
    has been actively excecuted by all US industries.
    This works as long as you can “nip” from the capital
    flow going through the US. ( to some parts mandated by oil being traded in US$ artificially propping up this currency )
    What nobody seemed to have noticed is that the
    capital handling charges that have kept the US afloat are not productive.

    Power Projection:
    is a very expensive measure to keep a certain status quo without fair competition.
    Over time no country without the productive means can keep this up.

  7. Three points:

    1. Thompson makes the assumption that Airbus’ success was due to subsidies, which are mainly soft loans. In fact, soft loans don’t kick in on successful programs. We are now talking with the benefit of hindsight. So we can say, with hindsight, that Airbus’ success wasn’t due principally to subsidies. Its survival during the 1970’s was due to subsidies, but Thompson is talking about success not survival.

    2. Boeing wanted the bilateral agreement on subsidies, particularly when it merged with Macdonnell Douglas so it could avoid antitrust issues. It then managed to sell less with the merged company than it did on its own before. Surely this is a case of excusing its own incompetence.

    3. Airbus wants to invest in the United States by establishing a development and manufacturing center in Mobile. Thompson and others are trying to thwart this and are doing their bit to further degrade the US aviation industry. He simply doesn’t get the concept of competition. Most countries see themselves in a worldwide competition and are hungry for FDIs. A thought: why not give the tanker to Airbus but insist on a much bigger investment than they were planning in the US?

  8. My error on the timing of Lockheed’s departure from the commercial transport sector is noted. I will correct the posting. As for the other points raised, it is obvious that Airbus’s arrival in the sector hastened the departure of other players. Including Lockheed’s departure. — Loren.

    • Coincidence is not correlation. It is not obvious to me, other than your claim with no factual basis (and actually, facts stacked up against it) that Airbus had anything to do with Lockheed’s departure. As for MDD, maybe if they had done a good job on the MD-11, instead of screwing it up, they would have stayed in business? How can Airbus be blamed for MDD engineers being unable to bring out a plane that keeps the promises of the sales team?

      And shortly after MDD came up with an uncompetitive and initially flawed derivative of a 25-year old design, Boeing managed to develop the 777 from scratch, with no subsidies. What stopped MDD from doing the same, i.e. bring out a new airliner that could actually compete with the the A330/A340?

      But yes, maybe if Airbus had not brought out a better product such as the A320, US consumers and others could still ‘enjoy’ flying around in 45 year old tech such as the MD-90, and a non-updated 737, because without that pressure there would have been no reason to update or discontinue these types/versions. That would be progress, right?

      I think not.

      Why not think outside the box for a moment? Maybe what is fundamentally wrong is not how other governments support their industries, but an inability of much of the US industrial sector (car industry, anyone) to innovate? That wouldn’t make the support right, but in the end, if US industrial companies other than Boeing were actually interested in innovation, they could certainly more than hold their own, I am convinced. Just have a look at Apple, or indeed Boeing. Radical, I know, and certainly anathema to a cherished view of US superiority that is held by far too many Americans. But it seems a stronger explanatory hypothesis to me than subsidies.

      I’ll get the popcorn to enjoy the hissy fit some people are now going to have. :)

      All the best

      Andreas

    • IMHO your basic assumption is faulty.

      You assume the amercian market possition
      was due to product superiority.

      Continuing, you seem to think that this
      is still the case, even today.
      ( forex Airbus won market share by placing
      innovative products in the market and not
      via price dumping. )

      You completely miss the post WWII situation
      that gave the US a privileged position,
      namely an industrial base, never maimed
      by bombings, ready to pounce on the commercial
      market.
      A situation that was politicaly kept intact
      during the Cold War period.

      Developement over the last decades show
      that monopolies have to be actively broken up
      otherwise they will persist in an environment
      of noncompetitive overpriced products.
      Discruptive developement as seen in the
      OS market ( Open Source Software ) are not
      expectable in any market dependent on expensive
      hardware and qualification.

      • Errr, no. That’s not my premise, although I also do not know whether it would be inherently wrong to assume so. I have no idea if e.g. the 737-200 was superior to the Bac 1-11 – but I guess yes, since it came later; or the DC-9, which was contemporary.

        My premise is that if US industrial companies were more interested in investing in innovation than they (by and large) evidently are, they would be able to hold their own better in the market place. Their’s nothing historic about it. It applies at any time. Boeing demonstrated that with the 777, and (reverse demonstration) the 767-400. Apple, Dell and Intel demonstrate that there is nothing ‘genetic’ that prevents US companies from being bleedin’-edge innovators.

        I also fail to see how a market with 4 producers that are not colluding can be seen as a monopoly. Sub-sectors yes (e.g. VLAs), but not as a whole. The point that was made originally was that Airbus killed MDD and Lockheed’s civil airliners business. Not that Airbus broke up a monopoly. It is rather the contrary, because at the moment, Airbus has a monopoly in the area of modern, efficient mid-size jets that are available today – the A330, and in the area of small jets the demise of MDD has reduced choice to a duopoly.

        All the best

        Andreas

  9. Euthanasia, perhaps…..

    As a reminder, we are on record as opposing any corporate welfare of any kind in Europe or the US, and we find Airbus’ choice to go back to the States for launch aid for the A350 to be particularly offensive–not because of any WTO finding but because after 40 years, the company should simply go to the commercial markets as Boeing is required.

  10. Boeing has been hurt by competition, but the competition doesn’t seem unfair to me. Boeing went from being a position where it was ruling the market to one where it splits the market- this is normal business. Boeing’s internal issues, particularly the alteration of its corporate culture after the merger with McDonnell, are well documented.

    The civil aerospace business as a whole is globalized. Pick any commercial aircraft, including Russian, Japanese, and Chinese models in development, and you see U.S. suppliers on a list of contractors. It’s not all about the OEMs.

  11. Royce,

    But the OEMs are the most important. Without those, suppliers have no one to supply to. I absolutely agree with Dr. Thompson assertions and Scott about launch aid. Money that the A380 *should* be making, but is not, is directly responsible for the financial issues facing the A350 development. Bad business decisions should not have to be bailed out by the European taxpayer.

  12. Sal, I agree that subsidies on the A380 protects Airbus from bad decisions in a way that Boeing isn’t. On the other hand the A380 is much less of a commercial threat to Boeing than the more successful and relatively unsubsidized A320 and A330 planes.

    I think we all agree that a subsidies are a bad thing in principle. And they’re bad because they allow manufacturers to sell planes cheaper than they otherwise would and in this way undercut the competition. Given that Boeing and Airbus both receive subsidies and are in competition with each other the question arises whose subsidies are more effective, ie do most to reduce prices.

    Lauren Thompson assumes that Airbus gets the most benefit from subsidies [in fact I think he discounts the idea of Boeing getting any benefit at all]. But this is far from the clear. As I have pointed out, Airbus subsidies go in reverse proportion to the amount of business it does and are therefore rather ineffective. They don’t reduce the average prices of their planes that much

    Boeing gets headcount subsidies from Washington State and loans and direct cash payments from the Japanese government for the 787. In theory these are more effective as they get paid out regardless of the amount of business that Boeing does. However if Washington State and Japan are expensive places to do business then the subsidies may just be compensating the extra expense of doing business in these places. In other words, without the subsidies Boeing would have chosen cheaper places. This would reduce the effectiveness of the subsidies in terms of lowering the prices of its planes.

  13. I promise not to buy up this thread, but I wanted to pick up on a point Royce made. A lot of people complain about Boeing outsourcing its development and manufacturing and in this way eroding the US industrial base.

    But why not instead encourage insourcing instead? Create the environment where all aerospace companies want to operate in the US. Airbus, Boeing and the Chinese COMAC company are all equally welcome and as good as each other.

    More has to be better than less!

  14. Sal:
    Airbus was conceived and established by European governments, British, French, German and Spanish with a single goal…saving the European aircraft industry. A legitimate goal for any country. Just look at China, Japan (with the help of govt subsidies and Boeing) Brazil, Russia and Canada today. The fact that the US industry is now in second place is due largly to US industry managerial incompetence.

    Loren Thomson
    Douglas/MDC only started to make a profit on civil airplanes very late in the day. US govt support for the KC 135/707 allowed Boeing to outlast the DC-8 which Douglas had to develop and produce at its own cost; Douglas lost money on the DC-8s and DC-9s and DC-10s. They never had any money to develop any other new airplanes. Mismanagement didn’t help.
    You have forgotten that the first oil shock came at the right time for the A300 and helped put an end to the DC-10/L-1011 fratricidal battle.
    For a long period (after the 777 cost ovrruns frightened them?) Boeing put their share value first, which incidently was very good for their senior management and Board of Directors, before that of launching new airplanes. I find it incredible that Boeing who gets so many NASA development contracts which require no repayment and so much political support from the Uncle Sam, can in return, be so strategically irresponsible for the US. They have given away enough of their technology to Japan and accepted Japanese subsidies to develop their newest airplane; to allow the Japanese to build their own airplane which will compete with the 737 replacement. (Or maybe it will be the 737 replacement?). Truly incredible.
    Supporting Northrop as a second supplier of big airplanes seems like a strategically sensible option.

  15. Jdd1,

    A few points to correct. *At this point, I believe the U.S, aviation industry as a whole still is dominant. To be fair, Airbus and Boeing share a roughly 50% market between them. When deliveries of the 787 start in earnest, that may well change.
    Secondly, Northrup even with the tanker contract will not be building anything. They will basically be following the same model that Boeing has tried with the 787 to a much greater extent. We all see how well that worked. :{
    Northrup basically destroyed Grumman’s manufacturing base here where I live on Long Island NY. We are the home of the fabulous F-14, E-2 Skyhawk and the Apollo Lunar Lander.
    That’s why I chuckle when I hear the folks in Mobile cry about “their” tanker contract. I think to myself “Be careful of what you wish for Mobile…”
    I basically agree with you major theories about Boeing under Phil Condit. Thankfully, it appears management since then has had more of a realistic and longer term policy.

  16. Corperate America, Boeing being near the top of the list, pushed for “free trade”.

    And up until very recently, Boeing let Airbus have it’s way, with nary a peep in protest. This is all quite a new thing for Boeing, let’s not forget. And let’s also not forget the many and varied ways Boeing and US based aerospace firms have screwed themselves with global free trade politics (including offshoring and offset agreements) but just plain sloppy operations and business practices.

    And pure, unadulterated greed. Never do things right whan the cheap route will obviously suffice. This has been the mantra for twenty five years now.

    Well, they have gotten what they paid for and less.

    Sure, Airbus is wrong and guilty as sin, but it’s hardly the sole reason for the state of American airframe builders. Once the Airbus susidy issue is dealt with, Boeing’s other many problems will still be with it. Chief of which will be it’s continued support for that which does not exist: Free and fair trade.

    I wonder what they are using for money to buy out Alenia…..

    A charge? More Bonds?

    I’m now projecting breakeven on 787 to be around 1200 units, lumping in all charges, bond issues, overruns and other costs.

    You see, I can’t be placated by writedowns and other CFO tomfoolery.

  17. “Northrup basically destroyed Grumman’s manufacturing base here where I live on Long Island NY”

    No. The crummy business climate, ridiculous real estate prices and the Eastern branch (the G) of NG absolutely dragging their heels on adopting any kind of ‘best athlete’ practice coming out of the Western Branch (the N) while the Western side was getting ‘Lean’ and more productive. Heck, it was a cover story in Forbes once how NG was winning their share of work by transforming into ‘integrators’ more than airplane builders. Maybe the Grummy Bears didn’t like being ‘integrators’ and (stupidly?) just wanted to build airframes. Maybe it was the timing, maybe it was relying on one military customer too much, maybe it was (whisper ……unions) or maybe it was the dinosaurs that were answering the phones “Grumman” as late as last year whenever I called them. The part of ‘old Grumman’ that is doing best i tseems is the part that isn’t in Long Island, but maybe things are looking up in Long Island with them taking the lead on BAMS, but you can’t blame the past on ‘Northrop’.
    Who in the heck is ‘Northrup’ BTW? I see the spelling all the time and don’t get it. Loughead, yes – but Nortrup? I am not being snarky, just curious if there really is a reason or is it because everyone is as poor at spelling as I am.

  18. Sounds a bit snarky to me but yes I think I was a a bit spelling challenged after a 20 hour work day.
    Not so sure the people of Bethpage would agree with you Sarge…

  19. Roger that on the 30 hr days. Work is getting to me too. I’m salaried but authorized 40hr/week paid OT and am killing myself while trying NOT to have to claim it. This pace is OK for a young guy, but after three going to four months straight this old guy needs the Christmas break.

    Merry Christmas all.

  20. well, the truth is somewhere in between;subsidies aside, MD’ famous underinvestment in new designs and short term orientation ended its commerical business, notwithstanding its engineerig excellence.
    that said, why should there be a launch subsidy for 380 ,when Airbus had a 50% market share in a nice duopoly-without would the board of Airbus launch the 380? fast forward, why shuld they ask for the subsidy now that they are the market leader? I do think that Boeing and others have a point.At its infancy , a launch subsidy is fine, no more.It is a fact thay Airbus would have been less successful ,but for the launch subsidy.
    Nevertheless, Airbus has pushed Boeing to upgrade its products-esp 737 ,otherwise they would continue to milk them.
    thanks
    sethuraman

  21. To: Andreas on December 24, 2009 at 9:49 am

    My post was in parallel (to your) reply to Loren Thompson on December 22, 2009 at 4:58 am

    I see national monopolies ( i.e. more than one manufacturer but from one nation only ) as
    detrimental too. See the SU and their satellite nations with a hard distribution of manufacturing “topics”.

    A flat market as mandated is regularly an advantage to the already established participants.

  22. Aside from all the arguments outside the cockpit, I see inside the cockpit a majority bias for the Airbus. (this will bring out the Boeing vs Airbus advocates) The upgraded and modded 737 series has proven itself to be a boon to the Southwest’s of the world, but the varied logistical nightmares of the multi-variant Boeing world is expensive. Airbus over time saves gas, the purchase price even if subsidized initially also saves precious cash. Boeing I fear is treading on the precarious ground of union upset much like GM- While Airbus is saddled with the A380. Customers (prior to the carbon fiber breakup incidents) preferred the Airbus. Although tragic, those incidents remain fairly transparent as long as the quarterly profit loss statement is black (which not any possess).
    Loren is right, we are losing or lost our industrial base. I don’t think the Dreamliner will save the airlines. The first airline will gain a competitive advantage with the Dreamliner in their fleet, but soon all will have it. Much like JetBlue who lived for five years on aircraft with no maintenance requirements yet when they needed their first major inspections/refurb-let the losses begin. A unregulated airline industry will continue to allow loss leader fares from a money losing airline while CEO’s make $40M a year. There’s a larger strategic problem here than industrial base, subsidies and operating costs.

    • There is an interesting discussion going on at airliners.net. Either Who is Who in Backstabbing or outcompeting the competition whichever way one may see it ;-)

      http://www.airliners.net/aviation-forums/general_aviation/read.main/4654728

      The core issue was entering the jingoistic US market. Without a bit of staying power superior tech would not have prevailed on the markt ( so much about the allfixing market ).
      My guess is that even ETOPS birth was dependent on an airframe from a local manufacturer. Thus the A340 -> B777 pressuring.

      Saving airlines:
      LH shows that having the _right_ (type granularity) and not necessarily the
      best fleet and utilizing it inisde their constraints can be very successfull.

      Good management workforce relations and a workforce that has interest in happy customers are mandatory.

      I haven’t realy understood US unions in all their glory. But they do appear
      archaic, industrial stoneage.

  23. Airbus has done nothing but create jobs for Americans in America! They have no responsibility for the fates of Lockheed Martin and McDonnell Douglas, and Boeing for that matter. All three of these companies, and especially Boeing, are surviving on handouts by the Department of Defense, who subsidizes all three far more than anyone wants to admit. The fact that the EU supports its industry openly, and honestly causes Americans to shout foul, and seek redress. The “subsidies” are far from handouts, and a “free lunch” which is what we give our industrial base. Look at the track record and performance of Boeing, McDonnell Douglas, and Lockheed Martin and they are pretty dismal, which gives rise to a multitude of questions, among them are we throwing good after bad. Boeing’s fate has nothing to do with Airbus and EADS, it has to do with decades of mismanagement at the very top. It was Boeing who took on McDonnell Douglas, who at that time had done nothing right in decades, and whose forecast was virtually empty. McDonnell management rose to the top echelons of Boeing, until they were shamed into retirement (with fat wallets) as a result of personal transgressions, involving company employees. Without a moral compass at the top, how can we trust them to make sound business judgments? Boeing is 100% responsible for its fate, and that has nothing to do with Airbus. Their manufacturing processes were largely stuck in the post war era, with little modernization or investment by the company in infrastructure. Airbus, born in the 1970s built itself modern, state of the art facilities, and thus reaped many economies throughout the organization, which were reflected in their products.

    Boeing’s problems are entirely of Boeing’s own making, which is largely due to decades of serious mismanagement. They rested on their laurels and expected handouts from the US government which they continue to receive.

    Boeing’s political clout comes from the fact that they are singularly the largest exporter of goods (dollar volume) in the country. Unfortunately this distinction is not the result of sound management in the company, but non the less it gives them considerable clout on Capitol Hill.

    There has been far too much whining about Airbus subsidies, and the impact they have had on America. I am pleased that Airbus exists, and challenges the American myopia. In the tanker competition, I am persuaded that for once the USAF procurement system got it right when they selected Northrop Grumman over rival Boeing. However, the good ole boys on the hill have ensured that the USAF will not make the mistake again and select something based upon the true needs and what is best for the warfighter, and coincidentally the taxpayer too.

    Get politics out of the procurement business, and stop dictating what the military needs. Warfighters know nest, and should do a great job, if they are allowed the freedom to do their jobs.

    In a market economy, let the marketplace dictate what is the best. It is amazing that this concept has proven itself over many decades. It works, yet we seem not persuaded to let it do what it does best. Let the market dictate what wins, not politicians, and lobbyists. At least the EU has the temerity to openly support their industrial base, but this support is not as “painted” in the US press, or by Boeing and their army of lobbyists.

  24. Mr. Hall you obviously know little to nothing about DOD, NASA or DARPA contracts for R&D. Having worked R&D contracts for years, I can tell you that most are on a competitive basis with LOW bidder being awarded the contract. On many of the contracts the contractor is REQUIRED to invest some percentage of company money into the R&D in order to win. Earnings on these efforts are traditionally VERY LOW single digits if anything. The earnings a company makes on R&D couldn’t support the monthly lighting bill at a major aerospace manufacturer.

    • I have worked in the DoD arena, including extensive R&D for the past 35 years. I have considerable insights into the business environment. My observations are based upon a rather exhaustive review of Boeing’s performance over the past 25 years, and an equally exhaustive review of EADS/Airbus. There is a folly involved in the DoD and its contracting methodologies: the FFP for a development contract, which is prescription disaster, which has been proven time and time again. Experience dictates that DoD is largely unable to evaluate on any other criteria, which accounts for the Tanker Hall of Shame… Serious acquisition reform is needed, and has been talked about since the Bush 41 administration, without substantive progress. Some of the reasons for this failure is the persistent meddling by Congress in dictating what the DoD needs, and how much it should pay. Again, prescription disaster.

      In terms of investing in programs, I agree that it happens, and in most of these cases, those programs are the ones with the highly questionable cost growth, and a contractor going back to the well time and time again. If the DoD does credible should cost assessments up front, then why would they award a contract that on the surface appears to be seriously flawed, and have any expectation of success. Contractor investing should not be allowed…

      The issues I addressed in my initial response go far beyond R&D. The system itself is fundamentally flawed, and this is exacerbated when combined with incompetent management. A neophyte can look at the sordid history of Boeing’s performance over the past 20+ years, and come away with a tutorial in what not to do. Yet, this is the taxpayers problem???? Look at their performance on such programs as the Future Image Architecture… This is just one example. There are many more. Billions of taxpayers money has been sent down the Boeing rat hole with little to show for it.

      It is time for both government and industry to accept responsibility for their actions. Let the competitive marketplace do what it does best, without Congress trying to tip the scales one way of the other. The political posturing over the USAF Tanker program is disgusting, especially from the Washington state politicos.

  25. To clarify my last comment, the acronym I used “FFP” stands for Firm Fixed Price. In the context, the government expecting to see results from highly speculative development programs being contracted in this manner is highly misguided.

    • Tom,
      my impression over the years is that the US industry has
      widely “unlearned” to compete on product quality.
      Competition todays means having the better backstabbing
      and character assasination team.
      This is complemented by procurement processes that
      have been overloaded with political agenda to boot ( er pork)

      Products as basic underpinning just are no longer in focus.
      ( and the wooden chariot under a chrome cleaming futuristic
      skin is not a new developement, that was already the case
      when i had the chance to look under Atari’s corporate hood in
      the late 80ties )

  26. The 767, 777, and 787 got launch aid from Japanese Goverment, nobody from Boeing wants to mention that.

    Unlike the Airbus RLI, the Japanese Goverment does not require any repayment typically until the delivery of the 500th ship set on 2,000th production run.

    Great one Boeing, lie to the public some more.

  27. “Boeing insists on secrecy over tax breaks”

    “Charleston County officials are poised to approve millions of dollars of tax breaks and grants promised to Boeing Co., but County Council members learned Thursday that the details of what they’ve been asked to approve may not be publicly released for up to a year.”

    http://www.thestate.com/breaking/story/1102175.html

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