How Healthy is Boeing?

The Boeing 7E7 project is the most highly sought after ED project in America right now. Excuse me for asking, but how healthy is Boeing? Recent news reports point to a loss of competitive position by Boeing to its archrival Airbus.

Since 1958, when it introduced the first U.S. commercial jet (the 707), Boeing had gone from success to success. As late as 1990, Boeing sold 62 percent of the world's commercial jets. Its closest rival, McDonnell Douglas, was at 23 percent, and Europe 14.6 percent, and Airbus trailed at 15 percent. No more. Boeing's eclipse is one of the biggest business stories of our time. In 2003, Airbus--now the only other major maker of big commercial jets--is expected to win more orders than Boeing, and the gap could widen. Airbus is developing a monster jet (the A380) that will seat 555 passengers and threaten Boeing's 747.

Boeing's history is taking huge risks and reaping huge rewards; both the 707 and the 747 were great gambles that paid handsomely. Can Boeing now reclaim some past glory? The answer may depend on the 7E7: a new widebody plane being studied that would seat more than 200 and have lower operating costs than today's planes. High development costs (perhaps $8 billion, according to BusinessWeek) have reportedly stirred strong internal opposition. If Boeing proceeds, it might conceivably request subsidies comparable to Airbus. Already, Boeing has threatened to move production out of Seattle if other localities offer bigger tax breaks or subsidies.

And what is the subsidy tab for Airbus? Subsidies to Airbus totaled $26 billion through 1989, estimated one U.S. study.

What does all this boil down to?

1. Boeing needs the 7E7 project to re-assert itself, even though it is a very expensive project at a very cash-short time. Boeing leadership is not even convinced that the company should undertake the project--there is indecision among the ranks.

2. Competition in commercial airline production is likely to stiffen in the future, putting even greater pressure on Boeing--even with some fat local, state and federal subsidies in hand.

3. This project is going to be a grizzly one in terms of ED incentive negotiation from all that I can see at this time. So, if your hat is in the ring, get ready for a big fight.

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