Business Columns & Blogs

Boeing, Airbus compete in market and politics

As political theater goes, this was a decent example: A global aerospace company announcing a major business venture in the backyard of a rival.

What, you thought we were talking about Airbus’ announcement of plans to build a production facility in Mobile, Ala.?

Well, yeah, that too. But overlooked in the hullabaloo over Airbus’ potential foray into Boeing’s home country was an announcement, dated June 29, from Boeing about a manufacturing research partnership involving Japan’s Institute of Industrial Science at the University of Tokyo, along with three “heavy industry” companies – Mitsubishi, Kawasaki and Fuji.

True, the circumstances are slightly different. The three heavies are already Boeing airframe partners. Airbus doesn’t presently have a factory in the U.S.

But the larger point to keep an eye on is what Boeing and Airbus intend with their respective announcements.

It’s not as though neither Boeing nor Airbus will get anything out of their planned ventures, in a direct business sense. Boeing may indeed derive some valuable insights into “machining and drilling process technology for titanium, aluminum and composite materials,” which the news release identifies as the initial focus of research efforts.

By adding an assembly plant in the U.S., meanwhile, Airbus can control currency-exchange risks between the dollar and the euro and whittle away at its order backlog, those observations courtesy of longtime aerospace analyst Scott Hamilton.

But it’s also not as though either move is crucial to the companies. Airbus could continue to build planes in Europe (maybe even add capacity there) and sell them all over the world, including to American carriers. And are there really no universities and companies in the U.S. capable of carrying out the sort of research Boeing wants done?

Of course there are. That’s not the point, any more than Airbus’ U.S. plant is primarily compelled by a business case.

It’s the political appearances, and how those pay off down the road, that really matter.

Boeing has a multifold interest in demonstrating its continued interest in Japan: Securing long-term contracts with that country’s airlines as well as with the government, and dampening enthusiasm in Japan for developing its own commercial-aviation industry that might eat into Boeing’s venerable and valuable 737 franchise.

Airbus wants contracts too, and from the same sorts of sources – U.S. airlines and the U.S. government. In the competition for the Air Force’s refueling tanker, Airbus offered to build an assembly plant in the U.S. Boeing argued it didn’t have to promise made-in-America, it already was. By building a plant in Alabama, Airbus can go to the administration and Congress the next time there’s a major defense contract competition and say, “Hey look, we’re just as American as those other guys.”

Investment in other countries also is valuable in lining up allies or defusing criticism in the unceasing trade disputes between Airbus and Boeing and the exchange of accusations, with considerable justification on both sides, of subsidies.

There is huge precedent for this. The importation of autos (mainly from Japan – the Europeans seemed to escape most of the umbrage) was an even more bitter fight in the 1980s than Boeing-vs.-Airbus is today. Foreign automakers could have continued to import and to fight those battles, but they found it more effective to build plants in the U.S., so a Kentucky-built Toyota, an assembled-in-Ohio Honda or a South Carolina-made BMW carries almost as much clout with politicians and voters as anything made by the Detroit Three.

In the long run, that’s as important a business consideration as the cost of raw materials or labor. The popular phrase “it’s all political” isn’t intended to be complimentary, but Boeing and Airbus are demonstrating that neither believes it can afford to be so dismissive of the political aspects – and neither intends to be.