Editors note: To celebrate Crosscut's 10th anniversary as a local news organization, so we are featuring the stories from April 1, 2007 on our homepage.
The comeback at Boeing in its competition with Airbus the past couple of years has been as dramatic as any I've seen in 35 years writing about Pacific Northwest business. It is actually fun writing about Boeing again.
We can be forgiven a bit of schadenfreude – guilty pleasure at the misfortune of others – as Airbus stumbles from one public-relations disaster to another.
Aerospace employment in Washington, which fell by almost half from mid-1998 to mid-2004, has risen since at rate of about 500 a month. The head count at Boeing and suppliers in Washington today is about 25 percent higher than at the cyclical low 33 months ago. Boeing's changed business model – more "buy" and less "make," especially on the new 787 – means Boeing head count won't go back over 100,000 as in the past three or four boom-bust cycles. But hiring should continue at a good clip for at least another year or two as production ramps from the cyclical low of 281 jets in 2003 to next year's 520.
Boeing's backlog bulges with nearly 2,500 unfilled jetliner orders. Boeing's relatively small but fuel-efficient 787, scheduled for roll out July 8 (yes, on 7-8-7, naturally) and with first deliveries in mid-2008, is sold out through 2012.
Boeing obviously made the right bet when it opted for the smaller and more flexible jet instead of a super jumbo like the Airbus A380. Only about a dozen airports will be able to accommodate the 555-seat Airbus giant when it begins flying commercially next year. It has far fewer orders, about 150, than Airbus expected. Some orders have been cancelled because deliveries are so far behind schedule.
But Boeing better not get too comfortable in the cat-bird seat. In a business of long-lived products (30 years is typical), comparative advantage can change relatively quickly. And in the long run, the real threat to Boeing, and for that matter to the Boeing-Airbus duopoly, clearly will come from China.
Boeing's own forecasts show that domestic Chinese passenger traffic will compound at an annual rate of nearly 9 percent over the next 20 years, faster than any other major market. Within less than a decade, Chinese domestic traffic will overtake that of North America. As a result, the fleets of Asia-Pacific airlines, today less than half the size of the North American fleet, will triple in the next 20 years.
BusinessWeek reports that China's top leadership in February formally approved a plan that envisions Chinese production of large commercial aircraft, with designs due by 2010 and deliveries perhaps a decade from now. China is already well on its way. A relatively small (70-100 passengers) single-aisle regional jet, the ARJ-21, is scheduled to take to the air next year.
An executive of a Seattle-area supplier now selling components into China tells me that he expects that within three to five years the business will be handled entirely by Chinese suppliers. Airbus has agreed to set up a production line in China. And Chinese suppliers, so The Economist reports, already build doors and wing panels for the 737, wing ribs for the 747, and the rudder for the 787.
The Economist quotes AeroStrategy, a consulting firm, as observing that the issue is not whether the Chinese can develop commercial jets but whether what they come up with is "good enough to win against the best that Boeing and Airbus can deliver."
Building planes is obviously several orders of magnitude more difficult than assembling the computers, cameras, printers, and other stuff that lines the shelves of your local Best Buy. Yet neither Boeing nor Airbus can afford to rest on their laurels.
