The choicest bit of economic news in the past few weeks came from Chicago, not Bonn. In Bonn, the heads of western governments let off a lot of hot air at the latest economic summit. In Chicago, the free world's largest passenger airline. United, decided to spend $1.2 billion for 30 of the Being Co.'s new short-range 767 jets.
When the Bonn meeting is long forgotten, the consequences of United decision will still reverberate. It promises to help the United States maintain its stranglehold on the world's lucrative commercial jet market. Between 85 per cent and 90 per cent of the jets flown by non-Communist airlines are American-built. Last year, the United States exported $5 billion worth of commercial aircraft, including spare parts.
It's difficult to overstate the significance of the United order. With the United States running a massive trade deficit - $31 billion last year - the evidence grows daily that American companies are losing their technological and commercial advantage in a wide range of products, costing both jobs and exports. That erosion threatened in aircraft, because Boeing's only serious competition came from the A-300 Airbus, a similar jumbo jet manufactured by a European consortium.
The Europeans have been trying to end American domination of the jet market for years, and the A-300 appears their best opportunity ever. Eastern Air Lines Inc. already had ordered 23 Airbuses for early $800 million, and an order by United probably would have doomed Boeing's plans for the 767 jet. In turn, that would have meant more Airbuse sales to U.S. and foreign airlines - at the expense of U.S. manufacturers.
Someday the top United and Boeing executives may tell the story of how the order was won. It will surely be a more complicated and entertaining adventure than the bland tale portrayed by the company press releases. From all available evidence, the economic and technical characteristics of the two planes closely match each other. To win, Boeing must have offered United a bedrock price and given the airline virtually a free hadn in requesting design changes. For its apart, United may have feared a political backlash if it torpedoed the Boeing plane.
The stakes involved in this decision reflect a massive replacement market for aging jets. Of the 4,800 jets now in service (not including those in Communist countries), about 1,200 are more than 10 years old. In addition, air travel continues to increase. Assuming 6 per cent growth - which is not unrealistic - Boeing estimates $70 billion to $80 billion in new jet sales (in "constant" 1977 dollars) over the next decade.
And much of that market, possibly two-thirds, will be for short-range jets. In the early 1970s, airlines replaced many of their older long-range jets, such as the Boeing 707 and McDonnell Douglas Corp.'s DC-8, with the Boeing 747, the DC-10 and Lockheed Aircraft Corp.'s Tri-Star. Now, many of the short-range aircraft are ready for retirement. Both the A-300 and the Boeing 767 - twin-engine jumbos with a seating capacity of about 200 - aim at this market.
The Europeans once hoped to have much of it to themselves. While the Americans focused on the long-range jumbos in the early 1970s, the French and German government formed an international consortium to develop the A-300. Although the DC-10 and the TriStar (three-engine jumbos) can be fitted to some short-range (1,000 to 2,000 mile) routes, the slightly smaller Airbus was specifically tailored to these distances.
What frustrated U.S. companies from developing their own Airbus was the huge investment required (now put at $1 billion to $1.5 billion by Boeing) and the absence of firm airline orders to underwrite that commitment. In the early 1970s, traffic growth was slow, the airlines had trouble absorbing their new fleets of jumbos, and profits were down. As long as this pattern prevailed, new orders for Airbus-type planes might materialize so slowly that any U.S. manufacturer would take a staggering risk in launching an independent program.
If that outlook has now changed - traffic and profits are rising rapidly, and United has give Boeing entry into the market - the 767s superiority over the Airbus still remains unclear. The only hint that United gave for its selection was the 767's promised fuel savings, about 35 per cent better per available seat than the older generation jets. This translates into about $6 per seat for a 1,000 mile trip. But, in service with Eastern, a slightly bigger version of the A-300 already achives about a 35 per cent gain in fuel efficiency over the older jets.
There are other mysteries to Boeing's triumph. Most of the Airbus's original $1 billion development and investment costs were incurred in the early 1970s. Boeing's costs, by contrast, would be incurred in inflated dollars nearly a decade later. A skeptic might wonder whether the actual investiment will be near, or exceed, the top estimate of $1.5 billion.
Exact comparisons aren't possible, because the plane proposed by the Europeans for United is a smaller version of its original model. The modifications, mainly a redesigned wing, would require an estimated $850 million investment. Even so experienced airline and aerospace executives belive that Boeing must have decided either to shave the price to United or to write off its development costs over an extremely long production run.
Nationalism, too, may have played a subtle - almost subconscious - role in United's choice. It is no coincidence that, with the exception of Eastern, no American carrier has yet ordered the Airbus. Nor is it a coincidence that nearly a third of Airbus's 124 firm orders have come from the European carriers owned by the government investors in the Airbus.
What may loom now is an increasingly bitter struggle - involving governments, not just companies - for new sales. For, in this lush market, the contenders don't always play by gentlemen's rules. American officials believe, for example, that the British flagrantly violated an intergovernment agreement by offering Pan American World Airways Inc. generous loans to buy Rolls Royce engines over U.S. Pratt & Whitney engines for large orders of Lockheed TriStars.
In world trade, this is the flip side of the new protectionism. It's the new promotionalism. And the world's airlines and aerospace companies may now be in for a big dose of it.