The Post reported recently that the Boeing Company's chairman, Thornton A. Wilson, had asked the administration to engage in "forceful trade retaliation" against his chief competitor, Airbus Industrie --an Anglo-French-German consortium which makes the Airbus. He seems to have proposed a series of far-reaching steps; for example, countries receiving American military aid would have to buy American in selecting their commercial aircraft. The administration's response to Boeing's audacious initiative is unclear and may not have developed. (The administration is already stretching the tolerance of its European allies by trying to wage economic warfare against the Soviet Union.)
The Post's story must have surprised many readers; people have grown accustomed to reading about Boeing's successes--not its problems--in the airliner business. In recent years, these successes have all but crowded out Boeing's domestic competition and given the company a hold on more than half of the world market for airliners. However, roughly two-thirds of that market now lies outside the United States, Boeing's natural domain. The American airline industry is weak and becoming weaker. Many of this country's major airlines can't afford to buy new equipment, even though they need it; and some of the carriers that do place orders insist that Boeing help with the financing (and never mind that Boeing is probably spending about $1 billion more annually now than it is taking in). Boeing also confronts a cancellation of some orders for its new airplanes--the 757 and the 767--and postponement of other orders.
The healthy and fastest-growing markets for new airliners lie in Asia, especially Southeast Asia. And in these markets, Airbus Industrie has strongly outperformed Boeing. The strategy of this multinational company, which is largely financed and controlled by the governments, has been to sew up airlines along the Trans-Asian silk route, an area stretching from East Asia westward to Europe. Boeing's new airplanes have been nearly shut out of this huge market by the Europeans, who have swept most of the Middle East and sold their Airbus--the natural rival of Boeing's new airplanes--to Air-India, Korean Airlines, Malaysian Airlines, Pakistan International, Philippine Airlines, Singapore Airlines and Thai Airways International. Farther south, Garuda Indonesian and Trans- Australia have also bought Airbuses. Airbus Industrie has made inroads in Africa and on South American turf that once belonged to Boeing. Bernard Lathiere, the president and chief executive of Airbus Industrie, said to me not long ago, "The biggest share of the wide-body market now belongs to us." He could be right. In 1979 and again in 1981, his company sold more wide-bodied airplanes than Boeing.
Boeing's problem is serious, its roots somewhat obscured by the company's strength and widely publicized successes at home. The problem is partly self- induced. One of Boeing's new airplanes--the 757-- is too big. The capacity of this long, narrow-bodied airplane is about 185 to 190 seats, almost that of the wide-bodied 767, which seats just over 200 and is very like a new version of the Airbus. But what the airlines need most is a fully modern replacement for the smaller 727, the great success story of the jet era. The 727 has made more money for more airlines than any other airplane. Nearly three-fourths of all scheduled flights worldwide are of less than two hours' duration and less than 1,000 miles in length. The average flight within the United States is about 700 miles. The 727 is perfectly suited to this kind of route. But it is now obsolete, in part because it consumes too much fuel. The 757 was supposed to replace it. But instead of building a wholly new and similarly sized airplane, Boeing created one that isn't fully modern--it carries over some features of earlier Boeing airplanes--and is significantly larger than the 727. The airlines wanted and expected a brand new 150-seat airplane. Instead, they are being offered two larger airplanes, neither of which ideally meets what for most of them is the principal need. There are few more wasteful pursuits than operating half-filled, oversized airliners.
In selling the rather longer-range and more expensive 767, Boeing is saddled with difficulties over which it has had little, if any, control. One of these is American foreign policy; another the inconstancy and sometimes unworldly nature of our export policies. In the spring of 1980, three airlines in the Middle East-- Kuwait Airways, Saudi Arabian Airlines and Middle East Airlines--were on the verge of buying new airliners. The candidates were Boeing's 767 and the A310, Europe's new Airbus. In March of that year the French president, Valery Giscard d'Estaing, visited Kuwait, Saudi Arabia, and four other Arab states.
Everywhere he went, Giscard told audiences what they wished most to hear: the rights of the Palestinian people, he said, had to be assured, and Israel should withdraw from the occupied Arab territories. This initiative, which almost surely was unrelated to the aircraft competition, turned the tide in the Middle East against Boeing. Several weeks later, France and the other members of the European Community formally adopted a position on these issues foreshadowed by Giscard's declarations. Boeing, although curiously unaware of it, was no longer able to compete on equal terms in the Middle East against the Europeans. Then as now, American policy was judged by the Arabs to be weighted in Israel's favor.
Boeing's immediate and perhaps less unmanageable difficulty concerns export policy. The Export-Import Bank and counterpart agencies in Western Europe routinely finance the larger part of the cost of airliners purchased by foreign airlines. The interest on the loans is usually well beneath market rates, and only foreign airlines qualify. However, this administration has been trying to cut back the Export-Import Bank's budget. The Reagan people seem to feel that the bank's function of providing low-interest loans to promote sales of American products abroad amounts to government interference with the flow of free-market forces. And like some others before them they wonder why the government should provide this sort of help to companies that sell products abroad and not help those that don't. It seems discriminatory, and in a sense it is. But in Europe and Japan export policy, no less than foreign policy generally, is based on national self-interest.
Other governments wonder at and are intrigued by America's ambivalence toward its Export-Import Bank. The policy changes from one administration to another. Boeing is this country's No. 1 exporter, the commercial airplane our leading industrial export. Moreover, no other commercial product embodies as much high technology as modern airliners. For these reasons, Boeing would seem to be a national asset; its operations have an obvious impact on the economy.
However three-fourths of the company's earnings lie in the sales of its airliners; and because two-thirds of its market is outside the United States, Boeing's dependence on the Export-Import Bank probably exceeds that of any other company. It will not be able to compete on even terms against foreign competition unless the scale of the Export-Import Bank's operations is allowed to match that of European counterparts.
The risks and costs of making and selling airliners are enormous, possibly exceeding those of any other industry. Boeing seems to be the only American aircraft maker that is still able and willing to accept those risks. It has literally bet the company at various times in creating its family of airliners. Boeing guessed wrong on the 757--at least in my opinion-- but it has guessed right more often than not.
Most of what Boeing's chairman just proposed to the administration should and presumably will be ignored. But one of his suggestions--that the government allow the Export-Import Bank to do more, instead of less, in financing aircraft sales-- deserves support. It is hard to see how this administration can sensibly do less. And it or some successor administration may eventually have to do more if we are to avoid seeing another national asset--the commercial airplane industry--whittled down, just as other prize industrial assets have been depleted by foreign competition.