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How the hell are we supposed to compete with THAT?

Today, Airbus completed the first test flight of their new MegaUltraJumboJet, the Airbus 380. Some analysts are deeply concerned about the jet's affect on the airline industry, and on Boeing's ability to compete.

This got me thinking. I think that Boeing could be in trouble, and it's just sympomatic of what could be a major threat to the American economy.

Boeing is a privately-held, publicly-traded company. It has to answer to its shareholders, who are the owners of the company. Airbus is co-owned by the British and French government, which means it has a certain level of immunity to the free market.

Another recent entry to the American market is DHL, the delivery company. In their big ad push, they showed a FedEx and a UPS driver meeting and saluting each other at a train crossing, then reacting in dismay as a train carrying dozens and dozens of yellow and red DHL trucks passes between them.

FedEx and UPS are, as Boeing, privately held and publicly traded. DHL is owned by the German postal service.

Over the last few decades, more and more manufacturing jobs have migrated from the United States to places with cheaper labor costs. One of the biggest beneficiaries of this move has been Communist China, and today our trade deficit with them is running over 166 billion a month -- roughly a quarter of our entire trade deficit.

China is a communist nation. The government owns everything, including every business that is currently manufacturing our computers, our VCRs, virtually our everything.

There are some that say that World War III will be an economic war, and I think there's some truth to that. I'll stack our corporations against any other country's corporations, and may the best business win.

But when I see other governments deliberately targeting those corporations as competitors, and going into business for themselves, I get worried. Because very few companies have deep enough pockets to successfully fight off an attack by a competitor that, whenever they need more money, can simply raise taxes to get it.

I'm no economist. I don't know if this is a real problem, or what the solution is. But I'm halfway decent at spotting parallels and connections, and I'm seeing more and more examples of foreign governments going into business and challenging our companies. And it's got me worried.

Comments (30)

Hopefully the fact that any... (Below threshold)

Hopefully the fact that any government trying it's hand at a business will almost always do worse than private companies will kick in and drive consumers/customers to use private companies.

Yes, I agree with SilverBub... (Below threshold)

Yes, I agree with SilverBubble, and add that since government is not accountable to shareholders, there is no corrective mechanism to keep these government/enterprises honest.

The french have scored a big victory here, with a great jet that will save airlines money.

But what if, down the road, Airbus starts taking missteps, starts losing money, starts losing LOTS of money, and then the french are stuck with a ghastly expensive white elephant.

The japanese, too, tried this marriage of business and government, and look where it has put them.

I think that the A380 is go... (Below threshold)
Brian Day:

I think that the A380 is going to be a bust for Airbus. Think about it.
1)It is so big that only a handfull of airports can accomodate it.
2) Think about how long it takes to board a 737. Now multiply that by four. Same for de-planing.
3) Imagine the baggage claim headaches, or trying to vie with 555 other people to catch a cab.
4) Be prepared to catch two or three planes to get where you want to go. See #1. It's back to the hub and spoke concept for it to work.
5) The existing system of smaller planes going directly to where you want to go will win out.

The A380 will fly only a few trans-oceanic routes. It is too big for domestic flights.

"Boeing is a privately-held... (Below threshold)

"Boeing is a privately-held, publicly-traded company."

I believe that publicly traded companies are, by definition, not privately held. And I agree with the opinion your post.

Gotta correct one thing, Ja... (Below threshold)
Mark A.:

Gotta correct one thing, Jay. China does NOT own every company working within its borders. For ten years I worked as the General Counsel of a multi-national corporation headquartered in Japan. I negotiated for the purchase of land and handled most of the paperwork for the opening of a factory in China sometime around 1995. That factory was co-owned by the Japanese parent corporation and it's US subsidiary. China might have taxed the shit out of it, but it certainly did not "own" any portion.

No worries Jay.In ... (Below threshold)

No worries Jay.

In fact, if I were not hiatiusing, I was going to make a post on how the new Airbus is a major gamble that will NEVER pay "big time."

Right now they are trying to make it pay at all.

One thing you have to remember is that everything, INCLUDING goverments are subject to market forces. While Silverbubble made one point, the larger point is that once Goverment realizes they are losing major money underwriting goofy planes, it will stop.

Hell, France and Germany face a monster entitlement problem that makes our social security system look like a cash cow.

My friend Steven Taylor likes to say that politics is the master sciecne... naw, the market is.


Uh, follow the money: if fo... (Below threshold)

Uh, follow the money: if foreign govts are subsidizing their exports industries, then the foreign taxpayers lose (they are the ones paying for subsidies to Airbus, DHL and Chinese manufacturing), and we win (we get cheaper goods). What's to worry about?

Yeah, specifically Boeing could theoretically get driven out of business, or more likely, slightly hurt, but the net gain to the US economy is positive.

This is the part about trade that people don't see - they only see the bad stuff, like layoffs, but they don't realize that it goes hand in hand with every American having an extra few dollars to spend. The negatives are obvious and concentrated, the positives are hard to see and very diffuse, but rest assured that we win in the end.

Gee, there is a name for ec... (Below threshold)

Gee, there is a name for economic systems where the government owns and plans the distribution of capital. It is called communism. Been there, done that. We won already. Trends in world marketplaces have been in the exact opposite direction for the past 20 years, and for good reason. Be not afraid.

Ah yes, the ability of gove... (Below threshold)

Ah yes, the ability of governments to pick and choose winners in the market: does anyone remember a certain airplane called "Concorde??."

Jay, for the very reasons you cite (the fact that the government company is unaccountable to the market, that it can rely on taxes for capital, etc.)means that government companies will fail because they do not rely on innovation. This Airbus 380 will be a bust.

Although the plane is a tec... (Below threshold)
D. Lange:

Although the plane is a technological wonder, it remains to be seen whether it makes good business sense, something the Europeans are prone to be lacking. Airbus says the plane can carry ca.500 passangers with room for bars, video lounges, whirlpools etc. (Boeing said the same thing about the 747 when it came out.) Wait until the first airline takes delivery. The temptation to cram it will revenue generating seats will be impossible to resist. If it can carry up to 800 seats the first airline to fly it will put in 801. (Or have you seen a video lounge on a 747 lately?) Imagine what it will be like boarding and debarking with 800 of your closest friends. And the number of airports it can fly to will be limited. To date Airbus has sold around 180 or so and it needs to sell 250 or so to break even. Of course don't underestimate EU pressure to force airlines to buy the thing. It is already telling governments in Asia and Africa that if they expect favorable treatment for imports into the EU they will have to buy a certain number of A380s. Boeing on the other hand has already sold out the production slots for the first three years of its new Dreamliner which can fly to more airports direct. Time will tell but a good business strategy beats a White Elephant every time.

Every war that I can think ... (Below threshold)

Every war that I can think of has been an economic war, for one side at the very least. Why should the next one be any different? Can anyone name of that wasn't?

Dayam!First it was... (Below threshold)


First it was the Concorde, then this. I don't know what we'll do!

D. Lange nailed it: the unexciting, but relentlessly practical medium sized plane with good fuel economy will relentlessly produce profits in a boring manner.

Think about your recent flights. Did you care what kind of plane you were on? Do you remember what they were? No, you just wanted to get where you were going without a lot of hassle.

This is eminiscent of the Soviets hyping their 100 Megaton nuclear weapons.

If there's one thing a corp... (Below threshold)

If there's one thing a corporation will always be able to do, it's outcompete government run enterprises. If a corporation chooses to just buy their parts from China, that's because they've got better, more productive things to be doing, and would just as soon leave the bottom of the value-added chain to the bureaucrats.

D. Lange nailed it: the ... (Below threshold)
Steve L.:

D. Lange nailed it: the unexciting, but relentlessly practical medium sized plane with good fuel economy will relentlessly produce profits in a boring manner.

Which US carrier is in the best shape financially? That's right, Southwest. They are the kings of the short-haul using 737s. They just keep cranking out profits year after year as the other airlines struggle. While other carriers are cutting back on routes, Southwest is expanding.

You do the math.

It'll be a cold day in Hell... (Below threshold)

It'll be a cold day in Hell before I set foot on the 380. A plane with 500-800 other people? Can you say "bomb magnet"? Can you say "I'll catch even more colds and diseases when I fly now". This in addition to all the other headaches like taking 2 hours to deplane. Maybe for people who don't know any better, but I doubt your average business travelor will want to be near one of these things.

Short-term: A few transcont... (Below threshold)

Short-term: A few transcontinental and international airlines will fork over the big bucks for a handful (probably no more than 4 apiece) of the gargantuan airliners, in the name of facilitating more economical travel over long routes. This makes logical sense, because a larger vehicle generally offers fewer maintenance and operational costs than its equivalent in smaller vehicles (think carpool). Prices, however, will not decline initially, as the airlines need to recover the enormous investment of purchasing these planes, and as these planes have such greater capacity, the routes will be run less frequently--a major inconvenience for most people except vacationers. The airlines will still have to maintain "business" service on those routes by the fleet they currently operate--Boeing and McD/D.

Long-term: because of the limited sales (fewer than 30 globally, probably), Airbus will suspend production of these airliners within a few years. Because production will stop, the airlines will use these planes until they are 25-30 years old--or until they begin to deterioriate to the point that the FAA deems them unsafe. Then this behemouth of the skies will be seen only in the record books along with numerous other "ground-breaking" planes that were the biggest/fastest ever.

In short, the economic pressures of capitalism in the end-user (passenger) market will negate any advantages of production afforded Airbus by their corporate picture, and although a few engineering concepts (imagine short, stubby, multi-deck planes that can land and takeoff from smaller runways) may change the shape of air travel, those innovations too will be the result of free-market economies.

According to CNN yesterday,... (Below threshold)

According to CNN yesterday, Airbus has 149 confirmed orders for the A380. I don't know how many options others hold, but anyone from Boeing will tell you that options don't mean s*** until the orders are confirmed, the planes are built, and airlines actually take delivery of the planes.

That is, up to the point of taking delivery, an airline can (and after 9/11, many did) change its mind.

Of course, Boeing runs the same risk with the 787 Dreamliner, but there are at least four critical differences:

First, Airbus must build, and airlines must take delivery of, 250 A380's to break even on its $11billion investment. Boeing's investment in the Dreamliner (by dint of its size, first model having 250 seats), is much less.

Second, operating the Dreamliner doesn't mean that airports have to spend money upgrading their facilities to accomodate the plane. After all the dust settles on the A380, as some have said, very few airports will make the investment, and those that do would likely have upgraded facilities regardless of the A380, because those airports service transcontinental markets, and have huge traffic volumes.

Third, Boeing is in the process of rationalising its product line, and is setting up the Dreamliner to cover everything from the next generation 737 up. Future models of the dreamliner will replace 767, and perhaps even 777.

Fourth, as others have stated, most of the growth in the airline market post-9/11 has been in the short-haul, no-frills, single aisle segment. Many airlines operating transcontinental routes are at least partially owned by governments, as there is a strategic reason for the government to do so. Also, the government can afford to keep planes flying even if they don't make quite as much money as the market would expect them to make. So by extension, short haul airlines should begin to whet their appetites to ultra-long distance mid-size aircraft, that can fly point to point, with fast turnaround times. IMHO, I wouldn't be surprised if Southwest eventually gets into the international market, putting their toes in gingerly, and remaining quite profitable, as they seem to do.

But Airbus may yet have one saving grace for the A380: freight. If I were UPS, FedEX, or the like, when the A380 came on the market, I'd be salivating. I have to fly freight to international markets anyway, and bigger planes mean more capacity, at lower costs.

And the $11bn question is, did Airbus build the A380, as did Boeing with the 747, with a view to convert to heavy military airlift use?

/ramblings off

Airbus=AmtrakPriva... (Below threshold)
Finn McCool:


Private companies efficiently provide valuable goods and services to customers because they need to do so in order to survive. They make better products, at better prices, and deliver them to customers in better ways.

In contrast, government "businesses" depend on taxation to survive. They also make decisions based on political grounds. Layoffs are verboten. Any and every example will bear this out. MexTel. The US Post Office. All operate at a loss.

Imagine for a moment that, in the mid 80s, IBM was faced with rapidly declining market share in the sales of its IBM PC. "No one wants our crappy overpriced junk! We're getting our asses kicked by some guy named Dell!"

Now imagine that IBM could solve this "problem" not by getting out of the PC market altogether, but by dropping the price on its crappy machines, taking a huge loss, and making up the difference in income by sending men out into the world with guns to forcibly extract cash from people.

We'd all be typing on our tiny orange-screens, saving our work on huge floppy discs, and thinking that TelNet was the greatest form of communication.

That is what AirBus is. The mid-80s IBM PC of the aviation world. It is doomed to failure.

CotC... (Below threshold)


Wanderlust's points on civi... (Below threshold)

Wanderlust's points on civilian and military freight are possible outlets for the plane that indeed seems too big for commercial success. How about military tankers? Though it's be a hell of a target, can you imagine the amount of gas and loiter time that behometh could bring to our air refueling system? If we wait until they are about to go bust, we could snatch up more than a few at bargain basement prices as well. Something has to replace the C-5 Globemaster, and a mega-fleet of C-17's may not be the whole answer.

On balance and over time, g... (Below threshold)

On balance and over time, government-subsidized enterprises cannot compete with private industry. Remeber, the socialists are on the ropes.

Hmmm.IMHO This air... (Below threshold)


IMHO This aircraft is going to be a bust:

1. All the reasons stated above. :)

2. A few recent accidents have pointed to an instability in the tail section. Specifically the rudder, which in the Airbus aircraft is made of carbon fiber composites. While other aircraft use carbon fiber, the Airbus aircraft use it to a much greater extent. It's very possible that the tail section is susceptible to fractures from temperature shifts, moisture changes and the simple wear and tear of taking off, flying and landing.

Additionally there's no easy way of checking carbon fiber tail sections. You literally have to specialised equipment and inspect it square inch by square inch in a long, laborious and expensive process. As it is right now I know of many people who refuse to fly on Airbus jets because of this issue. As yet there hasn't been a definitive report that covers this, but it's definitely an issue that people are keeping in mind. After all it was only a few decades ago that the first jet airliners were dropping out of the sky because of stress failures on aircraft hulls. Carbon fiber, when used extensively in commerical aircraft, is still an unknown.


It's most definitely a concern.

3. I don't think Boeing is in any real trouble. The Dreamliner is going to work out well but there's an additional source of revenue. That is military contracts. The US military is starting to go extremely heavy into UAV and UCAV aircraft and Boeing has contracts in both. Frankly I expect, once reliable and effective UCAVs are developed, the US military will switch en masse to the UCAVs. This is something worth in the tens of billions of dollars in contracts.

Hmmm.To finish the... (Below threshold)


To finish the point the USAF has the B-2 bomber, which is heavily based on carbon fiber. The current routine is 50 hours of maintenance for each ONE hour of flight, or so I'm told. This is because carbon fiber is just that. Layers of carbon fiber cloth laid upon one another in varying cris-cross patterns and glued together. If moisture gets in between the layers, and expands due to extreme cold from high altitudes, then the moisture freezes and expands. This causes separation of the carbon layers.

So the USAF has to reinspect each aircraft after each and every flight. From what I understand it used to be worse, 100 hours of maintenance for each 1 hour of flight, but new equipment has been made that has halved the maintenance time by automating it.

Now imagine an airline doing this.

Apples and oranges, Ed. The... (Below threshold)
Jay Tea:

Apples and oranges, Ed. The B-2 has no tail fin. No tail fin, no worrying about it falling off.



IMHO, the main problem faci... (Below threshold)

IMHO, the main problem facing Boeing is the lack of internal (U.S.) competition with the withdrawal of McD/D and Lockheed from commercial aviation. While it has allowed Boeing to concentrate its energies on Airbus, it also allows some institutional arrogance to set in as well (717).

As to the A380, all of its sales have been to national-flag carriers, practically by threat of the EU (where's the WTO when we need them?). The true test will be whether non-national flag carriers (Virgin Atlantic, U.S. Companies, etc.) will willingly buy the planes for the stated reason. If enough of them do, then the airports will have no choice but to modify to accommodate them - consider the "landing fees" to be generated on a chock-full A380.

All of that, however, depends on whether the A380 can actually fly - not as in that most recent test flight, but as in whether the tailplane remains intact, whether the fly-by-wire system decides that it wants to closely inspect that mountain over there, whether Ahmad decides to wear his Semtex Party Dress to his flight to London...

"Carbon fiber, when used ex... (Below threshold)
John S:

"Carbon fiber, when used extensively in commerical aircraft, is still an unknown." It's especially a problem when Airbus flyby-wire-systems are dutiful and dumb enough to allow a pilot to rip the tail off with the control stick. (You would think the computer might be aware of the plane's limits and not allow a full deflection at speed.) The biggest issue with 500 - 800 passengers is that some one will eventually drop one out of the sky resulting in a hideous death toll.

You guys are really deep in... (Below threshold)

You guys are really deep into a couple of my "nearest and dearest" topics.

1. Boeing has said all along that there was a marginal future market for superjumbos above the 747 class, and there sure wasn't enough market for two competitors. Game theory drove their only logical decision if it was assumed Airbus would move into the market "no matter what". Airbus was the only competitor that COULD move into the market "no matter what", because of their direct subsidies.
Would Boeing make a better superjumbo? Almost certainly. Airbus has made a host of design decisions (computer vs human priorities in flight controls for one) on their airplanes that Boeing (IMHO) would never consider. Ergo I hate flying on Airbus'.
History does repeat itself. I remember a few year ago reading that the whole SST thing happened very much this way as well and for a lot of the same reasons: market only big enough for one player (although for different reasons, ie Sonic booms and cost). The US SST proposal probably made better business sense than the Concorde BTW: theoretical higher payload, better cruise speed and fuel consumption.

2. B-2s and composites. The B-2, and read this closely: IS NOT MAINTENANCE INTENSIVE relative to other aircraft of its size and complexity. In response to a senior manager who kept asking me "why can't I turn a B-2 like a 747?" but wouldn't fund the effort . I did a "side study" on my own time a couple of years ago. I analyzed the mission performance of a small airline fleet of late model 747s and did an apples-to-apples comparison of 747s and B-2s. Operating in the same manner, the far more complex B-2, with more complex and critical systems and more stringent mission equipment standards compared VERY favorably with the 747-400, if Low Observables (LO) was left out of the equation. [In the commercial world, only the 777 barely edges the 747-400 in reliability ('why' is another fascinating topic for some other time)] With LO IN the equation, if the Air Force chooses to optimize its operations towards a combat Mission Capable Rate (MCR) instead of peacetime priorities (another interesting story), the B-2 is superior to all other bombers in the inventory. Thus in OIF, the B-2 had the highest fleet MC rate among the bombers (and some smaller aircraft). Bottom line: LO is still so new and specialized compared to entrenched historical maintenance and operational philosophies that the AF is still figuring out the best way to maintain and operate LO aircraft in significant numbers.

3. As to composites, the B-2 has comparatively very low rate of structural repair problems (by far), largely BECAUSE of the composite structure. The time between required Phase Inspections is longer than any other aircraft in the inventory because composites don't corrode. Until the B-2 came along the AF standard was 200 flight hours between down times in the phase dock. I think the B-2's is now about 5-6 times that now.

Freud would love this threa... (Below threshold)

Freud would love this thread.

Let me see if I can sum it up...

It's not the length,
It's not the size,
It's how many times
You can get it to rise.

The new giant Airbus- a tru... (Below threshold)

The new giant Airbus- a truly TITANIC airplane- will be gushed over and gawked at right up to the point at which one crashes and kills 700 people in one fiery instant. Then the 'what-the-hell-were-they-thinking, building it that big?' firestorm of criticism will begin.

so what? 50 years from now ... (Below threshold)

so what? 50 years from now such an incident will not prevent anybody from building a plane able to carry 2000 people at once (maybe).
The Titanic sunk....SO WHAT?






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