If, as Samuel Johnson is purported to have said, patriotism is the last refuge of the scoundrel, perhaps the mercantilist parallel in the age of global commerce is a faded bumper sticker once popular around Seattle: If it’s not a Boeing, I’m not going.
That, in part, seems to be animating the current tawdry mud fight between Boeing, Bombardier, Airbus and Delta, with the skirmish lines being drawn in the stuffy bureaucracy of the World Trade Organization. Obscured by the war of the PR departments is that this is really little more than moneyed legal teams striving for the high notes in identifying each others’ kettles as mere pots.
Arriving in my inbox this week was an analysis from the Business Travel Coalition, an advocacy/lobbying group for transparency in policies related to the managed travel industry. It excoriated Delta Air Lines for its purchase of 100 new Airbus A320neos by pulling—what else—the patriotism card. Quoting Commerce department estimates, this buy will supposedly cost some 65,000 American jobs. (Never mind that most A320s for the North American market are built in Mobile, Alabama, not far from Continental’s engine factory.) BTC also dinged Delta—fairly, I’ll admit—for advertising and promotion heavy on commitment to American commerce while it was busy buying—horrors!—European airliners.
This skillet has been simmering awhile but came to a boil earlier this year when Boeing challenged Delta’s purchase of Bombardier CS100 single-aisle jets, claiming the airline was getting such a good deal that Bombardier had to be dumping into the U.S. market. The U.S. Department of Commerce agreed and slapped a 300 percent tariff on the Delta buy, effectively killing the deal if not Bombardier itself. Retaliation is the stuff of trade spats and it didn’t take Canada long: Last week, it cancelled a $6.5 billion order for Boeing F/A-18 aircraft. It will buy used versions from Australia instead. In the meantime, Airbus stepped up and acquired a no-cash majority position in the CSeries program that will allow Bombardier to leverage Airbus’s global heft in marketing and supply-chain economics. Smart move, Boeing.
Now the case goes off to the International Trade Commission, which will determine if Boeing’s claims of potential damage to the U.S. industry are valid. Core to the argument is government subsidies, which Boeing claims Bombardier got from the Canadian and Quebec governments when the CSeries program ran into trouble. Brazil has filed a World Trade Organization claim on this as well. The pot-kettle silliness arises from the fact that both Boeing and Embraer would have us believe they’re utterly unspoiled by the taint of government payments, laboring as they do in the remorseless hard-scrabble of western capitalism.
Of course, more than a third of Boeing’s $94.5 billion revenues come from government defense contracts, so there is that. And Good Jobs Firstreports that Boeing has been an aggressive seeker of government subsidies in the form of loan guarantees, tax breaks and bond financing. In South Carolina, for example, it negotiated what could be as much as $900 million in property tax abatements for a new factory there.
And in Seattle, when the state and city were worried about Boeing exporting jobs in 2013, the company was given an $8.7 billion tax break, the single largest that any state has offered in the U.S. The company repaid the community by cuttingmore than 12,000 jobs, or 15 percent of the workforce. The legislature is busy crafting a law to get some of that money back.
The point is this: If you’re looking for moral bedrock here, there is none. It’s folly to apply white hat/black hat reasoning or to force the discussion into always-buy-American ideology. The reality is that in the global marketplace, aerospace giants are financed, subsidized and sustained by government money in some form and it’s nave to think otherwise. It’s just a fact of business life so you’re left to spin it toward European subsidies being socialism run amuck and U.S. subsidies as just good ole ‘Merican capitalism.
Further, Boeing and Airbus have both inked orders for airplanes selling below production cost. They make their money in sustained production programs. Not being privy to the details of Delta’s deal with Airbus, we can only guess if it was animated by spite or standard bottom-line thinking. But if businesses are shamed into higher-cost decisions for patriotic optics, they are by definition making themselves less competitive. This is equally true if a local government views a tax break as a promissory note for a full-employment program. If a company can’t trim workforce to accommodate productivity gains, it will become uncompetitive.
So the CSeries ITC case is just a bunch of noise to see whose lawyers can pull the wool over the commission’s eyes more effectively. The WTO will eventually get involved, I’m sure. The “buy American” argument strikes me as impossibly simple-minded in an industry that’s as globalized as aerospace. Why is it better to preserve jobs in Seattle than in Mobile? More than half of the CSeries components are U.S. sourced, so if those companies don’t get the business, will Boeing buy components for a type of airliner it doesn’t even build?
The quaint view of competition is that it has to do with the best products at the best prices and the great leveler of consumer demand will declare the winner. But competition is multifaceted, bridging into politics, the courts and manipulating public opinion. In my view, that’s Boeing’s top game here. It has decided to invest heavily in its cash-cow 737 series to the exclusion of smaller aircraft like the CS100. So rather than compete with a like product, it will sue the competition. (Nothing new about this. The Wright brothers started it with their protracted suits against Glenn Curtiss.)
Naturally, Boeing has its investors to consider and they ought to be happy indeed. Just this year, its stock price has soared from $153 to $296. Boeing alone accounts for more than 25 percent of the Dow’s average rise this year. With that kind of market cap ($175 billion), you’d think they could afford to fund a piddly 100-seat airliner project. But they probably look on that class of airplane the same way Cessna looked at the Skycatcher.
First Flight Day
Having mentioned the Wright brothers above, I’d be remiss in not noting that today is the 114th anniversary of the age of powered flight. The weather on the Outer Banks of North Carolina is remarkably similar this morning: 36 degrees, but a light breeze rather than the gale that lifted Orville Wright 120 feet on the first recorded powered flight, a mere three feet less than the wingspan of Boeing 737. Perhaps due to subsidies, an A320 is six feet shorter.
