eMOTION! REPORTS.com Archives: Boeing Going? Proposed Departure of Aircraft Giant Stuns Seattle

Boeing, Going? Proposed Departure of Aircraft Giant Stuns Seattle

From the 2001 archives of eMOTION! REPORTS.com Myron D. Stokes, Publisher

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Boeing, Going? Proposed Departure of Aircraft Giant Stuns

Seattle

From the 2001 archives of eMOTION! REPORTS.com

Basil Rathbone as Sherlock Holmes Image: Unknown

“Watson,” Sherlock Holmes would say in a moment of sleuthing purity, “When you have eliminated everything that it isn’t, what remains is what it is.”

It is doubtful that Sir Arthur Conan Doyle ever thought the words of his master detective character would be applied to determine core motivations behind a rapidly emerging modern day corporate drama. But looking at the events of the past week concerning the affairs and actions of the world’s largest manufacturer of commercial and military aircraft, Boeing, Holmes would no doubt say, “It is most appropriate.”

Chairman Phil Condit stunned Seattle, Boeing’s home since its founding in 1916, when he announced an intent to move its headquarters to another city like Chicago, Denver or Dallas. And it’s probably not a bad idea to add Dayton to the list, along with Detroit.

But before we offer the expected well defined, thoroughly researched observations regarding state, municipal, national and even international economic impact resulting from this proposed move, we want to make clear that, in our estimation, Boeing’s not going anywhere.

The Boeing Legacy

Founder Bill Boeing chose the Seattle location well. Indeed, you could almost say he was beyond visionary - even prophetic -- in what he concluded would be Boeing’s then current and future place in the emerging world of aviation from both a commercial and military standpoint. The resources of Washington State, perched on that vast gateway to the world, the Pacific Ocean, were virtually inexhaustible, thanks to comparatively low population requirements. It is not a stretch to say that he could rightly

William Boeing (holding mailbag) with 1916 B&W Seaplane, solid and robust, it was the company’s first product Image: Boeing Archives

count on the resources of even Oregon and Alaska. After all, he reasoned, Boeing was going to be the indisputable core of the Pacific Northwest’s budding industrial base. Then, although not alluded to in Boeing’s memoirs, there was the potential of geothermal energy utilization as a manufacturing power source. The eruption of Mt. St. Helen’s in 1980 would lay to rest any argument that this area, part of the Pacific “Ring of Fire” as the volcano chain is known, isn’t one of the world’s geophysical hot spots.

The relative isolation of the area, as well as above average military defensibility, proved ideal for the testing of prototype aircraft away from prying eyes, a fact still valid today. During a visit to Boeing headquarters

last year, this writer marveled at how perfect a location Seattle and environs provide for the planet’s pre-eminent airplane builder. And not only perfect for things flyable: The city represents the core of the world’s technological evolution, if not revolution, in Internet linked and enhanced computing. The presence of software giant Microsoft, online services provider Amazon.Com, and enviable worker loyalty clearly makes Seattle one of the most coveted corporate locations on the Big Blue Marble.

Say It Ain't So, Mr. Condit

Former Boeing Chairman Phil Condit Image: Boeing

So, what gives? Why is Condit doing the presumably unthinkable? Four reasons; AIRBUS, European Union, Wall Street impropriety and …DaimlerChrysler.

The first three reasons cited are of course, understandable, but DaimlerChrysler? Actually, yes, as the outcome of this so-called “merger of equals” and “marriage made in heaven” weighed heavily in Condit’s decision to announce Boeing’s willingness to depart for business climates more conducive, he claims, to a “change in corporate culture.” And he has been chided, derided and ridiculed by economists, academics, politicos and the rank-and-file alike for presenting the latter as an appropriate reason for executive office departure from the city that loves them.

Call Phil Condit crazy…like a fox.

In a way not dissimilar to the agonizing decision that former Chrysler Chairman Bob Eaton faced one day in 1998, Condit looked at the future of Boeing unfolding in front of him, and the 59 year old aeronautical engineer didn’t like what he saw.

The so-called end of the Cold War brought about slashes in military budgets for big ticket, and for Boeing, bread and butter, items like C-17 Transports, the Advanced Tactical Fighter (ATF) and development of revolutionary aircraft like the problem-plagued tilt-rotor V22 Osprey. In Condit’s mind, history lent no support to the assumption that traditional reasons for military conflict cease to exist because a certain wall came tumbling down amidst the fragmentation of one of the world’s most powerful nations, the Soviet Union.

'In Condit’s mind, history lent no support to the assumption that traditional reasons for military conflict cease to exist because a certain wall came tumbling down…'

In addition to what amounted to a modern day repeat of the pacifist inclinations of Congress under the Wilson, Harding and early Roosevelt administrations, military analysts say that the current Congress and associate political elements have been lulled into a false sense of security now 11 years running.

“The world has become an even more dangerous place, and unfortunately, diminished military capability and the ability to project power to any point on the globe will prove a major stopgap to the success of the emergent globalism,” says Dr. Sheila Ronis, a Pentagon and NASA consultant. “Truly global corporate executives like Delphi’s J.T. Battenburg III, Ford’s Jacques Nasser and Toyota’s Fujio Cho conduct business on the basis of the assumption of a given country’s political stability being partially assured by the current world power - the United States - having the military wherewithal to maintain such.” Without it, says Ronis, a lot of long range globalization plans, fastidiously constructed and implemented, can come to a screeching halt.

Arsenal of Democracy

Solid: Boeing B-17G Flying Fortress Image: USAAF

Boeing’s success has been directly if not inextricably linked to its very core position in maintaining the “Arsenal of Democracy” for the better part of 70 years. Pursuant to the establishment of this position, Bill Boeing set about laying the groundwork for manufacturing processes that assured an incredible level of quality and resilience in both its commercial and military aircraft. A lot of airmen came home from the flak and Luftwaffe filled skies over Europe because of an extraordinarily tough long range bomber, The B-17 Flying Fortress. And half way around the world in the Pacific Theatre of Operations, squadrons newly equipped in 1944 with the successor to the beloved 17s, the aeronautical and aircraft systems standard setting B-29 Superfortress, began bombing missions to Japan. Again, demonstrating the wisdom of Bill Boeing’s unrelenting pursuit of production quality approach.

Pacific War Ender: Boeing B-29 Superfortress Image: USAAF

Boeing’s Commercial Airplane division directly benefited from the firm’s military experience, utilizing advanced aircraft systems technology, such as pressurization, developed for the B-29, in its post-war precedent setting Model 377 Stratocruiser luxury airliner. This aircraft actually featured two decks - the upper providing room for a passenger lounge. The two-deck approach was not revisited until the development of what is inarguably the finest passenger aircraft ever built, the 747.

The company’s aircraft, inclusive of the venerable 707, workhorse 727, 737, 757, 767 and advanced 777, are in the fleets of airlines around the world, a dominance not seriously challenged until relatively recently by the European aircraft manufacturer consortium known as AIRBUS Industrie.

Countering the AIRBUS Threat

Make no mistake, AIRBUS is a major threat to Boeing’s dominance and Condit is all too aware. The problem is, while he doesn’t mind competition, it’s the unfair competitive advantage given to them by the European Union that grates him. The company has been continually stung by the loss of major aircraft orders that just 10 short years ago, would have been unquestionably theirs. In a recent ER analysis of China, the story noted that “…the company became a pawn of sorts when the U.S. sided with Taiwan during a standoff in 1996 between China and Taiwan that bordered on open hostilities. Boeing was an easy target for the displeasure of the Chinese, which bypassed the company to order Europe’s AIRBUS planes, Boeing’s only real competitor, said [former Boeing of China President Ray] Bracy. Boeing went from an 82 percent market share down to 67 percent, as China sent a stern message. That’s business the company wants back.

'When 1,600 airplanes are expected to be delivered to China in the next 20 years - about $120 billion worth of business - we can’t really afford another occurrence of what happened.'

Even more recently, Boeing lost out to AIRBUS for providing next generation Wide Body passenger jets to Singapore Airlines. The “clean sheet of paper” A380, with the capacity to carry 555 passengers in ocean liner luxury 8,000 nautical miles, was chosen over Boeing’s 747X with advanced avionics, expanded passenger accommodation and increased engine efficiencies for longer range. The deal, valued at $8.6 billion, was a blow to the prestige of the company, who, given its history with this premier, highly profitable carrier (the airline currently operates over 36 747s and 18 777s with 12 more on order) had every right to believe they would prevail in an aircraft sales duel reminiscent of the Gunfight at O.K. Corral.

e tu, E.U.?

Airbus A380 Image: EADS

There is a presumption of significant discounts offered on these $220-240 million aircraft and E.U. subsidization is not a stretch.

Perhaps in what may become a premature gloat, AIRBUS Commercial division Chief John J. Leahy, quoted in the New York Times last September following the deal’s announcement, said that Singapore Airlines chose the A380 because they wanted the aircraft with the latest technology. “The 747 is a very fine airplane,” he said, “but it’s built on 1960’s technology.”

Someone should remind Mr. Leahy that airframes, properly maintained, can theoretically last forever. Considering the reality of avionics/flight systems modularity, even a DC-3 can be modified to operate on the technological edge. Expanding on the statement “1960’s technology”, he ought to remember this era produced aircraft of such superlative design and performance that they are considered aeronautical engineering benchmarks to this day. Names that readily come to mind include Concorde, SR-71, X-15 and Harrier. Not to mention we went to the moon in 1969.

In matters military, the company got an unexpected boost recently when the U.S. Air Force, in a near unprecedented move, offered substantial incentives to civilian air freight operators for purchasing the C-17 Globemaster transport. In addition to preferential financing arrangements, there are other perks like guaranteed government haulage contracts and post bankruptcy buy backs. All of which has caused considerable consternation among government “watchdog” groups.

'…Phil Condit is at war.'

Such concerns, although essential and appropriate to the preservation of this country’s democratic architecture, fail to take into consideration the current world state of affairs economic, political and military. “The bottom line is that we’re at war in the economic sense, and Phil Condit is at war,” says Ronis.

"The European Union is very wise and understanding of the issues, as they relate to the need to support their member economic goals on a global basis, and most importantly, maintain their respective industrial bases. Americans, by and large, are clueless in these matters.”

Ronis notes that war is always waged first against a target nation’s economy. The subsequent crippling of its industrial base can all but render it defenseless. “There can be no assumption that just because a country is our ally militarily; i.e., NATO members, that it is our friend in the pursuit of economic advantage,” she says. “At the risk of sounding alarmist, the U.S. economy, and thus its industrial base, is under attack. And what greatly concerns Condit is there is virtually no recognition of that fact by most rank and file, politicians and even industry executives.” There are clear national security issues here, says Ronis and according to one observer, Boeing is national security.

Wall Street Disloyalty

Image: Lehman Brothers

Condit’s other concern is the fickleness and perceived disloyalty of Wall Street, who for more than 36 months, have supported virtually without question unproven companies presumably providing the underpinnings of the new economy, the Dot.coms. The billions sunk into these entities which provided neither “brick, glass or mortar” has been a clear factor in the current slide of the economy, which, for all intents and purposes, is in recession. Moreover, Wall Street’s love affair with internet/tech stocks has been at the expense of Blue Chip companies like Boeing, GM, Ford and others, as these were largely ignored as quite viable “buys”. After all, they only comprise the deepest foundations of this country’s industrial base.

Until the dot com crash, one needed to only look at the preposterous differences in assigned share values between components of the “old” versus “new” economies as verification of this contention.

The Spectre of Corporate Destruction

From a distance, Condit has watched, and not dispassionately, the acquisition, and subsequent destruction of an American corporate icon, Chrysler.

What was going through his mind as this supposed “marriage of equals” turned out to be nothing less than a “constructive taking”, that is, the acquisition of a business entity by legal means for purposes other than those originally stated? The dual analyses recently presented in ER, “Der Sturm" and “Chrysler - Down for the Count: Crafting a Reprieve” noted that Chairman Juergen Schrempp admitted as much to the Financial Times.

What was Condit thinking as top-flight American executives who comprised the nucleus of the executive management team responsible for the modern day corporate miracle known as Chrysler were ruthlessly eliminated?

What were his thoughts as the last of the $9 billion in Chrysler’s coffers took flight across the Atlantic on December 31st of last year to a waiting German bank account?

And what did he feel when the new, all but purely Daimler management team coldly announced that the reasons for Chrysler’s financial and marketshare woes were due to inept American business acumen, followed by the elimination of nearly 30,000 jobs inclusive of a host of white-collar workers? The latter being unceremoniously escorted from the company’s sprawling billion-dollar complex in suburban Detroit like common criminals?

Most disturbing to Condit, however, there was virtually no hue and cry from corporate and political sectors as a corporation with a near century long presence, a corporate icon whose importance as a vital component in the maintaining of this country’s core macro-economic stability was removed from existence. An importance acknowledged two decades ago via a Congressionally approved $1 billion plus loan guarantee to the then financially insolvent company.

A recently released University of Michigan study demonstrated that the recent Chrysler job loss would impact over 16 million positions and accelerate a recession. When one considers all of the aforementioned factors, the threat of AIRBUS, the predatory economic activity of the E.U., an irresponsible Wall Street, a rapidly emerging recession with crash potential, the destruction of Chrysler, an appalling apathy on the part of Capitol Hill and a globally clueless American society as to the fragility of this country’s industrial base, should we really be surprised at Condit’s actions?

Here to Stay?

Best Strategic Airlifter in the World: Boeing C-17 Globemaster III Image: Boeing

“In all likelihood, Condit and Boeing headquarters aren’t going anywhere, but he will, if he doesn’t get the change in corporate culture that he seeks and knows is necessary,” says Ronis. And according to insiders, Boeing suffers from the same difficulties that Ford’s Jac Nasser and GM’s Smith and Wagoner face: the so-called “Middle Kingdom.” That is, the traditional power of middle and upper management to thwart the will and directives of the most capable CEO’s. “When Condit took office, he was nothing short of amazed at how solidly entrenched and influential those comprising this level and element of corporate management could be,” says one observer. “As it now stands, he will not accept this arrangement for another moment, and if shocking all concerned, inclusive of municipal, state, union and Seattle residents in general accomplishes this goal, he will and has.”

Condit’s larger goal, however, is ensuring the existence of Boeing for a long time to come. Indeed, this action is bringing about the necessary attention from all levels, including the Federal government.

"In 1947 Congress had the knowledge and wisdom to establish the. National Security Act, which created the National Security Council," says Ronis. "The National Security Council was established as a mechanism to integrate domestic, economic, industrial, military, diplomatic and foreign policy, for the overall national good. Unfortunately today, the economic and industrial element of that picture appears to have been lost. "Boeing, along with GM, Ford and Chrysler, must be protected and preserved as the core components of the country's industrial base they are."

'…if the government won’t give them the kinds of market protection and guaranteed business the E.U. is giving to AIRBUS…They will demonstrate they would rather fly in an atmosphere without air, and build birds without wings.'

The Final Frontier

Boeing EELV and Shuttle Concept Image: Boeing

In the opinion of one industry analyst, Boeing is “sending a powerful message that if the government won’t give them the kinds of market protection and guaranteed business that the E.U. is giving to AIRBUS, thus allowing the latter to pursue its predatory strategies, they will radically change their business model. They will demonstrate they would rather fly in an atmosphere without air, and build birds without wings.” In other words, Boeing’s going to get out of the commercial airplane business, leaving it to the consortium, and go after the tremendous opportunities associated with the commercialization of space. And assuming that the current administration doesn’t kill the Mars program with the hundreds of billions committed, Boeing should do well.

Problem is, changing their business model means changing their infrastructure and architecture, and consequently, the elimination of thousands of aircraft manufacturing jobs. Can the economy withstand such a hit in its current state? Probably not. And with the existent industrio-economic downturn already having a negative impact on the automotive industry, a restructuring at Boeing of this magnitude will be devastating.

'Companies, such as GM and possibly even Ford, may become so weakened economically that they might become vulnerable to take over…'

Sudden Impact

Wayne State University Professor and Former Ford Motor Company statistician Victor Lowe paints a grim picture. “The loss of so many jobs at Chrysler and other large companies may be setting up the U.S. economy for potential catastrophe. According to the Keynesian Economic Model multiplier principle, you have to multiply each job lost by a fairly large number to calculate the total loss to the economy,” says Lowe.

A former associate of manufacturing quality visionary Dr. W. Edwards Deming, Lowe further notes that “The accumulated effect of all the lost jobs will ripple through the economy for a long time, and companies, such as GM and possibly even Ford, may become so weakened economically that they might be vulnerable to take over, even from a non-U.S. owned firm. People should be concerned, especially after seeing what happened to Chrysler so soon after it was purchased.”

In our view, Phil Condit has sent out an unmistakable wake-up call that has to be heeded. Apparently, some aren’t getting the message regarding the danger in the control of more American firms and their subsidiaries being ceded to offshore interests. The latest example: the proposed sell-off of General Electric’s satellite making division to Societe Europeenne des Satellites of Luxemburg for $5 billion in cash and stock.

No, Bill Boeing isn’t turning over in his grave, rather, he’s giving Condit the high sign and saying “Smooth move, Phil.”

Watson and Holmes would most certainly concur.

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