“Racing to the Bottom”: Airbus Flies Past Boeing in Jet Orders – Part I
Check out this story from the NY Times
This story, from page 6 of the January 14th NY Times reports that Airbus, Boeing’s main rival in the commercial aircraft industry, received more orders for jets last year than Boeing. Boeing, however, beat Airbus by a small margin in aircraft “deliveries” in 2013. Deliveries are a better measure than orders, because many orders are never consummated. Nonetheless, Boeing and Airbus, as the story points out, are neck and neck in the commercial aircraft market.
These data support Boeing’s arguments in the latest round of brinksmanship in Washington State. The threat of jobs leaving the state, resulted in (additional) large tax cuts for the company, as well as wage and benefit concessions by the Machinists Union. Boeing says its fierce battle with Airbus for market share means it has to cut production costs. There is much truth to that.
On the other hand, as the Machinists Union points out, Boeing has been highly profitable and its shareholders have received solid returns in recent years. A share of Boeing stock was $119 in October 2013; it closed yesterday at $140. All of this good financial news was the back drop to the massive tax cuts and Union concessions.
Also, as critics of the deals cut by State Government and Labor point out, Airbus is somehow able to sell planes at competitive prices, even though it’s manufacturing workers are in powerful unions, located in European countries with strong labor laws. Labor and liberals in Washington see the recent Boeing events as a defining moment in “race to the bottom.” Compensation for unionized workers in one of the last strongholds of U.S. manufacturing is headed south (in more ways than one).
So, here are three immediate inferences from this story:
1) Boeing demanded and gained more from Washington State and the Machinists Union than it needed to just remain highly profitable and keep shareholders happy in the next few years. Boeing wasn’t acting out of character; it behaved like most multi-national and multi-state, profit maximizing corporations; which is not to entirely excuse the company.
2) Boeing was also looking to the longer term. The company knows it faces not just tougher competition from Airbus, but aggressive aircraft manufacturing programs in China, Russia, Japan, and Brazil, which will shake up the Airbus-Boeing duopoly. (Boeing of course fostered some of those programs, i.e., transferred technology, through its outsourcing).
The short story in the NY Times about aircraft orders reminds us about these (mostly) well known conditions in the airliner business. That’s not big news. But It should also make us aware of some stark realities about “race to the bottom.” Hence, point #3:
3) Slowing down, much less reversing, this free fall in workers with middle class incomes, would require changes to the the twin meta policies of Free International Trade and Free Domestic Trade. You don’t often hear the phrase “free domestic trade”, because easy commerce among our fifty U.S. states was a basic reason for our Confederation, and later our Constitutional Republic; and more importantly it’s in our DNA.
These twin philosophies provide the legal and economic foundations, as well as the basic incentive structure, for race to the bottom. It doesn’t forgive Boeing for upsetting the apple cart in Washington, but it does explain what encourages and makes it possible….and why stopping the race to the bottom is so daunting. Just yelling at Boeing, blaming Washington politicians, or slamming the International Union for “helping locals see the light” is not enough.
A lot more about that in Part 2 of this discussion in a forthcoming blog post.