Remember the old saying – the only things certain in life are death and taxes? You need to add global competition to that list.
Increasingly, American businesses are competing with companies around the world. No one has a captive market any more, not even Boeing and its European rival, Airbus.
Since 1970, Boeing and Airbus have been the only major players in the large commercial jet market – airplanes carrying from 125 to 580 passengers. That will change in the next few years as competitors around the world salivate over a highly promising market. Airlines are expected to buy 31,000 jets during the next 20 years, worth more than $2.6 trillion. About half those planes will replace aircraft in service today, while others will serve new routes in developing countries.
Air carriers have no choice. They need to replace aging fleets with more fuel-efficient planes that are less costly to maintain. Chinese, Canadian and Brazilian governments know that and are investing heavily to position their airplane manufacturers to take a slice of that $2.6 trillion pie.
Canada’s Bombardier and Brazil’s Embraer are pushing up from the bottom end. They currently produce smaller aircraft for regional markets, like those Horizon Airlines flies to Spokane and Portland. But both companies want to expand into mid-range routes like Seattle to Honolulu.
Bombardier has launched its C-series which seats up to 150, while the Embraer E-195 holds up to 125. Both can easily fly across the U.S. without refueling. They are fuel efficient, use advanced aviation designs, have high tech avionics and materials, and have less environmental impact.
China is aiming right for the heart of the 737 and A320 market. Commercial Aircraft Corp. of China is rapidly developing the C919, which some are calling the “737-killer.” The prototype unveiled this year carries 160 passengers and already has 100 orders from Air China, China Southern, Hainan Airlines and GE Capital Aviation Services. Even though delivery is not expected until 2016, the C919 is a formable threat to Boeing because it is expected to be 20 percent cheaper for cash-strapped airlines.
China, like the European governments, is heavily subsidizing its airplane manufacturers. It has invested 30 billion yuan ($5 billion) in the C919. China and the European Union recognize that aerospace jobs are well-paid and airplane sales bring in lots of money. For example, Boeing’s $29 billion worth of foreign sales in 2009 singlehandedly comprised about 2 percent of America’s total exports. In Washington, Boeing employs more than 70,000 workers.
China is important because it is the “big growth market.” During the next 20 years, Chinese airlines will need more than 4,300 new commercial airplanes worth $480 billion. China’s commercial airlines fleet will triple in size and 71 percent of those orders will be for more fuel-efficient, single-aisle airplanes, like the 737.
Boeing is relying on foreign 737 sales for at least the next two decades, forecasting global demand of nearly 22,000 narrow-body jets between now and 2030. The company sees its growth overseas, not here.
So what does this all mean? There are three lessons for all of us.
First, companies like Boeing need a workforce that is dedicated and highly trained. The company must avoid work stoppages and meet delivery dates.
Second, whether it is the federal, state or local government, elected officials and those working for government need to understand that regulatory and permitting delays give foreign competitors advantages. In today’s economy where timing, production costs and reliability are paramount, postponements and excessive government costs are deadly.
Finally, those who believe companies like Boeing can maintain an airtight seal on markets they dominate today need to wake up and remember what happened to Detroit’s automakers. With the new global competition, that foothold can easily be lost tomorrow.
Don Brunell is president of the Association of Washington Business.