More to Boeing’s Plight Than Subsidies for Airbus

Every five seconds or so, a Boeing Co. 737 -- the most popular aircraft in the world -- takes off or lands somewhere. Just about as often, it seems, the company lashes out at the government subsidies received by its European archrival, Airbus.

Of late, the carping about Airbus’ favorable government financing has reached a particularly fevered pitch.

Last month, Boeing Chairman Harry Stonecipher declared that he was “sick and tired” of the assistance that Airbus gets.

Then, election-year rhetoric kicked in. Trolling for votes, Democratic presidential candidate John F. Kerry asserted that “these subsidies ... make it harder for Boeing to compete and put American jobs at risk.”

Not to be upstaged, President Bush assured Boeing employees in Seattle and Philadelphia that the White House would try to end a 1992 arrangement under which the European Union allows Airbus to receive low-interest government loans to help it develop new aircraft. The United States, Bush vowed, would “pursue all options to end these subsidies.”

Yet beyond the campaign stump, something fundamental underlies the tussle over government giveaways: Boeing’s once-dominant commercial aircraft business has slipped, and it is doing everything it can to get back some of its competitive edge.

Airbus delivered more planes last year than Boeing -- 305 to 281 -- and will best it again this year. Airbus boasts a larger backlog of orders than Boeing, $141 billion to $68 billion. And Airbus, 80%-owned by European Aeronautic Defense & Space Co., is more profitable than Boeing too.

When Stonecipher attacks Airbus, then, he isn’t merely blowing off steam. He is angling for an advantage, for a way to climb back on top.

Indeed, the dust-up over subsidies comes as Chicago-based Boeing is attempting to launch its first new commercial aircraft in more than a decade, the long-range 7E7. With his sharp words -- and the politicians’ threats backing him up -- Stonecipher is trying to forestall Airbus from unveiling a directly competitive model that would crowd the market and threaten the 7E7’s chances for success.

Such a prospect is said to be frightening financial interests in Japan and Italy, which Boeing is still trying to line up for the $13.5-billion project.

“The backers are nervous about competition for the plane,” says Richard Aboulafia, director of aviation research for Teal Group, a Fairfax, Va., research firm. “So Boeing has to do all it can to prevent it.”

Stonecipher’s attack on subsidies may help in other ways. Airbus is aiming to deliver its new jumbo jet, the 550-passenger A380, in 2006. If there are cost overruns on the project, “we don’t want government subsidy paying for them,” says a Boeing spokesman.

To be sure, self-inflicted wounds -- more than Airbus subsidies -- have led to Boeing’s current plight. In recent years, the company has invested 3% or less of its more than $22 billion of annual commercial aviation revenue in research and development. Airbus, by contrast, has poured more than 9.5% of its $24 billion of aircraft sales into R&D; -- a fact that Boeing attributes like so much else to the government financial assistance that Airbus receives.

In turn, Boeing has endured production problems and false starts -- notably in its efforts to develop a near-supersonic plane, which the airlines nixed in 2002.That’s why so much is riding on the 7E7 -- “the only arrow in Boeing’s quiver these days,” in the words of aviation expert John Newhouse.

The 7E7 will stand in stark contrast to the giant A380 because it will be capable of flying long distances point to point -- carrying 200 to 250 passengers directly between secondary cities such as Detroit and Bangkok or Manila and Dusseldorf without having to gather passengers through a hub airport, as the much larger A380 will be doing.

In fact, because the Boeing plane will be built with a lot of lightweight composite materials, it promises to use 20% less fuel than anything comparable on the market today -- specifically, the Airbus A330.

To shoulder the expense of developing the 7E7, Boeing is looking to a cost- and technology-sharing production system in which Japanese suppliers will get to make the aircraft’s wings, a breakthrough for Japan’s aircraft industry. In return, the Japanese will invest $1.6 billion in the project, according to estimates by aviation expert David Pritchard of the University of Buffalo. Italian manufacturers, meanwhile, will get to construct the 7E7 fuselage in return for an estimated $600-million investment.

With this in mind, Boeing now describes itself as “system integrator” of these vital parts.

“We are a global company,” the company spokesman says. “We work with 8,700 suppliers here and abroad, and we retain core competencies within this firm.”

Among those competencies: zeroing in on the S-word to stymie its chief competitor.

James Flanigan can be reached at jim.flanigan@ latimes.com. For previous columns, go to latimes.com/ flanigan.