Boeing Is Too Important to Fail

The recent incident in which a door panel flew off a Boeing 737 MAX 9 in mid-flight has raised a host of questions that Boeing and the Federal Aviation Administration (FAA) are now investigating. At this point, the failure does not appear to be a design issue, but rather a parts quality issue. That obviously does not absolve Boeing from responsibility, but it does suggest that more regulation may not be the answer. As Lehigh University Professor Phillip Coles writes, “quality is not something that is fixed largely by inspection. Rather it needs to be something that is built into the production process, as Japanese companies like Toyota started doing in the 1970s.”

Getting this right is critical for Boeing and for airline passengers. But also for the United States, because the aerospace industry is one of the last large manufacturing sectors in which the United States still runs a major trade surplus, and Boeing (an ITIF supporter) is the reason for that success. It is not just the country’s largest aerospace exporter; it is the largest U.S. manufacturing exporter. Moreover, the aerospace industry pays the highest wages of any manufacturing industry—76 percent more than the average private sector wage. And Boeing employs more than 170,000 workers in the United States, plus hundreds of thousands more indirectly, through suppliers and their customers. It is also one of the most engineering-intensive companies in the world, so it is a large R&D spender (with over $2.8 billion invested in R&D in 2022 alone).

And as ITIF showed in the latest edition of its Hamilton Index, as of 2020 the United States accounted for 34.5 percent of global value added in the “other transportation” sector, which includes aerospace. That made it America’s second highest-performing advanced industry, behind “IT and other information services,” where U.S. output accounted for 36.4 percent of global production. The United States was the leading producer in only one other Hamilton industry, pharmaceuticals, where it held a 28.4 percent global market share. In the other seven advanced industries covered in the Hamilton Index, China was the leading producer and the United States lagged far behind.

Table 1: Leading producers in Hamilton Index industries, 2020

Moreover, China is not content to trail the United States in aerospace. Led by its state-owned champion COMAC, China is seeking to replace Boeing and Airbus as the go-to supplier of all single-aisle plane purchases in China and most of the emerging markets throughout the world. It is on track to do that because it has showered the equivalent of over $75 billion in government subsidies on the company, and because the Chinese government forces domestic airline companies to purchase COMAC planes.

It is striking that in the same year that Japan’s Mitsubishi Heavy Industries decided to try to enter the passenger jet market, COMAC launched the development of its C919. Yet almost 20 years later, Mitsubishi threw in the towel because the costs of such a project were so astronomical. As point of comparison, it cost Boeing over $22 billion to bring the innovative 787 Dreamliner to the market. But COMAC doesn’t have to worry about capital availability or even making a profit. In spite of receiving $75 billion in subsidies, has over $10 billion in accumulated losses, something no independent private company could survive. And there should be no doubt that until COMAC succeeds in gaining significant global market share, it will continue to run big losses and be bailed out by the Chinese government. All at the expense of Boeing and Airbus.

And let us not forget the billions of euros of subsidies provided by EU governments to Airbus, the EU’s national champion. Airbus, a private company that succeeded only through EU government subsidies—in particular, forgivable loans to make planes—helped sink U.S. airplane producer McDonnel Douglas. And while after more than almost two decades of complaints before the World Trade Organization, the WTO only recently ruled these subsidies to be illegal. But too little, too late: the plane had “already left the barn” and was in flight. As one analyst wrote, “The WTO found that every jetliner Airbus brought to market after its inception in 1970 had been illegally subsidized, and that in the absence of such subsidies the company might not exist at all.” And now, even after the WTO ruling, Airbus is once again seeking “launch aid” (a euphemism for trade-illegal government subsidy), to build a successor to its A320 jetliner, the equivalent of the Boeing 737. Boeing got no such aid when it modernized its 737 into the 737max.

While EU company purchases are less controlled by government than China’s they are still biased toward the home team. Around a decade ago, Air France, which is partially owned by the French government, operated a fleet that’ was 71 percent Airbus, while Lufthansa’s fleet was 62 percent Airbus. Seventy-one percent of active planes for Alitalia were Airbus, while 100 percent of Iberia’s (Spain’s major airline) planes were Airbus. But in other parts of the world, where national government pressure plays no role in influencing airline company purchases, we see a very different story. Just 15 percent of All Nippon Airways (ANA) and Japan Airlines planes were Airbus. Korean Air, Malaysia Airlines, and Singapore Airlines had 22 percent, 29 percent, and 13 percent, respectively, of their fleets from Airbus. That the overwhelming share of the European airline fleet is Airbus clearly suggests untoward government influence (designed to prevent imports) in the selection of aircraft by European carriers.

On top of that, the EU safety regulator has its thumbs on the EU aviation competitiveness scale. It admits that it is a driving force for the promotion and acceptance of European standards worldwide—in other words, helping Airbus—and it is “ensuring global outreach of European standards, products, and services.” This is not to say that this dual mission (something the FAA had until Congress removed it in the mid-1990s) compromises safety. It is to say that the entire EU aviation system, including safety regulation, is designed to promote Airbus’ global market share, just as China’s is designed to promote COMAC’s.

Europe and China do this because they know that the aviation industry represents the commanding heights in the battle for competitive advantage in the global economy. Nations and regions will do almost anything to create and support their domestic aerospace industry, because of the export earnings, good jobs, and technological and production spinoffs it creates (including for defense). It is also a very tough market to get into and succeed in, in large part because of the massive development costs needed to produce a plane and the incredibly advanced engineering capabilities needed to build planes. That means if companies start to lose market share, they can easily enter into a downward spiral that can be difficult to escape.

And no matter how hard aerospace companies work at safety and quality, problems will occur. As one of the most complex products of human engineering there is, these giant passenger planes that fly almost 600 mph are impossible to get perfect. For example, Airbus recently found that its A380 wing-spars are subject to cracking and will need to be inspected more regularly. This is not because Airbus took shortcuts or ignored quality. It, like Boeing, did not. It’s because these are incredibly complicated machines. And yet, it’s important to remember that the major airline companies, especially Boeing and Airbus, have dramatically boosted airline safety over the decades. From 1959 to 2013, there were 603 fatal commercial jet crashes, or approximately 11.2 per year. Between 2013 and 2022 the average dropped to 3.6 per year, even though flight hours and departures increased dramatically.

In summary, commercial aviation is an industry that the United States simply cannot afford to hand over to the Chinese or the Europeans. That means that any regulatory responses to the recent Boeing failure need to be considered and proportionate, advancing safety while also factoring in the country’s strategic competitiveness.