The rises, falls, and resurrections of fortune in the airplane manufacturing industry make fascinating material for study and commentary.

It is hard for us as outsiders to understand how the companies shift in market share and success.

This is an interesting book that gives some good insight into the process.

Boeing versus Airbus 'The Inside Story of the Greatest International Competition in Business'
	This book is full of intrigue, passion, and surprise. But this is not a romance novel!  It is a very readable account of the competition between Boeing and Airbus.

I've written myself about Boeing's ebbs and flows of fortune, and each year brings new twists to the ongoing battle for market share between Airbus and Boeing.

This new book - Boeing versus Airbus - by author John Newhouse is as interesting for the information he reveals about how inept both Boeing and Airbus are in their competitive struggles as for the more expected information about their strengths and successes.  Is it putting words in his mouth to suggest that the respective wins on the part of each company are as much due to the other company's failings as to the strengths of the successful company?

Although Newhouse still doesn't completely explain the question that is surely in all our minds - how can such large companies sometimes be so stupid - he does give a lot of fascinating information about their actions, making his book a compelling read on a fascinating subject.

About the Book

The hardcover book measures 9 1/2" x 6 1/2", and is almost exactly one inch in thickness.  It has 229 pages of text, plus 12 pages of notes and citations and a further 12 pages of index.  Unfortunately there are no illustrations or photos or tables or other things to leaven the verbiage, although there is a photo of the author on the back flap of the dust jacket.

The book was published in January 2007, and is reasonably up to date as of that time, containing some material that was clearly written as recently as September of 2006.

The book lists for $26.95 and can be purchased on Amazon for a discounted price, currently $17.79.

The book has nine chapters, plus a Prologue, and is published by the Knopf imprint of leading publisher Random House.  The chapters have delightful titles such as 'Folly and Hypocrisy', 'Meltdown and Merger' and 'Muddling Through, More or Less'.  The chapter titles give the first clue that this is both a very approachable and also very straight forward book that pulls no punches.

About the Author, John Newhouse

This is John Newhouse's second book on the aircraft manufacturing industry.  His first book - The Sporty Game - was written in 1982 and has long been viewed as an excellent exposition on a complex topic.  However, as good as this book was, it is now 25 years out of date, and in those last 25 years there have been enormous changes.  In 1982 the effects of deregulation were just starting to spread across the US, and Airbus was offering only a single airplane type (the A300).  Lockheed was still making L1011s, and McDonnell Douglas was selling DC9s and DC10s.  The 767 debuted, and the 757 had yet to be flown commercially.

Clearly, there was a need for a new book on the industry, and John Newhouse brings excellent credentials to the task.  He wrote on foreign policy issues for The New Yorker during the 1980s and early 1990s.  He has been the assistant director of the US Arms Control and Disarmament Agency and was senior policy adviser for European affairs in the State Department during the latter half of the Clinton administration.  Currently he is a senior fellow at the World Security Institute and has published eight other books.

Researching the Book

A book is only as good as the research that underpins it.  Newhouse has extensively researched his book, and he provides ample citations and supporting references to the material he provides.  He conducted hundreds of hours of interviews with industry insiders, all the way up to CEO level at both Boeing and Airbus, and also liberally refers to other published analysis and commentary.

This is a solidly based book that usually, but unfortunately not always cites its major sources and 'proves' its claims.  For example, here's a wonderful statement

Still, GE people describe Boeing as indifferent to costs (indeed, extravagant), mired in layers of bureaucracy, and insensitive to customers' needs.

that begs for attribution, but which receives none.

There's one area of research and attribution which could have been strengthened.  It would be fascinating to get more perspectives on the two aircraft manufacturing companies from their airline customers - to get more insight into why the airlines have bought one brand of plane instead of the other, and how they - the customers - view the two competing companies.

Some Errors and Assumptions

Unfortunately, even Newhouse accepts some things without question or research, including most regrettably his comment about how the demise of Concorde 'proved' that airlines can't make money offering high speed flight.  As I have clearly shown to the contrary, Concorde was actually both very successful and very profitable, and its demise had nothing to do with either of these two issues.

Another example is his description of Herb Kelleher as being the founder of Southwest Airlines.  Although Herb Kelleher has for a long time been the public face of Southwest, he was not its founder.  That title belongs primarily to another charismatic airline leader, Lamar Muse.

Herb took over from Lamar some years after Southwest first started flying, and largely continued Lamar's innovative ideas, making them his own in the process.  Herb deserves a lot of credit for Southwest's current position in the industry, but a careful and knowledgeable writer would know better than to refer to him as Southwest's founder.

Okay, so these are two small quibbles.  But, like the saying about rats ('If you see one rat in your house, you know you've got an entire family living there') these careless statements make one worry about what else might also be incompletely researched or incorrectly stated.

Another example - Newhouse arguably falls into the trap of viewing the A380 and the 787 as competing planes.  They are not competing planes.  They are very different planes, each providing solutions to very different types of airline needs.

Not only are they very different and non-competing planes, but both manufacturers ended up with new plane types for both the very large aircraft (Airbus first with the A380, Boeing subsequently with the less revolutionary 747-8) and the medium sized aircraft (Boeing first with the 787, Airbus subsequently with the A350).  The only element of competition is perhaps in the sense that Airbus has committed so much resource to the A380 project that it may now find it difficult to successfully develop the A350 at the same time as it is completing development on the several times delayed A380.

Finally, at the end of several pages of discussion on these two planes (pp 29 - 31) Newhouse then 'has his cake and eats it too' by making the very true statement 'In the end, both new ventures may succeed' - a statement which is almost certainly true, and which belies much of his 'either/or' commentary that precedes it.

He revisits the topic of the A380 development in Chapter Seven.  This chapter gives some fascinating insights into the evolution of the concept, and the various public and private actions by both Boeing and Airbus that eventually resulted in Boeing turning away from the concept and Airbus proceeding with the A380.  Newhouse does provide some of the oft cited pluses and minuses about the A380, but uncritically parrots some ridiculous criticisms of the A380 plane (such as airports couldn't handle the extra car traffic with more passengers arriving and leaving the airport) without fairly analyzing such comments and exposing them for the canards they are.

General Comments

This is a very straight shooting book.  The author hasn't even got out of his Prologue before he starts offering statements such as

Mr Mac [James McDonnell] foolishly tried to bend Douglas to his ways of making and selling a very dissimilar product line.  His ignorance, judgment, and timing - all three - took the venture straight downhill.

And, two pages further on (still in the Prologue)

Airbus' central problem, and the crippling one, is a herry-built corporate structure that is aimed at satisfying the narrowly focused political interests of the company's French and German stakeholders. ...  Not surprisingly, this dual management arrangement has over the years become steadily less functional and less competent.

The book is full of surprising revelations and claims.  For example, the author claims that Airbus has a much leaner bureaucracy than other aerospace companies.  Who would have thought this of a company that currently seems crippled by its competing French and German operations and hampered by political considerations.

And he comes up with some simple and easily understandable observations, for example, he talks about a seachange at Boeing - the company started putting shareholder interests first rather than customer and product interests.  Guess who the two largest shareholders were at the time this switch occured?  As Newhouse reveals on page 17, none other than the Chairman and CEO.....

Not all is quite such concentrated value.  Chapter Four - 'Market Share - the Airlines' Enemy' (an intriguing but largely unsubstantiated statement that not everyone would agree with) is almost completely off topic.  The chapter is a short compressed history of the US airline industry over the last 25 or so years, and offers little insight into the issue of the battle between Boeing and Airbus.  The author's opinion as to why the US carriers have been in such strife?  He says

The woes of America's airlines were largely self-inflicted, decades in the making, and are worsening.  Much of what has gone wrong can be traced to 1978, when the Airline Deregulation Act was adopted.

Is he suggesting that the problems of the US airlines are not their own fault, and is he suggesting that a regulated industry would be 'better'?  One desperately hopes he is not making these claims.

The chapter doesn't add any insights into the competition between Boeing and Airbus, and neither does it really add much new to an understanding of the US airline industry.  But to see one's glass as half full rather than half empty, it provides some interesting extra background on part of the marketplace in which Airbus and Boeing compete.

Similarly, a large section of Chapter Five discusses engines and the engine manufacturers rather than Boeing and Airbus.  Newhouse provides some interesting insight into how airplane engines are sold, and gives some interesting examples where engine manufacturers side with one or other of the airplane builders.  Like the previous chapter, although there is little in this section that contributes to the core topic of Airbus competing with Boeing, it adds to one's overall appreciation of the various issues within the industry.

The Subsidy Arguments

Many followers of the aircraft building industry will be familiar with Boeing's oft cited allegations about Airbus getting unfair subsidies from the EU and member governments, while Boeing proudly claims to not receive a penny of government subsidy itself.

This is a subject Newhouse covers inconclusively - but fascinatingly - in his chapter titled 'Folly and Hypocrisy'.  He never clearly chooses as to which company is the greater beneficiary of subsidies, but he makes some surprising points that suggest that Boeing receives massive subsidies, not so much from the US government as from the Japanese government, and then points out how Airbus and the EU have strangely chosen not to push this point in their defensive responses to US and Boeing allegations about unfair subsidies to Airbus.

In particular, on page 63 he claims that Boeing's assistance through its Japanese contractors is more generous than what Airbus receives, and the amounts are larger.  He also points out that there are potential violations of WTO rules if there are indeed offsetting agreements between Boeing and Japanese airlines of the nature that Boeing's placement of business with Japanese manufacturing companies is reciprocated by airplane sales to Japanese airlines.

And on page 66 he puts the cat among the pigeons when he reveals that Boeing's biggest 747 customer, Japan Airlines, received among the smallest of discounts off the list price of the planes it purchased in the 1980s and 1990s.

He also points out that the occasionally cited figure of Airbus having received $26 billion in subsidies is wrong, with the real number being thought to be closer to $13 billion.

Newhouse only touches very lightly on another source of subsidy for Boeing - the billions in assistance it is receiving from the state of Washington in return for assembling the 787 in that state.

There's one final reference to this issue, in the final chapter of the book, when Newhouse observes sardonically that a lot of Boeing's capabilities for working with the new carbon fiber materials in the 787 came as a result of Boeing's work on the B-1 and B-2 bomber projects.  This general concept - that Boeing is able to transfer technology 'for free' from its military projects (funded by the US Government) has always been one of the standard responses by Airbus to Boeing's accusations of Airbus receiving EU handouts, and it is interesting to see one such specific issue mentioned.

So although Newhouse carefully doesn't point out who the greater villain may be in terms of unfairly benefiting from subsidies, he does reveal enough to suggest that the situation is far from as simple as Boeing claims, and indeed it may be that Boeing is at least as large a beneficiary of subsidies as is Airbus.

Predictions for the Future

Newhouse seems to believe Boeing will be the more successful company for the foreseeable future.  He discounts the value to Airbus of its A380 super-jumbo (and points out that Boeing has a partial answer to that in its new stretched 747-8), and rates the Boeing 787 as being superior to the only just now being finalized design for an Airbus competitor, the A350.

He also looks to the next generation of smaller planes - the 737 series for Boeing and the A320 series for Airbus, and predicts that Boeing is in a better position to be the first to replace their 737 series, thereby giving Boeing the better product range for some years prior to Airbus being able to respond with its own A320 series successor.

But his ultimate conclusion is that both companies will survive on more or less equal terms because the marketplace desires and needs two viable competitors.

Summary

One of the bizarre contradictory forces in the marketplace seems to be that at the same time customers are demanding more individualistic solutions to their needs, the companies that supply such needs are dwindling in number.  We see this at all levels - in the 'big iron' industries such as the auto industry, as well as in the new economy such as software and computer companies.

And we've also seen it in the airplane manufacturing industry.  The US, until recently, had three major passenger airplane manufacturers.  These days Lockheed has withdrawn from making passenger planes, and probably will never return, and McDonnell Douglas has merged into Boeing, leaving only one.

Elsewhere in the world, the number of major airplane manufacturers has also reduced.  For a while it seemed that the Russian manufacturers might survive and even prosper in the newly independent country and its free market, but that no longer seems to be so likely, and the various threats of new manufacturers appearing in Japan or China have yet to eventuate.

Amazingly, there are now only two major airplane manufacturers in the world.  This book - Boeing versus Airbus - details some of the struggles between these two companies as they take turns in being top dog and underdog in the market.  The book brings some interesting insights and reveals some new insider information about the inner workings of how both companies operate, and seems to conclude that both companies will continue to survive into the future, if for no other reason than their clients, the airlines, are desperate to preserve some remaining competition in the industry.

This is an interesting and well written book.  It does leave much material out, and does make some assumptions, and most of all, leaves unanswered the question we surely all must wonder - 'How can such resource rich companies sometimes act so stupidly?', but perhaps that is a question to which there is no answer.

The book is very readable and you are sure to enjoy it.  It can be found in major bookstores (retail price $26.95) or can be purchased online through Amazon for a discounted price (currently $17.79).  Recommended.
 

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Originally published 12 January 2007, last update 30 May 2021

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.