WHY BOEING'S FLYING HIGH = By GEORGE F. WILL = = January 18, 2007 -- CHICAGO AFTER an excellent year, Boeing is count ing its blessings, which = include its com petitor. They also include an antici pated doubling = of the commercial aviation market in the next 20 years, requiring = 27,000 new planes costing $2.6 trillion. = Americans ambivalent about globalization should note how Boeing, = under CEO James McNerney, is prospering. The 9/11 attacks devastated = commercial airlines, causing Boeing - which cut its jetliner = production in half - to rapidly shed more than 40,000 of its 93,000 = workers who designed and built the planes. But the revival has added = back some 13,000 new jobs and raised Boeing's stock price from $25 to = $88. = Even without terrorism, the commercial aircraft industry is not for = the fainthearted. Companies must wager billions developing products = that anticipate travelers' preferences and airline strategies a = decade later. Boeing reportedly wagered $8 billion in developing the = midsize (290 passengers) widebody 787 Dreamliner, with the first to = be delivered in 2008. Boeing's bet is that the market favors point-to- point flights rather than a hub-and-spoke system with huge planes = delivering passengers to a few large cities, from which they disperse = to their destinations in smaller planes. With 471 orders and = commitments for 787s, at up to $180 million apiece, the plane - made = largely of a light (fuel-saving) carbon composite material - already = is a huge success. Boeing's competition no longer is. = The average jetliner is struck by lightning twice a year. Boeing's = competitor in the commercial aircraft duopoly, Airbus, has recently = struck itself twice. The government-created European consortium = decided to build the wrong aircraft, then built it badly. = The market quickly judged Airbus' A350 inferior to the 787; costly = redesigns have begun. Worse, Airbus, assuming that the world was = wedded to a hub-and-spoke system, made a bad $16 billion bet on huge = demand for its A380, a double-deck superjumbo (seating 555). = >From 2001 to 2005, Airbus' annual orders exceeded Boeing's, and it = will deliver more planes than Boeing this year. But now Airbus has = problems inherent in its role as Europe's iconic public-private = collaboration. Such collaboration, called "industrial policy," = involves the irrationalities of economic nationalism as each of the = nine countries involved in subsidizing the A380 fights for "its" = jobs. = And there have been gross management blunders. Wiring (the A380 has = 312 miles of it) made in Germany was mismatched for airframes made in = France. To truck huge components to a French assembly line, more than = 100 miles of highway had to be widened and straightened. = The A380 has received $3.8 billion in cheap loans and other ongoing = government subsidies misleadingly called "launch aid." Boeing wants = the World Trade Organization to compel European governments to stop = their subsidies. McNerney, however, acknowledges that some people = think Boeing should allow Airbus to break WTO rules - and continue to = be plagued by political decisions trumping economic rationality. = McNerney believes that over the next 30 years the growth rate for = cargo aircraft could be significantly larger than for passenger = aircraft. Fred Smith, founder and CEO of FedEx, says that 98 percent = of the weight of international commerce is shipped by sea, but the 2 = percent moved by air constitutes 40 percent of the economic value. = Boeing exported $14 billion worth of commercial aircraft in 2005 and = expects to prosper as China and India do. Boeing projects that, = beyond the 367 orders yet to be delivered to the two countries, China = over the next 20 years will need 2,900 new passenger and freight = aircraft costing $280 billion; India will need 856, worth $72 = billion. For the last four years, close to 20 percent of Boeing's = orders have been from China. = Assuming that Boeing manages the supply chain - with ten = subcontractors on four continents - for a plane with 4 million parts, = the 787 might solidify Boeing's supremacy. An Airbus CEO recently = said he hoped his company could catch up "in 15 years." Then he = resigned. Boeing's successes - 600,000 people fly in its planes = daily - have so filled its manufacturing capacity that it has limited = Boeing's ability to further exploit Airbus' problems. For McNerney, = such a problem is a blessing. = The best slide auction on the net: http://www.auctiontransportation.com/sites/psa188/