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Voices of the Northwest
The Big Sky Game: Manufacturers, Airlines and Competing Visions
Of all American major commercial airplane manufacturers, only Boeing is left standing.
By Russell Sadler
Posted on Apr 29, 2005 |
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Last week we witnessed dual milestones in commercial aviation. The Airbus A380 “Super-jumbo” made its maiden flight and Boeing announced near-record orders for its newest commercial jet, the 787 just going into production
The news media portrayed this as a contest to the death for orders between Airbus and Boeing, implying the loser may go bankrupt. By framing these events as a conflict, the media missed the story.
The airlines have a history of preserving competition in the airplane production business so they can play one manufacturer off against another in a effort to keep airplane prices down. Airlines once played Douglas, Lockheed, McDonnell and Boeing off against one another, just as the airlines are now playing Airbus and Boeing off one another and forcing both companies to offer discounts to get orders.
The real story here is the difference in visions of the future of the airline business between Airbus and Boeing. Airbus sees the industry continuing with the “hub and spoke” system evolved after “deregulation” in the mid-1970s. The A380 will carry 550 passengers between established hubs.
The 223-seat 787 is designed to serve the evolving “point-to-point” market. Modern GPS navigation systems allow airlines to ignore the established electronic airway system and fly directly from one mid-size market to another, by-passing congested and expensive hub airports. The media attention on Boeing and Airbus also obscures recent developments that put smaller market airports back into the passenger game in a big way.
With deregulation, cities the size of Medford and Eugene lost their important direct flights east to major hubs like Denver and Chicago to make connections for further destinations. It has taken nearly 30 years to get them back.
Today, passengers in Medford and Eugene can choose daily flights to Salt Lake City or Denver on modern jets smaller than those made by Boeing or Airbus. The plane is usually a 50-passenger Canada Regional Jet -- the CRJ 900 -- built in Canada by Bombardier. The major airlines are long gone from markets the size of Medford and Eugene although the names linger -- United Express and Continental Connection. This is a marketing gimmick to take advantage of “brand identification.” Flights on either “airline” are operated by Skywest, one of the region’s largest airlines with more than 8,000 employees.
Despite these bright spots, airlines and airplane manufacturers remain financially troubled industries. The ideologically driven, ill-advised decision to “deregulate” the airlines 30 years ago created investor doubts and destroyed the way airlines traditionally financed new airplanes,
Despite the “free-market” rhetoric, this industry has been heavily subsidized by government from the beginning. The first airlines in the Pacific Northwest relied on government mail contracts to buy airplanes made by Bill Boeing in Seattle. The airline that flew mail into Eugene and Medford, Pacific Air Transport, was one of four airlines that merged in 1931 to form United Airlines.
The places where all flights begin and end -- airports -- are publicly owned. Medford had the first municipally owned airport in Oregon. A Eugene Studebaker dealer, Mahlon Sweet, insisted in the 1920s that airports would be as important as railroads and a city without an airport would get by-passed by commerce. Sweet was more astute about the future of air travel than he was about automobiles.
In the 1920s, following a series of airline bankruptcies, Congress created the Civil Aeronautics Board to regulate airline routes and rates. More communities were served by airlines under this system and the income from regulated routes gave confidence to financial institutions and investors that loaned airlines money to buy airplanes.
Congress foolishly junked this time-tested system for mythical “market forces” when it supposedly “deregulated” the airlines. It is clear in hindsight those “bargain fares” come at the price of dissipating stockholder assets and eroding employee wages. Not surprisingly, arbitrarily changing the rules of the game has jeopardized the solvency of airlines that played by the old rules and enhanced newcomers who only have to play by the new rules.
Of all American major commercial airplane manufacturers, only Boeing is left standing. Despite last week’s news of new orders, Boeing stock dropped. In the airplane manufacturing business the risk of developing any new design is many times the worth of the company. It is clear that investors have reason to worry many airlines may not have the money to pay for new planes they order from Boeing without the government guarantee of airline rates and so many “old rule” airlines in bankruptcy.
It won’t matter whether Airbus’ or Boeing’s vision of the airline industry’s future prevails. If investors lack faith in the airlines’ ability to pay for new airplanes there won’t be any private capital to finance new airplanes.
If Boeing goes bankrupt it will be the consequences from congressionally inflicted “deregulation” -- not competition from Airbus -- that drives the it under.
Copyright ©2005 by Russell Sadler
Russell Sadler is a journalist and a lecturer at Southern Oregon University. You may write him c/o publisher at westbynorthwest.org. Visit Sadler's Sense column's at West By Northwest.org:
On Death: Our Challenged Autonomy
Sadler's Sense: Who Is in Charge of the State's Purse?
Sadler's Sense: The Risks of Shifting Higher Ed.'s Costs and Who Pays
Sadler's Sense: The Good Ship School Finance Is Sinking
Sadler's Sense: Infrastructure Renewal Needed
Sadler's Sense: The Unlikely Poster Child for Measure 37
Sadler's Sense: Of Myths, Money and Machines, Why We Blame the Owl
Sadler's Sense: Not Window Dressing
Sadler's Sense: From Constantine to George, God's Will and Secular Power
Sadler's Sense: Credibility or State of Our State
Sadler's Sense: Look in the Mirror, Oregon
Sadler's Sense: Why We Must Pay the Piper Now
Sadler's Sense: A Short History of Measure 30
© Copyright 2000-2004 by West By Northwest.org
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