Editorial»
When good business practice just doesn’t fly
DEC 24 - An all but perfect model of logical delirium” is how the eminent French political analyst and philosopher, Raymond Aron, once described a complex instance of 1960’s nuclear deterrence theory.
The phrase came to mind while reading the argument recently made in The Wall Street Journal by Holman W. Jenkins Jr. to explain why it is a good thing rather than bad thing that Boeing, one of the great, pioneering American aircraft companies, has fallen into grave decline.
Unless I misunderstand this article - and I have carefully examined it for evidence of irony - the present condition of Boeing is the right and proper outcome of good business practice and enlightened management.
Let Airbus make huge gambles on technological progress and future markets. If it fails, governments will bail it out. If Boeing makes such gambles and loses, stockholder return will suffer.
The article concedes that in the past Boeing won its place as the world’s greatest aircraft manufacturer by making and winning just such gambles. “Back in the 60’s, when a director asked for future profit estimates on the proposed 747, he was told to go suck an egg.” That, the author says, “doesn’t fly today, nor should it.”
The article is prompted by Boeing’s decision to abandon its project to build a near-supersonic Sonic Cruiser to compete with the 800-passenger super-jumbo A380 that Airbus is starting to put together in Toulouse.
Boeing has chosen instead to explore the market for a new but essentially conventional aircraft, the 7E7, its first new design in a decade.
Boeing now is an ideologically correct company. Its management mandate is to produce positive quarterly earnings and annual profit increases, so as to keep Boeing’s stock price high. This is incompatible with betting the company on a visionary project. If the result of these good business practices is Boeing’s eventual ruin, that’s the way it is, you know. Investors will find another company to invest in.
You will understand why I quoted Aron on logical delirium. You ruin the company to save the stock price.
Boeing was a pioneering American aviation company. It produced the earliest monoplane fighter aircraft for the U.S. Army Air Force (as it was then). Its role in World War II was primarily as manufacturer of a heavy bomber, the B-17, on which it had bet the company.
The prototype flew in 1935, long before any other country had a long-range bomber. Building it was a considerable financial risk for Boeing. The B-17’s defensive armament and its speed were supposed to allow it to operate without fighter escorts and to make “pinpoint” attacks with its Norden bombsight, also a technical advance.However nobody made pinpoint bombing attacks in World War II, and the B-17 succeeded mainly because of formation tactics and its phenomenal operational ceiling of 35,000 feet, or 10,600 meters - 10,000 feet higher than its British counterparts. It was one of the most important aircraft in the war.
While there were Boeing efforts in passenger aircraft before and after the war, including the memorable trans-Atlantic Stratocruiser of the 1950’s, with berths and a cocktail lounge, Douglas dominated the market with the DC-3 and its descendants.Then, in 1954, Boeing made a military tanker into a commercial airliner, the 707, and initiated the passenger jet era.Posted on: 2003-12-24 02:51
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