Boeing is losing money because it's making too many airliners; Saab is losing money because it's making too few. Both are victims of a market which refuses to conform to the normal laws of economics - but each could benefit from the other's woes.
Boeing's problem has its roots in the company's massive investment in making itself more responsive to market demands. By cutting its development-cycle times, its lead times and its production times, it aimed to become flexible enough to ride with the order-cycle which runs with the general economic cycle. Alas, a flexible Boeing depends on a flexible supplier base and a flexible skills pool, and it has neither to the extent that it needs them. While it can crank up its production lines, its suppliers cannot react as quickly, and neither has access to enough skilled workers to solve the problem.
Saab's problem, ironically, seems to be rooted in a market which is more flexible than it is, or could afford to be. When others plugged an emerging gap in the market with cheap-and-cheerful 19- and 30-seaters, Saab built a proper little 30-seat airliner, only to see the market move on to bigger things before it had a chance to recoup its investment. When it rightly perceived that regional passengers didn't want to spend miserable hours grinding around in slow 50-seat turboprops, it built a fast, long-range, 50-seater, only for the market to pass it by and go straight onto 50-seat jets instead.
The results of these flexibility imbalances are depressingly similar. In addition to making big, albeit one-off, losses, Boeing is having to slow down its production expansion, to let the system catch up with its ambitions and those of its customers. In reaction to never-ending losses, Saab has had to face the increasing likelihood of closing its production lines early in 1998, unless there is a sudden rash of new business.
In the short term, the market will be largely unaffected by both sets of problems, or by both sets of solutions. Yes, Boeing will deliver fewer aircraft than it intended to this year, and a few airlines may have to top up capacity in other ways than by taking new aircraft. Yes, a few airlines which have invested heavily in the Saab product line (and have profited from using what is a thoroughly competent product) will have to change tack and alter their long-term fleet plans.
It is, however, fair to say that the air-traffic market will not collapse because Boeing did not deliver those few new aircraft on time. Quite the reverse, in fact: net airline capacity has been growing faster than demand in recent months, and a bit of supplier under-performance will probably do more for the airlines' load factors and yields than their own inadequate efforts have.
It is also fair to say that the airline industry has never needed as many regional-aircraft manufacturers as it has had in recent years and, while nobody would wish to revel in the human cost of closing production lines, the demise of the Saab and British Aerospace turboprop lines can only enhance the long-term survival prospects of those left in the market.
Beyond those happier results of trouble is the opportunity for both these victims of flexibility imbalance to benefit from it. Boeing needs more skilled suppliers to feed its hungry lines:Saab (which is already a supplier to Boeing and a risk-sharing participant in the planned Airbus A3XX project) has the necessary skills in abundance. If the two (and perhaps others) can come to a meeting of minds, they could each profit from a market in which they have both lost too much.
Even if they can assist each other to recover from the tribulations of late 1997, however, the question must be asked: how on earth did they ever get to this point in the first place? Recent aerospace history is littered with the lessons and the legacies of over-expansion of production to meet fickle (and what almost always proves to be over-optimistic) demand. Boeing/Airbus please note. Recent aerospace history is also littered with reminders that what the World most often wants is not so much a better mousetrap as a cheaper one. Saab/Lockheed/Fokker please note.
If manufacturers really want to bring more balance to their hitherto sporty game, they may need to do a little less fighting for (often profitless)market share, and a little more genuine working together with their customers and suppliers alike.
Source: Flight International
