The European Commission (EC) has apparently emerged from its skirmish with Boeing with the deal it wanted. Boeing will have its merger with McDonnell Douglas (MDC), but with strings attached, and there will apparently be no trade war. Now that the drama is over, it is worth asking exactly what benefits, if any, will flow from the piece of paper which Boeing will shortly sign. If the European aerospace industry is wise, it will not count its blessings too soon.
Boeing has had to make a pledge not to enforce its notorious 20-year exclusive-supplier deals signed with US carriers. While these were provocative to Airbus, they were, as Boeing has come close to admitting, also probably unenforcable. Boeing must also distance itself from MDC's civil-airliner business, so as not to gain undue dominance. Given that Boeing already has close to two-thirds of the world market and that Douglas has dwindled to single figures, the concern seems to have come a little late.
The real meat of the deal lies in allaying fears over the access that a combined Boeing/MDC will have to research and technology funding from the US Department of Defense (DoD).
There is an unshakeable conviction within Europe that such DoD cash (together with NASA funding and tax breaks for defence conversion) is heavily underwriting US civil programmes. Limits on such US indirect support were laid down in the infamous Large Aircraft Agreement of 1992 - as a quid pro quo for Europe's restriction of direct launch aid for Airbus. The problem is that by its very nature, direct aid is difficult to hide and indirect support almost impossible to uncover. Despite its growing suspicions, Europe has had no clear way of monitoring whether the US is keeping to its side of the bargain or not.
Now, the EC has won the right to scour Boeing's books over the next ten years to track the impact of DoD funding. That represents a coup of sorts, although US corporations (Boeing included) regularly deny that there is any hidden benefit to count. That is clearly untrue, but so too are the wilder counter-claims from Europe. MDC for one points out that its decades - long run as the USA's largest defence contractor has done nothing for the health of its Long Beach civil site.
Such arguments are beside the point. Boeing is not acquiring MDC to bolster its already booming airliner business. It is acquiring MDC in order to build world-scale operations in defence and space to stand alongside the civil-aircraft business. The big benefits will come from consolidation which follows the merger, not from any DoD cross-subsidy.
Lockheed Martin has shown what is possible. It is on course to yield annual cost savings of $2.5 billion, from its consolidation, with more promised from the Northrop-Grumman merger.
If Europe has cause to fear the Boeing/MDC merger (and it does), then it has little to do with DoD funding and everything to do with the cost advantages and financial strength that these US giants will be able to command throughout aerospace. The disputes between Airbus and Boeing may capture the public imagination (and that of European competition authorities trying to make their mark on the world) but the EC might just as easily question creeping US dominance in space or combat aircraft.
What should really scare Europe is the slow progress of its own consolidation. There are still too many companies, with too much factory space and too many overheads. During its merger, Lockheed Martin alone shed 125,000 jobs, closed 28 plants, two corporate headquarters and three research laboratories. There is also no immediate prospect of a "European NASA" to co-ordinate the wasteful duplications of the region's small-scale national research efforts.
Such European consolidation would indeed be worth fighting a trade war over, but it must be fought within Europe and not across the Atlantic. In the oft-quoted words from the boss of another US giant in another industry: "I have seen the enemy, and it is us."
Source: Flight International