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The Boeing 787: Broken Dreams, from Peter Myers

(1) The Boeing 787: Broken Dreams - Al Jazeera Investigations (3.4 million hits)(2) I’m scheduled to fly next week and now I’m scared!(3) Airbus and Boeing Are Signing Economic Suicide Pacts With China(4) Economist: Why Boeing’s shares have not fallen further after the 737 MAX crashes(5) Sensors linked to Boeing 737 crashes vulnerable to Failure; hit by birds & airport equipment(6) Outsourcing is killing Boeing - Eamonn Fingleton (2005)(1) The Boeing 787: Broken Dreams - Al Jazeera Investigations (3.4 million hits)From: Byron Allen Black <>There is an excellent 2015 'whistleblower' documentary on Boeing's union-busting and poor workmanship on YouTube: I’m scheduled to fly next week and now I’m scared!From: K (name & email withheld)Subject: Re: Boeing outsourced. Substandard parts, made in China with non-aerospace material, installed in 777 and 737Peter,This is very frightening!  What in the hell are we supposed to think about this?  Are supposed to stop flying on these planes? If this IS true why hasn’t POTUS done anything about it?  I don’t remember hearing anything about this from our media.  Did I miss it?  I’m scheduled to fly next week and now I’m scared!Reply (Peter M): > I don’t remember hearing anything > about this from our mediaHave a look at Epoch Times: is run by Falun Gong supporters. I remember seeing Chinese people reading the Chinese-language edition on trains in Sydney, years ago. There's also a Qld edition in English.I don't necessarily buy their anti-China and anti-socialist line. (I have switched my support from Trump to Sanders).Epoch Times was said to be funded by the CIA. But it supports Trump, whereas the Deep State opposes him, so I doubt that a CIA link still applies. Anyway, they're better than the "mainstream" media, and have a lot of stuff the MSM omitBloomberg is not bad: > I’m scheduled to fly next week and now I’m scared!The chance of a mishap would be low.To avoid all risk, we would not get out of bed each morning.But it makes you think about the end we all face.Boeing's policy of outsourcing was criticized by Eamonn Fingleton some years ago. He complained that Boeing was allowing Mitsubishi to make major components of the 787 Dreamliner, and that this would help Mitsubishi - maker of the Zero in WWII - develop its own competing commercial planes.But until these latest articles, I did not realize that Boeing was outsourcing to China too.I'm surprised that Boeing's share price is holding up. Obviously, the shareholders haven't cottoned on to the serious management issues at Boeing.Boeing could not be doing more to help competitor manufacturers (in Europe, China, Japan, Russia, Brazil).It's a failure of Globalization. The Globalists are the real culprits.(3) Airbus and Boeing Are Signing Economic Suicide Pacts With China on March 23, 2019 by Yves SmithBy Marshall Auerback, a market analyst and commentator.Produced by Economy for All, a project of the Independent Media InstituteAirbus is considering whether or not to shift the assembly process of its latest generation of A330 planes to China as part of a bid to increase its market share in the world’s fastest-growing civil aviation market.The European multinational is following a trend started by Boeing, which recently opened a new completion plant in China. On the face of it, the decision by the two companies (which dominate the civilian aviation market) makes sense: build where your biggest customer lives, especially as China does not yet have a fully homegrown civil aviation industry ready to compete globally. The benefits are many, including the goodwill and esteem of the country that would be buying these planes. In the long term, however, that might prove to be a costly miscalculation. Based on its recent history (here and here), it won’t take long for China to catch up and largely displace both companies domestically in Beijing’s home aviation market, as well as seizing a large chunk of the corporate duopoly’s global market share. Airbus and Boeing could therefore be making short-term decisions with negative long-term consequences for their future profitability.Given China’s formidable economic advancement, none of this should come as a surprise to either Airbus or Boeing. Nor should it shock Western governments. The problem is that everybody has historically been guided by the naïve assumption that simply admitting China to organizations such as the World Trade Organization (WTO) would induce Beijing to, in the words of Philip Pan, "eventually bend to what were considered the established rules of modernization: Prosperity would fuel popular demands for political freedom and bring China into the fold of democratic nations. Or the Chinese economy would falter under the weight of authoritarian rule and bureaucratic rot." China has unquestionably modernized, but its politically illiberal, dirigistepolity has, if anything, massively moved in the opposite direction, strengthened by that very modernization process that has done anything but falter. Furthermore, the country has many aims and goals that are antithetical to the long-term prosperity of Western companies and economies (as the European Union is beginning to recognize).Boeing and Airbus might simply become the latest Western sacrificial lambs. Beijing has explicitly targeted wide-bodied aircrafts as one of its 10 new priority sectors for import substitution in its "Made in China 2025" document, so whatever short-term gains Airbus and Boeing receive in terms of securing additional orders from China could well be undermined longer-term. The resultant technology transfers and lower labor costs will almost certainly give Beijing a quantum leap toward competing directly and ultimately displacing both companies. Given the merger with McDonnell Douglas, Boeing will continue its march toward effectively becoming a branch of the U.S. Department of Defense, as its civilian market share crashes, but Airbus doesn’t really have the luxury of a military alternative, given the relative paucity of European defense expenditures.As if Boeing needed any further problems, the 737 fiasco represents the latest in a series of setbacks for the company. Boeing’s 737 global recall, coming on the heels of the initial launch problems of the 787 Dreamliner some six years ago (where the "demoduralization" of production meant that Boeing "could not fully account for stress transmission and loading at the system level," as Gary Pisano and Willy Shih write), together illustrate the dangers of spreading manufacturing too far across the globe: Engineers, notes CUNY fellow Jon Rynn, "need to ‘kick the tires’ of the new production processes they design. So while a market may be global, production and the growth of production take place most efficiently" in relatively close geographic quarters.American companies such as Boeing consistently underestimate the value of closely integrating R&D and manufacturing, while underplaying the risks of separating them (as recent events have demonstrated again to the company’s cost). By deciding to expand its A330 production in China, Airbus looks poised to repeat Boeing’s error, a potential miscalculation that most European Union companies have hitherto largely avoided, because the EU has prioritized domestic manufacturing/discouraged offshoring more than its U.S. counterparts (in regard to the loss of U.S. manufacturing jobs attributable to China, the American Economic Review paper by Justin R. Pierce and Peter K. Schott specifically notes that there was "no similar reaction in the European Union, where policy did not change").Beijing itself has historically balanced its purchases from both major civil aviation manufacturers to ensure that it does not rely too heavily on one aircraft supplier, which means that Airbus will likely benefit from the void created by the 737 recall. All the more reason why the European conglomerate should be wary of following the pied piper-like expansion into China. (The 737 recall also complicates resolution of the U.S.-China trade conflict, which had appeared closer to resolution in light of Beijing’s proposal to buy an additional $1.2tn in U.S. exports over six years. Boeing aircraft purchases featured heavily on Beijing’s shopping list.)But the longer-term challenges relate to China’s economic development path and its corresponding move up the high-tech curve, which have largely been characterized by mercantilist policies of protection and heavy government subsidy. In this regard, the Chinese state has followed a national development strategy first outlined in the mid-19th century by the German economist Friedrich List, who argued that the national government should play a crucial role in promoting, guiding, and regulating the process of national economic advancement.Protectionism, List argued, should play a role here as well during the country’s "catch up" phase of technological development. List wrote the analysis against a historic backdrop where Germany was beginning to challenge the dominant economic power of its time, the United Kingdom. So the defenders of Beijing might well point to his work to show that there is nothing new about using the state as a principal instrument to accelerate economic development and innovation.However, List was analyzing two capitalist economies operating within the context of a 19th-century gold standard global financial system, which invariably circumscribed the scope of state involvement (the finite availability of gold reserves limiting fiscal policy options). By contrast, today the global economy operates under a fiat currency system, and what therefore distinguishes China’s economic domestic development from its 19th century predecessors is the sheer scale of fiscal resources it can deploy in the furtherance of its economic (and military) objectives. Some of these objectives might not be so benign to the West longer-term.Which points to another consideration for the West: for all of its supposed embrace of capitalism, China is still primarily a state-dominated economy, which eschews the disciplines of a free market economy. This means it has the capacity (and ideological predisposition) to use the national fiscal policy as a loss leader, absorbing losses well beyond what would be tolerated in an economy dominated by private enterprise (private companies, of course, can go bust). Beijing underwrites its designated national champions by relying on a combination of subsidies (some disguised, as they flow through state-backed investment funds and the financial sectors) and "Buy China" preferences to develop Chinese products, even though these policies are contrary to the rules of WTO membership, which China eagerly joined in 2001. As the economist Brad Setser argues, "various parts of the Chinese state compete, absorb losses, and then consolidat[e] around the successful firms. Other countries… [might] worry about the [scale of the cumulative] losses," notes Setser, but not the Chinese government, which simply socializes the losses at the national level, and writes them off.In this regard, Boeing and Airbus would do well to consider China’s experience in the solar industry. Designating this as another strategic sector for growth in the 1990s, Chinese solar companies, with the explicit backstop of the state, ultimately raised enough funding via debt to build sufficient solar capacity for the world three times over. The overinvestment ultimately killed the cash flows of major Western competitors and knocked them out of the business, leaving the market free for China to dominate. Commenting on the trend, Scientific American highlighted that "between 2008 and 2013, China’s fledgling solar-electric panel industry dropped world prices by 80 percent, a stunning achievement in a fiercely competitive high-tech market. China had leapfrogged from nursing a tiny, rural-oriented solar program in the 1990s to become the globe’s leader in what may soon be the world’s largest renewable energy source."Here was a classic case of state-guided/supported commercial companies receiving benefits that went far beyond anything in, say, Korea or Taiwan, or even Japan in the earlier part of their development. Now this trend is manifesting itself across the entire spectrum of the Chinese guided economy, including agricultural equipment, industrial machinery, telecommunications, AI, computer chips, and civil aviation. In another disturbing parallel that Boeing and Airbus would do well to consider, "[t]he timeline of China’s rise began in the late 1990s when Germany, overwhelmed by the domestic response to a government incentive program to promote rooftop solar panels, provided the capital, technology and experts to lure China into making solar panels to meet the German demand," according to Scientific American. Much like the German solar companies, which shipped valuable manufacturing and technological expertise to China, to sustain demand, Boeing and Airbus could well be signing their economic death warrants by agreeing to offshore increasing amounts of production in China to sustain their global market shares (aided and abetted by their more market-oriented governments, which frown on the idea of national industrial policy).The same thing is happening in wind power in China, which is expected to see offshore wind capacity grow from 2 gigawatts last year to 31 gigawatts in the next decade. China’s expansion here has already forced Siemens and Gamesa to merge to cope with the rising competitive challenge. As far as aviation itself goes, Setser makes the point that "China may cut into the United States’ future exports by building its own competitor to the 737 and also cut into Europe’s future exports if Airbus decides to build the A330 in China and China buys ‘Made in China’ Rolls-Royce engines for the C929 and the A330." Even if this allows the duopoly to maintain its dominance in global civil aviation, it is hard to see how shifting manufacturing production of aircraft components to China to get orders constitutes a "win" for the U.S. or European workers who are already being displaced. And Boeing’s weak-kneed response to the 737 crisis will likely exacerbate the company’s problems going forward.The bottom line is that both Western governments and Western corporations have persistently underestimated the power of China’s economic development model, and the corresponding economic threat that it poses to the West’s own affluence. The usual criticism leveled against the Chinese growth model is that a country that subsidizes its industries ends up with inefficient industries, because heavily protected local firms are shielded from global competition, ultimately leaving the country that resorts to protectionism with inferior products. The idea of national champions, built up via state dirigisme, according to classic liberal economic doctrine, ultimately ensures that economic efficiency and commercial considerations get squeezed out. Rent-seeking and corruption become institutionalized, goes the argument, so these national champions ultimately will not be able to compete in the global marketplace. That was certainly the assumption of Milton Friedman, who called the Chinese Communist Party’s state-driven strategy "an open invitation to corruption and inefficiency." By contrast, according to Defense and the National Interest, the governing assumptions of capitalist economies is that "[t]he discipline of the ‘marketplace,’" not the state, is better suited to choose winners and knock out losers "who cannot offer the prices or quality or features of their competitors."China represents the ultimate repudiation of these seemingly ironclad economic laws. The country’s success has come across a slew of industries: clean tech, notably wind and solar power, internet companies (despite overwhelming censorship, China has corporate behemoths, such as Alibaba, or Baidu, which rival Google in scale and scope), and more recently, in the telecommunications sector (where Huawei has clearly benefited from "Buy China" preferences created by the state via its state-owned telecommunications enterprises and now is considered to be the global leader in 5G telephony). In practice, therefore, there is no reason why the same model cannot work with regard to civil aviation even as Airbus and Boeing eagerly provide the rope with which they may hang their respective companies in the future.(4) Economist: Why Boeing’s shares have not fallen further after the 737 MAX crashes flying Why Boeing’s shares have not fallen further after the 737 MAX crashes Investors and analysts like the dividends and share buybacks. They may be underestimating the risksby C. R.  {Gulliver?}Apr 7th 2019BOEING, AN aerospace giant, has been a darling of the American stockmarket. Over the past three years its share price has tripled. In 2017 it was America’s best-performing industrial stock. In 2018 it was the eighth-best. But the crash of a Boeing 737 MAX jetliner in Ethiopia on March 10th—the second crash of this model in just five months—led to the grounding of the aircraft type around the world and wiped nearly a tenth, or around $25bn, off Boeing’s stockmarket capitalisation.In the past few days the news from Boeing has been getting worse. On April 4th Ethiopia’s transport ministry published a preliminary report from its crash investigators. They said that the pilots followed the procedures recommended by Boeing to prevent the plane from crashing. They suggested the plane’s flight-control system was to blame for the crash, not its crew. This system, including software to ensure the plane does not stall—called the Manoeuvring Characteristics Augmentation System or MCAS—was also seen by Indonesian investigators as contributing to the crash of a Lion Air 737 MAX last October.Later the same day Boeing’s chief executive, Dennis Muilenburg, admitted for the first time that its software played a role in the crashes and repeated that "we at Boeing are sorry for the lives lost in the recent 737 accidents". Then it emerged that the software fix Boeing had said would be available last week to allow the planes to take to the air again would be delayed, due to the discovery of a second problem unrelated to the crashes. Some commentators predicted that it may now take many months to fix the planes and get them flying again.It would be easy to imagine that all this bad news would weigh heavily on Boeing’s share price. In fact it has risen about 2% over the course of the past week. According to Reuters, a news agency, 20 out of 25 analysts who took part in a survey still give the stock a positive "buy" and "outperform" ratings. In part this is because Boeing is seen as "too big to fail", because of the reliance of America’s Department of Defence on its military aircraft. The 737 programme generates a third of Boeing’s revenues and up to half of its overall profits, according to Andrew Gollan of Berenberg Bank. But some analysts, such as Carter Copeland of Melius Research, think the total financial damage could be as little as $1bn, in which case Boeing’s share price may have fallen too far.Marc Szepan, a former executive at Lufthansa, now at Oxford University, argues that the company’s executives and its analysts are underestimating the financial risk posed by the crashes. First, airlines have begun to refuse deliveries of new 737 MAX so long as it is grounded. As Boeing gets paid for each one on delivery, this hurts its revenues. And it emerged on April 5th that, as Boeing runs out of space to store all the unwanted planes coming off its assembly lines, the company is planning to slash production rates from 52 a month to 42, instead of increasing it to 57 later this year as originally planned. This suggests that Boeing’s executives think a return to business-as-normal could take longer than they are currently letting on.But that is not all. Boeing has begun to be hit by lawsuits from the relatives of people who died on the two flights. If the cases turn into a class-action suit, the company could end up on the hook for billions of dollars in punitive damages. Mr Muilenburg’s admission that its software is connected to the crashes is unlikely to help its defence case. And it could be forced to pay compensation to existing users of 737 MAX jets for loss of earnings for the time they are grounded. TUI, a European tour operator, estimates that the grounding could cost it €300m ($337m) if flights on its fleet of 15 737 MAXs do not resume by the end of the summer.The attraction of Boeing’s shares to many investors is less the result of a careful assessment of the risks associated with the company, and more of its policy of giving away 95% of the cash generated from operations in dividends and share buybacks. "That’s all Wall Street analysts care about," warns Scott Hamilton of Leeham Company, a consultancy. One investment app favoured by many younger and less sophisticated investors has said that their clients have been piling into the stock since the crash.But a prolonged grounding of the 737 MAX is likely to slash the amount of cash the company generates, the very thing that has made its shares so attractive to investors in recent years. For the share price, as for the plane itself, the troubles may be far from over.(5) Sensors linked to Boeing 737 crashes vulnerable to Failure; hit by birds & airport equipment devices hit by birds, airport equipmentReview of public databases reveal at least 140 incidentsBy Alan Levin and Ryan Beene 11 April 2019, 12:36 pm AESTThe crashes of two Boeing Co. 737 Max jets in five months have focused attention on a little-known device that malfunctioned, starting a chain reaction that sent the planes into deadly dives.Pilots have for decades relied on the weather-vane-like "angle of attack" sensors to warn them when they near a dangerous aerodynamic stall. But investigators are probing Boeing’s decision to enable the sensors on the Max model to go beyond warning pilots and automatically force the plane’s nose down.A review of public databases by Bloomberg News reveals the potential hazards of relying on the devices, which are mounted on the fuselage near the plane’s nose and are vulnerable to damage. There are at least 140 instances since the early 1990s of sensors on U.S. planes being damaged by jetways and other equipment on the ground or hitting birds in flight.In at least 25 cases in the U.S., Canada and Europe, the damage triggered cockpit alerts or emergencies.On April 1, 2012, a United Airlines 767-300 was taking off from San Francisco when it struck a flock of western sandpipers, according to a Federal Aviation Administration database. The birds damaged the left sensor, scrambling the speed readings and auto throttle. The plane returned to the airport.A Republic Airlines Inc. flight was struck by a tundra swan as it neared arrival into Newark, New Jersey, on Dec. 5, 2016, according to the FAA. It damaged the angle-of-attack sensor and other equipment on the Embraer SA EMB-170, rendering unreliable airspeed and altitude readings on the regional jet. It landed safely.Before the 737 Max crashes, the most recent accident involving the sensors occurred when an Airbus SE A320 on a 2008 demonstration flight went down off the coast of France killing all seven people aboard. Moisture inside two of the plane’s three angle-of-attack vanes froze, confusing the aircraft’s automation system, according to France’s Office of Investigations and Analysis. The report also faulted the pilots for multiple errors.Examining such previous episodes is all the more important because of Boeing’s decision to use a single sensor as the trigger for the anti-stall mechanism on the Max known as MCAS, or Maneuvering Characteristics Augmentation System."With that many pilot reports and with the unknowns that we’re dealing with in these two accidents, that’s an important area to be investigated," said James Hall, the former chairman of the U.S. National Transportation Safety Board.The FAA was aware of previous angle-of-attack failures and considers such incidents when it evaluates aircraft designs for certification, the agency said in a statement."As part of the FAA’s oversight of the continuous operational safety of our nation’s aviation safety system, the agency continues to monitor, gather and evaluate all available information and data regarding the performance of aircraft and related components," the agency said.The 737 Max, Boeing’s best-selling plane, has been grounded worldwide since last month. The Chicago-based aircraft maker is redesigning the software so MCAS won’t react to a single sensor reading and can be more easily overcome by the pilot, among other things.The company didn’t respond to questions about how it took such incidents into account while designing MCAS. The company believed the sensors were highly reliable and that pilots could handle the MCAS in an emergency so Boeing built less redundancy into it, it said in a statement."In designing flight control and other airplane systems, our industry follows a set of established and accepted assumptions and processes," the company said. "The design and certification of the MCAS flight control law adhered to these processes and assumptions."In the Oct. 29 crash of a Lion Air 737 Max off the coast of Indonesia, a malfunctioning angle-of-attack sensor that had just been installed sent erroneous signals indicating the plane’s nose was pointed too high relative to the oncoming air. That prompted MCAS to push the nose down more than 20 times until pilots lost control and it plunged into the Java Sea, killing all 189 people aboard.On March 10, the same safety system on a 737 Max operated by Ethiopian Airlines was activated after an angle-of-attack sensor on the jet failed suddenly at liftoff. After about six minutes in which MCAS pushed the nose down several times, the plane went into a steep dive and crashed at high speed with 157 passengers and crew.In both accidents, there were steps pilots could have taken to avert a crash, but they failed to do so, according to preliminary reports. One possible reason was that the erroneous angle-of-attack readings triggered numerous alerts and warnings that may have have been distracting. Boeing Reprograms 737 System Linked to CrashesA software update will prevent a single sensor from activating the Maneuvering Characteristics Augmentation System. The data from both sensors will be considered.Sources: Boeing, MentourpilotThe stall warning set off a "stick shaker" in which the control column shakes violently and produces a loud noise to get the pilot’s attention. The pilots also began receiving erroneous airspeed and altitude readings, according to the preliminary crash reports."This is a breeding ground for confusion," said John Cox, president of consulting company Safety Operating Systems who participated in dozens of airline accident investigation as a pilot union representative. "They are task saturated. When you get task saturated, your ability to problem solve drops by about fifty percent."The reason a single sensor failure can cause so many problems is its data feeds multiple systems on the plane, said Peter Lemme, a former Boeing engineer who worked on other aircraft models.Overall, the sensors have high reliability and there are few examples of them causing crashes. The number of angle-of-attack failures in public databases are relatively small compared to the hundreds of millions of airline flights in recent decades. Nevertheless, they offer a window into how extensive an emergency such a failure can create."I don’t think it’s commonly known that there have been that many documented events involving a loss of AOA indicator in flight associated with stick shaker and air data anomalies," said Jeffrey Guzzetti, the former director of the FAA’s Accident Investigation Division.While investigators haven’t identified why the Ethiopian Airlines plane suddenly suffered a sensor failure just as it left the ground, that pattern, revealed in the flight recorders recovered from the wreckage, could be explained by a bird strike. FAA DatabaseThe FAA’s database of bird-plane encounters, as well as accident reports in the U.S. and other nations, contain dozens of such episodes.On May 28, 2016, for example, a Cargolux Airlines International SA 747-400 was taking off in Calgary, Canada, when pilots heard a loud bang followed by a stall warning. After landing, mechanics found the right sensor was missing and saw evidence it had been hit by a bird, according to the Transportation Safety Board of Canada.A NASA-operated repository of anonymous pilot reports, called the Aviation Safety Reporting System, contained similar instances in which sensors were damaged by birds, airport jetways or undetermined causes. Regretted FlightOne March 2016 incident closely resembled the recent crashes, except that the plane, an earlier 737-800 model, wasn’t equipped with MCAS and the pilots maintained control.As soon as the plane got airborne, the captain, seated on the left side, got the loud thumping noise and vibrating control column warning that the plane was about to stall, according to the NASA report. The captain’s airspeed and altitude displays disagreed with the copilot’s, indicating an error and setting off additional alerts. All of those symptoms occurred on the two recent Max crashes.The pilots opted to continue onto their destination in spite of the multiple failures. Both the captain and the copilot said that they regretted continuing the flight and didn’t realize that they had violated their airline’s procedures by disabling the stall warning."A return, while considered, should have been accomplished," said the captain.Only after they landed did they realize that the captain’s angle-of-attack vane was bent for unknown reasons.— With assistance by Julie Johnsson, and Todd Shields.(6) Outsourcing is killing Boeing - Eamonn Fingleton (2005), Boeing GoneHow an American titan clipped its own wingsBy Eamonn FingletonEamonn Fingleton is the author of Unsustainable: How Economic Dogma is Destroying American Prosperity.Asia-Pacific JournalApril 27, 2005Volume 3 | Issue 4ONE EVENING A GENERATION AGO, several up-and-coming aerospace executives gathered to commune with the Boeing aircraft company’s chief executive, Thornton Wilson. The discussion turned to Boeing’s vaunted expertise in making aircraft wings. Wilson evidently came across as boastful—so much so that a young General Electric executive named Harry Stonecipher suggested that Boeing was arrogant. "And rightly so," came Wilson’s serene reply.The exchange, which was recorded in Fortune magazine a few years ago, is worth recalling partly for what has happened to Stonecipher in the meantime—and partly for what has happened to Boeing.In a remarkable twist of fate, Stonecipher now fills Wilson’s old job at Boeing. But whereas the Boeing that Wilson led in the 1970s utterly dominated the skies, today’s Boeing is another matter. Its once masterful technological leadership is gone and, in an orgy of indiscriminate outsourcing, Stonecipher is presiding over the destruction of what remains of Boeing’s erstwhile manufacturing greatness—not least the world-beating wing business that was the apple of Wilson’s eye.As the American press has latterly come to realize, Boeing is an embattled company. But while the media has focused on a defense contracting scandal that has recently engulfed the company, this is a tempest in a teacup compared to the real story: the unpublicized tragedy of Boeing’s declining competitiveness. After decades of shortsighted management, Boeing has become so hollowed out that the impact is clearly visible in America’s rapidly worsening trade deficits. Indeed, respected experts fear Boeing is already so enfeebled that it may be forced to exit its core business in commercial airliners within a decade. This in turn would undermine its defense business, with distinctly ominous implications for America’s longterm security. Just how important that business is can be judged from the fact that, after decades of industry consolidation, the Boeing group now subsumes most of the contractors that executed the Apollo moon project.Part of the problem is that Airbus, a puny also-ran in Wilson’s time, has recently leapfrogged to global leadership in airliner sales. But a larger part is a sea change in Boeing’s concept of itself. In a philosophical metamorphosis whose significance has been lost on the American press, Boeing is now pleased to call itself a "systems integrator." An unfortunate echo of the New Economy bubble, this self-description effectively reduces America’s most Olympian manufacturer to the level of a thousand catch-as-catch-can soft ware consultancies. Boeing’s top management has presided over one of the most lamentable downsizing programs in American corporate history. Not only has the Boeing group cut 77,000 jobs in the last seven years, but it has euthanized its research and development department—all this while spending $10 billion to "enhance shareholder value" in a buy-back of one-sixth of its outstanding stock.The key to the new Boeing is a Faustian bargain with Japan. In a rerun of earlier American industrial implosions, Boeing has come to rely more and more on Japanese contractors for its most advanced engineering and manufacturing. Heavily subsidized by the Tokyo government, Boeing’s Japanese partners are delighted to lowball their contract prices and spend heavily on the sort of advanced research and development that in happier times Boeing would have eagerly—indeed jealously—reserved for itself.All this powerfully props up Boeing’s short-term profits. But what’s in it for Japan? Plenty. Not only have Boeing’s orders long kept Japanese factories nicely ticking, but recently, in a stunning move that has hitherto gone virtually unnoticed in the United States, Tokyo has prevailed on Boeing to transfer large quantities of previously secret American aerospace know-how to a govemment-funded Japanese aerospace consortium. Adding salt to the American economy’s wounds is that much of this expertise was built with help from U.S. taxpayers.In effect, Boeing is burning the family heirlooms to keep the house warm. First into the fire went some throwaway items from the attic, quickly followed by the Empire chaise and the Chippendale chairs. Now if labor union officials are to be believed, Boeing is torching the Vermeers and Canalettos, despite the fact that many of these are held in trust for an absent relative—an agreeable bag- holder by the name of Uncle Sam.Boeing’s deeply embittered engineers prefer an even more controversial—if distinctly vulgar—metaphor. Outraged at the prone position they have been asked to adopt towards their information-gathering Japanese counterparts, they have been quoted by author Karl Sabbagh as referring to Boeing’s technology-transfer deal with Japan as the "open kimono" policy. The erstwhile titan of the American aerospace industry is, of course, the one in the kimono.Just how far Boeing has fallen will be extensively documented later this year when the aerospace experts David Pritchard and Alan MacPherson publish a scholarly analysis of Boeing’s "systems integration" policy. Their paper, which is being reviewed for publication by the UK-based journal R&D Management, is likely to cause a firestorm in Washington. Here, based on an advance look at the draft, are some of their findings:o More of the 7E7, Boeing’s major new plane due for launch in 2008, will probably be built in Japan than in the United States.o In total, nearly 70 percent of the 7E7’s manufacturing content will come from foreign sources. This compares with foreign content of just 2 percent in the Boeing 727, which was launched in the 1960s.  o The Boeing 777—the most advanced Boeing so far launched—contains about 30 percent foreign content. There is no domestic production for the plane’s center wing box or its aft and forward fuselage sections.o Boeing’s product line is rapidly aging and its backlogs are low—a signal that further precipitous drops in output are ahead. Production on four of its six commercial product lines (the 747, the 757, the 767, and the 717) is likely to cease within the next few years. This would leave only the 737 and 777 in production until the 7E7 comes on line.o Boeing spent a mere 3.5 percent of its revenues on research and development in 2003. By comparison, Airbus spent 9.5 percent. Boeing allocated only 1 percent of its 2003 revenues to capital investment, compared to Airbus’s 9.1 percent.o Boeing’s technology transfers to Japan include vital new-materials know-how acquired in long-running joint research programs with NASA. The materials concerned are composites used in both wings and fuselage.o Boeing has become so hollowed out that its sales should no longer qualify for lucrative federal export incentives such as Ex-Im Bank loans and foreign sales corporation tax status.As Pritchard and MacPherson point out, a particularly telling indicator of Boeing’s decline is that the Japanese will make most of the wings for the 7E7. Not only that, Boeing seems set to transfer wing-making know-how to a Japanese- govemment-sponsored consortium.In outsourcing the 7E7’s wings, Boeing is crossing an economic Rubicon. Apart from the Boeing 717, which was not a true-born Boeing, no Boeing plane has ever flown on foreign wings.  (The 717 is a souped-up DC9, and its presence in the Boeing catalog reflects Boeing’s takeover of McDonnell Douglas in 1997. McDonnell Douglas, it should be added, pioneered many of the eat-the-seed-corn tactics Boeing has now embraced.)In the past, Boeing always maintained a tight grip on the wing-making process. Whereas in the 1980s and 1990s it let Japan make an increasing array of wing subcomponents, these were merely assorted "widgets" churned out to Boeing designs. Now a Japanese aerospace consortium will have design control and will make its own decisions about which contractors and subcontractors make the myriad widgets. If past is prologue, Boeing will never again regain control of wing-making. For one thing, the Japanese suppliers will have the advantage henceforth of more modem tools and a generally more advanced understanding of the technology.It is hard to exaggerate the significance of all this. As was obvious to Thornton Wilson all those years ago, Boeing’s erstwhile global dominance in jet planes was founded on its wingmaking secrets. Indeed, when Japanese contractors began to take on an increasingly important role in making aircraft components in the 1980s, Boeing instituted elaborate procedures to control the movements of visiting Japanese engineers at its offices and factories. As Louis Uchitelle of the New York Times recorded in 1989, Boeing’s prime concern was to hide its wing-making secrets from industrial spies.In truth, the challenges entailed in designing and making wings for large passenger jets are far more daunting than lay observers might imagine. The challenge is to make the final design both strong and light, a delicate balancing act that is not made any easier by a further requirement: everything must be machined to tolerances measured in thousandths of an inch. The slightest dimensional error can produce disproportionate aeronautical consequences. Just how disproportionate can be gauged from a well-known law of aeronautics: air resistance increases with the square of an object’s speed. Thus the resistance encountered at 500 miles per hour is fully 100 times greater than at 50 miles per hour.It is therefore hardly overstating things to say that the wings are to a plane what the sound box is to a violin— its defining feature. Just as a violin is not a Stradivarius without a sound box made in Cremona by Antonio Stradivari, a plane can hardly be considered a Boeing without wings made in the United States by the Boeing company.Perhaps the best indicator of the challenges involved in making wings for large passenger jets is that, apart from the United States, only one nation, Britain, boasts a serious record in the field. British Aerospace’s wing-making capability is one of Britain’s few remaining world-class manufacturing businesses. Its technology, in turn, has been a key driver of the success of Airbus, which is backed by the governments of France, Germany, Spain, and, of course, Britain.Wing-making is one of the most advanced sub-sectors of one of the world’s most advanced manufacturing industries. But since the United States has been in general retreat from advanced manufacturing for three decades, why should we care what happens to what remains of America’s manufacturing heritage? Manufacturing matters for three key reasons:1. Manufacturing jobs generally provide better wages than equivalent service jobs because worker productivity is generally leveraged by more capital and more proprietary knowhow.  2. Manufacturing provides an abundance of jobs for people of ordinary ability as opposed to the Ph.D. types who get many of the jobs at, say, Microsoft. It thus closely matches the job-creation needs of society.3. Manufacturing companies are big exporters. In my book, In Praise of Hard Industries, I calculated that per unit of output American manufacturing businesses export about eleven times as much as service businesses.Few manufacturing businesses score better on these three criteria than the airliner industry. Even if it were not so closely intertwined with America’s national defense, the industry would still be of pivotal geopolitical importance. The point is that it has long been America’s biggest export earner. Unfortunately, America’s imports of aircraft and aircraft parts now equal 45 percent of its exports, up from just 5 percent in the 1960s.Boeing’s resort to outsourcing explains much of the increase—and it comes at a time when Americans are rediscovering the importance of trade. For a while in the 1990s, it became fashionable to say that "the trade deficits don’t matter" and that the U.S. could with impunity allow its export industries to die on the vine, but this is now becoming widely recognized as a self-serving canard of the foreign-trade lobby. Certainly the Bush administration can hardly feel secure in the knowledge that the only thing standing between the dollar and total collapse is a massive support operation by the Japanese and Chinese.As Jack Davis, a prominent advocate of an American manufacturing revival, points out, the ramifications of Boeing’s decline extend beyond aerospace. "We’re not just losing the airliner industry, but all the scientific, engineering and technological know-how that goes with it," says Davis. "We are talking here about advanced composites, glass, aluminum, titanium materials technology, the castings and foundry industries, precision tooling and machining, not to mention avionics. And since these technologies are used in jet fighters, bombers, tankers and space vehicles, we’re hitting the defense industry as well as the commercial aerospace industry."The most devastating aspect of Boeing’s implosion is what it says about America’s overall economic strategy. A principal element of that strategy has been free trade. And for proponents of free trade, Boeing has long been Exhibit A—supposedly unimpeachable evidence that advanced American manufacturers have little to fear and much to gain from the globalists’ New World Order.When some of us in the 1980s and 1990s warned that "one-way free trade" was gutting American manufacturing, we were dismissed as Chicken Littles. American manufacturing was not declining, we were told, but rather triumphantly reinventing itself. Free trade might sweep away inefficient, low-tech manufacturers—"buggy-whip makers" in our opponents’ favored terminology—but America was going from strength to strength in more advanced industries such as aerospace. And true enough, all through the 1980s when the alleged buggy-whip makers—companies like Zenith, Xerox, and Chrysler— fell like ninepins before foreign competition, Boeing seemed like a gratifying exception—to anyone who did not look too closely. As late as 1990, Newsweek described concern about Japan’s targeting of various aerospace technologies as "overwrought" and opined that America enjoyed "a lead over Japan that would be difficult to squander."Of course, as far as Boeing is concerned there is no problem. It paints its downsizing not only as inevitable but as a good thing. Unfortunately its excuses are, for the most part, transparent nonsense.Start with the notion that it is now a "systems integrator." To those who can’t see through business jargon, a "systems integrator" may sound more impressive than a mere manufacturer. In reality, it is a cop-out, as a glance at some of the industry’s other systems integrators makes clear. Embraer of Brazil is a systems integrator. So is Aviation Industries of China. Like the new Boeing, these companies lack the advanced knowhow and machinery to make key components in a modem first-world plane. Instead they must import such components from more advanced manufacturers in Japan and Europe.Boeing’s outsourcing is often excused as merely reflecting a desire to have routine, low-skilled work done cheaply in low-wage countries. This might make sense if Boeing were moving jobs mainly to India or Bangladesh. In reality, an estimated 50 percent of Boeing’s for- eign-sourced work is done in Japan. While in the 1970s and 1980s companies like Zenith and Xerox had some excuse for going to Japan, any shift of American work to Japan now seems like an admission of managerial failure. Measured against the dollar, the yen today stands at more than two-and-a-half times its level of 1985. Once a cheap-labor country, Japan today ranks virtually at the top of the world wages table with wage rates between 10 and 30 percent higher than in the United States. Boeing’s decision to buy more and more from Japan is therefore the economic equivalent of water running uphill.The plot thickens when you realize that foreign outsourcing has not always been a factor in the American aircraft industry. In fact, in the 1950s, the heyday of America’s domination of the skies, American planes were made virtually in their entirety with American labor, despite the fact that American wages were then six times those in Japan and four times those in Germany.Boeing’s first experiment with foreign contracting came in the 1970s when, in a quid pro quo for plane purchases by a government-owned Japanese airline, Boeing undertook to buy some Japanese-made components. Similar side deals—known as "offsets"—were soon concluded with other industrially ambitious nations.Although the early offset deals were small, they proved to be the thin end of a rather thick wedge. By the 1980s, the Japanese alone were making 15 percent of the Boeing 767, and that is modest compared to the plans for the 7E7. Japanese manufacturers are officially expected to make 35 percent of the plane, but unofficial estimates put their share far higher because in addition to delivering huge fully assembled sections, the Japanese will supply many of the subcomponents needed by Boeing’s American and Italian suppliers. An exact calculation is impossible because an undisclosed proportion of the work will be conducted abroad by Boeing itself (in Boeing-owned factories in Canada and Australia), but Pritchard and MacPherson are probably erring on the low side in suggesting that 70 percent of the new plane will be manufactured outside the United States. While the final assembly work will be done in Seattle, the choice of this location was a token gesture aimed at capturing state tax breaks and cannot cover up the fact that the most sophisticated passenger jet ever built will probably be more a Japanese product than an American one.The earliest negative impact of the offset system was felt as far back as the 1970s, when Boeing’s once flourishing roster of American suppliers began to lose orders. One by one such component makers as Avco, Convair, Douglas, Fairchild, Grumman, Lockheed Martin, Northrop, and Rockwell have since been forced to exit the passenger jet business or have even had to shut down entirely. The roster was down to just two as of 2003, compared to ten in the 1970s.Boeing argues that large offsets have often been essential in capturing lucrative export orders over the years. But this is contradicted by Airbus’s record. While consistently stonewalling the more damaging requests for offsets, Airbus has nonetheless thrived. As Pritchard and MacPherson point out, Airbus has generally sourced components for each new model initially from within Europe. Only at a later stage in the cycle does it contemplate sourcing from non-European suppliers. By that time, Airbus’s European suppliers will have moved on to more advanced work on newer Airbus models.To be sure, in resisting offset requests, Airbus has enjoyed powerful support from European governments. Rather than countenance the transfer abroad of advanced manufacturing jobs, Airbus’s government backers have often dangled landing rights at key European airports. They have also used geopolitics to their advantage, particularly in the Middle East, where they capitalize on anti- American feeling.As for Boeing, although it cannot copy Airbus’s tactics in detail, it has often wasted the considerable geopolitical leverage it enjoys. Take the Japanese market, which happens to be the world’s second largest. Boeing has rarely needed to give away jobs to secure orders from Japan. Quite the contrary, Japan has been more or less a captive market. After all, as the Atlantic’s James Fallows has pointed out, U.S.-Japan trade imbalances have long been so large that Tokyo has felt obligated to find ways to boost its purchases of American goods. In the absence of compelling technical reasons to buy European, therefore, Japan’s highly regulated airlines surely had little choice but to buy American. After all, by dint of scale economies, Boeing enjoyed a commercial edge over Airbus well into the 1990s. Certainly, while the transfer of jobs to secure orders has been merely lamentable, the transfer of advanced technology has been utterly inexcusable. Given that Boeing was safe from undercutting by Airbus, it could easily have resisted the more outrageous technology requests, particularly those from Japan.What is undeniable is that Airbus’s refusal to sacrifice jobs and technology has done little to hold it back. Airbus passed Boeing in deliveries of new passenger jets in 2003. Part of the story is an enormous advance by Airbus and part of it is a sales implosion at Boeing. With the help of subsidies from European governments, Airbus’s deliveries of completed aircraft increased from fewer than 100 in 1990 to more than 300 in 2003. By comparison, Boeing’s deliveries slumped from more than 520 planes in 1990 to fewer than 290 in 2003.All this is a far ciy from the 1980s, when the combined share of Boeing and McDonnell Douglas sometimes accounted for close to 90 percent of all orders, leaving a Lilliputian Airbus with a few remaining crumbs. Perhaps the most telling indicator of the scale of Boeing’s fall is that, at the time of Boeing’s takeover of McDonnell Douglas in 1997, the two companies together accounted for 77 percent of all planes then in service.  Even before the decision to outsource the 7E7 wing work was announced, there had been hints that Boeing’s top executives were rapidly tiring of the passenger-jet business. Certainly they have given every sign of preferring to develop service businesses, notably a new telecommunications subsidiary named Connexion by Boeing. Following in the footsteps of General Electric, General Motors, IBM, and other erstwhile American industrial icons that have dramatically downsized their manufacturing workforces in recent years, Boeing has also been developing a financial services subsidiary.Top executives inevitably put a brave face on all this, professing to see the new services as high-growth add-ons to the main manufacturing business. Nonetheless, there are strong grounds for questioning the long-term wisdom of Boeing’s passionate embrace of services. Experience elsewhere suggests that such diversification is a short-term solution that inevitably dissipates much managerial time that would be better invested in the main business.A further straw in the wind is that Boeing has been increasingly emphasizing defense contracting. In 2003, for the first time in several decades, Boeing’s defense division outsold its passenger- jet division. While rising defense sales provide some respite for what remains of Boeing’s beleaguered manufacturing workforce, the economic subtext is hardly flattering. Just as patriotism is proverbially the last resort of scoundrels, defense contracting tends to be the last resort of corporate America’s also-rans. The point is that defense contracting is not only generally sheltered from foreign competition, but it is often priced on an all-forgiving cost-plus basis. This is how a faltering McDonnell Douglas could continue as a major defense contractor long after its passenger-jet business had imploded.The zest for innovation has largely disappeared at Boeing. This need not have happened. After all, when Airbus got its start in the late 1960s, American companies utterly dominated the world aerospace industry—and few American aerospace companies held more high cards than Boeing.Capitalizing on a treasure trove of aeronautical secrets acquired from a defeated Germany at the end of World War II, Boeing had led the United States into the jet age. Thus it was that Boeing developed one of America’s first jet-powered bombers, the B-47. Then in 1958 Boeing launched the world’s first successful passenger jet, the Boeing 707. By the mid- 1960s, Boeing had become the leading maker of passenger planes—from which position it proceeded to bet the company on the 747 jumbo. Launched in 1969, the 747 nearly bankrupted Boeing but went on to become a sensational commercial success. Still, the trauma of the 747’s birth seems to have cast a permanent shadow over the company’s previously entrepreneurial culture. The era of visionary gambles at Boeing was over. As of the early 1990s, Airbus’s chief strategist, Adam Brown, was openly taunting Boeing for having become "reactive." Brown is hardly an unbiased source, but it is indisputable that Airbus has led the industry in several notable innovations over the last three decades.The pattern started with Airbus’s first plane, the A300. When it entered service in 1974, the A300 was the world’s first twin-engine wide-body. The twin-engine format slashed airline operating costs compared to the three-engine and four- engine formats of earlier wide-body planes.Airbus again stole a march on Boeing in 1988 when it introduced so-called fly- by-wire. Fly-by-wire is the industry term for computerized navigation controls, a concept pioneered in military aircraft in the early decades after World War II. It was later installed on the Anglo-French Concorde and, despite Concorde’s dismal commercial failure, the technical success of the Concorde navigation system encouraged Airbus to use it on the A320. Boeing did not follow until 1994, when it introduced a limited version of fly-by-wire on the 777.Fly-by-wire is important partly because it is a major weight saver. Moreover, it facilitates "interoperability." This is the industry term for standardized controls installed across a family of aircraft—a pilot-friendly feature that enables airlines to save millions on training costs.Boeing’s woes over the years were compounded by its engineers’ reluctance to move to computer-aided design. Again Airbus pioneered the concept and reaped early efficiency gains. One lasting consequence is that it was a French company, Dassault, that came to dominate the market for aircraft-design software. Even Boeing now buys software from Dassault.If anything, Boeing has become even more cautious since it took over McDonnell Douglas, which had long been notorious for its failure to innovate—a trait that, as Fortune magazine has commented, allowed Boeing "to all but blow it out of the airliner business." Led by Harry Stonecipher, many of McDonnell Douglas’s people have succeeded to top jobs at Boeing.Boeing has been reluctant to develop new planes. Of four new models mooted in the last 15 years, it has killed three. Most notably, in the wake of the Sept. 11 attacks it shelved the so-called Sonic Cruiser, a glamorously positioned plane that would have cut the flight time from New York to London by nearly one third.Even more significantly, in March 2001 Boeing cancelled longstanding plans for a superjumbo that was to have superseded the ageing 747. As a result, Airbus, which announced in 2000 that it was going ahead with its own superjumbo, has a clear run at establishing a highly lucrative monopoly that looks certain to kill off the Boeing 747, for two decades Boeing’s cash cow.The Airbus superjumbo, to be known as the A380, will make aviation history as the world’s first four-aisle plane. It will also be the first full double-decker passenger jet. Carrying 555 passengers in its launch version in 2006, it is expected in later models to carry as many as 840.Responding via e-mail (the company declined to be interviewed), a Boeing spokesman made light of the problems. Boeing’s research cuts, for instance, merely reflect a cyclical low, he said. The fact is, however, that research spending relative to total revenues is now far lower than at a similar cyclical low in the latter half of the 1980s (and it is running at less than half the rate of the mid-1990s). Even if spending increases as the 7E7 project goes forward, Boeing’s share is likely to be quite small: the point is that much of the burden will be shouldered by foreign partners.Boeing plays down the importance of know-how transfers to Japan and maintains that much U.S. taxpayer-funded research being transferred is already in the public domain. Stan Sorscher, an official of Boeing’s main white-collar union, acknowledges that while there is some truth in this, Boeing’s work with NASA has yielded much tacit knowledge that is not published. Such knowledge is often where the real national economic advantage is and its transfer represents a serious loss to the American national interest. Because Boeing no longer sees a future in making key parts of its planes, it no longer seems to put a high value on practical production know-how. By contrast, for the Japanese, focused as always on boosting their labor productivity in advanced manufacturing, such know-how is pure gold.  Boeing also plays down the importance of its wing deal with Japan. It would appear that Japan’s participation will be less comprehensive than originally indicated in 2003. But if the Japanese wing builders are really now to play Robin to Boeing’s Batman, it is puzzling that this has not been more widely publicized. As of late December the Seattle Times’s well-informed aerospace correspondent Dominic Gates was still flatly stating that the 7E7’s wings would be made in Japan.It seems clear that nothing much has changed apart from the spin that Boeing wants to put on the deal. Certainly changing political realities dictate a different spin. After all, Boeing’s room for maneuver is increasingly being constrained by the Pentagon scandal. Meanwhile, on the Japanese side, the fact that America’s huge trade deficits are suddenly again on Washington’s front burner will not have gone unnoticed.That said, Boeing has a point in arguing that not all its problems are of its own making. What is important now is not so much allocating blame as reversing the company’s power dive. While there is plenty of room for debate about detailed measures, it is clear that absent a changed mindset—both at the national level and at the company level— Boeing’s fate is sealed.Of course, Boeing’s problems are part of a much larger syndrome of decline in American manufacturing. If the United States wants to retain control of its economic and political destiny, a whole litany of changes is necessary to reverse the globalist drift of American manufacturing policy. But at the end of the day, such changes are all moot if American policy makers do not change their fundamental mindset. Quite simply, laissez faire is not enough in an industry as concentrated and geopolitically significant as aerospace.As for America’s policy on aircraft trade, this seems doomed to failure. It consists after all of little more than beseeching the Europeans to stop subsidizing Airbus. In years gone by, when Airbus was much smaller and the United States enjoyed more influence, there might have been some hope of being heard. But that time has gone. Even if Boeing could claim that it is without sin in the matter of taking government largesse, it is unlikely the Europeans would listen to American pleas.Under these circumstances, Washington needs to take a more radical approach. On the Left, many observers advocate a wholehearted industrial policy for the aircraft industry. But perhaps a better solution—and one certainly more in accord with America’s capitalist tradition—is an idea put forward by economist Pat Choate. Choate, author of Hot Property, a forthcoming book on the theft of American intellectual property, suggests a "sphere-of-influence" approach similar to that which applied in the chemicals industry in the first half of the last century. Basically, the concept is to let Airbus have the run of the European market while Boeing would have North America. These spheres of influence would be defined by tariffs on both sides. In third-country markets, the two companies would be free to compete on level terms and this discipline would provide a strong incentive for efficiency.Given the especially open nature of American democracy, many policy options are likely to be considered—and hotly debated. What everyone can agree on is that it is now past time for something that hitherto has been sorely absent: leadership