University at Buffalo - The State University of New York

Published: April 17, 2003

By ELLEN GOLDBAUM
Contributing Editor

The red ink flowing from the airline industry in recent months has consistently grabbed headlines, but during the next decade the U.S. economy will be affected by an even more significant loss with the nation's eventual exit from the building of passenger aircraft, a market the U.S. has led for more than half a century, according to a research paper by two UB geographers.

The paper, which was published last month in the journal Futures, provides a detailed look at the decline and eventual demise of an industry it describes as "the single most important sector of the U.S. economy in terms of skilled production jobs, value added and exports."

UB geographers expect Boeing to cease manufacturing passenger planes like this 747-400 Jet Aircraft.

In the first in-depth analysis of the commercial aircraft industry since Sept. 11, 2001, the authors stress that the loss of this sector will have severe consequences for tens of thousands of U.S. workers, as well as for the nation's economy.

The authors focus on Boeing Corp., the only remaining U.S. manufacturer of large commercial aircraft—those with more than 100 seats.

"Ten years from now, Boeing, the last remaining U.S. firm in the business, will be making military and special aircraft, but its days of manufacturing large passenger jets will probably have come to an end," said Alan MacPherson, professor and chair of the Department of Geography in the College of Arts and Sciences, and co-author.

"This is the first analysis that documents the entire shifting of commercial aircraft manufacturing away from the U.S.," said David J. Pritchard, co-author of the paper, who wrote it as part of his doctoral work in geography at UB and who runs a consulting firm specializing in aerospace.

Pritchard worked for 20 years in commercial airframe manufacturing for suppliers servicing global aircraft manufacturers. He has visited every major aircraft plant in the world.

The dramatic shift in the geography of aircraft production overseas to Airbus and other government-financed firms in Japan, Italy and China, the researchers note, is in large part a result of subcontracting agreements in which foreign governments require that in order for them to buy planes, key technologies for aircraft production must be transferred to their companies from the U.S. or a certain percentage of the planes they buy must contain locally produced parts.

The recently published Final Report of the Commission on the Future of the United States Aerospace Industry http://www.aerospacecommission.gov cites Pritchard discussing this issue.

The authors note that although Boeing officials have not stated officially that the company is ceasing commercial aircraft production, there is overwhelming evidence that it will.

"Boeing has a lot of aircraft just sitting in the desert," said MacPherson, who adds that those planes have been purchased by airlines, but since Sept. 11, 2001, none of them is in any condition to take delivery.

In the paper, the authors cite the loss of more than 30,000 Boeing workers following Sept. 11, 2001 and subsequent announcements of future cuts, shifts in its emphasis into telecommunications and air-traffic control, and symbolic changes, such as the recent move of its headquarters to Chicago from Seattle, which is geographically closer to the emerging markets for new passenger jets in Asia.

As further evidence, Pritchard and MacPherson note:

• Boeing's sale or closure of approximately 10 million square feet of space devoted to commercial and military aircraft production in the past decade

• a 60 percent decline in Boeing's commercial aircraft production, with less than 50 aircraft in backlogs of four of its six commercial aircraft models, when most viable, mature aircraft programs have backlogs in excess of 100

• the lack of new aircraft programs—Boeing's most recent aircraft is the 777, designed in the early 1990s

• Boeing's announcement on Dec. 20 that it would shelve its futuristic, high-speed, sonic-cruiser design in favor of a cheaper alternative, its second cancellation of a proposed commercial jetliner program

"Our paper traces the transformation of Boeing from a manufacturing corporation to a global service corporation," MacPherson said.

That strategy probably will be positive for the corporation and its stock price, he explained, because traditionally aviation services and high-tech military aircraft manufacturing have had higher profit margins than the commercial side.

But, said MacPherson, there is a downside.

"The real cost will be to Boeing's workforce, which has already taken a major hit, and its subcontractor base in the U.S., sending a ripple effect throughout the sector and beyond," MacPherson said.

"The biggest loser in all this is the membership of the International Association of Machinists, the traditional aerospace workers who mainly do riveting and aircraft assembly," explained Pritchard. "These were well-paying positions and there will no longer be a need for them as Boeing aircraft programs are downsized and eventually closed. Now these people will need new sets of skills.

"My belief is that by the time Boeing comes out of this current 'downsizing,' the job losses will have reached between 45,000 and 50,000," he said.

At the same time, the authors document a major decrease in the number of scientist and engineer positions in the U.S. aerospace industry, which plummeted by 800 per cent from 1970 to 2000. More cuts are anticipated, they say.

The paper also documents the strengths of Boeing's new competitors, most significantly Airbus, whose market share has grown from zero in 1970 to 50 percent, as well as other firms—all of whom have benefited from the subcontracting offset agreements.

The paper forecasts a similar fate for other sectors of strategic importance to the U.S. economy, such as machine tools, where offset arrangements are becoming common.

MacPherson and Pritchard write that U.S. government policies have only been concerned with preventing the delivery of sensitive technologies to potentially hostile nations, rather than the potential economic consequences of such offset agreements, such as major job losses for American workers.

The UB authors characterize these agreements as prevalent in markets where "unit costs are high…and sellers are desperate to make a sale…"

"Direct offset agreements between airlines and aircraft producers are designed to transfer a segment of the manufacturing work to the buyer," they write.

In one striking example they cite from 1995, South Korean producer Hyundai obtained the engineering and technical specifications required to build wings for a Boeing/McDonnell jet.

Within two years, Hyundai had purchased state-of-the-art equipment and had successfully built wings for the Boeing 717. Meanwhile, the authors point out, Boeing's own equipment for building the same parts was around 30 years old.

"The competitors have the leverage to turn these deals very much to their advantage," said Pritchard.

The authors also note that Russian firms now are advancing technologically and are in the process of receiving FAA/JAA (Federal Aviation Administration/Joint Aviation Authorities, the European equivalent) certifications for several aircraft programs.

The Chinese aerospace industry is not far behind, they add, and currently is embarking on manufacturing a 70-seat regional jet featuring Western engines and avionics.

"We're foreseeing a radical shift in production of commercial aircraft from the U.S. to overseas," said Pritchard, "and it's not going to come back."