Watson, Sherlock Holmes would say in a moment of sleuthing purity, When you have eliminated everything that it isnt, what remains is what it is.
It is doubtful that Sir Arthur Conan Doyle ever thought the words of his master detective character would be applied to determine core motivations behind a rapidly emerging modern day corporate drama. But looking at the events of the past week concerning the affairs and actions of the worlds largest manufacturer of commercial and military aircraft, Boeing, Holmes would no doubt say, It is most appropriate.
Chairman Phil Condit stunned Seattle, Boeings home since its founding in 1916, when he announced an intent to move its headquarters to another city like Chicago, Denver or Dallas. And its probably not a bad idea to add Dayton to the list, along with Detroit.
But before we offer the expected well defined, thoroughly researched observations regarding state, municipal, national and even international economic impact resulting from this proposed move, we want to make clear that, in our estimation, Boeings not going anywhere.
The Boeing Legacy
Founder Bill Boeing chose the Seattle location well. Indeed, you could almost say he was beyond visionary - even prophetic -- in what he concluded would be Boeings then current and future place in the emerging world of aviation from both a commercial and military standpoint. The resources of Washington State, perched on that vast gateway to the world, the Pacific Ocean, were virtually inexhaustible, thanks to comparatively low population requirements. It is not a stretch to say that he could rightly count on the resources of even Oregon and Alaska. After all, he reasoned, Boeing was going to be the indisputable core of the Pacific Northwests budding industrial base. Then, although not alluded to in Boeings memoirs, there was the potential of geothermal energy utilization as a manufacturing power source. The eruption of Mt. St. Helens in 1980 would lay to rest any argument that this area, part of the Pacific Ring of Fire as the volcano chain is known, isnt one of the worlds geophysical hot spots.
The relative isolation of the area, as well as above average military defensibility, proved ideal for the testing of prototype aircraft away from prying eyes, a fact still valid today. During a visit to Boeing headquarters last year, this writer marveled at how perfect a location Seattle and environs provide for the planets pre-eminent airplane builder. And not only perfect for things flyable: The city represents the core of the worlds technological evolution, if not revolution, in Internet linked and enhanced computing. The presence of software giant Microsoft, online services provider Amazon.Com, and enviable worker loyalty clearly makes Seattle one of the most coveted corporate locations on the Big Blue Marble.
Say It Ain't So, Mr. Condit
So, what gives? Why is Condit doing the presumably unthinkable? Four reasons; AIRBUS, European Union, Wall Street impropriety and DaimlerChrysler.
The first three reasons cited are of course, understandable, but DaimlerChrysler? Actually, yes, as the outcome of this so-called merger of equals and marriage made in heaven weighed heavily in Condits decision to announce Boeings willingness to depart for business climates more conducive, he claims, to a change in corporate culture. And he has been chided, derided and ridiculed by economists, academics, politicos and the rank-and-file alike for presenting the latter as an appropriate reason for executive office departure from the city that loves them.
Call Phil Condit crazy like a fox.
In a way not dissimilar to the agonizing decision that former Chrysler Chairman Bob Eaton faced one day in 1998, Condit looked at the future of Boeing unfolding in front of him, and the 59 year old aeronautical engineer didnt like what he saw.
end of the Cold War brought about slashes in military budgets for big
ticket, and for Boeing, bread and butter, items like C-17 Transports,
the Advanced Tactical Fighter (ATF) and development of revolutionary aircraft
like the problem-plagued tilt-rotor V22 Osprey. In Condits mind,
history lent no support to the assumption that traditional reasons for
military conflict cease to exist because a certain wall came tumbling
down amidst the fragmentation of one of the worlds most powerful
nations, the Soviet Union.
'In Condits mind, history lent no support to the assumption that traditional reasons for military conflict cease to exist because a certain wall came tumbling down '
The world has become an even more dangerous place, and unfortunately, diminished military capability and the ability to project power to any point on the globe will prove a major stopgap to the success of the emergent globalism, says Dr. Sheila Ronis, a Pentagon and NASA consultant. Truly global corporate executives like Delphis J.T. Battenburg III, Fords Jacques Nasser and Toyotas Fujio Cho conduct business on the basis of the assumption of a given countrys political stability being partially assured by the current world power - the United States - having the military wherewithal to maintain such. Without it, says Ronis, a lot of long range globalization plans, fastidiously constructed and implemented, can come to a screeching halt.
Arsenal of Democracy
success has been directly if not inextricably linked to its very core
position in maintaining the Arsenal of Democracy for the better
part of 70 years. Pursuant to the establishment of this position, Bill
Boeing set about laying the groundwork for manufacturing processes that
assured an incredible level of quality and resilience in both its commercial
and military aircraft. A lot of airmen came home from the flak and Luftwaffe
filled skies over Europe because of an extraordinarily tough long range
bomber, The B-17 Flying Fortress. And half way around the world
in the Pacific Theatre of Operations, squadrons newly equipped in 1944
with the successor to the beloved 17s, the aeronautical and aircraft systems
standard setting B-29 Superfortress, began bombing missions to
Japan. Again, demonstrating the wisdom of Bill Boeings unrelenting
pursuit of production quality approach.
Boeings Commercial Airplane division directly benefited from the firms military experience, utilizing advanced aircraft systems technology, such as pressurization, developed for the B-29, in its post-war precedent setting Model 377 Stratocruiser luxury airliner. This aircraft actually featured two decks - the upper providing room for a passenger lounge. The two-deck approach was not revisited until the development of what is inarguably the finest passenger aircraft ever built, the 747.
The companys aircraft, inclusive of the venerable 707, workhorse 727, 737, 757, 767 and advanced 777, are in the fleets of airlines around the world, a dominance not seriously challenged until relatively recently by the European aircraft manufacturer consortium known as AIRBUS Industrie.
Countering the AIRBUS Threat
Make no mistake, AIRBUS is a major threat to Boeings dominance and Condit is all too aware. The problem is, while he doesnt mind competition, its the unfair competitive advantage given to them by the European Union that grates him. The company has been continually stung by the loss of major aircraft orders that just 10 short years ago, would have been unquestionably theirs. In a recent ER analysis of China, the story noted that the company became a pawn of sorts when the U.S. sided with Taiwan during a standoff in 1996 between China and Taiwan that bordered on open hostilities. Boeing was an easy target for the displeasure of the Chinese, which bypassed the company to order Europes AIRBUS planes, Boeings only real competitor, said [former Boeing of China President Ray] Bracy. Boeing went from an 82 percent market share down to 67 percent, as China sent a stern message. Thats business the company wants back.
'When 1,600 airplanes are expected to be delivered to China in the next 20 years - about $120 billion worth of business - we cant really afford another occurrence of what happened.'
Even more recently, Boeing lost out to AIRBUS for providing next generation Wide Body passenger jets to Singapore Airlines. The clean sheet of paper A380, with the capacity to carry 555 passengers in ocean liner luxury 8,000 nautical miles, was chosen over Boeings 747X with advanced avionics, expanded passenger accommodation and increased engine efficiencies for longer range. The deal, valued at $8.6 billion, was a blow to the prestige of the company, who, given its history with this premier, highly profitable carrier (the airline currently operates over 36 747s and 18 777s with 12 more on order) had every right to believe they would prevail in an aircraft sales duel reminiscent of the Gunfight at O.K. Corral.
e tu, E.U.?
There is a presumption of significant discounts offered on these $220-240 million aircraft and E.U. subsidization is not a stretch.
Perhaps in what may become a premature gloat, AIRBUS Commercial division Chief John J. Leahy, quoted in the New York Times last September following the deals announcement, said that Singapore Airlines chose the A380 because they wanted the aircraft with the latest technology. The 747 is a very fine airplane, he said, but its built on 1960s technology.
Someone should remind Mr. Leahy that airframes, properly maintained, can theoretically last forever. Considering the reality of avionics/flight systems modularity, even a DC-3 can be modified to operate on the technological edge. Expanding on the statement 1960s technology, he ought to remember this era produced aircraft of such superlative design and performance that they are considered aeronautical engineering benchmarks to this day. Names that readily come to mind include Concorde, SR-71, X-15 and Harrier. Not to mention we went to the moon in 1969.
In matters military, the company got an unexpected boost recently when the U.S. Air Force, in a near unprecedented move, offered substantial incentives to civilian air freight operators for purchasing the C-17 Globemaster transport. In addition to preferential financing arrangements, there are other perks like guaranteed government haulage contracts and post bankruptcy buy backs. All of which has caused considerable consternation among government watchdog groups.
' Phil Condit is at war.'
Such concerns, although essential and appropriate to the preservation of this countrys democratic architecture, fail to take into consideration the current world state of affairs economic, political and military. The bottom line is that were at war in the economic sense, and Phil Condit is at war, says Ronis.
"The European Union is very wise and understanding of the issues, as they relate to the need to support their member economic goals on a global basis, and most importantly, maintain their respective industrial bases. Americans, by and large, are clueless in these matters.
Ronis notes that war is always waged first against a target nations economy. The subsequent crippling of its industrial base can all but render it defenseless. There can be no assumption that just because a country is our ally militarily; i.e., NATO members, that it is our friend in the pursuit of economic advantage, she says. At the risk of sounding alarmist, the U.S. economy, and thus its industrial base, is under attack. And what greatly concerns Condit is there is virtually no recognition of that fact by most rank and file, politicians and even industry executives. There are clear national security issues here, says Ronis and according to one observer, Boeing is national security.
Wall Street Disloyalty
Condits other concern is the fickleness and perceived disloyalty of Wall Street, who for more than 36 months, have supported virtually without question unproven companies presumably providing the underpinnings of the new economy, the Dot.coms. The billions sunk into these entities which provided neither brick, glass or mortar has been a clear factor in the current slide of the economy, which, for all intents and purposes, is in recession. Moreover, Wall Streets love affair with internet/tech stocks has been at the expense of Blue Chip companies like Boeing, GM, Ford and others, as these were largely ignored as quite viable buys. After all, they only comprise the deepest foundations of this countrys industrial base.
Until the dot com crash, one needed to only look at the preposterous differences in assigned share values between components of the old versus new economies as verification of this contention.
The Spectre of Corporate Destruction
From a distance, Condit has watched, and not dispassionately, the acquisition, and subsequent destruction of an American corporate icon, Chrysler.
What was going through his mind as this supposed marriage of equals turned out to be nothing less than a constructive taking, that is, the acquisition of a business entity by legal means for purposes other than those originally stated? The dual analyses recently presented in ER, Der Sturm"" and Chrysler - Down for the Count: Crafting a Reprieve noted that Chairman Juergen Schrempp admitted as much to the Financial Times.
What was Condit thinking as top-flight American executives who comprised the nucleus of the executive management team responsible for the modern day corporate miracle known as Chrysler were ruthlessly eliminated?
What were his thoughts as the last of the $9 billion in Chryslers coffers took flight across the Atlantic on December 31st of last year to a waiting German bank account?
And what did he feel when the new, all but purely Daimler management team coldly announced that the reasons for Chryslers financial and marketshare woes were due to inept American business acumen, followed by the elimination of nearly 30,000 jobs inclusive of a host of white-collar workers? The latter being unceremoniously escorted from the companys sprawling billion-dollar complex in suburban Detroit like common criminals?
Most disturbing to Condit, however, there was virtually no hue and cry from corporate and political sectors as a corporation with a near century long presence, a corporate icon whose importance as a vital component in the maintaining of this countrys core macro-economic stability was removed from existence. An importance acknowledged two decades ago via a Congressionally approved $1 billion plus loan guarantee to the then financially insolvent company.
A recently released University of Michigan study demonstrated that the recent Chrysler job loss would impact over 16 million positions and accelerate a recession. When one considers all of the aforementioned factors, the threat of AIRBUS, the predatory economic activity of the E.U., an irresponsible Wall Street, a rapidly emerging recession with crash potential, the destruction of Chrysler, an appalling apathy on the part of Capitol Hill and a globally clueless American society as to the fragility of this countrys industrial base, should we really be surprised at Condits actions?
Here to Stay?
In all likelihood, Condit and Boeing headquarters arent going anywhere, but he will, if he doesnt get the change in corporate culture that he seeks and knows is necessary, says Ronis. And according to insiders, Boeing suffers from the same difficulties that Fords Jac Nasser and GMs Smith and Wagoner face: the so-called Middle Kingdom. That is, the traditional power of middle and upper management to thwart the will and directives of the most capable CEOs. When Condit took office, he was nothing short of amazed at how solidly entrenched and influential those comprising this level and element of corporate management could be, says one observer. As it now stands, he will not accept this arrangement for another moment, and if shocking all concerned, inclusive of municipal, state, union and Seattle residents in general accomplishes this goal, he will and has.
Condits larger goal, however, is ensuring the existence of Boeing for a long time to come. Indeed, this action is bringing about the necessary attention from all levels, including the Federal government.
1947 Congress had the knowledge and wisdom to establish the. National
Security Act, which created the National Security Council," says
Ronis. "The National Security Council was established as a mechanism
to integrate domestic, economic, industrial, military, diplomatic and
foreign policy, for the overall national good. Unfortunately today, the
economic and industrial element of that picture appears to have been lost.
The Final Frontier
In the opinion
of one industry analyst, Boeing is sending a powerful message that
if the government wont give them the kinds of market protection
and guaranteed business that the E.U. is giving to AIRBUS, thus allowing
the latter to pursue its predatory strategies, they will radically change
their business model. They will demonstrate they would rather fly in an
atmosphere without air, and build birds without wings. In other
words, Boeings going to get out of the commercial airplane business,
leaving it to the consortium, and go after the tremendous opportunities
associated with the commercialization of space. And assuming that the
current administration doesnt kill the Mars program with the hundreds
of billions committed, Boeing should do well.
' if the government wont give them the kinds of market protection and guaranteed business the E.U. is giving to AIRBUS They will demonstrate they would rather fly in an atmosphere without air, and build birds without wings.'
University Professor and Former Ford Motor Company statistician Victor
Lowe paints a grim picture. The loss of so many jobs at Chrysler
and other large companies may be setting up the U.S. economy for potential
catastrophe. According to the Keynesian Economic Model multiplier principle,
you have to multiply each job lost by a fairly large number to calculate
the total loss to the economy, says Lowe.
A former associate of manufacturing quality visionary Dr. W. Edwards Deming, Lowe further notes that The accumulated effect of all the lost jobs will ripple through the economy for a long time, and companies, such as GM and possibly even Ford, may become so weakened economically that they might be vulnerable to take over, even from a non-U.S. owned firm. People should be concerned, especially after seeing what happened to Chrysler so soon after it was purchased.
'Companies, such as GM and possibly even Ford, may become so weakened economically that they might become vulnerable to take over '
In our view,
Phil Condit has sent out an unmistakable wake-up call that has to be heeded.
Apparently, some arent getting the message regarding the danger
in the control of more American firms and their subsidiaries being ceded
to offshore interests. The latest example: the proposed
No, Bill Boeing isnt turning over in his grave, rather, hes giving Condit the high sign and saying Smooth move, Phil.
Watson and Holmes would most certainly concur.
Vaughn Koshkarian: Mastering the Inscrutable Universe
Site Map ... Go