A cleverer way to build a Boeing

The roll-out of the first Boeing 787 in Everett,Washington,has marked a triumph for the company. Boeing’s decision to build a fuel-saving medium-sized passenger jet rather than go head to head with Airbus’s giant – and troubled – A380 has proved astute: it has already garnered $100bn (£50bn, €73bn) in orders.

Whether it is a good thing for the US is more hotly contested. The 787 is remarkable for the degree to which Boeing has outsourced production around the world. Boeing itself is responsible for about 10 per cent by value –– tail fin and final assembly. The rest is done by 40 partners, with the wings built in Japan, the carbon composite fuselage in Italy and the US and the landing gear in France.

Boeing used to be the most parochial of aircraft makers – only about 2 per cent of the Boeing 707 was built outside the US in the 1950s – but it is now part of a revolution. Embraer, the Brazilian aircraft maker, already uses a global manufacturing system. Airbus will follow Boeing’s lead for the A350, closing plants in Europe and outsourcing work to China and elsewhere.

The most vociferous critic of the trend is David Pritchard, a researcher at the State University of New York. Mr Pritchard laments the “strategic destruction” of the US aerospace industry, arguing that Boeing is giving away intellectual property in return for capital. It is helping suppliers in Japan and China to develop technology they will use to make their own aircraft.

Mr Pritchard says that by relying on risk-sharing partners to develop key aspects of the technology for the 787 – including its innovative carbon composite fuselage – the company has sacrificed US leadership in a crucial export industry. He has sympathisers among trades unions at Boeing, which has shed 38,000 jobs since September 2001 and calls itself a “systems integrator” rather than manufacturer.

It is tempting for Americans to believe Boeing could, with the aid of government subsidies or risk capital from a magically transformed long-termist Wall Street, restore its postwar approach to research and development. It could bet $15bn on its next model, retain control over the technology and build the entire aircraft with the aid of aerospace suppliers in the US.

This is pie in the sky. A glance at the history of Boeing shows that the good old days were not very good. The company likes to boast that it is “10 for 10” – its 10 commercial aircraft models have all been successes – and will be 11 for 11 if the 787 is delivered as planned. That was just as well, because it used to bet the farm on each aircraft: if one had failed, Boeing would have been crippled.

Nor was it a state-of-the-art manufacturer: it ran into terrible quality problems on its antiquated production lines in the 1990s. By splitting development and production work on the 787 among many partners and suppliers, it has reduced the chance of a bottleneck at one plant holding up production of the aircraft. In the past, it was at the mercy of the weakest link in the chain, which was often one of its own plants.

The claim that it is transferring technology overseas is also flawed. It was not a leader in carbon composite fuselages, for example. It went to Alenia Aeronautica in Italy and Vought Aircraft Industries in South Carolina because they already knew more about it. Similarly, the three Japanese “heavy” manufacturing companies have an established expertise in building wings for commercial aircraft.

The 787 programme has no doubt helped these suppliers to develop expertise that they will sell to others (although Boeing holds rights to the 787 technology). But that is the way of the world: if Boeing had not tied them up, they would have been booked by Airbus. Even if Boeing had asked US suppliers to make the 787, it could not have stopped them from working for other aircraft makers.

Boeing is following the right path in an industry that is going global. It is focusing on its advantages – design, supply chain management, marketing and branding – rather than on areas where others are bound to make inroads. That has helped it to produce an innovative aircraft that airlines want, rather than a flawed prestige project such as the A380.

The company is doing what Adam Smith admired in The Wealth of Nations: profiting from the division of labour. This process has already rolled through various US industries. Nike pioneered outsourcing the manufacturing of sports shoes to Japan and China. Apple and others get suppliers in Taiwan and China to make their consumer electronic goods.

Boeing is using the same tricks. Apple got a jump on competitors by tying up global supplies of flash memory for the iPod; Boeing has outsmarted Airbus by commandeering the makers of composite fuselages. Airbus is falling in line with Boeing’s approach not only because it is capital-efficient but because it has helped Boeing to design and build a better aircraft more quickly.

There are reasons for Boeing’s workers to regret the trend. A job in an aircraft assembly plant or a laboratory working on new materials is worth more than one in a textile plant. It pays better and supports other jobs in the area. But this is not a zero-sum game: Boeing is shedding manufacturing jobs but is adding well-paid services jobs.

So the crowd in Everett was right to cheer. The 787 is not all-American but it is a product of US innovation in technology and global manufacturing. It is worth applauding.