Global Economic Realities Boeing's Audacious Allies

The planemaker's supporters cry foul when it loses a US military contract to a foreign rival, but 70 per cent of its Dreamliner is made overseas.

By Judith Crown and Keith Epstein

Made in America? Seventy per cent of Boeing's 787 Dreamliner is made overseas.

Made in America? Seventy per cent of Boeing's 787 Dreamliner is made overseas.

When is globalization a bad word? To Boeing backers, it's when the competition -- a consortium led by European Aeronautic Defence & Space and Northrop Grumman -- wins the battle for a lucrative US Air Force contract for airborne-refueling planes. Ever since the Air Force announced its decision on Feb. 29, Americans from Seattle to Capitol Hill have railed about lost jobs and the risks of foreign-made military assets.

But what about when Boeing wins a big contract? You don't hear many complaints then, despite the fact that large portions of the parts and labor in its commercial planes come from overseas --70 per cent of Boeing's new 787 Dreamliner and 60 per cent of other models are made outside the US. Even many of Boeing's military planes have many foreign parts in them. Key portions of the fuselage and tail on the airborne-refueling plane Boeing wanted to build for the Air Force would have involved non-US companies.

That far-flung supplier network is necessary to stay competitive, Boeing says. However, it can create headaches for the manufacturer, too. Boeing has been struggling to reassess its 787 delivery schedule since January, an effort that the company reaffirmed on Mar. 7 is ongoing. Analysts believe that means the first delivery of 787s to customers will be pushed back to the third quarter of 2009, from the current target of early in the first quarter. One reason: Problems with completing center and rear fuselages of the plane at a plant operated in Texas by an alliance of Italy's Alenia Aeronautica and Vought Aircraft Industries of Dallas.

Lost Jobs in an Economic Downturn

Getting all the 787 parts and components to the sub-assemblers at the right time has turned out to be more challenging than anticipated, says Cai Von Rumohr, an aerospace analyst at Cowen & Co. "What was supposed to be their salvation now works against them." He says Boeing had projected deliveries of 109 Dreamliners in 2009. "I'm assuming 55, but that number could be 45."

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A large military contract raises entirely different issues of nationality, of course. Foreign contractors have long complained they face long odds of landing the most lucrative and prestigious awards. Similar issues of US jobs and national security were raised in 2005 when a contract for 28 helicopters for the President was awarded to a team consisting of Lockheed Martin and the Italian company AgustaWestland, a unit of Finmeccanica, instead of the U.S. favorite, Sikorsky, a division of United Technologies.

Today, Boeing's champions are crying foul that the Air Force awarded a $40 billion-plus contract for aerial refueling tankers to a foreign rival, EADS, albeit in partnership with the domestic Northrop. Some of them argue the Pentagon should have considered the cost in US jobs during an economic downturn, not just military capability and cost. "I have talked about the dismay Boeing workers felt in my home state of Washington," Senator Patty Murray (D-Wash.) said in a speech on the Senate floor on Mar. 7. She added that she also worries about "the ability to control our national security once we've effectively turned over control of our military capability and technology to a foreign government."

Mulling Complaint to GAO

Boeing officials have been careful not to say that the Pentagon should have favored their "American" plane. They have kept their criticism focused on the terms the Air Force set for the competition and the quality of the two offerings. Yet they may still try to get the tanker decision overturned. On Mar. 7, after getting briefed by the Pentagon about its reasons for giving the contract to EADS/Northrop, Boeing executives said they will give serious consideration to filing a protest (, 3/7/08) with the Government Accountability Office (GAO), the investigative arm of Congress.

They are sure to get plenty of support. "It's an irresistible issue during an election year," says Richard Aboulafia, vice-president of analysis for Teal Group. But to some observers, such protests ignore the realities of modern aerospace contracting, for both commercial and military projects. The aerospace giants increasingly look to suppliers with expertise, wherever they may be.

For example, two of the Japanese suppliers for the 787 had experience supplying composite parts for high-speed trains. In the case of the Dreamliner, so much new manufacturing space was needed -- 3 million square feet -- that Boeing spread the work around the world so that parts could be produced concurrently, rather than sequentially, which would take more time. Given the complexity of the newest aircraft, any big order is likely to ship some amount of work overseas.

International Supply Chain Grows

"It's a little hard to complain about foreign content on the future tanker when Boeing's Dreamliner was designed for manufacture by a global supply chain," says Loren Thompson, a defense analyst at the Lexington Institute with close ties to the military. In fact, he asserts, the 787 "will probably end up having more foreign content than the Airbus tanker."

Indeed, the Dreamliner's 70 per cent foreign content compares with 40 per cent foreign content for the winning refueling tanker as designed by Northrop and EADS, and 15 per cent for the Boeing tanker design. Boeing spokesperson Daniel Beck dismisses the comparison "between an aircraft developed solely for an international commercial market and a tanker aircraft developed solely as a military asset." Still the technologies are similar. Both tankers are juiced-up commercial jetliners after all—in Boeing's case, an upgraded 767; in EADS/Northrop's case, an Airbus 330.

Boeing's supply chain was becoming more and more international even before the birth of the 787. Where previously it had outsourced parts for planes but completed assembly in Washington, with the 787 it contracted out design and sub-assembly responsibilities as well.

"Boeing's supply chain is global, its sales are global, and even its current ad campaign promotes its globalness," says Todd Malan, president and CEO of the Organization for International Investment, a Washington-based association representing U.S. operations of foreign companies. "It's a little disingenuous for them to criticize others in the industry for being globally integrated."


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