Is Boeing shooting itself in the foot? From Wolf Richter at wolfstreet.com:
“We know as we’re investing there, we’re also creating a competitor.”
Boeing, the largest US exporter by dollar value, faces a tough environment for commercial jetliners. In 2016, net orders dropped 13% from 2015 and 53% from 2014, to just 668 planes, the lowest level since 2010! Through June 6, 2017, Boeing has just 208 net orders.
The company is under pressure to cut costs. So there has been wave after wave of job cuts through voluntary buyouts and involuntary layoffs last year and this year. Its payroll has shriveled by about 30,000 workers over the past five years. At the end of May it was down to 145,000.
So Boeing is moving some work to China and other locations overseas, CEO Dennis Muilenburg explained to the Wall Street Journal in an interview. He has been calling the business climate in the US “uncompetitive,” according to the Journal. Boeing is building some plants overseas. One of them is near Shanghai that will complete aircraft made in the US. Workers will paint the planes and install the interiors, such as seats and other fittings. That’s the first step.
It has a Chinese partner, which is required in China to do business in China. There will be technology transfers, which is also required. The Chinese partner is state-owned Comac, which is leading China’s efforts to become an aerospace giant to compete with Boeing and Airbus. Comac already supplies Boeing with parts for its aircraft. Comac’s own jetliner, the C919, which is the size of Boeing’s 737, completed its maiden flight a month ago.
Muilenburg, who has no illusions about this, said: “We know as we’re investing there, we’re also creating a competitor.”
This is the same process that high-speed train makers from Japan, France, and Germany went through. China bought some train sets and other equipment from each. There were joint ventures, technology transfers and the like. And now China, having gained what it needed from these companies, is cranking out its own high-speed train sets and other equipment that it is not only using in China but also selling around the world, in direct competition with the Japanese, French, and German companies where much of this technology originated.