The Sporty Game: The High-Risk Competitive Business of Making and Selling Commercial Airliners - John Newhouse Publisher:

Alfred A. Knopf; 1st edition (July 12, 1982) Contents: 1. High Risks, Sinking Fortunes 2. A hole in the market 3. Boeing Against Europe 4. How the Game is played 5. Comfort Convenience and Safety 6. Bigger Is Better 7. The companies 8. The competition 9. The Wages of Excess 10. Industrial Realpolitik 11. The American Disease
Summary: Includes Notes and Index

Chapter 1: High Risks, Sinking Fortunes

In the 1960s the technology gap between the United States and the rest of industrialized world has vanished, the patent awards related to the industrial technology increased sharply in Europe and Japon far more so in the United States. The American corporations have become less innovative and less productive than many of their foreign competitors who outperform them in many in a variety of industries. European and Japanese export industries were not fully competitive technologically with America's, but they could rely on financial support from their commercial banks, which were highly responsive to the export policies of their governments. Many American exporters had serious difficulties in the capital markets, in spite of fact that the American aircraft suppliers had no the problems in accessing the capital because they hold the major share of the world market. The sales in the foreign markets of jet transports and engines were relied upon to relieve pressure on America's economy arising from deficits in its international account, because the sales of these airplanes abroad had for many years earned more foreign exchange than any other US export. The Americans were worried that the national asset, the commercial airplane industry, was threatened by the Airbus consortium consisted of several government controlled companies particularly the French, West German and British. French, German and British governments announced their plans to build a European aircraft. The aim was to challenge American domination of the aviation industry. There was a strong possibility that the Airbus Industrie if it was sustained to drive one of the two remaining American competitors, McDonnell Douglas from the commercial market and in its extreme form the concern was that Airbus Industrie could threaten even the Boeing in its role of major supplier of airliners to the world market.

The a market that was growing most rapidly in Asia, Middle East and Latin America regions where no one supplier had a reliable competitive advantage. The Americans and the Europeans were worried about which side the Japanese would choose as the partner when they would decide to broaden their modest, but growing airplane-building capacity. The transatlantic competition in commercial aircraft set up realized tendencies. For example, each sides industry was working to protect its domestic market from the others competitive wares and tried to obtain the largest possible share of the Third World Market. But for practical reason; each side was also blurring these tendencies by acquiring components of the others industry as partner and subcontractors because the idea was that an airplane that is multinational in its parts and fabrication offers the seller political advantages in the world market. A fierce competition for risk-sharing partners and subcontractors was on the way and governments became involved in the airliner business. During the past thirty years the United States became one the major growth industries but also an especially vulnerable one because of the cyclical shock. The volatility of the airlines finances as reflected in theirs earning and stock prices. In the early 1960s the average price of airline of the airline stock was a litter over $5, by the 1966 it had soared to $47, but in the 1970 was fallen by 75 percent to $13. The both carriers Boeing and McDonnell Douglas and their major suppliers were launched too many different wide-bodies airplanes for the market which was very small. The Boeing Company and Lockheed Aircraft Corporation were dragged in the new programs to the edge of financial ruin and collapse. The McDonnell Douglas Corporation had less severe problem but its own wide-body, the DC-10 gradually became a problem which proved to be painful for the company reputation The dramatic rise in the fuel prices that began after the Yom Kippur War in October 1973 had an impact on both the airlines and the suppliers. The effect had been raising the airlines direct operating expenses represented by fuel cost. For example in 1973 the cost of their fuel to the airlines was eleven cents per gallon and amounted to about 20 percent of their direct operating costs. By the 1981 the cost per gallon of kerojet was about a dollar per gallon and amounted to nearly 40 percent of their direct operating costs. The most carriers had a preference for long distance express over the local.

The Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry (of new airlines) from commercial aviation. The Civil Aeronautics Board's powers of regulation were to be phased out, eventually allowing passengers to be exposed to market forces in the airline industry. The big airlines by and large were not comfortable with liberation and there were sharp difference in opinion on the pros and cons of the deregulation within the senior management of some airline.

Chapter 2 - A hole in the market

During World War II aircraft industry found that it could forecast production costs and labor time by relating them to the certain benefits of repetition. The emerged the rule that with every doubling of number of airplanes produced, a 20 percent reduction of direct labor was achieved.

Chapter 3 - Boeing against Europe Before 1978, Europes Airbus appeared to be a typical airliner, well designed, well-built and a commercial flop. Only thirty-eight of the airplanes had been soldto just four airlines-since deliveries began in 1974. In Toulouse, where the final assembly of Airbuses aircraft takes place, sixteen whitetails (unsold aircraft) sat along a fence on the factory runaway. Collaborative European airplane project as for example Concorde had fared even less well than single company venture. Experienced showed that a multinational assortment of companies, with their different styles had immense difficulties in reaching decisions whether of a technical or marketing nature. However, Airbus Industrie hit upon a management technique that worked and they had the right plane at the right time. Soaring fuel costs and competition among the airlines had created a demand for an exceptionally fuel efficient airplane with a substantial seating capacity. It appeared that only two-engine wide-bodied plane could satisfy these two requirements and only Airbus Industrie had such an airplane, Airbus A-300B. By the spring of 1978 the whitetails were gone and the orders began accumulated. But the end of 1979, Airbus sales had climbed well above three hundred, a figure that no other European jet airliner had reached. The competition drove the manufacturers to build into new airplanes and variants of existing models the latest available refinement with which to improve performance and reliability. The airlines promoted competition among their suppliers in order to avoid becoming captive of any one of them and to make the best possible deals when purchasing new airplanes. The Europeans were scrambling to become not just a strong second but eventually, the equal of Boeing and the Boeing wanted to achieve a position so strong as to beyond the reach of any competitor. Boeing was particularly sensitive to the treat from Europe because its airplanes especially the new ones were the most directly threatened. The wholly new 767 was challenged by Airbus Industries A 310 a slightly smaller version of the A-300. Boeings single-aisle 757 (a longer and more modern variant of the 727, with two instead of three engines) was also threatened in the world market by the A-310 because it had nearly as many seats as the A-310 and 767, both of which were wide-bodied, double-aisle airplanes. The A-310 and 767 were been nearly identical in seating capacity and performance characteristics. The only two airplanes that were as closely matched were the widebodied trijets the DC-10 and L 101.

Deliveries of the 767 began in 1978. Deliveries of the A-310 and 757 started in early 1983.Boeing managed to keep the A-310 out of the American market, just as the Airbus Industrie consortium kept Europe largely immune to the Boeing new airplanes. Government ownership of a good many of the Europes airlines and manufacturers gave the Airbus consortium an apparent advantage. Eastern Airlines bought twentyfive A-300s and took the options for nine more an event that sent a shock wave through Americas aircraft industry and parts of government as well. In 1979 Airbus Industrie sold more wide-bodied airplanes than any American company, including even Boeing and did so again in 1981. Boeing and Airbus were then competing for the expanding markets beyond Europe and America. The Airbuses had sold very well in these markets, giving the consortium a broad customer base. The Third World Market consisted mainly of small airlines, most of them nationally owned. They purchase airplanes in small numbers, but each order for new equipment from these customers was a significant event for the airplane and the engine suppliers. For example, in early months of 1980 Boeing and Airbus fought for the sale of six widebodied twin to Kuwait Airways, the A-310 was selected over the 767. Next Kuwait Airways increased its order of A-310 from six to eleven. And in November 1980 just four months after the Kuwaiti decision, Middle East Airlines of Lebanon ordered five A-310s and took the options for an additional fourteen.

The managerial team created a network of costumer airlines stretching from Japan westwards to Europe. They had been selling Airbuses along this so called silk route as a replacements for the older airplanes, most of them Boeings and blocking their only competition, Boeings new airplanes from most of these markets. By early 1980, the Airbus network was largely in place, except for a large gap in the Middle East. The major struggle pitted Boeing against Airbus, who by the end of the 1981 had sold more than five hundred Airbuses to forty-two airlines (over three hundred of these were firm orders and the rest were options). Bernard Lathire said We cant succeed by being Boeing. However a large part of our success is the need of airlines for two sources. If they buy 747s they will want another supplier for the shorter-range airplanes. It was unlikely that the Europeans would be able or willing to match Boeing product for product. The Airbus Industrie would probably develop a family of airplanes, but a smaller family than Boeings. The aim of the Airbus executives was to hold 30% percent of share of the world market. The differences between a multinational European Consortium and the successful, highly competitive American company were deep and abiding. For example, Boeing could bet the company on a new airplane if the board of Directors agreed, but for the Europeans, it was required approval of the French, German and British governments and there were strong differences.

The European governments were strongly committed to the success of the commercial success of the Airbus program and to some important goals that it served. Success promoted favorable trade and payments balances in these countries by offering European and other airlines alternatives to American airplanes and also discouraged the migration of the skilled engineers to Americas s aerospace industry. The governments especially the French and British shared fundamental political and social interests, some of which inhibit thoughts of betting the company la Boeing. It was far more difficult for European to increase production at least at the rate and on the scale that Boeing could do it. Within the Airbus Industrie, production was increasing steadily, but the backlog of orders for the new airplanes was large and growing. In 1979 the Airbus Industries production was about three Airbuses per month and rose to five per month in 1981, six in 1982 and was expected to reach seven in 1983. The goal was a capacity to turn out ten airplanes per month in 1985.