A-Musings As High as a Kite!
Musings are thoughts, the thoughtful kind. For the purpose of these articles, a-musings are thoughts that might amuse, entertain and even enlighten.
For every American Boeing plane, European Airbus has an equivalent similar priced competitor. If Trump's policies damage Boeing, Airbus would be the big beneficiary. Airbus enjoys subsidies from European governments, which Boeing contends is an unfair advantage. Europeans contend that Boeing receives orders for defence-related products that are in fact hidden subsidies. The matter is being litigated at the World Trade Organization. Trump's “America First Policies” are a threat to Boeing.
During his visit to Boeing's factory in South Carolina to unveil the latest 787-10 Dreamliner, Trump vowed to protect US manufacturing jobs. He should have said “assembly” jobs. The Dreamliner is a flying symbol of an interdependent world economy comprising a network of global suppliers and customers, the unravelling of which would have catastrophic consequences.
The Dreamliner's wings and batteries come from Japan. The wing tips come from South Korea. India provides its floor beams. The front fuselage is made in the USA and Japan. The centre fuselage and horizontal stabilizers are produced in Italy. The landing gear and passenger doors are manufactured in France. Its cargo access doors are built in Sweden. The wing and body fairings, which cover gaps on the body, are Canadian products. The moveable trailing edge of the wings is sourced in Canada, the US and Australia. Thrust reversers on the engines come from Mexico so they will have to be lifted over The Wall. The actual engines come from either General Electric in the US or Rolls Royce in the UK. All these components travel from far distant corners of the world for assembly at one of Boeing's factories in Washington or South Carolina so that Boeing can assemble a plane at a price that can compete with Europe's Airbus.
Trump's foreign policy and stances on trade and defence will have significant effects on how Boeing and other multinational companies do business. Boeing may support a massive manufacturing entity in the USA, but a vast network of international partners, 30% of the Dreamliner's suppliers, local governments and business communities have invested decades and billions of dollars into relationships with Boeing elsewhere. Trump's hardline stance on globalization threatens Boeing and its partners. The loss of jobs in all the above-mentioned countries could spark a global recession on a scale never seen before. The irony of this is that Boeing will not be able to replace its suppliers from American sources any time soon and the company will fail causing a tsunami of unemployed workers.
With the North American Free Trade Agreement (NAFTA) in doubt - Trump has vowed to renegotiate or scrap the agreement - and Trump's plan to build a multibilliondollar wall on the Mexican border paid for with a 20% tax on Mexican imports, Boeing will suffer because its thrust reversers, built in Mexico, will instantly become a lot more expensive. The same goes for parts made in Canada.
Mexico's flag carrier, AeroMexico, flies an all-Boeing fleet, while its two local rivals, Interjet and Volaris, are loyal customers of Airbus. If Mexico retaliates against US tariffs by instituting its own border tax for goods coming into the country, Boeing planes could become a lot more expensive leading AeroMexico to choose Airbus over Boeing. The same applies to airlines worldwide.
Boeing hopes to sell China as much as $1 trillion worth of commercial airplanes over the next 20 years but Trump's policies and rhetoric toward China could put that at risk. China accounts for 20% to 25% of Boeing's present production.
Two other countries planning to buy a lot of Boeing airplanes are Iran and Iraq, both targets of Trump's tirades. The Iraqi government has 28 Boeing aircraft worth about $3.7 billion on order and Boeing is trying to complete a deal with Iran for an 80-plane order that could be worth $16 billion.
The Dreamliner's Japanese-built wings are an example of a complex international supplier relationship.
If Boeing were to renege on those contracts, instead of making profits over the 30-year lifetime of the 787 program, the company would have to pay back the suppliers billions of dollars of investment costs, in addition to finding an American company willing to invest in creating alternatives as there are no US companies producing equivalent parts.
Not so long ago Trump tweeted, “Boeing is building a brand new 747 Air Force One, but costs are out of control, more than $4 billion. Cancel order!” The new reality for those doing business in the US is that they can come into the president's crosshairs with no warning, and BANG they are dead.