Also in Slate: Martha C. White explores California's domination of the international almond market, how a small steel manufacturer thrives on the world stage, what a tiny software firm can teach us about the future of American exports, and how exports can save the American economy.
There's no way to discuss American exports without also discussing Boeing. Calling the Chicago-based airplane manufacturer big is like calling Facebook popular: It's correct, but it doesn't indicate the magnitude of the thing. With exports of just under $29 billion in 2009, Boeing made up 1.8 percent of our country's exports all by itself. Unlike many manufacturers who sell to overseas markets by building factories in the destination countries, Boeing's roughly 160,000-strong labor force is almost entirely domestic. While plenty of American companies have had success building factories overseas and staffing them with locals, Boeing is an outlier—luckily for workers within U.S. borders. Planes are much more complicated to make than, say, cars, and with dozens instead of hundreds of units going to each country, it wouldn't make sense to build manufacturing facilities overseas. Boeing estimates that its $32.7 billion supply chain is indirectly responsible for 1.2 million American jobs.
Boeing also buys components from foreign suppliers, usually in the hopes of winning orders for completed aircraft from the country the parts come from. It's a delicate balance, though; earlier this year, Boeing conceded that an overreliance on outsourcing critical parts like the wings and the fuselage of the forthcoming giant 787 generated delay-causing complications. Economists like Barry Bosworth of the Brookings Institution say this is a reflection of decisions faced by other U.S. manufacturers of machinery and heavy equipment. Outsourcing might be a cheaper route, but not if those savings are eaten up by timeline and cost overruns to fix mistakes made by overseas workers due to lower skill levels or miscommunication.
With such enormous investments at stake, Boeing constantly has to ask the question: How do you get foreign airlines to buy more planes? It takes a different strategy than selling jeans or even cars. The company also does a brisk business selling military planes, but those sales are almost entirely domestic. Warming relations with emerging markets like India may yield additional military sales for Boeing in the future, but for now, exports consist almost entirely of commercial passenger and cargo jets.
Part of Boeing's strategy for growing its export business is to be a cheerleader for American exports in general and small-business exports in particular. (Boeing's CEO, James McNerney, heads up the President's Export Council.) When small firms have to get their goods from Akron, Ohio, to Auckland, New Zealand, they're not using a huge, slow boat packed with shipping containers. Instead, they're probably going to send them by air, says Michael Warner, senior manager of market analysis at Boeing, who predicts that by next year, air cargo shipments will be back up to 2007 levels. Yes, shipping by air is pricier, but the wide embrace of just-in-time inventory management means recipients want their goods promptly. Besides, a small company getting paid on delivery could run out of operating capital in the time it takes a boat to make it halfway around the world.
Another boon for Boeing is that passenger traffic in emerging markets is growing. In 2010, air travel globally was up just under 8 percent; in China, though, it was up 22 percent, and up 20 percent in both the Middle East and India. Much of this growth is on domestic, intra-country flights, which has boosted demand for Boeing's workhorse, the 110- to 180-seat 737. The 737 is a great product for Boeing, both because it's a good size for domestic flights and because it's such a common model (the company cranks out 31 each month). The 737's ubiquity makes it comparatively easy to buy, fix, staff, lease, and—most important—finance, since a plane model in high demand with users all over the world is good collateral.
Boeing gets a lot of support from the Export-Import Bank (widely known as the Ex-Im Bank), which helps foreign buyers finance their purchases. When traditional sources of credit dried up in the recession, the Ex-Im Bank became the lender of last resort for many of Boeing's overseas clients, says Richard Aboulafia, vice president at the Teal Group, an aeronautics analysis company. Traditionally, Europe's counterparts to our Ex-Im Bank refused to finance U.S. airlines seeking to buy Airbus planes, and the Ex-Im Bank did the same for European carriers that wanted to purchase Boeing jets. When there were only two commercial airplane manufacturers, and when the major airlines were concentrated in the United States and Western Europe, this arrangement was fine, because none of the competing airlines had access to preferential financing.
U.S. airlines objected to the Ex-Im Bank's intervention in the wake of the financial crisis, saying it put them at a competitive disadvantage, because at least some of the rapidly growing foreign airlines whose appetite for planes was keeping aircraft makers in the black (Emirates Airlines is a prime example) are targeting a customer base that includes American travelers. Some people object more broadly to the Ex-Im's raison d'être, calling export financing a backdoor subsidy with U.S. tax dollars. In the case of aircraft, though, there's not a huge risk; buyers do pay interest, and planes are pretty solid collateral in the event of a default.
While the current status quo is good for Boeing (cheaper financing means it can sell more planes), there are longer-term implications here that make the company receptive to changes in financing agreements: Canada's Bombardier will have a 130-seat jet on the market in just three years; Brazilian and Chinese competitors are less than a decade behind; and Boeing doesn't want to see U.S. airlines getting cut-rate interest to finance foreign-made jets. Earlier this year, Boeing and competitor Airbus argued that Bombardier's forthcoming model should be classified in a way that wouldn't allow purchasers to obtain financing from Ex-Im Bank.