October 11 - Why Have the US Big Three Turned Their Backs on Boeing 777X Workers?

Business Travel Coalition



Why Have the US Big Three Turned Their Backs on Boeing 777X Workers?


By Kevin Mitchell  

This is the best of financial times for Delta Air Lines, American Airlines and United Airlines (Big Three). With pockets over-stuffed with record setting profits, their financial optimism is palpable.

In fact, Doug Parker, the CEO of American, recently boldly predicted, “I don’t think we’re ever going to lose money again.” He added, “[w] e have an industry that’s going to be profitable in good and bad times.” Mr. Parker has the credibility to make such a brash prediction. After all, he has bet his compensation on it having chosen to be paid solely in stock wagering on a bullish future for American.

Mr. Parker has a reason for this confidence. But, he is unlikely to publicly boast about it. Never has the US airline industry been less competitive. The Big Three have succeeded beyond their wildest expectations in eliminating meaningful competition and divvying-up the market. Along with Southwest Airlines, the Big Three control 80 percent of the US domestic market. 

The picture is even more worrisome and anti-competitive in the US-Europe market. In that market, the Big Three, together with their antitrust immunized joint venture and alliance partners, control some 85 percent of frequencies. As troubling as that sounds, it understates how hostile that market has become for most consumers. Antitrust immunity allows airlines that once were competitors to wring-out every penny of profit possible by coordinating strategy, fixing prices and harmonizing capacity to keep fares sky high – practices that would be otherwise be highly illegal.

Given this optimism, one would think the Big Three would be first in line to purchase Boeing’s next-generation 777X. Since its first revenue flight by United in June 1995, the Boeing 777 has been the reliable long-haul workhorse of choice for airlines around the globe. The Business Insider recently declared it to be the best airplane Boeing has ever built. It, therefore, is not a leap to believe the 777X, the next generation version of that hugely popular model which incorporates Boeing’s world leadership in carbon fiber-based composite technology, will be a showpiece for US aerospace and airplane passengers will love to fly for decades to come. With their swelling bank accounts, one would think the Big Three would find Boeing’s marquis 777X to be an irresistible fleet investment.

There is another reason too. In their campaign to stamp out competition from Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers), the Big Three have engaged in soaring nationalistic rhetoric proclaiming they are the great champions of American jobs. They claim Gulf Carrier competition threatens US jobs, and that their laser-like focus on American workers has solely motivated them to mount a three-year-old, multi-million dollar campaign to protect them from the alleged existential threat Gulf Carriers purportedly pose to their jobs.

But, the Big Three have not embraced the 777X the way their record-setting profits indicate they could, and their soaring stars and stripes rhetoric suggest they would. In fact, the Big Three have not purchased a single 777X. Put another way, the Big Three have not created or sustained a single 777X-related job. Instead, they have turned their backs on the 777X’s US workforce – including aerospace suppliers throughout the country.

In contrast, and ironic in the extreme, the Gulf Carriers whom the Big Three vilify as US job killers, in fact, are the ones who have stepped up for the 777X’s US workers. In fact, the Gulf Carriers have purchased 235 of the 306 777Xs sold. Emirates, the launch customer, purchased 150 GE-powered 777Xs alone. Simply put, without the Gulf Carrier purchases, the 777X program would have been grounded and all the US jobs it is creating would have been lost. In total, at a list price of $92.5 billion, the US Department of Commerce job multiplier for airplane purchases indicates the Gulf Carrier’s 777X purchases alone will create or sustain over 530,000 American jobs. So much for the absurd political argument Gulf Carriers threaten US jobs! 

So why have the Big Three turned their backs on Boeing’s and their American suppliers’ 777X workers? In Delta’s case, history has shown it largely has a do-not-buy-American aircraft strategy with a book of orders dominated by Airbus and Bombardier. It recently replaced 747s and 767s with 25 Airbus A350-900s – its new “flagship” according to Delta CEO Ed Bastian – and 25 Airbus A330-900neos. But, there may be a broader explanation that applies to all three – restricting capacity to keep fares high.

The 777X is a large aircraft expected to typically seat more than 400 passengers. As such, it is ideally suited for carriers that rely solely on market demand. In stark contrast, the Big Three need smaller long-haul aircraft more suitable for their alliance-driven, managed-capacity business model. In proverbial smoked filled rooms, shielded from competition oversight by antitrust immunity, alliance bosses hash out the optimal level of capacity to keep fares high. The answer is smaller aircraft with uncomfortably high load factors. A 400+ seat aircraft is an anathema to the alliance model, which artificially constrains capacity to inflate prices.

As Mr. Parker alluded to, the Big Three finally have turned the corner to having significant market power both domestically and in the US-Europe market. It has taken a long time to thwart meaningful competition and now that the Big Three are in oligopoly nirvana they are not about to invest in a jumbo aircraft that could undermine capacity discipline. A 400+ seat aircraft, even though it would benefit airports with limited capacity, would potentially break ranks on profit-maximizing transatlantic capacity discipline.

Next time you hear the Big Three’s soaring patriotic rhetoric in their anti-Open Skies campaign to restrict competitive choice offered to passengers by Gulf Carriers, think about how they have turned their backs on the Boeing 777X program and its workers, and the medium and small-sized American businesses that will rely on it. When you do, the disingenuousness of their stars and stripes, anti-Open Skies and anti-competitive choice political campaign comes into full focus. 

If Delta is so fixated on protecting and promoting American jobs, why is Delta the launch customer for the heavily subsidized Canadian-built C Series aircraft which the International Trade Commission recently ruled was a transaction that illegally dumped aircraft in the US market for the benefit of Delta but to the detriment of Boeing and its workers?

If the Big Three care so intensely about American jobs, why are they putting at risk American job-creating 777X orders placed by the Gulf Carriers by demanding that the Trump Administration rip-up the US-UAE and US-Qatar Open Skies agreements? Moreover, if they are such self-professed champions of US jobs, why have they failed to order a single 777X?

The obvious answer, of course, is that the Big Three care only about three things: (1) protecting dominant market positions, (2) maximizing already record-setting profits and (3) frustrating any emergence of competition, like the Gulf Carriers, whom they believe stand between them and even loftier profits.

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