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THE OUTLOOK FOR FUTURE DEVELOPMENTS IN TRANSPORT AIRCRAFT T. A. Wilson Chairman The Boeing Company Gentlemen, I have been asked to discuss the outlook for continued U.S. transport aircraft leadership during the next decade and the importance of maintaining our nation's preeminent position in the world's commercial jet transport market. Before doing this I intend to generalize a bit on the U.S. economy and certain government practices and policies. Then, I will narrow down on some specifics. The U.S. aerospace business is in relatively better shape than the rest of the nation's industry. That is a new role for aerospace and we shouldn't take too much comfort in it. One industry cannot keep succeeding while all about it others are failing. Everything affects everything else. Aerospace is one of the few preeminent industries we have left. The other industrialized powers are placing greater emphasis on their aerospace development. I suppose being number one is more important in some fields than in others, but if various U.S. industries were to follow one another down an economic toboggan slide to become also-rans, the cumulative effect for the nation will be disastrous. We risk not only our standard of living, but our national security as well. I think the outlook for continued U.S. leadership in transport aircraft is promising if the industry is permitted to operate in a supportive economic and political environment. We need an environment that encourages growth, not misguided policies that strangle it. Unfortunately, in this regard, we have developed a bad habit of shooting ourselves in the foot. I will have more to say about that directly. Admittedly, as we enter the l980s we see that it is a far different worH than it was when the l970s began. The energy situation, or at least our perception of it, has flip-flopped during the past l0 years. About half the oil currently consumed by the U.S. is imported and subject to sudden price increases or supply cutoffs. It is easy to blame the cost of oil imports for most of our economic problems, but it is not that simple. Germany and Japan import essentially all of their oil but their economies 85

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remain strong and stable. The problems of the U.S. economy are rooted in several araas, including a tax policy that is biased against savings and investment and a myriad of regulatory policies that have stifled trade, productivity, and job opportunities for millions of Americans. It is essential that we adopt a long-range program on a national scale to remove the basic causes of some of these problems rather than deal with their effects. We need some preventive medicine for our economic ills instead of haphazard emergency service that may or may not save the system. Since the late l960s the U.S. economy has steadily gone downhill in comparison with major industrial powers such as Japan and Germany. During the l970s the U.S. lost about 23 percent of its share of world trade, amounting to some $l25 billion and at least two million jobs. Our military situation has deteriorated along with our economic decline. Even though the fiscal l98l defense budget has increased considerably over that of recent years, it still represents a smaller portion of national expenditures than it did in pre-Vietnam days. In l960, for example, the defense budget accounted for 9.3 percent of the gross national product (GNP). The current budget request will take 5.2 percent of the GNP, and the plan is to remain at about that level through the mid-l980s. Meanwhile, comparing our defense spending wLth that of the Soviet Union, you find that the Soviets exceeded our military spending by about 30 percent during the past decade. Military experts believe the Soviets are currently spending 40 percent more than we are on defense. From a position of military inferiority l0 years ago, they have now at laast achieved equality and perhaps reached a position of superior military strength. They have more planes, more tanks, more guns, and more missiles than we do. And our once-flaunted technological advantage in military hardware has just about disappeared. This is not my charter for discussion today, but I feel this is an area of extreme importance for our nation. I think that we are in deep trouble and if we do not maintain a strong, credible military establishment equipped with the most advanced weapons systems we are capable of producing, there is no point in worrying about the future of transport aircraft or any other U.S. industry. We will all be losers. The energy outlook is equally bleak and won't get better very soon. Although we have the capability and the resources to make big improvements, what we seem to lack is the will to do anything meaningful. For six years we have stumbled around trying to establish an energy policy, and we still do not know where we are going. The energy situation is a classic example of knee-jerk responses to a serious problem and government confusion at worst. As the cost of OPEC oil rose, the government continued to keep domestic oil prices far below world levels, allowed U.S. imports to double, and then unleashed its bureaucratic militia to guide the energy hunters on their way. The Energy Department pressured companies to switch from imported oil to coal, but the Environmental Protection Agency issued more stringent air pollution controls that knocked coal out of the picture. One agency encouraged offshore drilling to find new oil deposits, while another moved to block such efforts. Foreign trade is another area where we are in some trouble and could be 86

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in more if we don't straighten up and fly right. Several critical issues underlie our foreign trade problems, including government action or inaction, taxing policies, inadequate research and development support, and regulatory activities. I will comment on each of these in a few minutes, but all of them have a common thread—adversarial relationships. In l97l the U.S. experienced its first negative balance of trade in this century. Since then we have suffered billions of dollars in deficits every year except l973 and l975. During this decade of deficits, most high- technology industries in the U.S. maintained a positive trade balance and aerospace led the list among manufactured products. In l979 the positive balance of trade for aerospace products exceeded $l0 billion, with commercial jet transports accounting for most of that. These foreign commercial jet transport sales provided jobs for well over half a million Americans. The U.S. has established a dominant position in the world's commercial jet transport market, but foreign competition is growing. European aerospace industry increased its sales from $4 billion in l970 to $6.3 billion in l977, while U.S. sales actually dropped from $22.3 to $l9 billion in constant l970 dollars. European sales amounted to l9 percent of U.S. sales in l970, but rose to 33 percent of U.S. sales in l977. Last year, Airbus Industry, the European consortium, captured about 30 percent of the new orders for commercial jet transports with its A-300 family, more than McDonnell-Douglas and Lockheed combined. We credit some of this success to favorable financing arrangements by the governments that own Airbus Industry, but we also recognize that Airbus is a formidable competitor reflecting a very solid base of technological development. Among the major trading nations of the world, only the U.S. seems to regard foreign trade as a sideline activity, which is largely ignored as an economic base for domestic prosperity and jobs but frequently used to deny sales to some country in an attempt to infuence its actions. Sometimes we seem to invoke sanctions just because we don't like the particular country. Then, a few years later we change our mind. In addition, we insist that other nations observe our standards for human rights and environmental regulations if they wish to buy our products, as if the U.S. were the only source for such goods throughout the world. U.S. morality has become a major export. Although this sort of pressure seldom has any effect except to eliminate sales and therefore jobs for U.S. firms, it continues to be a popular exercise in futility. Except for the Export-Import Bank we have found that most U.S. government activity related to foreign trade has to do with restrictions and prohibitions. In recent months the Export-Import Bank has come under attack, apparently because it has done an excellent job of providing financing to foreign buyers of U.S. products, including large numbers of transport aircraft. They had the failure of being successful, as Art Buchwald would say. Most other nations actively support their export trade, with the Japanese probably the most proficient. The recent report by Japan's Ministry of International Trade and Industry (MITI) outlined the steps necessary for continued industrial expansion during the balance of this decade. This report represented the cooperative efforts of ministry officials, industrialists, labor union leaders, and members of the Japanese 87

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consumer groups. The Japanese are strong believers in research and development. The MITI report stresses the crucial role of technological development and recommends that the ratio of technology spending to gross national product be increased from the present l.7 percent to 3 percent by l990. Total R&D support by the U.S. government has averaged about l.2 percent of the GNP over the past five years. Incidentally, the Japanese are placing a priority emphasis on their aerospace sector and, in particular, on the energy-efficient aspects of their aerospace technology. The Japanese government favors active support of corporations trying to achieve technological breakthroughs that contribute to these objectives. Obviously, the industrial policy of the Japanese is quite different from the government-business interface, but they do encourage expansion and have become highly competitive in the world's marketplace. Without advanced products that meet customers' needs it doesn't matter how benign the trading atmosphere is. Advanced products depend on a progressive and timely research and development program to produce the technology. Here, too, the U.S. has been flunking the course in many respects. Last year about 50 percent of all research and development funding was provided by the government. That may sound impressive, but in the early l960s it was about 65 percent. During the l970s, federal R&D funding declined about 9 percent over the previous decade. Contrary to what most people believe, defense R&D has actually decreased l7 percent during the past l0 years, and the space effort R&D is about half what it was during the l960s. Viewed as a percentage of the GNP, total government funding for R&D during the l970s is down 34 percent from the previous decade, while defense R&D has dropped about 38 percent. To a large extent we have been living off the aeronautical research dividends of the l950s and l960s. Much of that research was funded by the government for military and space programs. No one would deny that the U.S. commercial jet transports owe much of their success to the pioneering work done on military programs such as the 3-47 and the B-52. I also trust that no one would question the tremendous payoffs in commercial and social progress as a result of the jet airliners. At one time the benefits of military R&D flowed into the commercial sector. That flow has been reversed in recent years. In addition, the U.S. Air Force now has jet tankers, airborne command posts, flying navigator trainers, and airborne warning and control systems in inventory. All were based on commercial platforms that have been modified for military requirements. We seem to have a big problem with subsidies these days. We don't know how to define them or whether they are good or bad. In fact, we can't walk across the street, have dinner, or take an airplane trip anywhere without running into a number of subsidies, most considered good. There are subsidies for highways, agricultural products, airports, FAA controllers, and the weather bureau, to mention a few. It bothers me, however, when an important part of the NASA budget for aeronautical research is called a subsidy that we don't need, or a bad subsidy that is unnecessary because it contributes to commercial technology development. I would call it stimulation—stimulation to preserve American jobs. 88

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For many years the research efforts of NASA have benefitted the aerospace industry and society in general. Boeing has accumulated many years of experience working with NASA and with the Federal Aviation Administration on various aerospace problems. Our relationship with both these federal agencies has always been one of mutual raspect. We may at times have disagreed on methods, but seldom on objectives. NASA's pioneering work has been valuable to Boeing even when we didn't use its specific development. For example, we developed our own proprietary airfoil for the new 757 and 767 aircraft, but NASA's technical data on the supercritical wing supported the validity of our work. More recently, the industry has needed to respond in a very serious way to the fuel crisis and the consequent need for more fuel-efficient aircraft. We have had to investigate all the system elements: aerodynamics, propulsion, structures, and flight management—to name a few. NASA's work has been of great value to all three of the major U.S. commercial manufacturers. The most important element was that such work had been a continuous effort and as such was available to industry when the need arose unexpectedly, as it did in the mid-l970s. Two of the many programs that provided the most benefit were the composite structures programs for more efficient aircraft structures and the advanced flight management program for more efficient aircraft operations. Both began in the early l970s, and both represented cooperative government-industry efforts. Both were programs requiring such long lead times that evolution by industry alone would have been delayed or even unlikely. In our own case the results of these two programs have made our recent new programs, the 757 and 767, more competitive in the world market and, we hope, retained some American jobs that might otherwise have been lost to foreign manufacturers. These two R&D programs are examples, I wanted to underscore, of the synergistic effects of industry and government working together to achieve a greater result than either could achieve alone. However, there are many other examples, such as winglets currently flying on test aircraft, the development of sophisticated area rule techniques to optimize drag, and active control systems that will eventually reduce weight and drag both by modifying structural loads and by reducing empennage size. In some of these cases our proud Boeing engineers think they did a number of these things by themselves, but the NASA work helped show us the way. The agency prods the industry into doing things better and I appreciate that. When government agencies or private firms in the aerospace family run into technical problems they go to NASA for halp with the solutions. They usually find them because the agency has a significant technological capability. The relationship works, and when a government-industry relationship works you shouldn't try to change it. It is a rarity in my experience. Let me talk about the future. Improved fuel efficiency will continue to be an imperative, and international competition will get progressively more severe. We can see potential efficiency improvement of some 25 to 40 percent, but we know the time and effort required to get it will tax the resources of government and industry working together. We know that in some cases our foreign competitors have more complete research and development 89

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programs Ln place. Examples of advanced technology not matched in the United States include the work in composites for primary wing structure by Dassault of France and the shadow mask cathode ray tube development by Mitsubishi of Japan. U.S. technology is dropping behind that of both the French and the Japanese in these critical areas and will never catch up at its current rate of progress. It doesn't take much imagination to evaluate the situation as a serious one. The real American requirement is that we run faster, and that takes all the resources we can collectively assemble. In summary, we need to address several key issues if we are to maintain our position of leadership in aerospace. We need a long-range policy on foreign trade, one that recognizes the overall benefit of exports for our national economy and American jobs. Sometimes the question of affordability clouds the issue. We need a strong, viable Export-Import Bank if we intend to compete in world markets. We need to increase, not reduce, our government investment in research and development from the theoretical beginnings through technology credibility attainment. We should develop a different approach to what is necessary to protect our industries. We need to shuck our national guilt complex about helping industry before it gets into trouble. We seem to have no difficulty in helping the losers, but the approach for sustained preeminence would create the conditions that make it possible for industry to grow. We need to exchange our savior policy for a winner policy. Stimulation is a lot more fun than rescue and a damn sight cheaper as well. What seems obvious to me is that we must get our act together in the areas of foreign trade, research and development, and government-industry cooperation. At present, the United States is the leader in commercial jet transport development, but there are plenty of warning signs showing up. The situation is a world situation, and it has military as well as commer- cial overtones. Unlike the cooperative industrial programs developed by Japan and the European nations, the U.S. has adopted policies of confronta- tion in many areas. Such policies exhaust our energies and splinter our resources into nonproductive avenues. In the government contracts area, far too much industry and government money is spent in monitoring and validating research work. The administra- tive expenses of some government contracting have reduced the productive value of the contract dollar by about half. Our nation must begin to see the big picture, realize the benefits for all Americans of saner government-Industry relationships and the absolute necessity for maximum research and development if we are to compete in today's world. The penalty of failure in terms of the economy, the balance of trade, and, most of all, American jobs is so serious that success is not just an objective, it is mandatory. Thank you. 90