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US/World: The Impact Of The Boeing Merger

Washington, 17 December 1996 (RFE/RL) - The merger of America's two largest aerospace companies -- Boeing and McDonnell Douglas -- into the world's largest, seems to assure U.S. dominance of this globally critical field well into the next century.

The new Boeing company will be the single largest supplier of: passenger jets to the world's airlines, spacecraft to the U.S. space agency NASA, and combat jets to the U.S. defense department. It's annual sales of over $48,000 billion is larger than the Gross National Product (GNP) of any single nation in East and Central Europe and the former Soviet Union except Russia, Ukraine and Poland.

Boeing and McDonnell Douglas currently employ more than 200,000 people and executives say they expect to keep virtually all of them in the new Boeing as it seeks to take even a bigger bite of global aerospace markets. Experts say it will immediately have 66 percent of the world's large-jetliner market compared to its now-trailing rival Airbus Industry�s 34 percent share.

The attention of analysts around the world has been on the new competitive picture globally between Boeing and Airbus, the European consortium, but almost no one has looked yet at the impact on the struggling aerospace firms in Russia and elsewhere in the region.

Lawrence Korb, a senior fellow at the Brookings Institution in Washington, says it clearly will "make it much more difficult" for aircraft manufacturers like Russia's Ilyushin company, a privatized version of the former Soviet state-owned enterprise that is now trying to learn how to compete in a very tough global market.

"Unless the state subsidizes these things" to the utmost degree, Korb told RFE/RL, "they just aren't going to be competitive" in world markets.

However, Korb says, there is another possibility that the creation of two global giant companies could leave specialized, niche markets available for smaller companies in Russia, Kazakhstan and other nations of the region.

While Boeing will become even more competitive in designing and building large jet liners, say some experts, the field for smaller jets and propeller-driven planes will be left to the firms in other parts of the world.

Fokker, the German/Dutch aircraft company, has already established itself in its specialty of propeller passenger planes as has the Russian Yak, a staple throughout most of the former USSR.

These niche markets could be tremendously significant, say the experts. They estimate that the worldwide jetliner fleet will more than double in the next 18 years from today's 12,000 planes, with demand for shorter-range jet and prop planes to be several times that.

For Airbus, the Boeing merger couldn't have come at a worse time. While it was celebrating last month over the decision of USAir, a major American carrier, to purchase 120 single-aisle airliners, it is now concerned with being left in the dust as it tries to sort out its own future. Paul Beaver, an official of Jane's Group, the London-based aviation industry publishing firm, said simply that "Airbus will be dwarfed."

Even as Boeing and McDonnell Douglas were announcing their merger, the four Airbus consortium countries -- France, Germany, Britain and Spain -- were splitting over the shape of the company when it is transformed into a limited company in three years.

British Aerospace and Daimler-Benz Aerospace of Germany want Airbus to become a full-fledged producer, making a full line of jet aircraft as well as spacecraft and military planes.

Aerospatiale of France is resisting such a radical change, urging that a dramatic expansion of Airbus could leave it unable to cope with what it hopes will be an upturn in aircraft orders in the coming years. Spain's Casa, which owns the smallest share of Airbus, has not been outspoken in the dispute.

The Boeing-McDonnell Douglas merger must yet be approved by U.S. government regulators as well as by the stockholders of the two companies, but reports in Washington indicate the Defense Department has already signaled its support and there is little early opposition within the Justice Department. The New York stock market reacted by large jumps in the price of the stock of both firms.

The Brooking's Korb says there might be an unforeseen positive effect from the merger. "You wonder the extent to which people will emphasize safety now that they are no longer pushed to the margin" competing against another American manufacturer, he says. For airlines which want an American-built plane, he says, there will be little choice and while prices will surely rise, at least in the short term, says Korb, it could increase the company's willingness to put more emphasis on safety.