BUSINESS WATCH

Americanization of a high-flyer

Peter C. Newman February 23 1987
BUSINESS WATCH

Americanization of a high-flyer

Peter C. Newman February 23 1987

Americanization of a high-flyer

BUSINESS WATCH

Peter C. Newman

Recently, the Boeing Co. of Seattle completed the process of taking over de Havilland Aircraft of Canada, once this country’s most important aircraft manufacturer. As is so often the case with American buy-outs, the company is well on its way to a highly profitable position—for the first time in many years orders exceed production capacity—but the Canadian component in decision-making has all but disappeared.

At the end of January, 1986, the Canadian board of directors was dismissed. Only two Canadians, the 72year-old Tom Bell, who once ran the Abitibi Paper Co., and Dan Pekarsky, a former Belzberg associate who is now a Vancouver consultant, remain in place at Boeing of Canada, of which de Havilland is now a division. The company has been so thoroughly Americanized that not even its bank borrowing is done in this country.

Boeing purchased de Havilland from the Canadian government in January, 1986, for a down payment of $90 million, after Ottawa had put as much as $830 million, by some estimates, into the company. The Canadian plane maker is not making a profit, but its plant at Downsview, north of Toronto, has seldom been busier and employment has increased to 5,300 from 4,400 a year ago.

Taking over as de Havilland’s president as of last month is Ronald B. Woodard, 43, a 20-year Boeing veteran who most recently was in charge of material at the company’s commercial division in Seattle. An Oregon-born chemist, he has previously acted as Boeing’s troubleshooter in the Middle East, as well as in Central and South America.

But the man really in charge of de Havilland is Richard Albrecht, an aristocratic-looking former Seattle lawyer who is executive vice-president of Boeing’s commercial division and Boeing of Canada’s chairman.

“As a result of deregulation, there is going to be a growing affiliation, either in joint marketing or as actual ownership, between traditional Boeing and de Havilland customers,” he recently told me. “When the Canadian government approached us with the prospect of bidding on the company, we quickly recognized that the Dash-8 was a good product and that it had some real capability of expansion within the Boeing family of airplanes.”

As one result of the Boeing acquisition, sales of the basic Dash-8 100 model have taken off dramatically, because airlines that had previously held back from making commitments to a government-owned company with deep red balance sheets now feel that de Havilland’s future is secure. Beyond the 35 Dash-8s already sold when Boeing took over the company, the company has firm orders for at least another 60. At roughly $8.5 million per

plane, that is a positive prospect, especially since de Havilland eventually expects to garner at least a third of the free world’s total commuter-plane market, estimated at 2,000 new planes by the end of the century.

Under Boeing’s guidance, de Havilland recently began producing a stretch (up to 56-passenger) version of the Dash-8, and negotiations have started with Sir Philip Foreman, the head of Short Brothers PLC of Belfast, to produce jointly a smaller 19-seat

turbo-prop commuter aircraft. Another possibility involves the transfer of orders for components from Seattle to Downsview.

“The Canadian operation,” says Albrecht, “was run about as one would expect from a company that has been owned by the government for the past 11 years. They did not spend money where they should have on some capital equipment and didn’t have the same concern for productivity and profit a private company has.”

Another Boeing executive, Ernest Fenn, who also acts as president of Boeing of Canada, claims there are as many decisions being made at Downsview as there ever were—because previously they were dictated by Ottawa. “The big difference,” he says, “is that we’re more willing to make capital expenditure commitments, providing they make commercial sense, as evidenced by the $25 million we’ve already put in since we acquired de Havilland. Because Boeing owns de Havilland, it’s going to reserve to itself decisions on major commitments of resources. That’s a natural phenomenon for any owner.”

Boeing itself seems to be in a transitional phase. Last year the company’s sales set a new record of $21.9 billion and profits (at $891 million) were up 17.5 per cent. (Boeing is a major U.S. defence supplier, with 40 per cent of its profits and 29 per cent of its sales flowing from the Pentagon and other military agencies.)

To meet the requirements of smaller aircraft, Boeing is planning to produce the 7J7 by 1992, a twin-aisled 150-seat unit that is said to be highly fuel-efficient. The company needs new products fast to compete with Europe’s Airbus Industrie. The A320 jetliner being made by that company, owned by the British, French, Spanish and West German governments, has already cost Boeing about 100 aircraft sales.

“The total subsidy invested in the Airbus operation by the four sponsoring governments is anywhere from $4 billion to $12 billion,” Albrecht points out. “Financing is made available to them to build planes for which they don’t have orders, which are then dumped on the world market at distress prices. The other thing is that there is no hesitancy on the part of government leaders in those countries to use political influence to shape the competition. We find them very aggressive competitors.”