Investor's Business Daily, August 6th, 2007
The war to end all wars -- WWI -- had ended.
America was heading into the Roaring '20s.
Indeed, business was about to boom -- except for the fledgling flight industry. That idea, launched 15 years earlier in a brief takeoff in Kitty Hawk, N.C., was dangling.
A team of nearly 300 shipwrights, cabinetmakers and seamstresses working in a warehouse along Seattle's Duwamish River hustled to make ends meet. William Boeing had gathered the group over the prior few years to build floatplanes for the U.S. military. Boeing's crew would grow through the next decade to become the largest aviation operation in the world.
Yet for now they built furniture, speedboats and whatever else would earn a buck until airplanes outgrew their status as a barnstorming oddity.
"Wall Street would not invest in the airline business," said Robert van der Linden, chairman of the aeronautics division of the Smithsonian Institution's National Air & Space Museum. "It was so new, so raw and so unproven that no one wanted to risk investment."
Boeing's view was longer. He recognized aviation's potential and saw the rate at which the world around him was changing.
Technology was presenting challenges so "new and unusual," he said, "that it behooves no one to dismiss any novel idea with the statement that it can't be done."
Soaring Cash
Boeing (1881-1956) had an advantage over competitors: money. The Detroit native quit Yale University in 1903 -- the year the Wright brothers took off -- to head for the Pacific Northwest. He then leveraged inherited timberland into a booming lumber firm.
Boeing also inherited a large share of mineral rights in Minnesota's iron ore-rich Mesabi range.
Combined, the assets hoisted him into the upper crust of Pacific Northwest society -- and in 1918 let him pay his plane-building crew out of pocket.
Boeing knew he needed men who understood the physics of flight. Before and during the war, Boeing had sought craftsmen able to meet the tight-tolerance demands of aviation manufacturing. Now he coaxed the University of Washington to start an aeronautical engineering course from which he could cherry-pick promising prospects.
"The bottom line is that he had invested a lot in bringing good people together," said Michael Lombardi, corporate historian with Boeing Co. BA "And he didn't want to lose those people."
Boeing's experience helped him. Many competitors began as engineers or pilots. In the post-Armistice Day fallout, dozens of aviation firms that supplied military aircraft during the war were failing.
Boeing had a better handle on how to make a company rise. He was still building watercraft, but was also winning more contracts to supply military aircraft. In the meantime, the company pioneered steel tube fuselages and the chairman watched the horizon.
Boeing's success extended to banking. He owned 75% of Pacific National Bank, the institution that bankrolled his company's startup. As the air industry hit turbulence, Boeing also leveraged his knowledge of finance, seeking council and capital from bankers and investors in New York. "And Wall Street compelled him to consolidate his interests," van der Linden said.
In the early 1920s, the aviation industry was still a hodgepodge of loosely affiliated government contractors. The military bought engines and airframes separately, then managed the final assembly.
Soon the market was flooded with aircraft, new and used. The going price for a Curtiss Jenny trainer, for example, was as low as $300. A two-seat Cadillac roadster, by comparison, went for $2,590.
As the industry slumped, Boeing sought venues for growth. "My firm conviction from the start has been that science and hard work can lick what appear to be insurmountable difficulties," he said.
From the start, Boeing put a premier on partnerships. He and naval engineer George Westervelt founded the Pacific Aero Club to train and qualify pilots in Seattle. In 1916, the pair started Pacific Aero Products Co. They changed its name the following year to Boeing Airplane Co., which produced the B&W floatplane, the company's first aircraft, followed by the Bluebird and the Mallard. Westervelt was reassigned by the Navy and slipped out of the Boeing picture during World War I.
Another partnership, with pilot Eddie Hubbard, put Bill Boeing in a sweet spot for industry growth. Hubbard, Boeing's test pilot, had been the second man to earn a pilot's license from the Pacific Aero Club and saw a private-sector future for aviation.
Boeing and Hubbard flew the first international airmail delivery into the U.S. from Vancouver, British Columbia, in 1919. Hubbard became Boeing's first commercial customer after launching his own air taxi and mail delivery operation.
Boeing bought Hubbard's company several years later and followed the pilot's advice to bid on the San Francisco-to-Chicago airmail route offered by the U.S. Post Office.
It was also Hubbard who urged Boeing into another relationship, with Fred Rentschler of Pratt & Whitney engines.
That relationship helped ace the first mail delivery contract for Boeing. It also fast-forwarded his effort to consolidate the fragile, fragmented industry.
Rentschler resigned as president of Wright Aeronautical Corp. in 1924. The Wrights had resisted Rentschler's advice to further develop their popular J5 motor.
Rentschler and his brother instead launched Pratt & Whitney Co. and developed the Wasp -- a light, efficient and powerful aircraft motor.
The Navy ordered 25 of the engines. Hubbard and Rentschler convinced the military the motors should be mounted on Boeing 40 airframes, which had been upgraded in pursuit of the Chicago-to-San Francisco contract.
The Navy agreed, and the fast, fuel-saving combination let Boeing Airplane Co. seriously underbid its competitors.
The company won the contract in 1926, setting up the Boeing Air Transport service. The crew swung into gear and turned out 20 of the Model 40s ahead of the July 1927 startup of the airmail deliveries.
Boeing was turning out new aircraft models at a hectic pace, plus buying airlines and airmail routes and services almost as quickly. In 1929, Pratt & Whitney merged with Boeing under the United Air Technologies Co. rubric.
Also crucial was UATC stock. Initially priced at $20 a share, it rose to $168 in a month, signaling Wall Street had hopped onboard. Boeing's firm quickly grew to control 50% of the U.S. aviation industry, but the triumph was short-lived.
Down, Not Wholly Out
Within a year, the Great Depression was spreading. Big business -- especially highly profitable companies like Boeing -- was vilified.
A consortium of politicians and competitors accused Boeing of gaining its stronghold illegally. President Franklin Roosevelt canceled all airmail delivery contracts early in 1934 after 10 pilots crashed while handling the postal routes.
The Roosevelt administration proceeded to break UATC into three companies and block manufacturers from air carrier contracts.
Boeing, who prided himself on ethics, was despondent at the affront to his character. He retired and pulled all of his financial interests out of the airline industry in 1934.
He did, however, make himself available during World War II as a prized consultant to the company that bore his name.
The lumberman-turned-aviator turned his focus to breeding thoroughbred horses. But the company he founded would continue as one of the world's two largest aircraft makers and remains the largest exporting operation in the U.S.
"Boeing had taken the airplane from being a curiosity," Lombardi said, "into a tool that was running the commerce of the country."
