THE FATAL-FLAW MYTH.(The Talk of the Town)

Every other summer, the aerospace industry gathers in Farnborough, England, for a big trade show. At Farnborough last week, there was one thing on everyone's mind: the plummeting fortunes of Airbus, the European aerospace giant. Airbus is struggling to find customers for the new plane on which it has staked its future, the superjumbo A380, as airlines wonder whether anyone wants to fly on a jet that seats almost six hundred people. The A380s that have already been ordered will be delivered late, thanks to production snafus that may add as much as $2.6 billion to the original development cost of thirteen billion dollars. Airbus's other big project, the mid-size A350, is to be completely redesigned, at a cost of ten billion dollars. All the while, its sole competitor, Boeing, has been gobbling up business, thanks to its new mid-size jet, the 787 Dreamliner. In the first half of the year, Boeing took almost five hundred new orders for planes, while Airbus took just a hundred and seventeen.

Airbus is a business-world anomaly. It was created in 1970, by an alliance of European countries, in order to break the American monopoly on the commercial-aircraft market, and it's currently owned by a defense conglomerate in which the French government has a major stake. This connection has helped the company get access to government-subsidized loans, but has also meant that its corporate strategies have been shaped by politics. Now Airbus's woes are being held up as proof that it is, in the words of one columnist, "a textbook example of how not to run a commercial enterprise." The Wall Street Journal explained that Airbus was failing because of its "politicized management," while the Times suggested that Airbus had to decide whether it was a company or a European "employment project."

There are reasons to think that politics and business shouldn't mix, but Airbus's predicament isn't one of them. What much of the talk about the inherent weakness of Airbus ignores is that, just a few years ago, it was Boeing that looked fundamentally flawed, while Airbus was seen as the future of the industry. Beginning in the late nineties, Boeing's commercial-aircraft business went into a long and nearly profitless slump. In 2001, Airbus surpassed Boeing in new orders, a lead it maintained until this year. During that period, Airbus's unusual structure was praised; its insulation from the stock market supposedly allowed it to invest in long-term research and development. Boeing, by contrast, was thought to be trapped in a short-term, cost-cutting mentality, because, as one analyst put it, "the money guys don't reward long-term thinking and investment." In 2003, Business Week declared that Boeing was "choking on Airbus' fumes," and warned that Boeing's "slip to No. 2 could become permanent."

The problem with such ...