(FORTUNE Magazine) – AIRBUS INDUSTRIE, the improbable -- some would have said impossible -- Eurodream, has succeeded in ways that even its strongest supporters did not imagine. As recently as five years ago, American commercial airplane builders Boeing and McDonnell Douglas accounted for more than 90% of jet aircraft deliveries and nearly 80% of new orders. Today the European consortium supported by the French, German, British, and Spanish governments is filling 30% of new orders and gathering momentum. By offering leading-edge technology and a full complement of aircraft, Airbus has signed up 14 of the 17 largest airlines in the world. Its success in the key North American market has been especially stunning. Airbus nearly matched Boeing's new orders in North America last year, while McDonnell Douglas, whose commercial-aircraft business is dwindling fast, was all but shut out. Says James Bryan, chief executive of Airbus's North American operation: ''If you don't have penetration in this market, you are not going to be a global player.'' And you want to be a global player, because this is a growth business. According to most estimates, demand for new commercial aircraft worldwide will average 500 to 600 annually until the year 2010. In today's dollars that amounts to about $700 billion in sales. Without a high-tech aircraft industry, not only would Europe have missed getting some of that cash, but it also would have experienced a devastating brain drain. In the U.S. the industry supports about two million jobs, directly and indirectly. Aircraft exports totaled nearly $20 billion last year. A recent report compiled by Congress labeled the aircraft business a ''crown jewel of American manufacturing and technical prowess.'' With the stakes so high, the competitors, not surprisingly, seek every advantage. Boeing and McDonnell Douglas have long sought an end to the subsidies Airbus has received from European governments on grounds that the payments violate international trade agreements. Airbus officials counter that industrial policy backed by subsidies is a simple fact of life in Europe. In addition, they argue that U.S. manufacturers have been supported indirectly through research and development work for the Pentagon. Confusing matters even further, McDonnell Douglas has been talking about a joint venture in Taiwan that could involve substantial subsidies from the government there. After six years of talks U.S. and European negotiators in early April announced a tentative agreement that would cap direct European government subsidies at 33% of new development costs and limit indirect benefits -- such as new technology developed for the military that can be applied to commercial aircraft -- to 4% or 5% of those outlays. Says Jean Pierson, the burly Frenchman whose arrival at the controls of Airbus in the mid-1980s signaled the start of the company's rapid rise: ''The subsidy controversy is over.'' That may be true, though squabbling over details has since broken out. In any case, the long quarrel has left wounded feelings on both sides. Says Boeing Chairman Frank Shrontz: ''There's plenty of room for three players in this market, but I do believe these subsidies have created a distortion.'' Airbus made its first U.S. sales in 1977, but its big break came a decade later. Robert Crandall, influential chairman of AMR Corp., parent of American Airlines, was looking for new, fuel-efficient aircraft with plenty of cargo space to handle his Caribbean routes. He ended up buying 35 stretched Airbus A300s, a decision that did much to lend credibility to the manufacturer's marketing efforts in North America. Says Bryan: ''That was the deal that required everyone in the industry to look at what we had to offer.'' Air Canada followed, then Federal Express, America West, and TWA. Late last year, Delta placed an order for nine narrow-body A310s. As an inducement to Delta, the contract includes unusually generous provisions that permit the carrier to cancel its order in 12 to 18 months with no financial penalty. In industry parlance, it's known as a walkaway deal. For Shrontz and his colleagues at Boeing, who had been trying hard to sell Delta some new 767-300s, the deal brought the subsidy dispute to a boil. Says Dean Thornton, president of the Boeing Commercial Airplane Group: ''You've got this walkaway, plus a huge loan to Northwest, and Mickey Mouse financing with Pan Am and America West. With the huge subsidies they have, they are able to do these sorts of things, while we can't.'' Officials at Boeing point to a U.S. Commerce Department study that puts the total subsidies Airbus received through the end of 1989 at $26 billion. Commerce arrived at the figure by combining an estimated $13 billion in direct cash transfers with an equivalent amount representing the interest charges a private company such as Boeing would have paid a lender. Boeing has also found support in Congress. A House committee report published earlier this year calls Airbus's continuing success a ''direct assault'' on U.S. competitors. Says Representative Robert S. Walker, ranking Republican on the House Committee on Science, Space, and Technology: ''When you consider that sales of U.S.-manufactured aircraft abroad have been the only consistently positive area in the balance of trade since World War II, you realize how important it is that this industry be treated fairly.'' While Airbus officials don't deny receiving subsidies, they dispute Commerce Department estimates of their size. To back up the claim that Boeing and McDonnell Douglas got government help too, Airbus commissioned a study by Washington law firm Arnold & Porter that puts the total benefits to U.S. commercial aircraft makers from defense and NASA contracts, along with various tax incentives, at between $33 billion and $41 billion. The Americans concede that their commercial business gets some help from government R&D, but they say Arnold & Porter's estimates are way too high. Officials at Airbus also contend that Europe had no alternative to subsidies if it was going to build an aircraft industry virtually from scratch. No group of private banks, they argue, would have come up with the billions needed to launch Airbus and keep it going in the early years. Finally, the company argues that these subsidies were in fact loans that are now being repaid to the tune of $600 million in 1991, $700 million in 1992, $1 billion in each year from 1993 through 1996, and $600 million each year through 2006. One problem with assessing Airbus's arguments is that the consortium publishes financial information only to its four partner/shareholders. (The French company Aerospatiale and Germany's Deutsche Airbus each own 37.9% of the project, British Aerospace is a 20% partner, and the Spanish aerospace arm CASA is in for 4.2%.) According to Pierson, Airbus has shown a profit after loan repayments in the past two years. ''It is more than 3% -- nothing dramatic,'' he says. Financial analysts have estimated net profits at $250 million last year on revenues of about $8.5 billion. By comparison, Boeing earned $1.6 billion on annual sales of $29.3 billion. CRUCIAL to Airbus's success has been its ability to meet customers' special needs with a half-dozen models of different sizes and capabilities. Boeing has long wooed customers by offering a so-called family of planes that no rival has been able to match. Now, however, Airbus has its own family, big enough to compete with Boeing in every category but one -- the 747 jumbo jet. Airbus is likely to leave that market alone because of huge development costs and limited sales prospects at the moment. Further out, Airbus may develop a 600- seat mega-jumbo if a market emerges. For all their success, Airbus officials still face the intense internal difficulties of managing a multinational project. Says Heribert Flosdorff, Airbus's German-born chief operating officer: ''There are times when there seem to be massive conflicts because of the different educational backgrounds and different approaches. We Germans tend to be more fact oriented, while the French are more intuitive. The British tend to play arbiter and get smashed from both sides.'' Adam Brown, who joined the consortium at the outset as marketing director, recalls the challenge of overcoming his British reserve when trying to rally the troops during sales meetings. Says he: ''We British tend to sort of hint at what results we expect. I soon learned that the Germans sometimes didn't actually understand that I wanted them to do anything in particular.'' Since the number and type of jobs at Airbus vary according to the project, dividing up the work can still lead to bitter battles. The Germans want final assembly and interior work on the new 130-seat A319 to take place in Hamburg; the French are equally insistent the work be done in Toulouse; and a decision is yet to be made. The company's transnational character makes for some intricate financial arrangements too. Because of historical American dominance in the field, the global aircraft market is dollar-based. Airbus gets dollars from its customers and then funnels the cash back to its four partners. The problem, especially for the French and Germans, is that their currencies have at times over the years fallen sharply against the dollar. Says Flosdorff: ''This is probably the biggest single problem in the system.'' The obvious solution would be to take payment in some sort of pan-European currency, to be established after national barriers come down in 1993. But realistically, that prospect is still at least several years off. FOR ALL THE HASSLES it occasionally experiences, Airbus has become something of a model of high-tech multinational cooperation. At least part of the reason is the work itself: Aeronautical engineers and other related professionals tend to think beyond national boundaries. As Pierson puts it: ''In this business, it is a kind of separate world, a kind of international fraternity. We have invented our own system.'' Old-timers around headquarters in Toulouse, a provincial capital in southern France, give credit to the company's first chief engineer, a shy Frenchman named Roger Beteille who retired in 1985, for establishing an organizational culture that transcended nationalities. Beteille, who came to work each day in a starched white shirt and white tie, decided early on that all business meetings and official communications should be in English to avoid confusion. He also had all the planes designed in inches and feet instead of in the metric system so that mechanics around the world who were accustomed to working with American aircraft wouldn't be confronted with unfamiliar measurements and tools. From the beginning, Airbus sought an edge against U.S. rivals through superior technology. Says Stewart Iddles, chief marketing officer: ''We like to say we are offering a BMW, not a Ford.'' Because of its advanced wing design and efficient twin engines, the A-300 was about 15% cheaper to operate than the competing Boeing 727-200. Airbus redesigned the cockpit on its 150- seat A320, which went into service in 1988. Pilots use joy sticks at the side of their seats rather than steering wheels, and all their commands are ) transmitted by computers rather than manually. Boeing will not offer such so- called fly-by-wire technology until its new 777 rolls out in 1995. Boasting of technological excellence would have seemed more than a little silly when Airbus started in 1970. To many politicians and commentators across Europe, the notion of bringing together experts from four distinct -- and sometimes hostile -- cultures to build and market a complex piece of machinery was utter folly. The first managers thought so too. Says Adam Brown, who is now director of strategic planning: ''To be frank, none of us really thought this project had much of a chance to take off.'' Boeing's Dean Thornton marvels at the technological obstacles surmounted by so disparate a committee. Says he: ''The fact they haven't built camels is really remarkable.'' The manufacturing process began as a logistical horror show. To keep each partner happy, management decided that parts should be made in various countries, then brought to Toulouse for assembly. Sounds easy, but many of the parts -- fuselages from Germany, wings made in Britain, and tail sections from Spain -- are huge. Trees had to be cut down, electrical cables moved, and corners of buildings removed to handle the wide and high truckloads from the port of Bordeaux to Toulouse. Airbus eventually went to a more efficient system, flying the parts into Toulouse aboard big-bellied cargo aircraft known around the company as Super Guppies. Since government funds were involved, politicians from the various countries often took shots at Airbus. The outside pressures came to a head even before the first A-300, a twin-engine wide-body, rolled out in 1974. Britain's Rolls- Royce was supposed to develop a new engine, but Airbus instead gave customers a choice of smaller existing engines offered by Rolls-Royce, General Electric, and Pratt & Whitney. The British newspapers flogged the story and, amid political and public outrage, British Aerospace withdrew from Airbus and the government cut off subsidies for several years. In large part owing to Airbus's commercial success, the political flak has died down and company officials have felt freer to pursue future projects. At least some may involve still more international partnerships. Like so many other industries, aircraft building has taken on an increasingly global look. To answer charges that Airbus is wiping out U.S. jobs, officials point out that American workers from about 500 companies in 34 states produce components for Airbus planes assembled in Europe. Parts representing 20% to 40% of each plane are made in the U.S. Boeing has long been involved in joint ventures with Japanese partners, and just about everyone expects at least one Asian country to become heavily involved in aircraft manufacturing during the next two decades or so. The industry is watching negotiations between McDonnell Douglas and a government- backed aerospace company in Taiwan. The deal would grant Taiwan a substantial equity share in a project aimed at developing a jumbo jet to be called the MD-12 that would compete with Boeing's 747. No one doubts McDonnell Douglas's need to explore new technology and expand its product line, but a deal possibly involving more subsidies has attracted a host of critics. Says Boeing's Thornton: ''Douglas has clearly got to do something, and they obviously need help. But if this thing becomes an Asian Airbus, then we've got real problems.'' Many Americans will no doubt long for the days when U.S. companies ruled the industry with little or no opposition. But the stark truth will eventually sink in, sort of the way it did 20 years ago when the Soviets snatched Olympic gold from a bunch of stunned Americans in short pants. Like basketball, airplane building is no longer strictly an American game.

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