Outlook: Boeing, Boeing, gone. Scandal too far claims Condit's head

Runway battle; Property taxes
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The Independent Online

Phil Condit penned his own epitaph last week when he wrote in a letter to Boeing's 160,000 employees that "accountability begins at the top". His comment referred to the firing of the company's chief financial officer over a widening military contracts scandal. Yesterday that scandal lapped over the threshold of the chairman's office, taking its occupant with it.

Among his other roles, Mr Condit sits on the board of Boy Scouts of America but, in the last year, Boeing has behaved in anything but the Baden-Powell fashion, having been accused of stealing military secrets from rival contractors and luring Pentagon staff involved in awarding it orders.

In the post-Enron world of US corporate paranoia and ethical rectitude, Mr Condit could not last. More than most other chief executives who have been forced to fall on their sword, Mr Condit will feel the loss. He is a Boeing lifer who has worked on virtually every commercial aircraft launch of the past 35 years and even plucked his wife from the Seattle production line.

With all the dignity he could muster and a croak in his voice, Mr Condit made way yesterday for an older man in the shape of Harry Stonecipher who has been brought out of retirement and, despite his protestations to the contrary, cannot be more than a stop-gap.

Boeing has messed up the succession, having got rid of two of the more likely heirs apparent in as many weeks. But whoever takes over eventually from Mr Stonecipher faces a daunting in-tray.

In commercial aerospace, Boeing has ceded market leadership to Airbus Industrie and can see its cash-cow, the 747, being put out to grass quite soon. Its foray into military and commercial satellites has, so far been a disastrous and expensive flop. And its reputation as a defence contractor has taken a fearful battering of late which cannot have won it any friends in the Pentagon or the Ministry of Defence, which is about to decide whether or not to give Boeing £13bn worth of air tanker work.

Mr Stonecipher can make a start by demonstrating Boeing still has a strategy for the civil market and launching the 7E7 which is a real plane unlike the unlamented Sonic Cruiser.

Runway battle

Fancy that. An opinion poll paid for by BAA showing that most people who live next to its airports want to see more runways built. Not, obviously, if the runway in question ends just the other side of their garden fence. But, yes, if it means more jobs and greater freedom to fly. What altruists there must be living beneath the flight paths of south-east England.

Clearly BAA and its pollsters managed to avoid Hacan Clear Skies, which lobbies tirelessly against the remorseless growth of Heathrow, and Stop Stansted Expansion. Or perhaps it's just that the airport protest groups punch way above their weight.

Either way, the residents around Heathrow, Gatwick and Stansted do not have to wait much longer to discover whether Alistair Darling has chosen to answer their dreams or confirm their worst nightmares. Those who actually manage to get a decent night's sleep, that is.

Sometime later this month the Secretary of State for Transport will announce which airport is to be the site of the first new runway in the South-east in more than half a century. As we disclosed a month ago, the short-odds favourite is looking like Stansted. The economic case for a third runway at Heathrow is overpowering but the political appeal of Stansted, with barely a Labour marginal in sight, counterbalances that. What appears to have tipped the scales, however, is the environmental impact of another runway at Heathrow. Not the amount of the noise in the air but the nitrogen oxide clouds that will be emitted on the ground. At Stansted this is a non-issue because it is built on open countryside. At Heathrow, it is a big problem already and will become bigger still when legal limits on emissions take effect in 2010.

So Stansted it looks destined to be. What Mr Darling then has to get his mind around is who will pay for the new runway. In theory, Stansted should now be self-financing. But that is a fiction.

The airport does not cover its own costs and even now charges less than it is allowed to under its price cap in order to attract airline customers such as Ryanair and easyJet. A new runway will cost at least £4bn, which means much higher landing charges for the low-cost carriers unless the burden is spread around BAA's other airports.

But British Airways has already threatened to reach for its lawyers if airport charges at Heathrow are jacked up to pay for new capacity at Stansted which will be used predominantly by its competitors. Virgin Atlantic will not be far behind.

Denied a third runway, Heathrow has two means of squeezing more capacity out of the existing pair. One is to fill the skies over west London with super jumbos. The other is to introduce something called "mixed mode" operation - which means that both runways are used all the time for take-off and landing and local residents get no respite from noise whatsoever. They ought not be to popping the champagne corks in west London just yet.

Property taxes

There is no doubt that Gordon Brown wants to rein in Britain's runaway housing market and there is a fair chance he will outline some plan of action in next week's pre-Budget report. The question is what. The nuclear option of taxing homeowners on profits from their house sales has been put back in its box, for now, in favour of more technical measures to stimulate supply of new homes.

Two ideas seem to be gaining favour. One is some form of tax which housebuilders would have to pay on their land banks unless they developed them for housing.

The other is the introduction of tax-friendly real estate investment trusts or Reits as they are known, designed to encourage investors to put their money into rental accommodation.

In other words, a carrot and a stick approach except that, in this case, the stick would be applied to housebuilders and the carrot dangled in front of property developers.

The property industry has learnt the lesson from four years ago when it last lobbied for tax breaks and got itself in a Reit pickle. The Treasury interpreted it as special pleading for fat developers and sent the industry away with a flea in its ear.

This time around it has dressed up its case by emphasising the wider economic benefits of Reits rather than the plight of poor old property companies and the terrible discount to net asset value at which their shares trade.

The benefits are said to be two-fold: better quality and cheaper buildings for commercial users and an expanded private rental sector, which could make Britain's housing market look more like those on the Continent where owner occupiers are in the minority.

Short term, the Treasury would lose tax receipts unless it imposed some kind of exit tax on quoted property companies converting to Reits status as the French have done. But in the longer term, the tax take could actually rise.

Britain is the only member of the G7 which does not have some form of tax-friendly status for property investment. Partly as a result, the size of the quoted property sector has dwindled while more investment is being made in offshore vehicles such as limited liability partnerships and unauthorised property unit trusts which pay tax to someone other than the Exchequer.

The harder question to answer is how quickly such tax incentives would make a real contribution to the Chancellor's ultimate goal of ending Britain's boom-to-bust housing cycle. Like the move to long-term, fixed-rate mortgages, it will be a slow grind. Unlike taxing the sale of first homes, however, it would not amount to political suicide.