Boeing Scores a Jumbo Coup

Lufthansa orders 20 of Boeing's new stretch version of the 747, in a decision that deals a severe blow to rival giant-plane maker Airbus

by Stanley Holmes

Lufthansa, Germany's largest airline and one of Airbus' biggest customers, placed a firm order on Dec. 6 for 20 of Boeing's new 747-8 passenger airplanes and 20 options—thus ensuring another two decades of passenger service for the iconic jumbo jet known as the "Queen of the Skies."

The Lufthansa board met on Dec. 6 and approved the purchase of the 20 Boeing jumbo jets, which are collectively valued at $5.5 billion at list prices. Lufthansa also said it would purchase seven four-engine Airbus A340-600s, valued at a total of $1.5 billion based on list prices. The 747 order makes Lufthansa the launch customer for Boeing's redesigned and upgraded passenger version of the 747-8, now known as the "Intercontinental." (see BusinessWeek.com, 11/15/05, "Boeing's Reborn 747"). "It's a validation that we're on the right track with this airplane," said Larry Dickenson, Boeing's vice-president for sales. "It gives carriers an alternative."

The sale represents a huge coup for Chicago-based Boeing. It indicates to airlines that there is a credible competitor to the Airbus A380 super-jumbo, thus diluting the profits Airbus had hoped to make on its big jetliner. Since the launch of the A380, Boeing had offered many passenger variations, but no airlines were willing to buy an aircraft that was first built in 1968. Sales of the 747-400 passenger version had virtually dried up, and industry observers were writing its obituary.

Bad News for Airbus

But Boeing's 747 jet has experienced a dramatic reversal of fortune. New, efficient engines from the 787 Dreamliner program were key to bolstering the range and the lower operating economics that finally made the aging jumbo attractive again. With new, efficient engines and new 787 interiors for the passenger version, the Chicago aerospace giant has captured record sales for its new 747-8 freighter and will now be a player in the passenger market for airplanes that carry 400 or more passengers.

It was a market that Airbus had hoped to monopolize with its A380, which seats 555 people in three classes. The 747-8 Intercontinental can carry up to 460 passengers in three classes, but its fuel and aerodynamic efficiency means it can match the bigger A380's seat-mile costs—a key barometer in airplane economics.

"This is as good as it's going to get," says Teal Co. aerospace analyst Richard Aboulafia. "Boeing was able to get a European based, dedicated Airbus customer to be the first to endorse its new 747 passenger version. It's a blow to the Airbus A380."

Indeed. The numerous production problems that caused Airbus to delay delivery of its all-new A380 up to two years have been a pleasant boon for Boeing's 747 family of airplanes (see BusinessWeek.com, 10/24/06, "The A380 Crisis: What Now for Airbus?"). The biggest beneficiary so far has been the 747-8 freighter, which also is equipped with the more efficient 787 engines. Since Boeing launched the freighter version in November, 2005, the company has notched 44 firm orders—most recently an order for five from Korean Air Lines.

While the Lufthansa order is a huge win for Boeing's 747 program, this does not mean the German carrier aims to replace its A380 order with new Boeing jumbo jets. Lufthansa plans to operate both jets on different flights. The A380 is designed for high-volume routes such as Europe to Asia, whereas the new 747 will fly below that and likely operate from Europe to the U.S.

A Lufthansa executive said at a press conference in Seattle that the "package" of improvements is what finally sold the German carrier on the revamped 747-8. Nico Buchholz, Lufthansa senior vice-president for corporate fleet, cited the enhanced fuel efficiency, the size of the aircraft, and the reduction of emissions and noise as key technology improvements.