Boeing Co. (BA:US)’s iconic 747 jumbo jet is gliding deeper into its twilight years, with a new Air Force One fleet offering the strongest sales prospect for a passenger model that no longer fits most airlines’ needs.
Even as Boeing talks with Emirates about an order for the upgraded 747-8, the carrier played down the chances of a deal because it’s buying 150 Boeing 777X jets. That plane will be bigger and more efficient than the current 777, a twin-engine aircraft so capable that it’s cannibalizing Boeing’s jumbo sales.
Commercial success has proved elusive for the 747-8, the latest update to an almost 50-year-old plane known for its distinctive humpbacked fuselage. While the 747-8 is a lock to win bidding that opens this year to replace the U.S. president’s fleet, waning demand for the cargo variant further imperils an assembly line that has slowed to just 1.5 planes a month.
“Air Force One is it unless a miracle happens in the airfreight business,” said Glen Langdon, president of Langdon Asset Management, a San Francisco firm that has extensive experience selling used 747s and other wide-body freighters.
Discussions with Emirates were disclosed this week by John Wojick, senior vice president for sales and marketing at Chicago-based Boeing’s commercial airplane unit, at the annual meeting of the International Air Transport Association in Doha. Emirates is the world’s largest international airline and it operates a fleet of A380s from rival Airbus Group NV.
Boeing is fighting to land customers, even using trade-ins of older models to seal deals. Boeing faces a “material” accounting loss if it can’t win sufficient 747 orders (BA:US) to recover the costs of development, according to a company filing. So far, Boeing has tallied just 51 sales for the passenger variant, known as the 747-8I or Intercontinental, since Deutsche Lufthansa AG placed the first order in 2006.
This year’s 747-8 order count: one. It wasn’t always so grim. Pan American World Airways announced a $525 million order for 25 of the first 747s in 1966, effectively launching a program that would go on to produce almost 1,500 planes.
But Boeing outdid itself with the 777-9X, the first twin-engine jet designed to carry a jumbo’s haul of 407 passengers. Meanwhile, a glut of the previous 747 iteration remain parked and Boeing cut 747 production twice last year, to 18 jets a year, as the backlog dwindled.
“We expect 747-8 sales to increase with the economy, and customers flying the airplane tell us they love its strong performance,” Randy Tinseth, a Boeing vice-president for marketing, said in an e-mail. “That’s why we continue to invest in the 747-8 to make it even better.”
The 747-8’s likeliest sales are to the Pentagon. The U.S. Air Force is planning to upgrade the all-747 presidential aircraft fleet by 2023 and has also begun studying whether to replace the “Doomsday” fleet, four 747-200 jets hardened against nuclear blasts that provide a mobile military command, Charles Gulick, an Air Force spokesman, said in an e-mail.
The White House’s fiscal year 2015 budget proposes spending $1.65 billion over five years to replace its aging Air Force One fleet, which began ferrying President George H. W. Bush in August 1990. That spending would cover the purchase of the first new aircraft for delivery in fiscal 2018, Gulick said.
The current fleet would be phased out during fiscal 2023, replaced by other four-engine aircraft, although the Pentagon hasn’t yet determined how many jets would be needed, Gulick said. A timeline posted in the Pentagon budget material calls for requests for proposals to be issued by Sept. 30, with a contractor selected next year.
Both Airbus Group NV (AIR)’s A380 and Boeing’s 747-8 fit the Pentagon’s requirements. However, Toulouse, France-based Airbus faces a formidable political battle if it opts to compete for the Air Force One contract, said Loren Thompson, chief operating officer with the Lexington Institute, an Arlington, Virginia-based think tank that consults for Boeing.
“How do you say ‘no-brainer’ in French?” Thompson said.
While Airbus “could put forth an extremely capable platform for Air Force One if there were a compelling business case, before we could consider engaging we would first need to understand the detailed requirements and see evidence of a truly level competitive playing field,” James Darcy, director of corporate communications for Airbus, said in an e-mail.
Unless there’s a remarkable market recovery, the victory could be bittersweet for a jetliner that transformed long-range travel with its 1970 debut, said Robert Mann an aviation consultant based in Port Washington, New York.
As of March 31, the planemaker expected to recover $1.2 billion of 747 deferred production and tooling costs from firm orders, while another $1.01 billion would be recovered from expected future orders, the company said in a filing.
Tim Clark, Emirates’ president, confirmed the Boeing talks while downplaying the prospects of a jumbo order, especially given its plans to add 150 777X jets after Boeing’s largest twin-engine jet enters the market in 2020.
“Air Force One is probably the swan song as far as that program goes,” Mann said of the 747 in a phone interview. “I don’t really see a freighter role, or a military role for it along the lines of the 767 converted into the KC-46A tanker. I think that’s it.”
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