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Will Boeing Build A Behemoth To Defend Its Turf?


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WILL BOEING BUILD A BEHEMOTH TO DEFEND ITS TURF?

Ever since rival Airbus Industrie stirred up the Paris Air Show in June with talk of building an airplane larger than Boeing Co.'s huge 747-400, Boeing officials have shied away from the subject. Yes, such a plane would challenge the monopoly franchise enjoyed by Boeing's humpbacked giant. And yes, Boeing was studying its own alternatives. But that's about all the nation's No. 1 exporter would report.

Now, however, Boeing is sending signals that a new "superjumbo" jet is a real possibility. It has formed a special unit to study the question and has assigned its top marketing executive, John B. Hayhurst, to head up the effort. Meantime, Boeing is talking to Japan's three leading heavy manufacturers about chipping in on development of a superjumbo and other planes. At a time when the airline industry is suffering an unprecedented financial crisis, spending billions on a new project seems risky at best. But, says the 43-year-old Hayhurst, "If we believe this is a substantial market, we'll find a way to develop it."

LONG SHADOW. Boeing may have to. Airbus clearly put Boeing on the defensive in June when Managing Director Jean Pierson said the European consortium was accelerating study of a plane bigger than the 747, seating 600 to 700 passengers. Although it couldn't launch such an ambitious project until 1994 at the earliest, Pierson was aiming at Boeing's jugular. Boeing's big-plane monopoly allows it to reap margins as high as 40% to 50% on the 747-400, which lists for up to $152 million. That big edge helps Boeing compete aggressively at the lower end against Airbus, which is government-owned and funded. "It would be the first time we would be able to go after their cash cow," says John J. Leahy, Airbus' U. S. sales chief.

The superjumbo market could be lucrative, indeed. Stephen M. Wolf, chairman of United Airlines Inc., surprised Boeing in early June by publicly asking it to consider making a 650-seater for delivery by 1997 or 1998. And although American Airlines Inc. is skeptical, Boeing says many major Asian airlines have expressed desire for the plane as well. The most obvious need for a superjumbo is on heavily traveled long-distance routes, such as those across the Pacific and the North Atlantic. Congested airports in Tokyo, London, and New York cannot handle many more planes, but they could handle more passengers on bigger planes.

Still, it's an awkward time for Boeing to consider a new aircraft. The grave financial health of the airline industry is casting a long shadow over Boeing's $92.6 billion backlog. And just last October, Boeing formally launched another big project, the 777, a widebody model somewhat smaller than the 747. The 777 is gobbling up most of Boeing's $1.5 billion in research-and-development costs this year, as well as engineering and marketing time and effort. All told, it will cost Boeing at least $4 billion, sapping profits for the next few years.

STRETCHED. That's where Japan comes in. Already, Japanese manufacturers are funding 20% of the 777's total development and will build big portions of the jet's fuselage. A similar agreement for the superjumbo could help defray a development burden that might amount to $5 billion--some analysts say much more. The Japanese might ease the strain, but building a superjumbo would tax Boeing's resources all the same.

Boeing has turned up the heat in Washington in response to Airbus' market-share gains and talk of building a superjumbo. The Seattle company is lobbying to have the consortium's European subsidies declared illegal under the General Agreement on Tariffs & Trade. But the European Community is stonewalling and may yet decide to ignore any unfavorable rulings. Moreover, since Boeing also is loath to irritate state-owned European-airline customers--or Airbus suppliers in the U. S.--its best defense is a competitive product.

Hayhurst's job will be to recommend whether it would be best to modify the 747 or go with an all-new design. The 747-400 could be stretched by adding a doughnut-shaped section of fuselage to the middle of the plane, making it long enough to install 85 more seats. Or Boeing could extend the 747's hump into a full-length upper deck, making it look like a winged double-decker bus. Those two options would save money, and either could produce a plane as early as 1997. But neither alteration would add more than about 15% to 20% to the plane's capacity, and both would shorten the 747's range and fuel efficiency.

FLATTOP. An all-new plane--possibly dubbed the 787--would mean designing a new wing to solve the range and efficiency problems. Flatter on the top and rounder on the bottom, a new wing would probably be longer, thicker, and less swept-back than the current 747 model. The plane would likely use lightweight composite materials and higher-powered engines. Boeing would also load it with advanced avionics, including electronic "fly-by-wire" controls, which eliminate mechanical cables and pulleys. Like the 777, the superjumbo would be apt to have a flexible, high-tech interior heavy on amenities such as seat-back movie screens and telephones at every seat.

Leahy says Airbus would not launch a superjumbo unless it was significantly more efficient than the 747. The goal: add more seats without a corresponding increase in the amount of fuel burned. One solution the Europeans are considering involves squishing two Airbus widebodies together side-by-side. The resulting oval-shaped fuselage--curved on the side but relatively flat on the bottom and the top--would act as part of the wing itself, increasing lift. The concept, similar to that used on the space shuttle, would allow a wider body with the same length wing. Such a plane could have as many as 18 seats abreast, divided by three aisles, and still be able to squeeze into airport gates designed for the 747.

Given the huge financial commitment, both Airbus and Boeing are likely to study the superjumbo very carefully before jumping. What's certain, however, is that one day the 747 will become obsolete, and both manufacturers want to have a product ready to replace it. "This is one business segment Boeing is not going to cede to anybody," says analyst Lawrence M. Harris of Kemper Securities Group. Perhaps. But the cost of doing battle with Airbus may be as stunning as the size of the superjumbo itself.

BOEING'S SUPERJUMBO

CHALLENGE

SIZE 600-800 seats, possibly on two decks

MARKETS High-density overseas routes such as New York-Tokyo or New York-London, with focus on the Pacific

COST At least $4 billion to $5 billion, assuming a plane developed from scratch

RATIONALE To move more people between airports with increasingly limited takeoff and landing space

DATA: BWDori Jones Yang in Seattle


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