September 20, 1999
Boeing to Proceed With Building
Bigger 747 Jet in Airbus Face Off
By JEFF COLE
Staff Reporter of THE WALL STREET JOURNAL
Boeing Co. Chairman Phil Condit expects that the company will go ahead with development of a bigger 747 jumbo jet, setting the stage for a heated fight with rival Airbus Industrie in the controversial market segment.
Mr. Condit also expects that Airbus ultimately will proceed with its own planned giant new airliner, the A-3XX, which is being proposed to major airlines. The consortium also has begun lining up low-cost loans from European governments to assist with development.
Airbus Industrie Gets Two Big Orders Valued at $3.1 Billion for New Jetliner
The statements, made during an interview, are Mr. Condit's first indication that he believes both companies will proceed with the costly projects, in a market segment where the manufacturers' assessments of future demand are strikingly different. For years, Boeing officials have spoken in very hedged terms about whether they expect either plane to be developed.
In the interview, Mr. Condit said he expects Boeing to proceed with development of its new 747 version "sometime in the next two years," a timeline that would make the jet available a year or two before the first A-3XX delivery. Boeing officials decline to discuss the development cost of the new 747, but they have indicated that the amount is likely to be a fraction of the A-3XX cost.
The list price for existing 747-400 planes ranges as high as $197 million. Airbus hopes to sell its A-3XX for $200 million each.
Risks for Both Companies
Assuming both plane makers proceed with their projects, the next few years will bring a pitched battle for sales of new "superjumbo" jets. And there are risks involved for both companies.
Airbus could suffer financially if it fails to sell enough of its planes to justify development costs of $10 billion or more. Boeing, meanwhile, risks losing its dominance of a most-profitable market share, if the new Airbus plane is particularly successful.
Boeing's existing 747-400 is by far the biggest passenger aircraft made by either company, with seats for about 400 passengers in a three-class arrangement.
Officials of the European Airbus consortium, including Managing Director Noel Forgeard, are convinced their new "A-3XX" jetliner will be in demand by carriers and will flesh out the lineup of airplane sizes they offer. The double-deck aircraft, seating 555 to 655 passengers in various versions, is expected to be formally offered to airlines next year. If enough firm orders are gathered, first deliveries would be set for 2005, according to Airbus Vice President Phillipe Jarry.
The '747-X Stretch'
Boeing previously had concluded there is insufficient demand to warrant the huge investment needed to develop an all-new jumbo jet, based on years of market studies that it conducted. But Mr. Condit said it appears there is enough demand among 747 operators to justify development of a new 747 version called the "747-X Stretch," which would carry 500 passengers more than 7,500 nautical miles. That distance, enough to fly routes such as Los Angeles to Singapore, roughly matches the range for some planned versions of the new Airbus plane.
Mr. Condit said there is a market for the Airbus plane and "they will sell some. No question about it."
Analysts say any Boeing offer of a bigger and longer-range 747 could undermine some demand for the A-3XX. Mr. Condit said Boeing's final decision won't be based on that consideration, relying instead on the finding that enough demand exists for Boeing's new variant.
A U.S. spokesman for Airbus said a new Boeing 747 could reduce demand for the consortium's jetliner, but airlines still will demand a new-technology jet to replace the basic 747 design conceived in the 1960s.
The two manufacturers have chosen distinctly differing paths because of their disparate assessments of future trends in aircraft demand.
In trans-Atlantic travel, airlines have sharply scaled back the use of 747s, favoring big two-engine planes such as the Boeing 767 and the Airbus A-340 that can be more easily filled and flown with greater frequency. Some Boeing officials believe the phenomenon, known as "fragmentation," will hold true as the trans-Pacific market matures.
Boeing forecasts that international carriers will increasingly fly routes that bypass congested "hub" airports, choosing instead to fly directly between city pairs with big 300-seat planes such as the two-engine Boeing 777 and four-engine A-340.
Airbus's Mr. Forgeard has said such fragmentation will continue, but so will expanded demand for huge passenger and cargo planes to fly between hub airports such as London or Hong Kong.
Airlines want sharp gains in operating efficiency from the new planes. For either aircraft to win orders, renewed demand for big planes from Asia must solidify. Slack demand from Asia has slowed 747 production during the past two years.