Time was when the Farnborough and Paris air shows used to be the stages on which manufacturers showcased their latest technologies. Now, the name of the game is chalking up new orders and talking up your latest strategic business initiatives.
The ritual of an afternoon flying display continues, of course, to please the crowds and to fly a few patriotic flags. But it now plays a minor role, some light relief after lunch, if you can afford the time between endless business meetings. Farnborough attendees spent more time in their chalet conference rooms than admiring the flying display from their balconies. Some even used the opportunity to brief Wall Street analysts.
Even more interesting, previous staunch rivals were in each other's chalets as much as in their own as executives negotiated how they might better run their businesses together.
Take US engine giants General Electric and Pratt & Whitney. Still competitors, for sure. But now joined at the hip by their Alliance joint venture company that is developing the GP7000 engine targeted at the Airbus A3XX and Boeing 747X. At Farnborough, it was announced that Boeing will also offer the engine on its latest version of the 767, the -400ERX, which means bringing forward the planned design completion from September to January 2001. Industry observers say the Alliance venture is indicative of the way many such heavy-investment programmes will be approached in the future. Companies are pooling resources to share the upfront capital risks and simultaneously improving the odds of being selected. In the Alliance's case, GE and P&W are now a combined force against Roll-Royce, up against one rather than two competitors.
P&W executives, meanwhile, were holding meetings with their other new-found partners. P&W's parent company, United Technologies, has joined up with Honeywell to create MyAircraft, an e-commerce marketplace. During the show, it was announced that BFGoodrich will also be a MyAircraft partner. The e-commerce venture company has since been granted European Commission approval to go ahead.
In another example of partnership strategy, P&W president Louis Chenevert joined a Farnborough line-up of senior executives from other major engine companies to affirm their long-term commitment to the International Aero Engines (IAE) joint venture company that produces the V2500 narrowbody engine. By making this statement, P&W and Rolls-Royce confirm they will not compete on future engines between 22,000 (98kN) and 33,000lb of thrust, but will instead work together in this market through their IAE partnership.
The partnership theme was in evidence everywhere at the show. Besides promoting its MyAircraft joint venture, the new Honeywell - itself a result of a merger between AlliedSignal and Honeywell - was touting its slogan 'the unlimited partnership'. BAE Systems devoted 12,000m2 (130,000ft2) to its 'partnership village' exhibit, and even then could only include some of its 47 partner companies. This was the first major show to feature EADS (European Aeronautic Defence and Space), the new European aerospace giant. Formed by the merger of Aerospatiale Matra, DaimlerChrysler, CASA and Alenia, EADS holds an 80% stake in Airbus Industrie.
But nowhere was the new strategic face of aerospace industry more apparent than at Boeing. At Farnborough six years ago, Boeing began the numbers game war with Airbus. As aircraft orders were clocked up in their thousands, the two companies became locked in what has become an annual fight, at Farnborough and Paris alternatively, to boast the largest figures in terms of announced sales.
Then came Farnborough '98. Boeing Commercial Airplane was still suffering from its annus horribilus, with an over-loaded production line that had been brought to a grinding halt. Financial reports were glowing red, and president Ron Woodard was forced to step down on the eve of the show. Even before the gates were opened, Boeing was exhausted and ill-prepared. By the end of the show, with Airbus still raking in the new orders, Boeing was on its knees.
Farnborough 2000, however, saw Boeing on top form. The company chiefs had done their homework. Knowing that Airbus would be trumpeting the A3XX, they put together a massive public relations campaign to ensure its own messages were delivered loud and clear. On some days, there were press conferences set back-to-back from morning until close of play. There were orders to be announced - for 133 aircraft valued at almost $15 billion - a glitzy satellite link to the roll-out in Seattle of the first next generation 737-900; a re-evaluated and significantly more bullish market outlook to be revealed; and the talking up of other new programmes, including the longer range 777s, the 767-400ERX and the planned 747X.
Boeing is back
Boeing's senior executive team was very visible and accessible, particularly chairman Phil Condit, who posed on numerous podia, offered up general and one-to-one briefings, and posed for photographers in the shower cubicle of his corporate Boeing Business Jet (BBJ).
But there was more to the message than just new aircraft types and new orders, or even merely playing to the crowd. Condit emphasis is on creating a 'balanced company' that is more about becoming a solutions' provider than a builder of aircraft units. "I am looking for fundamental stability in the business," says Condit. "It's about how you take something like the services business, that is not as unstable as the airline business, and incorporate it into the whole picture. The first goal is to run a healthy core business. We are absolutely dedicated to keeping our eye on the ball of the core business. But we will also leverage that core business in services, and open new frontiers with brand new things. There is an opportunity to provide more solutions to our customers based on the intellectual capital that we have within the company."
Boeing has more than doubled its estimated value for the commercial aircraft market over the next 20 years because it is including support services in the outlook for the first time. The Current Market Outlook 2000, released at Farnborough, puts the estimated total value of aircraft orders plus services during the 20-year forecast period at over $4 trillion. Services account for $2.6 trillion of that total. With Boeing owning the engineering date on 80% of the world's aircraft fleet, the company sees this market as 'a great growth opportunity'.
An example of Boeing's quest to provide more solutions is its upcoming Connexion service, for which Condit's BBJ has become a flying testbed, and which was demonstrated at Farnborough. Connexion, available from late 2001, will deliver airborne Internet, email, news and television services to subscribing passengers, who will access it from their personal laptops. "We are 17 months away from commercial airplanes being a tunnel of silence to a virtual office and entertainment centre," says Jim Albaugh, president of Boeing Space & Communications.
Boeing is also exploring possible opportunities in the air traffic control (ATC)management sector. Albaugh points out that the fundamentals of ATC remain much the same today as they were in the early days of flight. "We used to travel from bonfire to bonfire; now it's from transponder to transponder. What we need to do is move from a ground-based system to a space-based system," he says. At Boeing, we will put together the architecture for a space-based air traffic management system."
Boeing's emphasis on such 'new frontiers' and on being a broad-based solutions' company is in sharp contrast to the stance of Airbus, which is focused on its continuing sales success and, of course, on promoting the A3XX. The company scored well on both counts. Airbus took the lion's share of announced new orders in terms of both aircraft units, 238, and value - almost $19 billion.
Among those announcements were the first firm commitments for the A3XX. Emirates transferred its expression of interest for up to 12 A3XXs into a firm commitment, subject to the programme being launched. With memoranda of understanding for 22 A3XXs in place by the end of Farnborough week, Airbus is bullish that programme launch is a question of when and not if. The company has even launched a television advertising campaign in Europe which cheekily compares the A3XX with one of the Seven Wonder of the World and finds the Wonders wanting. After all, the advertisement points out, only the A3XX offers such creature comforts like a casino, a shopping mall and bedrooms. While the campaign may be successful at continuing the A3XX hype, airlines that purchase the aircraft may find themselves under pressure to offer more than just a seat and a plastic tray meal.
A3XX aside, however, Airbus will be ramping up production rates to accommodate the increasing numbers of sales of both single- and twin-aisle aircraft. Airbus chief executive Noel Forgeard says the company's order book is expected to total more than 500 aircraft by year-end. As a result, the A320 production rate will be stepped up from 22 to 30 aircraft a month, while the A330/A340 will increase from six to eight a month.
This busier production line and A3XX launch and development will clearly be the priorities for Airbus over the next few years. Ultimately, however, as the company is simultaneously restructured and increasingly answerable to the shareholder, Airbus will also need to broaden its business base to avoid the cyclical hits that have dogged this industry. But at Farnborough it was apparent that these two rival giants are being guided by different business strategies.
Regional billions
At the regional aircraft end, orders also soared into the billions of dollars. Bombardier Aerospace led the way, announcing more than $4 billion of sales, including 142 firm orders for regional aircraft. The company also launched the CRJ900 90-seater, with Air Nostrum of Spain, Brit Air of France, General Electric Capital Services of the USA and Tyrolean Airways of Austria being first customers to sign up. Bombardier's hope, by getting the CRJ900 launched now, is that it will have a two-year jump ahead of other 90-seater offerings being planned by rivals Embraer and Fairchild Dornier.
Embraer's new orders also totalled more than $4 billion, including sales of ERJ-135, -145 and -170 regional jets. Embraer also launched a longer-range version of the ERJ-145, the -145XR, with an order from Continental Express that converts 64 options and 11 firm orders for -145s to the new variant.
But the Brazilian company, which launched a business jet version of its ERJ-135 at the show, was uncharacteristically subdued in light of the final judgement confirming the World Trade Organisation's ruling that a government subsidy known as pro-ex has been used illegally in support of Embraer regional jet sales and must cease. At the end of August, negotiators were due in Brazil to lay out the more than $1 billion of sanctions that Canada - home of rival Bombardier - is entitled to levy unless suitable compensation can be agreed.
By close of play at Farnborough, new order announcements totalled more than $40 billion. Even allowing for some marketeers' liberal use of the term sale - some were subject to programme launch or simply letters of intent. This puts Farnborough 2000 in a league of its own, at least, in terms of sales.
Paris 1999, itself a record year, logged $12 billion. Whether such sums can be topped or even sustained through this new decade's major air shows is highly questionable. But at some point, the numbers game may no longer be the main purpose of such shows. Despite the impressive figures, Farnborough 2000 should ultimately be remembered as the show at which long-term strategic business plans crystallised. Perhaps a good sign for the long-term health of the industry.
Source: Airline Business