It is a nightmare scenario for any company. Immense production problems are overcome at huge expense, just in time for the market to collapse. For Boeing, the timing could hardly be worse. As quickly as the company's production recovery takes effect, the deepening impact of the Asian economic crisis starts to catch up on some of its most important customers.
But where will the biggest impact be felt? With Wall Street's notorious fixation on short term fortunes, it is relatively easy to lose sight of the longer term implications of the production cuts and heavy layoffs. The biggest question marks may not hang over how many aircraft will be delivered in 2001, but what new projects vital for the long term health of Boeing will be delayed - or possibly cancelled altogether.
The largest question looms over the 747, the company's biggest single money maker. Developed by Boeing while in the midst of financial crisis in the mid-1960s, and launched on the market in the early 1970s during the onset of the world's first major oil embargoes, the 747 went on to become Boeing's vital cash cow. The gamble to "bet the company" on the 747 has more than paid off, providing the financial launch platform for two generations of single and twin-aisle products. However, if 747 production drops to one per month in early 2000, income falls with it. This revenue source helps fund research and development that is needed to support new generations of the 747, or even a successor.
Of course, Boeing still questions whether there is a need for another 747. It developed the 777-300 to replace much of the 747 "Classic" market, and there is still no direct competitor to the 747-400 despite its growing vintage. The biggest threat comes from Airbus Industrie, which continues to exude confidence in its proposed 480-660-seat A3XX family, despite the rhetoric from Boeing over market size and the collapse of the Asian economies around which so much of the A3XX market would depend.
The question now being posed by many is: will Airbus now further delay the A3XX in response to the same softening of the market that has affected 747 production, or will it surge on with development to take advantage of Boeing's predicament?
At one point Boeing had hoped that demand from European and North American customers would prop-up the slump in Asia, but the reverse has been true. British Airways has been a long term bastion of the 747 with 80 in service, including 50 -400s, but the airline's chief executive, Bob Ayling, points out that long haul aircraft "...are getting decisively smaller, not bigger. BA's recent order was for smaller 777s, rather than 747s."Ayling says that deregulation has enabled frequencies to be increased, meaning that better schedules and smaller aircraft are required.
Airbus has apparently escaped the worst of the market swings that have bedevilled Boeing and its production strategy. It could therefore see the present trend as a golden opportunity to seize the initiative. Decisions over the 747-X proposals, ranging from weight increases and trailing edge wedges, to wing root plugs and fuselage stretches, have already been delayed by up to six months, and now look like slipping even further to the right as a result of the rate reductions.
Airbus, on the other hand, could launch the A3XX and time its availability to coincide with the recovery of the Asian market. Boeing president Harry Stonecipher says "we think its between two and five years away, we hope its three". Boeing, some say, had the same opportunity to hit the market at the right time with the 747-500X and-600X derivatives had it not cancelled the effort in early 1997. However, there is probably not a single Boeing senior executive who - with hindsight - would argue with the wisdom of the programme's surprise cancellation.
It is not just the future of the 747, but of all the widebody products that are of vital importance to Boeing's future. Production of narrowbodied aircraft provides steady income, particularly the high margin, mature 737 "Classics" and 757-200 programmes. However, the production and development problems of the Next Generation 737 (with its associated 800 break-even figure) means the real money makers that transform Boeing's balance sheet are the 747, 767 and ultimately, the 777. The long term focus is therefore fixed on advanced developments at Everett where the twin-aisle programmes are based.
The 747-X, 767-400ER growth and 777-200X/300X studies are in "status quo" says Boeing. "Things are changing every day, but we have not made a decision to slow research on any of them" adds the company. Speeding up any of them seems highly unlikely, however, and the time for key decisions could be fast approaching. The company also points out that the future of its twin-aisle developments is not wholly dependent on Asian carriers. "There are other carriers out there too. There are some, like the "big four" US airlines, that might need them before the Asian carriers do" adds Boeing.
The real key to Boeing's fortunes is therefore likely to depend on whether the Asian flu spreads to Europe and the Americas. Having adopted the "better plan" for making its aircraft, the company now, more than ever, needs a semi-healthy market to sell them in.
Source: Flight International
