Boeing has a huge amount riding on its vision of getting a new mid-sized widebody spanning the 200-300 seater market off the ground
This should be the year that Boeing's dream of inventing a new mid-sized airliner comes true. That vision - the super efficient 7E7 Dreamliner - is a pivotal project for the US manufacturer.
It would be overstating the case to say that Boeing's future in commercial aircraft manufacturing rests on the 7E7, but the stakes are high, and with reverberations well outside Chicago or Seattle. A huge supplier base is clamouring to be on board an aircraft that is seeking to create new performance standards in the 200-300 seat airliner category.
Carriers too are keen to see Boeing re-enter the fray with an airliner that offers a step change from the late-1970s technology on offer in the shape of both the discontinued 757 and slow-selling 767. The last thing they want is a one horse race as Boeing is left behind by younger technology from Toulouse.
If Boeing's recent history in launching widebody aircraft is anything to go by, then October would be the month to watch. The 747-400 was launched that month in 1985 by Northwest Airlines, while United signed up to launch the 777 in October 1990. The 14-year gap between the much-anticipated launch of the 7E7 and the 777 is the longest the manufacturer has ever waited to commit to a new widebody. It beats by two years the wait between the original 747, launched in 1966, and its second widebody, the 767, which was given the green light in 1978.
Boeing is hoping, however, that it will not have to wait until October to announce the full launch of the 7E7. Its sales teams are knocking on boardroom doors from Asia to Europe and the USA with the aim of tying down launch orders well before then.
The company had hoped to launch the 7E7 at the tail end of 2003, but firm commitments from Japan Airlines (JAL) and All Nippon Airways (ANA) in particular failed to materialise, and it had to settle for board approval for authority to offer the aircraft.
Japanese carriers are expected to be among the first to put pen to paper this year. Orders from Japan are highly likely, as the industrial ties between Boeing and Japan's aerospace industry are tighter than ever before on the 7E7. Japanese manufacturers will end up with an overall 35% share of the project, up from the 21% they took in the 777. As Bob Leduc, president of commercial engines at Pratt & Whitney (P&W), which is competing to power the 7E7, observes: "Nobody should underestimate the Boeing relationship in Japan - it is very special."
Both Japanese majors have a requirement for mid-sized aircraft over the next few years. JAL will be looking to replace its high cycling and ageing fleet of A300s in 2007/8, says Leduc, while ANA is looking at 200-300 seaters to replace and augment its large 767 fleet.
Asian opportunities
Boeing sees Asia's fast-recovering markets offering some of the best chances to capture early 7E7 commitments. "With the opportunity to present the 7E7 to Asia's airlines, I am optimistic about what we will do this year," says Larry Dickenson, Boeing's senior vice-president of Asia-Pacific sales. "The response to the aircraft by our customers has been really gratifying - they see it as a giant leap forward."
Boeing says it is working with over 50 airlines around the world to understand their requirements and to share in the development of the 7E7. It believes there is a buzz around the aircraft. "The interest in the 7E7 is definitely mounting," says John Feren, 7E7 vice-president-sales, marketing & in-service support.
In the absence of orders, Boeing illustrated this interest by announcing that Emirates is keen on the 7E7. It took the unusual step of issuing a press statement following a briefing to Emirates executives on the aircraft in late February. "As one of the world's leading airlines, we are excited about Emirates working with Boeing to help define the product version that would work best with Emirates' business model," says Feren.
"Emirates is working closely with Boeing on the 7E7 programme just as we did during the development stages of the 777," says Sheikh Ahmed bin Saeed Al Maktoum, chairman of Emirates. "We see a strong possibility of the 7E7 becoming a part of the Emirates fleet."
British Airways has also been looking at the potential for the 7E7 and chief executive Rod Eddington had been among the more vocal in calling for Boeing to trade the promised speed of the Sonic Cruiser for gains in unit cost in a new mid-sized offering.
However, Eddington effectively rules out an early order from BA. He points out that the airline is not in a hurry to add new capacity or to raise its debt levels and neither does it have to make a quick decision on retiring the 767 fleet for which the 7E7 would primarily be a replacement. "The 7E7 is part of a broader debate about the future shape of the fleet at BA," he says, adding that in any case, BA would not be interested in the baseline 7E7 but the stretch expected to emerge a couple of years later."We don't need to make a quick decision and we should take advantage of the time we have," says Eddington. Although the 7E7 is in the frame as a 767 replacement, other options include the Airbus A330 or indeed taking more 777s and deliberately misusing them in order to make the most of a single fleet type.
Such pronouncements are good publicity for Boeing as carriers begin to see a more concrete definition of the 7E7. There will be three versions: baseline, short-range and stretched. The baseline aircraft and the short-range version will share the same fuselage length of 56m (182ft), although the short-range version will have a smaller wingspan. The stretched 7E7 will be 62m (203ft) long with a wingspan of 59m.
Boeing is aiming for the first 7E7 to enter service in 2008. The version that comes first will depend on whether the launch customer orders the short-range or the baseline aircraft. Contrary to some suggestions, it is highly unlikely that the stretch version of the aircraft will come before the shorter models, says Feren.
As the launch of the 7E7 edges ever closer, Boeing has consistently been advocating its view that it is what the industry wants: an efficient mid-sized cruiser that will carry 200-250 passengers on long-range routes bypassing congested hubs. Customer requests for even more range have prompted Boeing to boost the range of the baseline 7E7 to 15,700km (8,500nm), up from the original 14,400km.
Opening up possibilities
The baseline 7E7 would be able to carry 200 passengers in a three-class configuration on long-haul routes, says Thomas Waggener, director of 7E7 marketing. The short-range model could carry 300 passengers in a two-class configuration on routes up to 6,500km. With such performance, the short-range aircraft will have the capability of serving just about any intra-Asian market, says Dickenson. "There are lots of regional possibilities for the 7E7SR in Japan, China and Australia," he says. The baseline and stretched 7E7 offer carriers the ability to open up new routes, or increase frequencies, on services from the USA and Europe through to Asia, he adds.
At this early stage, Boeing's predictions for the 7E7 market remain general. Overall, it expects there will be a demand for 3,500 aircraft in the 7E7 class over the next 20 years. Feren notes that the market for the baseline and stretch 7E7 is probably twice that of the short-range model. In total, the value of this market is estimated at $400 billion including aircraft sales, training, spares and support.
Market optimism
As it sits squarely within the largest widebody market segment, P&W is optimistic about the 7E7's prospects in the 200-250 seat category, says Leduc. "We feel confident the market size is easily 1,900 aircraft," he says. P&W's official 20-year forecast for the size of the 210-250 seater market is 2,100 aircraft. Of these, some 950 will be replacements with 1,150 aircraft to cope with growth.
At the recent Asian Aerospace show in Singapore, Boeing's Dickenson said that the replacement market in Asia alone for Airbus A300/310/330s as well as Boeing 767s and MD-11s over this period is greater than 400 aircraft.
In effect, Boeing is tilting the 7E7 at two markets requirements and replacing two of its own family in the process - the 757 and 767. Designed to counter the Airbus A300/310 pairing, the 757 and 767 were optimised for shorter and longer-haul markets respectively. In turn, Airbus responded with a stretch of the A320 to take on the 757 and launched the A330-200 in the 250-seat category to compete against the 767.
For its part, Airbus questions whether the 7E7 will be able to do both jobs. It points to the compromises required to the basic design of the airframe and warns of fuel-burn penalties. In particular there has been a focus on whether Boeing will have to develop a different wing for the short-range and baseline models.
"At the conceptual level we are designing a basic wing," says Feren. "It is not akin to designing two wings. There is one development programme with wingspan differences and some changes in weight to accomplish the right optimisation for the mission."
As Boeing presses ahead with the 7E7, Airbus has, at least officially, played down any concern about its arch rival's latest dream. "I'm about as concerned with the 7E7 as I was about the Sonic Cruiser," said Airbus chief commercial officer John Leahy at Asian Aerospace, referring back to Boeing's pre-7E7 airliner proposal.
Airbus believes its A330-200, which only began entering service in 1998, sets the standard in its category. "The A330 is the one they are trying to compete with," says Leahy. "When all is said and done, you will see an aircraft that looks very similar to the A330-200 but it won't have much of an impact."
For Airbus, one of the main questions is whether airlines really want a smaller market fragmentation aircraft, and if so, how big is that market? It argues that fragmentation is already occurring with carriers using the A340 or 777 for long-haul hub bypass service.
In addition, Airbus believes that some markets that traditionally order 200-250 seaters may already be well into their replacement phases or looking at smaller types. It notes that a variety of charter carriers, particularly in Europe, have already opted for the A330 to replace 767s. In North America, several carriers have moved to single-aisle narrowbodies instead of 767-size widebodies to develop higher-frequency service.
Although in public Airbus very much sticks to the line that the A330 already fits the bill in its size category, it has been talking to carriers about enhancing the aircraft to respond to the 7E7. Airbus has already said it could develop an A330 with a 7E7-type engine to enable it to take advantage of technical gains on the promised new powerplants.
Its main point is that the A330-200 is a young member of the family and is not scheduled for major updating for several years. Moreover, the manufacturer's design team is engaged upon the monumental task of developing the A380.
But if Boeing does change the game with the 7E7, and achieve the 20% less fuel per passenger promise, Airbus will surely be obliged to follow suit. Airbus believes this remains a big if, but is nonetheless studying the options. Its initial thoughts centre on a new short-range airliner in the 200-250 seat category - dubbed the A30X - to replace the A300. This aircraft would be optimised for stage lengths of 1,000nm (1,850km), launched around the end of this decade and entering into service in 2014-15.
The sharpening competitive edge between Airbus and Boeing in the mid-size aircraft category will not be restricted to technological advances. Boeing is seeking to push the boundaries on how the 7E7 is financed, supported and priced too.
Speaking at Asian Aerospace in February, Randy Baseler, Boeing's vice-president of marketing, revealed that the 7E7 will be offered at a price that compares favourably with today's mid-sized widebodies. He said that the catalogue price of the aircraft will be "in the ball park" of the 767-300ER. Boeing lists this as $115.5-127.5 million. In comparison, the A330-200 has a list price of $139.6-145.5 million.
Pricing philosophy
Boeing's 7E7 pricing philosophy shows that it is "recognising what is needed in the marketplace", says Waggener. Traditionally, a manufacturer adds a price premium to a new airliner that offers a performance increase, he says. In today's tough business climate, carriers asked Boeing to think again. For Boeing, the decision was to find a "balance between whether to sell a few airplanes at a high price or a lot at a low price," says Waggener.
Bringing the basic price of the 7E7 down is one focus for Boeing. Another is making the aircraft as attractive as possible to the financial community as well as to operators. "Our global mission is to attract capital to an airplane that is relatively standard and has compelling economics so that it used by a broad base of operators," says Feren.
This has led Boeing to discuss the 7E7 in a level of detail never before seen by the financial world on a new aircraft programme. Boeing's main conclusion from these consultations is that the assets have to be more flexible and more easily bought and sold than ever before, says Feren. "This means the 7E7 should be a highly standardised, less complex aircraft with a common maintenance programme. Operators are more than willing to live with a general market standard aircraft."
A major component in this effort is to design the aircraft so that any of the engine choices for the 7E7 can be mounted on any airframe, says Feren. Boeing is considering proposals from GE, P&W and Rolls-Royce for 7E7 engines, and it appears likely that two suppliers will be selected. The financial community prefers a sole engine supplier, which would make the aircraft an extremely liquid asset, but Boeing recognises that operators want a choice.
"The introduction of bolt-on engines will help tremendously with the liquidity of individual aircraft, and reduces the risk to the financial community," says Bert van Leeuwen, senior vice-president and head of aviation industry research at Germany's DVB Bank, one of those being consulted by Boeing. "One engine choice is preferred from the remarketing point of view so you lose the risk of financing the wrong engine. The modular engine concept solves that to some extent."
Early consultations with financiers "opens up opportunities to build in certain provisions into the aircraft that may not cost that much," says van Leeuwen. For instance, a system to automatically monitor the maintenance, modification and repair history of the aircraft would mean banks could track the value of their asset on a continuous basis, he says.
Standard maintenance
Boeing's vision of standardising the maintenance regime of the 7E7 is also important. "It is very welcome, lowering significantly the transfer costs between airlines," says van Leeuwen.
But Boeing aims to go much further than this. By the end of this year it will begin giving details on a total support programme for the 7E7. This will take the burden of maintenance, training and support from those operators that want such a comprehensive package, says Marty Bentrott, vice-president services, sales & marketing at Boeing Commercial Aviation Services.
"This is especially attractive in view of the growth of low-cost carriers that are more interested in paying a monthly fee for operating the aircraft," he says, rather than the carrier investing in its own support infrastructure. The advent of the 7E7 is enabling Boeing to bring aircraft support into the philosophy of looking afresh at all aspects of the business model for the aircraft.
Boeing is in early talks with potential partners on the support front, says Bentrott. These talks have encompassed existing maintenance operators and airlines. Its concept is to have support centres around the globe, with one in Asia and Europe, another possibly in the Middle East and at least one in the USA, depending on the number of 7E7s sold, he says.
Although Boeing will not perform the hands-on labour side of aircraft maintenance, the strategy does offer the "opportunity for Boeing to end up with a downstream services business tied to this new product that we haven't had previously", says Bentrott. Boeing recognises that there will also be plenty of carriers that will take a more traditional route to support the 7E7. "It is important to give customers a choice - in the end what we offer has to be cost-competitive," he says.
As Boeing's aftermarket concept shows, the 7E7 has allowed the manufacturer to review its business model on how to design, build and support aircraft across the board. The implications of the 7E7's launch will spread further to its existing portfolio, and especially the 767, which had an order backlog of 25 aircraft at the end of February, and is coming to a natural production sunset. Boeing's Aircraft Trading arm is already preparing the ground to remarket 767s traded in for 7E7s as the new aircraft are delivered.
The arrival of the 7E7 also hastens the move of the 767 into the freighter market. "We were looking at 2008 as the best time period for the 767 passenger-to-freight conversion market, but recently we have been seeing some of that demand moving forward as airlines want to make room for the 7E7," says Bentrott. Boeing's dream is that plenty of airlines will soon be stepping forward to do just this.
REPORT BY MARK PILLING IN LONDON AND SINGAPORE
Source: Airline Business
