Boeing has finally joined the fray with an improved version of its venerable 747 in the next generation large widebody arena, while Airbus is pondering what to do with the flagging A340
In the game of peddling airliners, a year’s sales figures represent a chapter of the book, but are rarely the full story. Airbus is dearly hoping this year and next will not turn into a tale of woe as it formulates a strategy to revive A340 sales.
Unsurprisingly, Boeing – and quite a few analysts – believe its time has been and gone. They say the 2005 sales chapter in this size category, where Boeing’s 777 gained 154 net orders and the A340 just 12, is the beginning of the end for the Airbus four-engined jetliner. “No one will argue that the A340 is a better aircraft than the 777,” Blair Pomeroy, director and senior partner of Mercer Management Consulting, told the recent Airline Business Network conference in San Antonio.
“The A340 is going out of favour,” says Randy Baseler, Boeing’s marketing guru. He asserts that with the A340 burning 20% more kerosene than the Boeing model, this is no surprise considering the high price of fuel. Airbus will not be drawn into a tit-for-tat battle on the relative fuel burn of the A340 against the 777, preferring to be judged by what airlines say about performance. “The A340-600 is still a very competitive aircraft,” says Alan Pardoe, Airbus head of long-range programmes.
“Globally, in cash operating costs, it is the other guy that has been chasing us,” he says. “The A340-600 has always had the advantage over the 777.” However, he concedes that “Boeing has managed to close much of the gap in performance over the past year”, although “the 777-300ER in a global performance sense still has not caught up with the A340-600 high-gross-weight [HGW] variant”. The first variant of this longer-range A340 model will be delivered to Qatar Airways this year.
In public, carriers tend not to be too scathing about their aircraft, even if they are performing poorly, but in private the A340-600 has taken a beating. Boeing’s Baseler believes one of the reasons for the 777’s popularity is its “endorsement by certain airlines”, while “engine problems on the A340-500 and -600 have played a lot. That kind of thing gets round the industry big time.” Other reasons for the surge in 777 sales are that Boeing has become more price-competitive as it shares production efficiencies by lowering prices. Even so, the book price of $240 million for the 777 is still considerably more than the average price of $217 million for the A340-600. In addition, the fuel consumption advantage of the twin over the four-engined aircraft has come to the fore. “The fuel price woke everyone up,” says Baseler.
Simple strategy
In the 200- to 400-seat aircraft category, Boeing believes its strategy, based around two aircraft types – the 787 and 777 – looks simple and efficient. The crucial point perhaps is that both are twins. At the Farnborough air show in 2004, Airbus made a big play of the advantages of its four-engined A340, in both safety and performance terms, for long-haul routes. “This is a red herring as far as we are concerned, and we were quite surprised Airbus did that campaign,” says a senior airline fleet planner. “The general trend is towards twins when it is doable. They tend to have an operating cost advantage.”
The A340 was then on parity in sales terms with the 777 after having beaten it for orders in 2003. Now the tables are turned, and Airbus has launched its own long-range twin in the shape of the A350 to take on the 787. “There are two decisions they’ve made that have put them in a difficult position,” believes Baseler. “Firstly, their market view that led them to develop the A380 while we went with the 787 has allowed us to gain a leap,” he says. Secondly, the A340-600 was launched as a four-engined aircraft. “Why they didn’t make the A340-500 and -600 as twins I don’t know – it has put them in a big dilemma.”
That dilemma is what to do with the airliner next, if anything. Airbus says it will not be rushed after just one slow year. “The fact that the A340 had a soft year is not a particular cause for concern,” says Pardoe. “If we had a few soft years then it would be. We were less concerned with the A340, and it was not the result we expected.” Moreover, adds Pardoe, it is “fair to say Boeing did win some [777] campaigns that were packaged with the 787, so it is difficult to say it is the 777 coming of age.”
In this size category, the basic assertion of Airbus is still the same: it offers a series of aircraft, some twins and some quads. What has changed is that the twins have been getting closer to the quads in range, says Pardoe. And, he believes, there is a future for quads in the long-range market. “Why is Boeing promoting the 747-8 if not?” he asks.
An enhanced A340
There is nothing official from Airbus yet, but it is known to have offered a major upgraded version of the A340-600 in some campaigns. Baseler says that it was up against this aircraft in the recent competition at Cathay Pacific, which was won by the 777. As proposed, the A340-600 Enhanced could take various structural improvements from the A350 and most critically the next-generation Trent 1000 engines being developed for the A350 and 787. These upgrades mean it “would get to within 6% of the fuel consumption difference of the 777”, says Baseler.
Emirates, which launched the A340-600 HGW, is deferring delivery of its first of 12 aircraft from mid-2007 until late 2009 because of the prospect of a better aircraft coming along. “Our order is intact, but we’ve said to Airbus ‘let’s agree to defer until you know what you are going to do with the enhanced model’,” Emirates president Tim Clark told Airline Business sister publication Flight International. “We’ve told Airbus that we don’t want to take the [-600HGW] and then be leapfrogged by something that is a bit better.”
But Airbus is far from sure that it will take this step. “At present we are busy certifying the high gross weight aircraft,” says Pardoe. “Then we will look beyond that at what we might do to meet the challenges of the future, for example the fuel price. Our preferred option is to understand what the market wants us to do.”
From this year, a new sales picture may begin to emerge, with carriers going large with the A380 or opting for the mid-sized A350, or having a mix of the two, says Pardoe. “This may polarise the market, which we will have to take into account when we think about what to do with the A340-600.” Another consideration is that in the 350-seater market most carriers have made their choice either for the -600 or the 777.
In the short term, Airbus will have to resort to aggressive discounting to sell the two to three A340s a month it now manufactures. It has a backlog of just over 70 A340s, representing three years of production. In addition, its head of sales, John Leahy, told Flight that the A340-600’s single-digit fuel burn penalty over the 777-300ER can be “traded off” through financial compensation to operators. According to Mercer’s Pomeroy: “Until the A350 comes around Airbus needs something to keep with the 777. That something is a huge discount on the gas-guzzling A340.”
Airbus seems to have a tricky decision on whether to spend billions on enhancing the A340-600 when the market may not be all that large, or risk falling further behind its rival. As the airline fleet planner says: “Airbus has no choice but to develop the aircraft until it becomes competitive again.”
Boeing launches new 747
As Airbus figures out what to do with the A340, after years of study Boeing has finally committed to an improved version of the 747-400. In a remarkable move, it launched the aircraft in November with firm orders for 18 of the stretched aircraft from all-cargo operators Cargolux and Nippon Cargo Airlines. This was the first time the US manufacturer has launched such a large programme based purely on orders for a cargo version. But it is confident launch orders for the passenger version will be signed this year.
For Cargolux chief executive Ulrich Ogiermann, who is a loyal Boeing customer, the deal is a sign of the rising stature of his carrier. “I’m happy about Boeing having accepted us as a launch customer,” he says. The move also recognises that “cargo is a very clearly segregated business model and is becoming a really serious industry that is not a byproduct driven by the needs of the passenger business”.
Cargolux has been encouraging Boeing to develop an improvement on the 747-400. “We had clearly specified demands for what a new-generation aircraft should be, and the performance of the 747-8 came very close to what we expected,” says Ogiermann. In the past Boeing had baulked at launching a new large airliner based on the 747-400. “The gap in performance compared with the 747-400 was never really strong enough to make the step,” he says.
What made all the difference was the new generation of engines being developed for the 787. “This is what made this all possible,” says Baseler, while the new composite wing also brings a lot of efficiencies. In performance terms, Ogiermann says the 747-8 promises cargo operators a payload boost of 16% and a fuel burn improvement of 16%. “That is quite a step,” he says.
Boeing is “targeting the aircraft at the traditional 747 market, not as a nose-to-nose competitor to the A380”, says Baseler. It sees a market for aircraft of 747-size and above of about 900 units over the next 20 years, significantly lower than the 1,250 Airbus predicts will be sold. Baseler sees sales of 300 aircraft in the 550-seat and above category over the next 20 years.
Carriers are pleased that Boeing has made the plunge with a stretched 747. “We’ve been encouraging Boeing to come up with a response and been reasonably clear that we eventually need an aircraft at least as big as the 747 and possibly bigger,” says the airline fleet planner, whose carrier operates a substantial fleet of 747-400s. “As and when we come to replace our 747-400s, which we don’t wish to replace with a smaller aircraft, there was only one game in town [the A380]. We always seek to avoid only having one choice.”
That choice in this aircraft category is now to go large with the 747-8 or even larger with the A380. Airbus argues that the A380 offers current 747 operators the chance to keep up with traffic growth. “Carriers that choose the 747-8 are risking almost instant obsolescence at the point of market entry,” says Thomas Burger, A380 product marketing manager. The 747-8 will seat 450 passengers in a typical three-class cabin layout compared with 416 passengers on the 747-400, while the A380 can seat up to 550 people in a similar configuration although most carriers are opting for around 500. The addition of just 34 seats “is going to be eaten up in two years of growth”, says Burger.
Moreover, Airbus believes the next generation of lie-flat business-class seats will eat up even more precious cabin real estate. On an A380 the use of such seats in a three-class layout gives a head count of 480 passengers, whereas the 747-8 will come down to 378 seats, says Burger. “The A380’s flexibility comes through in being able to reach to new standards in seating products,” he says.
Lower risk
The counterpoint to this argument, says Boeing, is that the 747-8 will offer significantly lower market risk. “If you have a downturn, smaller aircraft are always less risky,” says Baseler. “We are somewhat cautious on an aircraft as big as the A380 and having the option of a slightly smaller size is of some interest to us,” says the airline fleet planner. “Clearly as a buying decision an aircraft at the extreme has to be a higher risk decision than buying something that is closer to the centre of gravity of deployment.” However, “in terms of a large aircraft we would regard the 747-8 and the A380 as both being competitive and both are of interest.”
For Boeing’s Baseler, the launch of the 747-8 neatly advances his marketing picture, giving the manufacturer a competitor in the large aircraft game. That advance can be taken without a gap in production between the 747-400 and the 747-8. That prospect was a major headache for Boeing. Pain relief has come from the recent glut of 747-400 Freighter orders. These are a godsend for Boeing because they become a production bridge between the cessation of -400 output and the beginning of 747-8 deliveries in late 2009. “There is no valley of death,” jokes Baseler.
As Boeing’s widebody product line takes on a solid look for the next few years, the attention will turn to the next move from Airbus. It is coming under pressure to develop the A340 at the same as it brings its most ambitious ever project, the A380, to market. As with the development of the A350 in response to the 787, and the possible need to improve the A340, the European manufacturer is the one playing catch up for a change. ■
MARK PILLING / LONDON
Source: Airline Business
