Surprise and, in some cases, relief, have greeted Boeing's sudden decision to drop its 747-500X and -600X programme. Despite signs of back-pedalling by Boeing, the airlines and engine makers appear to have been caught off-guard, although it was the carriers' indifference which put paid to the project.
Rival Airbus Industrie was equally surprised by the move, although perhaps not shocked. Boeing had reminded the European group that it had a more conservative view of the market at every opportunity in 1996. Airbus had a hand in the Boeing project's demise by accelerating its A3XX-100/200 project in late 1996. This diverted interest from virtually every major airline targeted by Boeing as potential launch candidates. Airbus was nonetheless surprised to find itself suddenly "heir apparent" to the "super-jumbo" market, even if by default.
Clearly, Boeing has not abandoned the market, and the development of an all-new aircraft to rival the A3XX is a distinct possibility. Investors were relieved by the news. Boeing stock moved up by $7.375, or around 6.9%, to $113.875 on the New York Stock Exchange . The investment community had been full of dark murmurings as the full weight of Boeing's new commitments became apparent, and the projected $7 billion development cost of the new 747 family was viewed as a huge risk in an uncertain market.
Boeing was under pressure from the weight of its new commitments. In addition to the recent acquisition of Rockwell, it had taken on the task of potentially consuming McDonnell Douglas as well as stretching itself with a mass of new development programmes. These included the continuing development and certification efforts as well as product-development studies. The workforce was stretched to the limit, with a huge orderbook backlog and the pressure of re-engineering initiatives under way at Renton, Everett and other sites. The firm had also embarked on new defence and space projects, as well as raising its commitment to such efforts as the F-22.
For Boeing, the decision seemed to be frighteningly logical. Having gone from full speed ahead in September, when it seemed certain to launch both 747 derivatives at the Farnborough air show, to dead slow by December, when airline interest had all but died, Boeing had to re-examine its strategy. Airlines were put off by the $200 million-plus price tag, but were equally worried about committing to a brand-new 465- or 550-seat trunkliner when point-to-point services with a cheaper 350-seater seemed to be the way of the future. Then there was the attractive, made-to-measure, A3XX and its promise of superior economics. "We could not make a business case for it," says Boeing Commercial vice-president, product strategy and development, Mike Bair.
"The bottom line was, it would cost a lot to build and there weren't enough people who wanted to buy it," says a Boeing engineering source. The signs could not be ignored. The pressures of other developments probably accelerated this, particularly given Boeing's sensitivity to shareholder value. By January, it decided that its stretched resources were best used elsewhere.
The effect on the 747-400 is likely to be mixed. Boeing knows that some airlines still want something larger, and with more range, so product-development studies continue. The -400 is likely to see a longer production life and its assembly line and configuration will almost certainly be updated. The most immediate beneficiaries are the 777-200X/300X and 767-400ERX product-development programmes, which receive a boost in engineering and marketing manpower. Investors are also much happier with the projected $200 million development price tag for each of these efforts.
It is a double-edged sword for the airlines, which effectively forced the situation by their intransigence in September 1996. Gone, for the moment at least, is the prospect of a high-capacity fight between Airbus and Boeing and the price war which would have resulted. On the other hand, the emergence of a wider variety of high-performance high-capacity twins is now virtually guaranteed.
For the engine makers, it is also a mixed blessing. The scramble to develop and sell the General Electric-Pratt & Whitney Engine Alliance GP7000 and Rolls-Royce Trent 900 has ceased. The pressure is not off, as Airbus is close behind, but the urgency has gone. The Alliance, however, faces some question marks. It was formed specifically for the 747-X, a US product with a tight development timescale and unique thrust requirements. The US Justice Department agreed to the union on that basis, as did the Federal Trade Commission with its eye on anti-trust issues.
Suddenly the only reason for its existence is a non-US airframe with a longer timescale. For R-R, the effect is less startling. It saw its early advantages eroded as the Alliance progressed. It is busy with other development, so the 747-X decision may give it a breather.
Airbus now stands on the threshold of a momentous decision. Should it take the plunge - or take advantage of Seattle's stand-down, save billions of dollars by forgoing the A3XX and plough its resources into bigger A340s to fight for a potentially larger market? The consortium insists that it will continue with the A3XX "-as long as market and financial conditions support a decision to go ahead".
The timescale for the project remains unchanged, with late 1998 set as the deadline for launch.
Source: Flight International
