Power game

Boeing's engine decision on the 7E7 holds major implications for the engine sector

Industry pundits are likely to look back at April 2004 as the pivotal period over which the balance of power in the multi-billion dollar commercial aero engine business was decided for the rest of this decade and possibly beyond. The upcoming milestone, of course, is Boeing's long-awaited decision over which engine makers will power the 7E7 and, just as importantly for the rest of the industry, which one of the 'big three' will not. That is now expected in a matter of weeks, with Easter being talked of as the latest likely date.

Although Boeing insists that its preferred sole-source powerplant option is the ideal business model for the 7E7, the chances are that it will steer towards the dual-source path as much to please the customers as anyone else. Few at Boeing can forget the airline furore over its decision in 2000 to give General Electric (GE) exclusivity on its future 777 longer-range derivatives - even though that arrangement has almost certainly reduced cost, most crucially in terms of programme certification and development.

The much broader market potential of the 7E7, and the greater mix of probable customers with their varying equipment supplier loyalties, also makes it uncertain whether Boeing will go for a single engine supplier.

The dual-source path

Nonetheless, GE has argued all along that exclusivity is the way of the future and is believed to have made a "best and final" bid in early March. However, as 7E7 programme senior vice-president Mike Bair said in the run up to the final downselect in mid-April "...we continue to lean towards dual-sourcing the engine".

So what does the 7E7 mean to the winners and the loser, and what are the broader implications for the engine business? For GE, winning the 7E7 would clearly provide it with a secure successor to the redoubtable CF6 family as well as a related technology stablemate to the GE90. Such a deal would cement the "preferred supplier" image fostered with Boeing through the single-source deal on the 777-200LR and -300ER variants, as well, of course, as its positioning on the 737 Next Generation, which again emerged equipped only with CFM56 powerplants from the GE-Snecma CFM International collaboration.

GE sought to formalise the de facto marriage with Boeing on the 737 when Jack Welch and Phil Condit, the then respective corporate heads, launched the Boeing Business Jet joint venture in 1996. Both leaders have since gone, but the legacy of the deal continues to exert a big influence - as witnessed by the 777 derivative deal in 2000 - as does the powerful background presence of the GE Capital financing and leasing arm.

To Pratt & Whitney (P&W) it is a different story. The beleaguered engine maker, once the mightiest name in the powerplant world, looks to the 7E7 as a competition it has to win. Although sales of its bigger PW4000 family trickle in for the larger Boeing and Airbus dual-aisle products, the rate is nothing compared to a decade ago.

P&W may still be a major force in the civil and military engine market, but its star has been waning. Revenues of $7.5 billion last year arguably now put it behind the R-R group and well below the $11 billion posted by GE Aircraft Engines with its leading position in maintenance and overhaul. Historically the centrepiece for its parent United Technologies, P&W is now smaller than the conglomerate's Carrier air conditioning business and last year slipped below the Otis elevator unit too. In the civil business, it is third in all the major market share battles.

More than ever, P&W needs to inject new life into its civil product line with a fresh engine. To ensure a competitive position on the only other new large commercial programme, the Airbus A380, it sought a marriage of convenience with arch-rival GE to establish the GE-P&W Engine Alliance. Not surprisingly given its two parent companies, this programme already appears to be a success, with big orders in the bag from customers such as Emirates and the first engine run taking place at P&W's Florida test site.But elsewhere P&W has still hankered to go it alone as it did in the past. Although a long-term partner on the successful International Aero Engines (IAE) consortium, with Rolls-Royce (R-R) and MTU among others, P&W was reluctant to see the consortium stray beyond its core V2500 offering for the A320 family. Instead, five years ago it launched its own PW6000 in the thrust class immediately below the IAE engine, but it failed to make an impact.

Growing collaboration

Behind the scenes, however, there now appears to be a growing urgency to set the ship straight. P&W has gone almost full circle by moving final assembly of the PW6000 engine for the A318 to MTU in Germany. Although, in reality, final assembly represents little more than 5% of the final value of the engine, it is a move that would have been unthinkable in former years and does appear to provide tacit acknowledgement of the new sense of realpolitik at the company. P&W knows that if it has any chance of getting its PW6000 engines on more A318s, it must have more European content.

The troubled PW6000 development story, so symptomatic of P&W's last decade, illustrates at least two positive factors that Boeing has considered during the engine selection process for the 7E7. Although a far different animal, P&W's PW-EXX proposal takes many lessons learned from the bitter PW6000 experience. This showed that no matter what the hurdles, the engine maker continues to be resolute in continuing development and, secondly, is prepared to take dramatic risks and surprising moves to change the game.

R-R, on the other hand, seems to be adopting a conservative, low-risk approach to the 7E7 campaign. This suits its purpose, although it belies the underlying urgency of securing a much-needed place on the new Boeing. The UK engine maker comes to the 7E7 effort on the back of a decade of unprecedented growth and market penetration with its Trent family development strategy. Although insiders admit that, in the early days at least, this was more by good luck than planning, the result is a portfolio that has variants in development or production for the Airbus A330, A340, A380 and 777 families.

A win on the 7E7 would give R-R the platform to launch a new Trent family member, a successor to the ageing RB211-524 and a viable powerplant for Boeing's proposed 747 Advanced project. That project is currently planned to follow the 7E7. It may also spin off a lower thrust three-shaft derivative to succeed the RB211-535 which this year loses its main application with the closing of the 757 production line.

R-R is more exposed in this area than P&W, which retains strong product strength in the thrust bracket through the military F117 derivative which powers Boeing's C-17 transport. Recent US Air Force airlift requirement revisions suggest demand for this four-engined aircraft may soon be increased to almost 230 units, representing a solid production base for P&W through the bulk of this decade. Another military lifeline for the large commercial engine business is Boeing's recent selection of the PW4000 as the standard powerplant for all domestic and international tanker variants of the 767.

Although a vulnerable programme, the USAF urgently requires a new tanker and Boeing's decision ensures that P&W is in the starting blocks to supply engines for up to 100 aircraft should the US government approve the long-delayed tanker deal. In the short term, the engine selection allowed Boeing to complete the airframes currently moving through the Everett assembly line in anticipation of a contract award.

Beyond this, a further military wildcard for both R-R and P&W is the persistent prospect of a B-52 re-engining programme with the RB211-535 and PW2000 respectively.

Lower-thrust focus

Even as the 7E7 question nears resolution, attention is turning towards the next generation of lower-thrust engines in the CFM56/V2500 category and below. GE and Snecma's Tech56 initiative has prepared the groundwork for a CFM56 successor while IAE is planning a counter-offensive with a V2500 successor. Both are aimed at follow-on projects to the 737 and A320 families, now in their respective early planning stages. R-R is also busy defining a coherent twin-shaft strategy through R-R Deutschland interests that will cover the entire range from 7,000lb (30kN) of thrust to beyond 30,000lb. A new demonstrator could spawn a family of engines to succeed everything from the AE3007 to the BR700, and possibly even the V2500 itself.

Pratt & Whitney Canada, meanwhile, continues development of the PW800 which embraces the much-vaunted geared fan technology of big Pratt engines. With this it hopes to provide the growing regional jet population with an advanced alternative to anything being offered by R-R, or for that matter GE, including any potential variant of its popular CF34.

GE, on the other hand, shows no sign of letting its guard drop in any thrust bracket. That point was proved by its unexpected strategic tie-up with Honda over the development of small engines for the emerging wave of "mini-jets" and air-taxi concepts. The link is as tactical as it is strategic, representing both an important inroad to the mini-jet world, as well as vital marketing leverage in Japan for larger competitions like the 7E7.

Above all, the move signals just how tall the commercial realities now loom. Many of the old certainties are dead and dying as each of the big three powerplant makers attempts to make it through the lean years of the downturn.

Engine maker year-end financial results - 2003
Group	Unit	Revenues		Operating result		Operating margin
		$ million	change	2003	2002	2003	2002
General Electric	Aircraft Engines Group	10,703	-3.9%	2,148	2,060	20.1%	18.5%
		134,187	1.5%	20,124	18,764	15.0%	14.2%
United Technologies	Pratt & Whitney Group	7,505	-1.8%	1,125	1,282	15.0%	16.8%
		31,034	10.0%	3,845	3,657	12.4%	13.0%
Rolls-Royce	Civil aerospace Defence Group	4,064	-1.6%	198	226	4.9%	5.5%
		2,109	1.6%	222	276	10.5%	13.3%
		8,515	-2.5%	566	546	6.6%	6.3%
All powerplant units		26,723	-2.9%	3,839	3,888	14.4%	14.1%
Note: Rolls-Royce Group includes Marine and Energy businesses but all counted as powerplant. GE includes aftermarket business.

Source: Airline Business