Battle of the Middleweights

Last summer, 787 VP and GM Mike Bair talked of a "land rush" of airline orders and, along with Boeing Commercial Airplanes President and CEO Alan Mulally, repeatedly predicted that more that 200 787 orders would be on the books by the end of 2004. But even the late-January order from six Chinese carriers for a total of 60 787s left the company 14 short of its year-end target, while the number of firm orders remained at 56.

The 787 certainly has had an effect on Airbus, which, after denying a market existed in the size category, rushed forward with the A350, a revamped A330 with 787 engines and A380 technology. Airbus Chief Commercial Officer John Leahy has placed his own bet: 50-60 orders and a full launch by Paris. As of late January, only Air Europa had signed up, with an MOU for 10 plus two options.

Last year's war of words over launch aid has resulted in an agreement to avoid a trade war and declare a moratorium on subsidies. "Really good news," says Boeing VP-Marketing Randy Baseler.

"That's all we wanted in the first place." But Airbus has indicated that it intends to go forward with the A350 with launch aid or without it; if Boeing's goal was to derail the program, it doesn't seem to have worked.
At the top end of the market, Airbus will be waiting with crossed fingers for a clean flight-test program for the A380, free from drag nasties. But the chorus line of 14 CEOs at the giant's Jan. 18 unveiling made a statement: Contrary to everything Boeing has said for years, the A380 is a game-changer for long-range passenger and cargo operations (see article, p. 34).

The 757 is gone and the 767 line is open only because Boeing still hopes to get a tanker contract from the US Air Force. Seventy years of commercial airplane production at Long Beach ends in 2006 as the 717 is killed off.

Airbus, meanwhile, has been unable to put forward a successor to the A310, which has not drawn an order in the past two years (the company continues to sell a handful of A300-600s as freighters).
As the market recovers, Airbus holds a lead. In 2004, for the second consecutive year, it topped Boeing in deliveries, 320 to 285, and 32 of those Boeing deliveries were of aircraft that are going out of production.

Interestingly, this speaks more to the European plane-maker's ability to achieve a higher level of deliveries in a downturn than to a ramping up of production capacity. Airbus deliveries actually peaked at 325 in 2001, according to the Airline Monitor, and as recently as 2002 Boeing delivered 366 jets while in 1999 it delivered 595.

An Airbus offensive in the low-cost-carrier market helped boost the A320 family to 279 sales last year, accounting for most of the Europeans' 90-plus lead in new net orders. As the year drew to a close, Boeing fired its top salesman, Toby Bright, and replaced him with Scott Carson, former head of Connexion by Boeing.

Another disquieting trend within the numbers is that Airbus has done well in orders in the last two years in the sector of the market where Boeing says the money is. The A330/A340 family has outsold the 777 two-to-one. Baseler notes that the 777 sold very well in the years up to 2003 and the company has a healthy backlog for the type.

A great deal now hinges on two factors: The future of the 747 and the twin-aisle, twin-engine battle between the 787 and the A350, which Airbus received permission to take to the market in December.

An ultimatum Boeing met with a group of 747 customers in Hong Kong in September. "They basically threatened us," says Baseler. "They told us, 'if you're going to do the Advanced 747, then do it.' They told us that we had to make a decision by the first half of 2005." The group included airlines that already have bought the A380, he says, but it likely was dominated by A380 holdouts such as Japan Airlines, British Airways and Cathay Pacific.

Boeing does not see a large market for aircraft above 400 seats and consequently is proposing a modest, not-too-expensive program. The company, says Baseler, sees a 20-year market for 400 747-size airplanes-two a month-comprising 270 passenger versions and 130 freighters. The 747 Advanced is stretched to 450 seats from 416 in today's 747-400 and is 20% bigger than a 777-300 and 20% smaller than an A380.

It would have 787 engines and use composite materials to reduce weight. It would have a 777-like 8,000-nm range and meet London Heathrow's QC2 noise standard. Baseler argues that the stretched airframe has a weight advantage and that the aircraft will have a 2%-3% lower seat-mile cost than the A380.

Leahy doesn't sound too worried about Boeing's fourth attempt in a decade to update the 747. "Nobody's told us that they're interested in the 747 Advanced," he says, "and they usually don't hold back about that."

Baseler and the rest of Boeing exude confidence that they have a winner in the 787. Airbus's announcement of the A350 was "a great day for Boeing," he says. By placing a product on the table, the Europeans cleared the way to a real competition: "They can no longer push an all-new aircraft for one airline and a derivative to another. It will make it easier for us to close the business that we have talked about."

Boeing continues to state that it has "received deposits from customers securing nearly 250 787s, which essentially commits the first two years of planned production deliveries." Of these, 186 are going to customers that have been identified, leaving deposits from unidentified customers for another 60 or so airplanes. These deposits are not orders; they are refundable payments to secure delivery positions while negotiations proceed, which is why manufacturers previously have not announced such payments at all. Neither Airbus nor Boeing wants to disclose the specific locations of sales campaigns, but airlines likely to make a decision in the near future include Qatar, Northwest, Aer Lingus and Asian operators.

"We won't get 100%," Baseler says, but the company is confident that the 787 will be inherently superior to the A350, with a wider and more comfortable cabin owing to the higher cabin pressure and higher humidity made possible by the composite fuselage. Although the A350 uses the same engines, they are operating at lower-than-ideal speed and will have bleed air systems, reducing efficiency against the all-electric 787, Baseler argues.

3,500 units over 20 years Boeing says there is a huge market for the 787-3,500 units over 20 years-and it expects to win a large share of that market. It is planning to build 85-120 a year and is spending billions of dollars to do so. But today's 200/300-seat market is nothing like that big. Airbus delivered only 53 A330-200s, A330-300s and A340-300s in 2004, and Boeing delivered nine 767s. If the segment doesn't grow quite as fast as Boeing thinks and if the A350 takes a meaningful share, it will make it harder for the US manufacturer to earn its investment back. In other words, Airbus does not have to dominate the 787 in order to hurt its rival.

The 787 is proceeding on or ahead of schedule, says Bair, toward a first flight date in late summer or early fall 2007 (a firm date will be announced later this year) followed by deliveries in 2008. The final "firm configuration" will be unveiled in late June or early July. Before that, Boeing expects to sign definitive contracts with its major partners, the Alenia-Vought joint venture that will produce the fuselage and the Japanese wing-building team of Kawasaki, Fuji and Mitsubishi.

Price and the control of intellectual property have been the biggest issues in negotiations with Alenia-Vought and the Japanese heavies, says Bair. The partners are sharing the risk of the program-with Japanese government support-but the investment still has to be recovered through the price charged to Boeing, which is passed on to the customer.

The firm configuration date in midsummer is an important milestone for the program, after which several hundred supplier engineers now in Seattle will return to their home companies. All the systems have been selected and the shape of the aircraft itself is solid. Recent changes to the nose and tail shapes have increased the nominal capacity from 217 to 223-224 for the baseline 787-8 and from 289 to 296 for the higher-density, medium-range 787-3.

One floating date in the program is the timing of the 787-9, now with 259 seats in a three-class layout. Boeing's nominal date for deliveries of this version was 2012. "There is no pressure to go later," says Bair. "If I was a betting man, I'd say that it will move forward by a year or a little bit more." The only limitation, he says, is that the company wants to design the dash 9 based on structural experience with the dash 8 to minimize its weight.

In January, Boeing unveiled its first all-composite fuselage test section, 22 ft. long and 19 ft. in diameter, and showed in detail how it plans to fabricate the all-composite pressure cabin. The section is produced by laying carbon fiber ribbon around a mandrel. The entire barrel section, including stringers and window and door surrounds, is a single part with no mechanical fasteners. The tool, made in several pieces, is removed and frames are installed.

Good news, bad news During 2005, Boeing and the Alenia-Vought partnership will build seven more fuselage barrels, increasing the speed and productivity of the manufacturing process. The 787 uses the same fibers and resins as the 777's empennage. The good news is that these processes are well known. The bad news is that they are potentially expensive. So far, fiber-placement techniques have been too slow for the economical manufacture of large, heavy-gauge components because laying fiber is tedious and each component has to be cured under heat and pressure in an autoclave.

Until early 2004, Airbus executives expressed doubt that the technology existed to justify a new program. But, according to A330/A340 Product Marketing Director Alan Pardoe, rising fuel prices "got the airlines' attention." The 787 inspired the development of the GEnx and Trent 1000, and as it became clear that Boeing would offer two engines on the 787, GE and Rolls-Royce were happy to talk to Airbus about a second market for the new powerplants. The 787 also piqued customer interest in greater range.

The proposed A350 is an asymmetric response to the 787. The 787 is all-new, the A350 a growth version of the A330. The A350-800 and A350-900 are 20 seats larger respectively than the 787-8 and 787-9, although at least one potential customer, Emirates, is urging Boeing to stretch the dash 9 to seat 290. The 787 is all about brand-new technology and lower fuel burn; the A350, if launched, will use derivative technology to offer a 1,700-nm range boost over the A330.

The A350-800 and dash 900 are the same size as the A330-200 and dash 300. The differences are the new engines and a lighter airframe. The A350 will have a mostly composite wing with metal ribs (each wing rib is different and Airbus makes them very efficiently using high-speed machining; composite ribs are not worth the money, in its view). It will not be new technology for the company: The A400M military transport has a composite wing and the first production-standard parts will be delivered this summer. Phil Grainger, technology director at GKN Aerospace's composites research factory in the UK, believes the A350 could be the first application for lower-cost fabrication techniques such as resin film infusion, which avoids the need for an autoclave.

The A350 composite center wing box and horizontal tail are based on A380 technology. Composite keel beams are already in production on the A340-500/-600. Laser-beam-welded lower fuselage structures are in production for the A318 and A380 and are being introduced on the A340-500/-600. Airbus will use more aluminum-lithium alloys on the A350, including laser-welded Al-Li in the fuselage.

If the A350 was designed with the same performance and engines as the A330, says Pardoe, its operating empty weight would be some 17,500 lb. less; as it is, the OEW is 3,500 lb. lower even with the larger-diameter engines and greater MTOW. Both versions of the A350 have the same fuel capacity as the A330-200. The wing planform is the same but the section and profile are changed, reflecting newer aerodynamic technology. The rear fuselage is re-profiled to reduce drag.

Common cockpits The A350 cockpit and systems will be very similar to those of the A330-economics do not favor introducing A380-type systems, and a common type rating with the A330 is an important selling point. Airbus is unconvinced of the merits of Boeing's no-bleed engine. "We don't believe that there is an operational penalty either way," says Pardoe. "Our belief is that the bigger the compressor, the more efficient it is, so we use the biggest compressor on the airplane."

Will the A350 eliminate the current A330 models, the A340-300 and even the A340-500? Airbus executives suggest that it matters little as long as the airplanes come off the same production line. The difference between Airbus and Boeing planning, Pardoe suggests, is that Boeing did not launch the 787 until the 767 line was drying up, resulting in a break in orders and production.
Neither Airbus nor Boeing has done well with ultra-long-range aircraft. The A340-500 has garnered just 26 orders, only a handful in the past two years, and the 777-200LR has logged only five orders in total. "It's not a big surprise," says Baseler. "It's a niche market. The 777-200ER, with a 7,800-nm range, covers most of the major markets of the world." However, this has not deterred the companies from offering similar capability on the 787 and A350. Boeing has suggested that the 787's full-payload range-passengers, bags and revenue freight-will be more significant than its maximum range, while the A350-800's 8,600-nm range is partly a natural consequence of stretching the larger A350-900 to fly 7,500 nm.
Boeing disputes that the A350 will match the economics of the 787, but a big part of the total cost is the purchase price and that will reflect what the aircraft costs to develop and build. The A350 clearly will cost several billion dollars less to bring to market than the 787, money that Airbus obviously does not have to build into the purchase price.
Production costs are harder to compare. Boeing no longer can ignore the possibility that Airbus's claims of greater efficiency are valid. Baseler says Boeing has no insight into its rival's costs-"they claim that they're more efficient but I'm not sure that we'd know if they were"-but its rhetoric no longer implies that Airbus is buying market share, "overproducing" or sheltering behind impenetrable accounts and government subsidies.
There are incontrovertible facts that might support Airbus's claims. The A350, for instance, will be part of the A330 family. In 2004, Airbus delivered 87 twin-aisle aircraft, all of them closely related, siblings more than cousins apart from a handful of A300s. These models share many components, such as avionics, with the 233 A320s the company produced last year. Their major subassemblies are built under the same roofs around Europe using the same methods and in some cases the same tools.
On the other hand, the 36 777s delivered in 2004 have virtually no commonality with any other Boeing type. The 737, 777 and 747 are very different from each other and the 787 will be totally different again, with new materials, new systems and a new production organization. The only way Boeing has simplified its product line is by eliminating models.
Economies of scale apply to support and upgrades. FedEx insisted that Airbus should incorporate head-up displays on the A380, but the same digital HUD can be offered on every post-A300 type. Similarly, Honeywell and Thales compete to provide flight management systems across the entire range.

Boeing has done a great deal to reduce its costs, but it entered the post-9/11 recession while it still was working to fix the systemic problems in supply-chain management that led it into a crisis in 1998. It also is cutting costs on a downtrend, a difficult thing to do. Airbus expanded throughout the 1990s, so most of its production facilities and tooling are 10 years old or younger.

Price versus value Baseler says, "We're not trying to be the price leader, we're trying to be the value leader." Airbus, he comments, has been "very aggressive in the marketplace," but he argues that if its aircraft offered more value they would command higher prices. Boeing, he says, is committed to "value pricing"-its aircraft are lighter, more efficient and more reliable and "some airlines totally agree and give us an advantage." Basically, he contends that "if the airlines believe in the longer term, they'll accept a higher-value premise."

He, and Boeing as a whole, have to be hoping that the customers will both see better value and be prepared to pay for it. This year will start to show if that is going to happen.