Tuesday, June 16, 2009

Boeing May Rely on 777 to Beat Airbus on Jets, Tanker

Boeing Co. surprised the crowd at the Paris Air Show with the new plane it says can outdo the next Airbus SAS jet and win back a $35 billion military tanker deal: the 14-year-old 777.

The Chicago-based manufacturer, battling to overcome setbacks to its 787 Dreamliner, said it may build a new wing for the 777, improving fuel efficiency and allowing the plane to compete better with the A350 that Airbus will deliver in 2013. Boeing also will offer a 777 tanker design to the Pentagon in an effort to beat Airbus parent European Aeronautic, Defence & Space Co. for an aerial-refueling contract.

“When your new flagship is delayed two years, you have to rely on your current bread-and-butter programs for profits and headlines,” said Richard Aboulafia, a vice president of Teal Group, a Fairfax, Virginia-based consultant.

Boeing’s announcements were a highlight on the first day of the industry’s largest aerospace gathering, where both of the world’s biggest commercial planemakers say they are concentrating on keeping customers committed to previous orders. At past shows, Boeing and Toulouse, France-based Airbus won tens of billions of dollars in plane orders.

The U.S. manufacturer was unable to finish its 787 Dreamliner to wow the crowds in Paris, and must compete with the larger A350 that will be available to airlines not long after the Dreamliner is flying. At the same time, Boeing is trying to win back a U.S. tanker order initially lost to a Northrop Grumman Corp. design that uses Airbus aircraft.

Size Gap

The 787’s engines limit the jet to 290 seats, while the A350 will have 350. That’s where the 777 may be called upon again. With a redesigned wing, the aircraft could fill the spot left between the 787 and the Airbus offering with improved fuel efficiency on a 370-seat model.

“It depends a lot on what the A350 really produces,” Scott Carson, Boeing commercial planes chief, said today in an interview. The next airplane “could be a re-winged 777, it could be an all-new airplane, and it could be the 777 is fine the way it is.”

The company also may develop a 310-seat version of the Dreamliner, Carson said. That model, called the 787-10, and a re-winged 777 would offer more alternatives to airlines than A350 variations from Airbus, he added.

“I’m not surprised he’s talking about that,” Airbus Chief Operating Officer John Leahy said in a Bloomberg Television interview. “He’s going to lose the market if he doesn’t do something.”

U.S. Military Tanker

Boeing also said it will pitch a refueling tanker based on the 777 to the U.S. Air Force, after a smaller design based on its 767 lost out to the modified Airbus A330 offered by Northrop Grumman. The bidding was reopened after Boeing appealed to the U.S. Government Accountability Office, and the Pentagon is due to announce a winner by March 31.

“The 777 solves the technology and additional cargo capability questions, but it increases cost and it might be too much plane for the requirement,” Aboulafia said.

Randy Belote, a Northrop spokesman, said he couldn’t comment on “what Boeing may or may not offer.” The Los Angeles-based company’s KC-45 “is ready now” and has the right combination of fuel capacity, range and cost, he added.

Profit Concern

Boeing’s idea to offer a revamped 777 to fill a void in its commercial airliner stable may not be the most profitable approach, analysts say.

Doug Runte, a New York-based analyst with Piper Jaffray & Co., said that developing a new aircraft may make more sense. While less expensive than a fresh airplane, the cost of a new wing may still be “too high versus incremental performance gains,” he said.

Emirates, the airline that will be the biggest user of the 777 by the end of this year, has lukewarm interest in a larger- winged version, Chief Executive Officer Tim Clark said today. The Dubai-based carrier, which has ordered 70 A350s and has signed a letter of intent for another 30, wants Boeing to design a completely new plane, he said.

The largest A350 can’t meet all of Emirates’ needs, Clark said, so the largest 777 and a potential replacement would do the trick.

Aluminum Fuselage

“The problem with re-winging the 777 is that you still have an aluminum fuselage,” said Nick Cunningham, an analyst at Evolution Securities in London. “Upgrading existing airframes doesn’t really work -- particularly when you’ve just had a technology change such as a shift to composites.”

Even so, the 777 may be a good base to build upon.

The airliner, Boeing’s newest widebody aircraft, set a record for the longest commercial jetliner flight in 2005 when it flew from Hong Kong to London. It’s also one of Boeing’s most profitable planes.

The 777 program was initiated in October 1990 following an order from UAL Corp.’s United Airlines, with the aircraft entering service with the U.S. carrier in June 1995. While the plane is Boeing’s newest widebody model, the most recent passenger variant, the 200LR -- the world’s longest-range commercial aircraft -- was delivered almost 3 1/2 years ago.

China Southern

A new freighter version was introduced this year, but at least two planes ordered by China Southern Airlines Co. were placed in storage in April as global trade slumped. Boeing said April 9 it would slash 777 production to five planes a month from seven starting in June next year.

As of June 9, 784 of the planes had been delivered, with 323 still on order, representing a backlog of more than five years at the new build rate. The 777 has an average list price of $246 million before discounting.

“A new wing could possibly extend performance by offering enhanced aerodynamic efficiency, weight savings and perhaps greater fuel savings,” said John Dern, a Boeing spokesman.

Boeing said at the Paris show, which began yesterday and runs through June 21, that it’s making other advances in its commercial jet program.

A prototype of the Dreamliner will fly for the first time within two weeks, the manufacturer pledged. Boeing also announced that the second of six 787s in the flight-test program was readied for fuel testing.