Boeing Frontiers
June 2003
Volume 02, Issue 02
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Cover Story

Unmanned Potential

BY Rick Roff

Commercial aviation books for years have chronicled the behind-the-scenes drama that leads to a company's decision to launch a new airplane.

All companies face a certain amount of risk in bringing new products to market. But in the case of commercial airplanes, the products are so big and complex and have such long life cycles that the decision to develop a product carries huge implications for decades. Analysts and authors have frequently described these decisions as "betting the company," and to a certain extent, they are correct. But a closer look at Boeing's commercial airplane product strategy shows the company has a lot more than luck in its favor.

Historically, Boeing has an impressive track record of determining the new products and services it will produce to meet the needs of evolving markets. The company has brought a string of 10 straight all-new commercial jet airplanes to market successfully because of a value-based development philosophy that includes assessing enabling technologies, scrutinizing markets, offering configuration choices and listening to customers.

Airline fleets

With airlines in a more competitive marketplace, passenger demands for nonstop flights and more frequency choices will drive airline strategies and airplane selections. About 80 percent of the new airplane delivered over the next 20 years will be in the 100-to-200, 200-to-300 and 300-to-400 seat categories—the single-aisle and twin-aisle categories as shown on this chart.


"We're 10 for 10 [DC-8, DC-9, DC-10, 707, 727, 737, 747, 757, 767, 777] in introducing new airplane programs with this approach," said Nicole Piasecki, senior vice president of Commercial Airplanes Marketing and Business Strategies. "You don't change an approach when you're successful with it."

While such a proposition for a single project in the past might have risked the entire net worth of the company, today's balanced Boeing business portfolio helps avoid a "bet-the-company" move. Still, there's no denying the fact that development of a new airplane requires chutzpah.

Boeing Chairman and Chief Executive Officer Phil Condit, who led the 777 program launch in the early 1990s, said it takes a great deal of skill and effort to correctly assess the environment for a new airplane.

"You have to know how big the market is for the airplane, what price you can get for it, what it costs to develop and what it costs to build," Condit told analysts and media during a first-quarter earnings conference call in April. "If that number comes out negative, you don't do it. If it comes out positive, you do it."

But, as he said, that's the challenge.

"You have to make those estimates that sometimes look out 20 or 30 years," he said. "And at some point you have to bet on it, absolutely. But you don't bet on it wildly. You bet on it based on good data and the best estimates you can make."

Condit's comments frame the current public discussion around the 7E7, the company's development focus for the future and the 200- to 300-seat "middle-of-the-market" segment currently served by several older Boeing, Airbus, McDonnell Douglas and Lockheed airplanes. Skeptics question whether Boeing is prepared to move forward with a new airplane, and some wonder if airline customers are too distracted with the current business crisis to know what they want in the world's next new airplane.

Piasecki promptly dismisses that skepticism with confident support for the 7E7 airplane and the process the company is using to bring it to market.

"This is a long-term growth business that has returned tremendous value over time," she said. "And air travel itself is tremendously important to the world's economic health and continued development. That's why we got into it—and why we will stay in it.

"The 7E7 will be the next demonstration of our industry leadership and innovation —yet again revolutionizing the way people travel by making it more convenient and less expensive, with less impact to the environment."

Boeing customers and supplier partners are engaged and enthusiastic, too, Piasecki said.

"Everyone wants to participate in—and fly on—this new airplane. It's exactly what our industry needs to improve productivity and efficiency."

Going point to point

Ultimately, the market decides the future of the Boeing product model and the fate of product lines within that model. That's the nature of the business. However, with its detailed knowledge of customers and the marketplace. Boeing has followed a distinctly different product strategy than its competitor.

"What we know today, and recognized years ago, is that as the airline industry deregulates and as air travel markets become more competitive, the world is moving toward smaller airplanes that take people point to point, or where they want to go when they want to go," Piasecki said. "That's what differentiates us from Airbus, which is focused on a really big airplane (the 550-seat A380) designed for the more traditional hub-and-spoke network."

Consequently, Boeing believes the declining emphasis on hub-and-spoke travel will provide the greatest growth in smaller midmarket airplanes and lesser growth in large jumbo jets. It's already happening, Piasecki said, citing statistics that show the average size of airplanes around the world remaining fixed to slightly declining over time.

In addition, low-fare carriers such as Southwest in the United States and Ryanair in Europe are proving successful partly because they bypass major airports for secondary airports that are less congested, result in less cost and, in many cases, are more convenient for the passenger.

Such a business model for airlines means keeping airplanes flying, with frequent trips and quick turnarounds at smaller airports. To accomplish this, airplanes in the future must be more reliable, economical and efficient; they also will need to be easier to service and repair, with connectivity and commonality throughout.

"Airlines are striving in these difficult times to simplify their fleets and improve their operating efficiencies with new business models for the future," Piasecki said.

"At the most fundamental level, we believe that over time the market will demand a simplified product offering built on efficiency, commonality and range. We don't commonality and range. We don't know exactly what that will look like, but we see a potential scenario with demand for airplanes in three size classes," she said.

According to Boeing's market forecast, about 80 percent of the future commercial airplane market will be satisfied with airplanes in the 100-to-200 seat, 200-to-300 seat and 300-to-400 seat categories.

"Looking ahead to the longer term, it's plausible to see the 737, 7E7 and 777 families as the backbones of these segments, with the single-aisle regional 717 jet and the large 747 airplane filling in niches at both ends of the spectrum as required by customers," Piasecki said.

The current lineup

A look at the current product line and where today's market appears headed provides supporting evidence for this view of future customer preference.

Sales of the 737 and 777 families have been the bright spots in an otherwise soft commercial airplane market. The Next-Generation 737 is newer and a better overall performer than its A320 competitor, and the launch of the 737-900X—which will offer more range or seats—could happen this year.

The 777 family continues to set the standard for efficient, long-haul operations. The 777 makes four times as many flights across the Pacific as its primary competitor, the A340, which struggles with a low order base and backlog. The 777-300ER, now in flight testing, and the 777-200LR, which recently started development, are expected to further bolster the 777 family's market position.

The strength of the 747 program is currently in freighters, where Boeing sold 17 airframes last year. Airlines continue to engage Boeing in conversations about the passenger version of the airplane, but the market remains sluggish with the overall commercial airplane downturn. Long-term forecasts show a market for approximately 450 747- sized airplanes, both passenger and freighter.

"It's important to remember that we brought two new 747 models into service last year in the 747-400ER and the 747-400ER Freighter," said Randy Baseler, vice president of Commercial Airplanes Marketing. "These models bring significant improvement capabilities over the 747-400 models and should see additional demand with a market recovery."

The 717 continues to perform with its low-cost reliability, and its customers frequently compliment its performance, Baseler said. There is talk about stretching the airplane beyond the 100-seat option. Boeing also announced last month that it was discussing with corporate customers a new variant, the Boeing 717 Business Express, which would seat from 40 to 80 passengers.

Rounding out Boeing's product line in the 200- to 300-seat middle of the market are the 757 and 767. Although there is little activity on the 757 orders front, Baseler emphasized that there is ongoing effort to work with customers interested in additional 757s. Boeing also is working to reduce the costs of building the airplane.

Meanwhile, the 767 program has a modest backlog of passenger and freighter orders with a bright future in expanded applications, particularly for military use in tanking and command and control. On May 23rd, the U.S. Department of Defense announced its intention, pending congressional approval, to proceed with the lease of 100 Boeing 767 tankers. Expanded applications for the 767 airframe could keep the line running strongly through the decade.

Company officials expect that over time the 7E7 will not only replace 767s as they retire from service, but it also will replace aging A300s, A310s, L-1011s and DC-10s. With travel growth forecasts included, it's a market that experts have estimated to be between 2,000 and 3,000 airplanes over a 20-year period.

Boeing officials admittedly are keeping a close watch on the pulse of every market segment to ensure that its product strategy accurately meets travel demand.

"We have excellent existing products and are developing the future products that we absolutely believe are designed to allow airlines to profitably compete for the passengers of the future," Piasecki said.

Enter 7E7—the preferred solution

The idea of the Sonic Cruiser, born out of a robust economy and innovative vision, truly stretched the aerospace envelope in terms of design and speed. When worldwide economic conditions and the industry abruptly altered course after Sept. 11, 2001, Boeing and its customers adjusted their plans, too.

"When customers saw what new technology could achieve with speed and economics on the Sonic Cruiser, they asked us what would happen if we applied all that technology to economics at today's top speeds," Piasecki said. "The result was the 7E7. The priority is efficiency, and this airplane will deliver a solution the likes of which the industry has never seen," Piasecki said.

Boeing now is betting that the 7E7 will emerge successfully from its proven working-together process with customers to fill a middle-of-the-market need beginning in 2008. As envisioned, production breakthroughs will enable the 7E7 to be assembled at much lower cost and in less time. The airplane will offer new opportunities for passengers and airlines worldwide with superior design, efficiency and support.

The 7E7's engines will be far more efficient and friendly to the environment, say Boeing designers, and its interior will provide unequalled flying comfort. Its electronic connection to the rest of the world will be superior to any airplane flying.

This connectivity will enhance everything from crew productivity to in-flight entertainment to communication between the airplane and the air traffic control world, ground-based support units and other airplanes.

"It will bring greater operational efficiency by knowing what maintenance is needed on an airplane before it lands, what passenger amenities need to be refreshed on landing, and it will help passengers have more entertainment and connection choices during their flights," Piasecki said.

This connectivity also would promote enhanced safety and security for the overall air transportation system.

The 7E7's engines will use about 20 percent less fuel on a per-passenger basis than any other airplane its size, which is only part of the jet's economic and environmental equation. Equal contributions of lightweight materials, advanced systems technology and aerodynamics also will enhance economics.

"The airplane's ability to bring big-jet economics to the middle of the market will allow airlines to provide more non-stop flights and more frequency choices on existing routes," Baseler said.

Customers have spoken, he said. "They have told us that the next new airplane should serve this market and bring economic advantage long into the future."

And that may be the biggest bonus for the 7E7.

"No matter what happens to the world economy or to the dynamics in the market structure, the bottom line remains constant," Piasecki said. "This airplane will make money for our customers and will be fun to fly on. That you can bet on."

Air travel growth

Growth in air travel has been met by an increase in new non-stop markets and by frequency growth—not by an increase in airplane capacity/size. In fact, average airplane size has remained constant with a slight decline since the early 1990s. Airplane capacity/size grew until the early 1990s. Since the late 1990s airplane capacity/size has remained flat with a slight decline. This means that all air travel growth since the early to mid 1990s has been accommodated by frequency growth.

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