Until recently, the fight between Boeing Co. and Airbus Industrie for dominance in commercial aircraft focused on a sexy giant, a proposed 600-seat airplane. Could Airbus afford a new $12 billion monster? Would Boeing beat the Europeans by stretching its jumbo 747?
Now the battle lines are changing. Superjumbos have been pushed aside, while the rivals fight over the far more mundane but potentially bigger market for a small 100-seat jet.
Both companies have always said they had no interest in such a small plane. They preferred to leave this market to regional jetmakers because profit margins on small models tend to be slim. Some analysts warn that Boeing and Airbus would be better off sticking to that view, but most agree there’s a real market there.
“The market is ripe” for a 100-seater, says Paul Nisbet, an analyst at JSA Research Inc., who notes that environmental regulations will render obsolete many older planes in that category. Northwest Airlines, for example, still has 180 DC9 planes, with the average age of 27 years.
That’s why Boeing sees 100- seaters as a new high-growth area where volume may compensate for lower margins. It thinks the world’s airlines will want 2,500 of these planes over the next 20 years. Airbus sees similar strong demand.
The U.S. company has two new models on offer: a shrunken version of its venerable 737 called the 737/600 and a plane it inherited from McDonnell Douglas when it acquired that company last year, the MD95. The latter has been renamed the 717.
Airbus has nothing on the market, but will soon choose between shrinking its A319, a plane with 124 seats, or build a new model with China and Singapore. Last year Airbus and those countries agreed to collaborate on such a plane.
Boeing’s critics think it’s making a mistake in offering the McDonnell Douglas plane, which lacks common operating characteristics with Boeing planes. “The MD95 is nobody’s idea of a plane with a future,” says Doug McVitie, managing director of Arran Aerospace, a Scotland-based aerospace consultant.
As for Airbus, some analysts think it would be frittering away money to develop a new small plane with the Asians, when a 600-seater would require such a huge investment. Shrinking the A319 would make more sense, they say.
Airbus says it can’t afford to let Boeing have any market to itself. Airbus suffers for not having a direct competitor to Boeing’s jumbo 747. The European maker refuses to cede Boeing a monopoly at the other end of the spectrum as well. Having a full range of models often helps a manufacturer sell big “package deals” to airlines.
“It’s important that we address this market,” says David Velupillai, a spokesman for the European maker. “The top end of the market (for larger planes) is obviously more valuable, but it doesn’t make good sense to leave any part of the market to a competitor.”
Timing is a problem. Boeing is promising to deliver the first 717 for entry into commercial service by September 1999. If Airbus wants to offer a challenger, it needs something soon. That would argue for shrinking its A319.
A smaller A319 would be cheaper than the Asian solution.
John Leahy, senior vice president of commercial sales for Airbus, estimates a shrunken A319 would cost $200 million to develop versus $2 billion for a new plane. However, a new plane would offer airlines far better operating economics. Airbus could also count on sales in Asia.
Technology transfer would pose a problem. Though the Chinese have some experience in building sub-systems for commercial aircraft and have built Soviet fighter planes, they lack experience in developing a plane. The Europeans are not eager to give away their expertise.
There’s also a question of whether the Chinese need a 100-seat jet. China has insisted that a jointly developed aircraft be built in China. Singapore, with a 15 percent share of the investment, would build some components.
“This is something of a prestige project for the Asians,” says Nick Cunningham, an aerospace analyst at Salomon Smith Barney. He feels it doesn’t make economic sense for Airbus. He also suspects China wants to build the plane simply to acquire expertise. A bigger plane makes more sense for China’s dense domestic routes, he argues.
Airbus probably will announce its decision “before the Farnborough Air Show in September,” says Leahy.
One factor that will make it easier for Airbus is a big choice of engines to power a 100-seater plane.
Two obvious possiblities would be the CFM56-5, built by Snecma S.A.’s and General Electric Co.’s CFM International; and the V2500 built by International Aero Engines, a joint venture between Rolls-Royce PLC, Germany’s MTU, Pratt & Whitney, FiatAvio and Japanese Aero Engines. Both power Airbus’ single-aisle, A320 family.
But the BMW-Rolls Royce joint venture has recently produced the 715 engine, which will power Boeing’s 717 and Pratt & Whitney is proposing the PW6000.
Whatever decision Airbus makes, it should be a lot clearer by Farnborough whether Boeing stands to succeed with its 717. McDonnell Douglas tried to sell that plane for three years but won just one order, for 50 planes, from AirTran, formerly Valujet. Airline disinterest may have stemmed partly from concern about McDonnell’s future, however.
The rechristened Boeing plane received a blow last month, when International Lease Finance Corp., one of the world’s biggest plane purchasers, indicated it was ill-inclined to touch the 717.
In an interview with USA Today, ILFC President Steven Udvar-Hazy said his board was “skeptical” about Boeing’s production problems and feared the 717 might suffer as well.
Boeing says it’s too early to judge. “We’ll know within the next six to 12 months whether it will be a successful entry,” says Bruce Dennis, Boeing’s vice president of marketing. “This is an important period for us.”
