July 11, 1995 in Nation/World

Boeing, Airbus Halt Jumbo Jet Plan

Bloomberg Business News
 

Boeing Co. and member companies of Airbus Industrie Monday halted their joint effort to develop a jet seating 600 to 800 passengers, citing a lack of interest by major airlines.

While the Very Large Commercial Transport plane, known as the ‘super-jumbo,” is technically feasible, Boeing said, two-and-a-half years of study showed there isn’t enough demand.

Only two airlines, British Airways Plc and Singapore Airlines, publicly expressed interest in buying the aircraft. That makes spending an estimated $15 billion to $25 billion over four or five years to develop the jet extremely risky.

“This is the wrong product at the wrong time,” said Nick Heymann, an analyst with NatWest Securities Corp. “At this point in the development of the global airline industry, you just have a few carriers to base the most expensive development ever of a new aircraft.”

A supersonic plane is more likely to appeal to travelers than a super-jumbo, Heymann said. “The average Joe probably has no interest in jumping into an ever-bigger Greyhound bus for an ever-greater number of hours.”

Seattle-based Boeing, the world’s largest jetmaker, said it will watch market conditions and meet with its European partners again early next year to review the program’s prospects.

The plane would be built by Boeing and members of Airbus Industrie, which comprises Aerospatiale SA of France, British Aerospace Plc, Daimler-Benz Aerospace of Germany and CASA of Spain.

Howard Berry, a British Aerospace spokesman, said the group will meet again in January or February to assess whether interest has increased. “We would need a clearer idea on when they want the airplane and if they want the airplane,” he said.

At the Paris Air Show last month, the head of Boeing’s commercial airplane group, Ron Woodard, stressed the risk of such an expensive endeavor.

“We have major questions whether a program like this can be financially viable,” he said in an interview. “Will the market fragment, and will we in fact need 300-seat airplanes instead of 800-seat planes?

A wrong decision, he said, could “threaten the financial viability of your company.”

Nick Cunningham, an analyst with Barclays de Zoete Wedd, said the decision to halt the project was “not much of a surprise.”

“The efficiency gains in fuel use per passenger are more than wiped out by having to amortize the purchase price,” said Cunningham. “The economics don’t work.”

Cunningham said the market is unlikely to change much by January, making the future of such a project bleak.

The super-jumbo is separate from another large aircraft on the drawing boards of Airbus Industrie that would carry 500 to 600 passengers. This project doesn’t include Boeing.

Currently the largest aircraft is the Boeing 747, which carries up to 500 passengers.

British Aerospace and Boeing said Monday the partners had completed the second phase of the BoeingAirbus study, which determined that such an aircraft was technically feasible. The third phase would have begun predevelopment work.

“The VLCT studies have demonstrated their ability to work together,” said Berry. He said that eventually the group would have had to decide whether it would build the aircraft with Boeing or build a separate, smaller one on its own.

“The general view was that there would not be room for two aircraft of this size competing,” said Berry. “It would not be economically viable.”

British Aerospace shares rose 9 pence in London to 619p. DaimlerBenz’s rose 13 marks to 668 in Frankfurt. Shares of Boeing closed down 37-1/2 at $64.25 on the New York Stock Exchange.


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