March 8, 1998 in Nation/World

Asian Crisis Leaves Plans For New Jets Up In The Air Rush To Build Even Bigger Planes Runs Into Market Realities

Peter Robison Bloomberg News
 

There was a dazzling array of super-advanced jetliners on display at the air show here.

Airbus Industrie brought the A3XX, a 550-seat, 80-foot-tall behemoth with space for a gym, a bar, a restaurant - it’s even wide enough to let two people pass comfortably in its aisles. Boeing Co.

showed off a new model of its 777 that can fly for 18 hours nonstop with space for 42 bunks below-deck.

The trouble is, neither of these marvels has made it out of the briefcases of Boeing and Airbus planners yet.

Locked in a fierce one-on-one struggle for market share, neither company is yet willing to invest billions in risky new planes. Economic turmoil in Asia further clouds the outlook, removing the comfort of a secure, fast-growing market.

“It’s not like selling toothpaste - you don’t put the stripe in and if it doesn’t work you take it out,” said Joe Ozimek, Boeing’s director of product marketing. “These are $150 million, $200 million airplanes we’re talking about.”

Just two years ago it seemed that both plane makers were intent on going ahead with giant jetliners.

Many observers expected Boeing to launch its own 550-seat “stretch” 747 at the 1996 air show in Farnborough, England. Months later Boeing scrapped the $7 billion plan, saying it hadn’t won enough commitments from airlines.

That opened the door to Airbus. But the four-nation European group’s commitment to a rapid launch of the $10-$12 billion A3XX has gradually appeared to wane, and it seemed even more tenuous at the Singapore air show.

Airbus Managing Director Jean Pierson said the company’s engineers hadn’t met their targets for the superjumbo’s operating costs, intended to be 15 to 20 percent cheaper to fly than current jetliners.

Once planning to begin deliveries of the jetliners in 2003, Airbus is now penciling in 2004. If the engineers don’t meet their targets by the end of this year, Pierson said, the project will be delayed again.

Some analysts say a date as late as 2010 is more realistic now that the Asian crisis has raised questions about the project’s viability, which depends on convincing governments and outside investors to stump up two-thirds of its costs.

“You just can’t see there being a business case for it right now,” said Chris Partridge, associate director of aerospace finance at Deutsche Morgan Grenfell. “Asian investors are unlikely to be sprinting to the project.”

Aside from British Airways Plc, based at London’s busy Heathrow Airport, the superjumbo’s intended primarily for super-congested routes in Asia. Carriers like Japan Airlines System could use a 550-seat plane even on domestic flights and landing space is scarce at crowded hub airports like Tokyo’s Narita.

But currencies in nations from Korea to Malaysia plunged late last year, spurring a dramatic drop in tourist travel across the region and downward revisions of growth forecasts.

Once expected to account for 50 percent of global passenger travel by 2010, surpassing the U.S. as the biggest air market, Asia’s share is now forecast to remain at 35 percent or even fall to 33 percent by that time, the International Air Transport Association said recently.

Still, even a decade is a short time in the aerospace industry. For all the speed of its products, change comes only incrementally. It’s one of the few industries where the typical considerations - costs, the market, design - intersect with such high stakes.

One crash can put an airline out of business. Mistiming the market can have disastrous consequences for plane makers.

McDonnell Douglas and Lockheed learned as much when they introduced the DC-10 and the L-1011 Tristar at roughly the same time, turning the market into a zero-sum game and hastening Lockheed’s departure from the civil aircraft business. It’s a piece of history that partly accounts for Boeing and Airbus’s reticence to go forward with the big jetliners.

As a further reminder of the risks Airbus and Boeing need only look at the last grand project in the aerospace industry, the Concorde.

Launched at the Paris air show in 1973 with a forecast for sales of at least 200, restrictions on flying at supersonic speeds over land made it unviable. Only 14 were sold - seven each to Air France and British Airways.

Instead Boeing scooped the intercontinental market with its 747, which flew its first London-New York route in 1970 amid skepticism that passengers would ever take to a plane that size.


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