Boeing enjoys its boom times
Thu., June 9, 2005
SEATTLE – After two years of trailing its chief rival, Boeing Co. is fighting to reclaim the lead from Airbus SAS in the commercial jet market, backed by a hot new plane and a revamped sales team that has been freed to offer big price discounts.
The Chicago-based aerospace company had one of its strongest sales runs ever in the first five months of the year, booking orders for almost 280 planes – as many as in all of 2004 and four times the order total at this point last year. Many of those are for the fuel-efficient 787, a long-range wide-body jet that is scheduled to enter service in 2008.
Airbus has reported 196 orders from January through the end of May, but it could surge ahead at next week’s Paris Air Show. John Leahy, chief salesman of the European airplane maker, said he expects up to 100 orders to be placed by several airlines for the new twin-engine A350, a direct competitor to the 787 that Airbus is promising to be on the market by 2010.
Investors are taking notice of Boeing’s turnaround. Shares of the company are close to a four-year high and now trade at about $65 after recovering from a plunge between 2001 and 2003 that wiped out almost two-thirds of their value, when both its commercial and defense businesses were struggling.
In addition to a recovery in jet sales, Boeing said in its last earnings report that it posted higher sales for its Future Combat Systems, maritime aircraft and other defense programs that compensated for reduced deliveries of F/A-18 and F-15 fighter jets.
The narrow-body 737 continues to be Boeing’s top-selling commercial jet. But industry analysts say the twin-engine 787, which will be built mostly from composite materials – high-tech, sturdy plastics that are lighter and don’t require as much maintenance as aluminum – is the right product hitting the market at the right time.
“Clearly the interest in the 787 has been unparalleled, and it’s addressing an industry concern, which is higher fuel costs and lower maintenance costs,” said J.B. Groh, an analyst with D.A. Davidson, a financial consulting firm based in Lake Oswego, Ore.
When it is configured in three classes, the 787 will carry about 260 passengers up to 9,700 miles, allowing nonstop flights between Houston and Beijing, for example. It carries a list price of $120 million.
Late last year, when 787 orders had fallen short of Boeing’s predictions, some wondered if the longtime top dog was losing out because it was too reluctant to offer discounts to match prices Airbus was offering for competing aircraft.
John F. Walsh, president of the consulting firm Walsh Aviation in Annapolis, Md., said Boeing appears more willing to slug it out with Airbus on pricing. “Before there were numerous reports that (former CEO Harry) Stonecipher … was micromanaging the marketing team, and they seem to have a freer hand now,” Walsh said.
Reached at his home in St. Petersburg, Fla., Stonecipher declined to comment. He resigned in March after admitting he’d had an affair with a female company executive.
Last December, after losing several high-profile sales battles to Airbus, Boeing replaced its top sales executive, Toby Bright, with Scott Carson, who had been head of Boeing’s in-flight Internet venture, Connexion by Boeing.
Steven Udvar-Hazy, chief executive of International Lease Finance Corp., a major customer of both Boeing and Airbus, said Boeing’s sales force seems to be re-energized under Carson’s leadership and excited about the first new plane the company has offered in years.
“What we are seeing is a more aggressive sales force … with a concerted effort to stop the market-share erosion they had been experiencing,” Udvar-Hazy said.
Boeing spokesman Todd Blecher said cost savings from a renewed focus on lean manufacturing has given the company some pricing flexibility. “We will not, however, do any deal that we consider irresponsible or a bad business deal simply to grab market share,” he said.
Boeing has racked up 128 firm orders and an additional 138 commitments for the 787 since it launched the program last year. Twenty-one airlines have ordered the plane so far, including two with sizable Airbus fleets: Northwest Airlines Inc. and Air Canada.
Until April, when it agreed to acquire 18 777s and 14 787s, Air Canada hadn’t ordered any Boeing planes since 1989. The day the orders were announced, Robert Milton, chairman of the airline’s parent company, Ace Aviation Holdings Inc., said the deal hinged on the planes’ “overwhelmingly attractive economics” – notably fuel efficiency and lower maintenance costs.
Airbus has said the A350 will have more seats, fly farther, burn less fuel per seat and have lower per-seat maintenance costs than the 787.
European Aeronautic Defence and Space Co. said Wednesday its board intends to press ahead and develop the A350, despite a complaint the United States filed with the World Trade Organization over $1.7 billion in launch aid that four European governments are poised to provide.
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