Airlines' future belongs to fuel efficient
Tampa, Fla. — US airlines are lining up to spend billions on the next generation of fuel-efficient aircraft. At stake is the ability of airlines to compete with each other at a time when some airlines are in shaky financial condition, jet fuel prices continue to soar , the number of passengers has dropped, interest rates are high, the stock market is low, and the industry has been shaken to its foundations by federal deregulation. So say airlines industry analysts.
The change the airlines face may not be as great as the switch from propeller planes to jets in the early 1960s, but it will be more costly than the race to buy wide-body jets in the early 1970s.
Industry analysts say that those airlines that cannot afford fuel-efficient aircraft will have to maintain their old fleets at high fuel prices, and consequently will fall behind the airlines that can afford the purchases.
''The airlines have a great need to modernize their fleets to save fuel,'' said Daniel Henkin, a vice-president of the Air Transport Association, and airline trade organization. ''Those airlines able to obtain the new aircraft should have the competitive advantage. In a deregulated environment, this is very important.''
The next generation of aircraft is becoming available as the manufacturing industry begins to produce the jets that were spawned by the 1973 Arab oil embargo and ensuing jumps in oil prices.
The future does not necessarily belong to the swift. Supersonic aircraft have all but been scrapped as an expensive mistake. The future belongs to the efficient, even if the gas savers go a little slower. The manufacturers have been tinkering with new metals, different wing designs, weight reductions, and new instruments to squeeze every mile per gallon out of their new aircraft.
Boeing Corporation tested its new fuel-efficient 767 in October. The company claims the plane will save about 30 percent of the fuel that similar size airplanes now use. A smaller version -- the 757 -- is expected to be tested next January.
McDonnel Douglas Corp. has already begun selling its ''Super 80,'' a redesigned version of the DC-9 that it claims has the best fuel economy and the quietest engines of any aircraft its size.
And on the drawing boards at the National Aeronautics and Space Administration is a plan for a new aircraft that is predicted to save 20 percent more fuel than the latest design of jets. That aircraft uses a new propeller design that will allow the aircraft to travel as fast as a jet.
Fuel is the problem.
''Back in 1972, jet fuel was 10 cents a gallon, and it wasn't even a line item in our budget,'' said Delta Air Lines spokesman Richard Jones. ''Now we spend more than $1 a gallon, and fuel accounts for a third of our operating costs.''
''Every one-cent rise in the price of fuel has cost Eastern Airlines $10 million,'' said Eastern spokesman Jim Ashlock. ''We have done everything we can to conserve fuel with the aircraft we have. Now we have to depend on new airplanes. But we have to be careful. One mess-up in today's world, and you can get fouled up. The cost is staggering.''
A Boeing 767 costs at least $39 million. A McDonnell Douglas Super 80 has a $ 22 million price tag. The airlines measure their needs in billions of dollars, even while some of them are running in the red.
''Delta and Northwest are in good shape; they have strong balance sheets,'' said Al Norling, an airline industry financial analyst on Wall Street. ''Braniff and Pan Am are having financial troubles, and they will have a lot of difficulties.''In between is a lot of uncertainty,'' he said. ''Most of the airlines will have difficulty in financing all of their aircraft needs.''Michael Derchin, another Wall Street airline analyst, agreed that the airlines would have trouble raising money, but he questioned whether they really need to make as many purchases as they are planning.''Projections for new aircraft are far too high in terms of what they can afford and what they need,'' he said. ''The airlines don't need more capacity. They can't fill what they have. So there's no reason why they should get the financing until they can show a reasonable rate of return.''Fuel prices have stabilized, and the forecasts are that they will not grow faster than the inflation rate,'' he said. ''The urgency to reequip for fuel purposes is not there like it was a year ago when prices were going up 50 percent.''But what's scaring the airlines is that some of the richer companies such as Delta and Northwest have the money to make the conversion to the fuel-efficient jets.''It will be extremely difficult for Pan Am to compete with Delta (if Delta has the fuel-efficient jets and Pan Am does not),'' Derchin said. But he doubted if any of the major airlines will face bankruptcy.Delta will be a formidable competitor. The Atlanta-based company plans to buy $6.5 billion worth of aircraft before the end of the decade, and Mr. Jones said it can generate 80 percent of that money from its own resources.Delta has more than 100 of Boeing's advanced design aircraft on order, he said, and it is willing to spend an additional $5.5 billion to buy another 100 aircraft if a manufacturer can devise a 150-passenger jet that meets all of Delta's specifications.On the other end of the scale, Pan American has cancelled orders for new aircraft and does not have plans to buy any more, according to Bill Hibbs, the company's director of research and development.''At the moment, we've got a fairly versatile fleet, although some will be out of style very shortly,'' Mr. Hibbs said. ''It certainly will be necessary for us to get a little confidence from the banks and insurance companies we already have on the hook before we can raise the capital.''Technically, it's fairly obvious that we will have airplanes that have a higher fuel consumption than Delta. But competition has a lot of facets to it,'' Hibbs said. ''If we can get some better competition into Delta's markets, maybe their high yield will come down.''But a spokesman for Eastern, an airline that falls in the middle of the financial stability ranking, said buying new aircraft will be the key to competition.Six years ago, Eastern began reserving 3 percent of its employees' salaries each year to ensure that it would have enough money to buy new equipment, Ashlock said. If the company earnings were high enough to pay for new aircraft, it gave the 3 percent back to the employees.''It (the 3 percent plan) got the lenders off our back,'' he said. ''It gave them the assurance that we would have the money to meet our obligations. That's how we've been able to continue with our acquisitions.''Other airlines are going to have to make similar obligations if they want the financing to buy new aircraft, he said, and many of them might have to take crash steps by laying off employees.