QUESTION: What do fuel prices, airport gridlock, and the European Airbus have in common? Answer: They're all reasons the world's largest builder of commercial aircraft has introduced a new plane - the 777 - which it hopes will corner the world's evolving market for fuel-efficient jets that can carry more people over longer distances and in greater comfort.
Boeing Company made headlines last month with the largest wide-body aircraft sale in aviation history - $11 billion for 34 of the 777s to United Airlines, with options on 34 more. And on Wednesday the company announced a $2.6 billion order from All Nippon Airways of Japan for 15 of the planes, and an option for 10 more. Also, three Japanese companies - Mitsubishi Heavy Industries Ltd., Kawasaki Heavy Industries Ltd., and Fuji Heavy Industries Ltd. - will design and build 20 percent of the 777 airframe, a Boeing spokesman says. Boeing is a relative latecomer to the 360- to 390-seat jet range. Its two major competitors - Airbus Industries and McDonnell Douglas Corporation- have orders in hand for more than 300 of their wide-bodies.
The 777 will have a wider wingspan than its competitors, and two engines (instead of three or four) will trim pressures from rising oil prices. It also will accommodate more passengers per plane, easing queues for takeoffs, and access to airport gates. The 777 is expected to counter the challenge of overseas competitors - most notably the European Airbus 330 - which have been chipping away at United States dominance in aerospace.
``The plus is that the 777 is going to be a more efficient, wider, and technologically superior airplane than either the A330 or the McDonnell Douglas 11,'' says Bill Whitlow, analyst with Portland-based Gallagher Capital. ``The minus is you can't get one until 1995, and the others are ready earlier.''
McDonnell Douglas received government certification for its MD-11 Nov. 8 and will begin deliveries later this month. The A330 will be flown to customers sometime between 1992 and 1993.
Test flights in 1994
Boeing's 777 is scheduled for test flights in 1994 and expects to board its first passengers in 1995. Despite that seeming disadvantage, analysts say the long-term outlook for Boeing is that the new jet will maintain the company's dominant share of worldwide commercial aircraft sales - now hovering between 55 and 60 percent.
Boeing, a leading high-tech company in the US, is also the brightest spot in the country's balance-of-trade spreadsheet, bringing in more than $11 billion in foreign revenue last year. Though US demand for Boeing's jets is cyclical, growing on the average about 2 to 4 percent a year, worldwide demand for jets has soared in the Pacific Rim, growing as much as 17 percent in countries such as Thailand.
Designed to meet this global need for a jetliner sized between the company's own 767-300 and ``jumbo'' 747-400, the new plane's seating capacity will make it the world's largest two-engine passenger airliner.
``Boeing now has the most complete family of planes in the industry, covering every size and range,'' says Gary Reich, an analyst for Shearson Lehman Brothers. ``If it does nothing else, the 777 will increase [the company's] share of worldwide sales.''
Air travel is expected to double by 2005, growing by about 6 percent a year. Analysts see a demand for about 10,000 new airplanes, nearly half of them of the size and distance range of the 777, A330, and MD-11, about 4,000 miles. A full quarter of this demand will come from airlines needing to replace DC-1010s and L-1011s built around 1970.
``The 777's big advantage over the planes it will be replacing is in fuel efficiency,'' says analyst Whitlow. ``The new technology is not a quantum leap from today's planes.''
Among the new features:
Extensive use of lightweight, super-strong composite materials in structural parts. Although the Airbus was the first to use composites, particularly in the vertical section of its tail, Boeing has added them to horizontal sections and floor beams as well.
An innovative wing that permits the fully-loaded 777 to get aloft quickly even at airports such as Denver, where warm, thin air can hamper present-generation jet wings from lifting off with a full load.
An advanced system using electronic signals rather than cables and pulleys to control the aircraft.
Lighter, flat-panel instrument displays that replace bulky, air-conditioned cathode-tube displays in cockpits.
The 197-foot wingspan of the 777 is a full 20 feet longer than that of the new MD-11 and the older DC-1010s and L-1011s. To fit the standard gates that have serviced older airplanes for over two decades, the 777 has a fold-up wing tip, that reduces width to 156 feet. The significance of the plane's ability to get into existing aircraft spaces ``cannot be underestimated,'' says Jim Peirce, an aircraft research analyst for Providence National Bank. ``There simply is no room to expand gates and no one is building any more airports.''
Another big selling point for the 777 is easy seat and lavatory reconfiguration, enabling airlines to change to accommodate seasonal factors, such as more demand for tourist-class seating in the vacation months. ``What used to take weeks of downtime and lost revenue, can now be reconfigured literally overnight,'' says Boeing's Dick Schleh.
Though the United launch order is the largest by far of any single contract in the company's history, its ultimate importance may be more symbolic in generating interest from other carriers. Those considering the plane include American Airlines, Delta, British Airways, Qantas, Cathay Pacific, and Japan Airlines.
But hot on their heels is the European Airbus, emerging over the past two decades as a top competitor to Boeing. Formed nearly 20 years ago to overcome US dominance in the industry, West Germany, France, Britain, and Spain created Airbus. Subsidies have totaled $13.5 billion over the years. A September study by Gellman Research Associates, Inc., for the US Commerce Department said this subsidy has helped quadruple Airbus's share of commercial aircraft orders in the last decade - to 27 percent in 1989.
Market share declines
At the same time, the market share of US manufacturers declined from 87 percent in 1980 to 64 percent last year. But most analysts see Airbus mostly hurting McDonnell Douglas - whose product line is less diverse than Boeing's - and related manufacturing sectors other than aviation.
``The future of Boeing is very bright indeed,'' says Reich. ``They simply have more experience, know-how, sophistication than anyone.''
The down side of Boeing for now, is its defense, aerospace, and military divisions, consolidated last January into the Boeing Defense and Space Group. There have been slowdowns or stoppages in such programs as the B-2 Stealth bomber; Strategic Defense Initiative (SDI or ``Star Wars''); the space station project; light helicopters; and several missile programs resulting in a $470 million loss for this group last year.
But in recent years Boeing has dramatically reduced its reliance on defense contracts - building its commercial side into 70 percent of its business. The result: a gargantuan order backlog of over 1,800 planes totaling over $100 billion for the next decade.
With $3.8 billion in cash, and little or no debt, Boeing is in an extremely strong financial situation, according to analysts. Short of worldwide recession, observers see no major hurdles on the horizon.