This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Some Wonder Whether Too Many Airplanes Are Being Produced June 20, 2003 By EDWARD WONG TOULOUSE, France, June 19 - One day they will carry 150 people 37,000 feet above the earth, but at the moment these hulks are no more glamorous than television sets on an assembly line. Dozens of men crawl over the 110-foot fuselages of the Airbus A320 at the company's main plant here, drilling, vacuuming and laying cables. Wings will be attached, computers installed. In 10 weeks, crews will fly them to the far corners of the world. And so it goes, maybe five planes at a time in this cavernous hangar, 20 a month. But both Airbus and the Boeing Company, its main rival, are as vulnerable now to the airline slump as at any time in the last two years, with no solid signs that the market for planes will improve soon. Industry experts say several factors, including a glut of aircraft parked in the desert, could lead customers to defer deliveries. Banks and other financial institutions have shied away from financing purchases of aircraft because of their plummeting values. And some experts say that despite new jet designs from Airbus and Boeing, it is unclear whether the two are investing in the right kinds of planes for future travel needs - especially as smaller jet makers like Embraer encroach on sales of 100-seat planes. Debate has emerged over whether there are simply too many planes, and whether the production rate is making matters worse. There are more than 2,100 parked planes, according to most estimates, and aerospace executives and analysts say more than 500 of them could return to service. "There are some people who believe there is a paradigm shift, that there are too many aircraft, just as there are too many cars, too much telecommunications capacity," said Robert Lamb, a professor of management at the Stern School of Business at New York University, who studies the industry. Both Airbus and Boeing "will have the tendency to keep the rate up," he added. "They do not believe this is a sort of death-defying point of no return. They do not recognize this is a paradigm shift and they're in trouble. Both of them are going for the gold ring. They may act in ways that may seem irrational." At the Paris Air Show this week, some Airbus and Boeing executives acknowledged that the industry had problems, though no one suggested that there was overcapacity. "The three years ahead will be difficult for all industry players and for Airbus, too," Noel Forgeard, chief executive of Airbus, said at a news conference. The recent weakening of the dollar only compounds the difficulty of exporting from Europe, he added. Yet he said he remained confident that Airbus would deliver 300 planes this year and 900 planes between 2003 and 2005. Alan Mullaly, who heads Boeing's commercial plane division, said his company would deliver 280 planes this year and 275 to 300 next year. Next year's estimate, he said, takes into account any softening in the market or possible deferrals. Some experts see those numbers as overly optimistic. For one thing, they say, the airline industry will almost certainly not see real recovery until 2005 at the earliest. Hossein Amir-Aslani, head of the airline and aerospace group at J. P. Morgan Chase, said at a recent talk in Paris that many analysts doubted whether Boeing and Airbus could meet their delivery goals. "I think they have a right to be skeptical," he said. A number of deliveries are set for Asian carriers that have suffered serious drops in passenger traffic caused by severe acute respiratory syndrome, he noted. The return of planes from the desert, he added, could be especially bad news for aircraft makers. John Leahy, chief commercial officer at Airbus, said that only a "very, very small number" of parked planes belonged to companies with backlog orders at Airbus. Likewise, Randy Baseler, vice president of Boeing's commercial airplane division, said his company did not expect to be much affected by planes coming out of the desert. Airbus and Boeing executives at the air show did not address the possibility that even more planes could end up in the lots, a distinct possibility given the precarious state of many airlines. "All eyes are on American," an executive of a large leasing company said. American Airlines, the world's largest carrier, is struggling to avoid a trip to bankruptcy court. American has a long-term storage contract with Avtel Services in Mojave, Calif., and Justin Loucks, Avtel's general manager, estimated that a Chapter 11 filing could add 60 planes to his lot. In addition, airlines are trying desperately to cut capacity and to simplify their fleet types, strategies that require parking planes. Airline executives estimate that capacity must still come down about 15 percent in the United States before airlines can gain enough leverage over seat supply to charge higher prices. The more planes it has in the desert, the more options an airline has. It could buy parked planes from their owners, whether leasing companies or other airlines, for less than it would pay for new planes from Boeing or Airbus. Yet it would be tough for either Airbus or Boeing to decide to cut production, Mr. Leahy said, because doing so could result in a loss of market share. Airbus has a backlog of about 1,500 orders right now, or five years' production at the current rate. Boeing's backlog is roughly 1,100. There can be long-term advantages to churning out planes quickly: the more planes that are out there, the more money a manufacturer can make on plane servicing and spare parts, Professor Lamb said. Michael Allen, chief operating officer of Back Aviation Solutions, an industry consulting firm in Connecticut, said European labor laws made it tough for Airbus to slow production. Boeing is laying off 5,000 people this year, on top of 30,000 jobs cut since the attacks of Sept. 11, 2001. Airbus has not laid off any of its 46,000 workers. Outside of questions on the rate of plane production, people in the industry are asking whether the two big manufacturers are reacting quickly enough to the growing challenge from Embraer, the Brazilian jet maker, which now has a product that can compete with the smallest planes made by Airbus and Boeing. This month, JetBlue surprised the industry by ordering 100 Embraer 190's, valued at $3 billion, rather than the similar-size A318 from Airbus. JetBlue's fleet consists entirely of Airbus A320's, and low-cost airlines have traditionally remained profitable by sticking to one plane type, saving on labor and maintenance. But David Neeleman, the chief executive of JetBlue, obviously saw better economies in buying Embraer jets. In May, US Airways ordered 170 regional jets, evenly split between Embraer and Bombardier. The airline's executives had managed to loosen clauses in the pilots' contract that limited the size of such jets. Other major airlines in the United States have recently negotiated similar concessions from pilots, so regional jet makers can now offer planes to those airlines to compete against Airbus A318's and Boeing 717's, both 100-seaters. "You're not talking about a typical regional aircraft that the industry grew up with; you're talking about a mainline-look-and-feel aircraft," Robert W. Mann, an industry consultant in Port Washington, N.Y., said of the Embraer 190. "It's generally what business travelers want. There's some operating cost penalties that come with that, but you can't lose as much money with a small airplane as with large ones." When asked whether Airbus considered the Embraer a threat, Gerard Blanc, vice president for programs, said Airbus' priorities were in developing planes in the 400-seat range. Mr. Mullaly, the Boeing executive, was not aware that Embraer 190's had 100 seats. "You should check on that," he said when a reporter told him. He added that Boeing was not focused on the market for planes of that size. As expected, Airbus and Boeing spent much of the Paris Air Show arguing over the competing philosophies behind their new jet designs: the gigantic A380 from Airbus, which will seat 550 or more passengers and has already received 129 orders, and the midsize 7E7 from Boeing, created to be more fuel-efficient than similar-size planes. But it is doubtful that low-cost airlines - and they are the only consistently profitable ones these days - will buy those planes. If JetBlue makes money off the Embraers, that could mean big shifts in the kinds of jets that are in demand. And that could change the very planes that workers at the Airbus factory here churn out month after month in the hope that the machines will spend more time in the sky than in the desert. http://www.nytimes.com/2003/06/20/business/worldbusiness/20AIR.html?ex=1057131418&ei=1&en=b1000ee4693a1aa3 --------------------------------- Get Home Delivery of The New York Times Newspaper. 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