=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/12/05/f= inancial1432EST0165.DTL ---------------------------------------------------------------------- Friday, December 5, 2003 (AP) Boeing faces dilemma: Build 7E7 or lose face as jetmaker HELEN JUNG, AP Business Writer (12-05) 11:32 PST SEATTLE (AP) -- Boeing Co. has hosted a contest to nickname its proposed 7E7 airplane, s= et off a bidding war among communities wanting to build the jet and announced work assignments for its worldwide partners in the project. But Boeing hasn't said it will actually build the plane. With the airline industry still struggling and Boeing having scrapped plans for two major jets in recent years, the 7E7 isn't a done deal. As the buzz surrounding the 7E7 gets louder, Boeing's board of directors faces a big, expensive decision: either build the plane or risk losing the company's credibility as a commercial jet maker -- and potentially cede the future of commercial jets to archrival Airbus. "The board almost has no choice," said Richard Aboulafia, an aviation analyst with consulting firm Teal Group. "They're set up for embarrassment if they don't. ... Face is involved here. Politics is involved here." Boeing is particularly vulnerable to bad publicity at the moment, Aboulafia noted. The company has been hurt by ethical scandals that culminated in the dismissals last month of two executives for alleged misconduct. Then on Dec. 1, Boeing chief executive Phil Condit resigned to help the company distance itself from the "controversies and distractions" of the previous year, particularly accusations surrounding a $21 billion deal for Boeing to provide 767 jets as tankers to the Air Force. Boeing, Aboulafia said, needs to re-establish itself as a company committed to aerospace, not "taxpayer leeches." Credibility is not all that's at stake, said Michel Merluzeau, principal analyst with New York-based market research firm Frost and Sullivan. "Boeing will not be a player in the commercial aircraft market if this project does not go ahead," he said. Boeing's board will have to approve two decisions before the 7E7 is a go. In mid-December, it will consider whether to offer the new airplane for sale to airlines. Then, depending upon the results of those sales efforts, the board would decide next year whether to formally launch the 7E7 program. Boeing declined to make board members available for interviews with The Associated Press. But the program has gotten a boost from new CEO Harry Stonecipher, who says he supports the program. Boeing spokesman John Dern said that, as with previous jet programs, the company is looking for the right plane at the right time. "The fact is that there is lots of confidence that the 7E7 is on the rig= ht track given all the developments in the market," Dern said in an e-mail. "Ultimately, however, it will be the business case and the associated analysis that drive final decisions." For decades, Boeing's jetliners were the company's prime moneymaker. Its aircraft, from the workhorse 737s and 757s to the widebody 767s, 777s, and jumbo 747s, are global icons of America's technology and manufacturing prowess. But in the aftermath of the Sept. 11, 2001, terror attacks, Boeing's defense division now brings in more revenue than commercial airplanes. Boeing has expanded its space, communications and other businesses as well. The company has not launched an all-new plane program since its 777 jet = in 1990. Meanwhile, rival Airbus expects to eclipse Boeing this year as the world's largest commercial jet manufacturer in terms of deliveries and is developing the new superjumbo A380 for service in 2006. Boeing had considered an extensively updated and larger 747 jumbo jet, dubbed the 747X, but shelved it in 2001. Boeing then seized on the idea for a new plane that would travel near the speed of sound, the Sonic Cruiser, but abandoned that project at the end of 2002. Now, it's the 7E7, proposed as a super fuel-efficient jet to replace the 757 and 767 with greater range to handle long-distance, point-to-point routes. Boeing has highlighted the 7E7 in multiple speeches and promotions: * The company started a nationwide competition for locating a final assembly plant. States put together incentive-laden proposals in an effort to land the plant and its 800 to 1,200 jobs. Boeing is expected to select a site next month. A report in Friday's Seattle Times said Boeing executives will recommend that the 7E7 be built in Everett, where Boeing already builds its widebody jets. * In addition to holding a name-the-airplane contest -- in which voters chose Dreamliner as the 7E7 nickname -- Boeing sends 7E7 updates in six languages to more than 120,000 people. * Boeing unveiled the proposed interior for the 7E7 jet to representativ= es from more than 40 airlines. * Boeing recently detailed its plan for allocating major work on the 7E7 to Japanese, Italian and other suppliers. With its highly visible marketing, Boeing Commercial Airplanes was not looking to pressure the Boeing board, said spokeswoman Yvonne Leach, but rather to get customers around the world interested in the proposed jet. "We deliberately went out to build momentum and we've done it," she said. With so much publicity, the 7E7 is seen by many as a sure deal. A decisi= on to kill the project would likely anger many who have invested time and resources in trying to land a part of the project. Consider Kansas, which approved a bill authorizing the state to issue up to $500 million in bonds for Boeing if needed for 7E7 development costs. Boeing has a division in Wichita which is to build part of the 7E7 fuselage. "We have been working in every possible way to make this happen here for Boeing in Kansas," said Nicole Corcoran, a spokeswoman for Kansas Gov. Kathleen Sebelius. "We would be very disappointed if it doesn't go ahead." One challenge for Boeing is finding a customer to launch the jet while some of the world's largest carriers are still struggling to stay in business. Japan Airlines has asked Boeing for a proposal to replace its fleet with 7E7s and other jets, airline spokesman Geoffrey Tudor said. But the carrier is concerned about the proposed jet's weight because Japanese airports charge landing fees based on weight, he said. The base model of the 7E7 is about 40 percent heavier than the 767s Japan Airlines currently flies, worrying the airline that those increased landing fees could cancel out any savings from fuel efficiency, Tudor said. Airlines' responses, not consumer pressure, will ultimately determine whether Boeing goes ahead with the 7E7, Merluzeau said. "Airlines saying, 'We'd like to replace the 757 and 767' -- that's the pressure that's really going to make a difference at the board level," he said. "If you have market demand for 2,000 aircraft over the next 20 years, the guys are going to start seeing dollars in their eyes and say, 'Let's do this."' On the Net: Boeing: www.boeing.com =20 ---------------------------------------------------------------------- Copyright 2003 AP