NYTimes.com Article: A Brand New Aircraft in Search of Buyers

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A Brand New Aircraft in Search of Buyers

December 16, 2003
 By MICHELINE MAYNARD





The Boeing Company, which is expected to announce plans
today to market its 7E7 jetliner, faces the immediate and
challenging task of finding buyers for the plane, a
medium-range aircraft that is its first new plane in more
than a decade.

Boeing declined to say yesterday whether its board, which
met Sunday and yesterday in Chicago, had given final
approval to take orders for the plane. A second decision
would be required before the 7E7 could go into production,
but that would not be made before Boeing accumulated orders
for the jet, nicknamed the Dreamliner.

Boeing said any announcement would come today in Seattle,
where it was based until a few years ago. The company was
widely expected to announce its plans to employees at Payne
Field, the center of its operations there, and then hold a
news conference.

The meeting was the first for Boeing's new chief executive,
Harry C. Stonecipher. He came out of retirement to succeed
Philip M. Condit, who resigned on Dec. 1 in the wake of a
scandal involving a fuel-tanker contract with the Pentagon.


Officials in Everett, Wash., Boeing's main manufacturing
site, are eagerly awaiting word from Chicago headquarters
on the proposed jet, which is designed to be 20 percent
more efficient than the Boeing 757 it would replace. "We
are on standby," said Kate Reardon, a spokeswoman for the
Everett mayor's office.

Local officials have been lobbying for months to win the
final assembly work for the plane, which has a sharply
curved roof and a sloping nose. Instead of being produced
under one roof, the 7E7 would be built in a modular
assembly process.

Crucial pieces, like the wings, fuselage and tail, are
being parceled out in sections to various plants in the
United States, Canada and Australia. Other work has been
awarded to companies in Japan and Italy.

All those sections would ultimately come together in an
assembly project resulting in 800 to 1,200 jobs, a fraction
of the 40,000 jobs Boeing has eliminated in the United
States this year in the wake of slumping industry traffic
and deep losses since the terrorist attacks of September
2001.

None of Boeing's American customers have yet expressed
interest in the jet, which will seat 300 or more passengers
in a one-class configuration with two aisles, compared with
280 passengers in the single cabin of a 757, which has one
aisle. And just two international carriers, Japan Air Lines
and Emirates, have indicated that they would like to
discuss the plane with Boeing, once it decides to go
forward with production.

Boeing has built more than 1,000 757 jets, but the last
will be built in 2004. It decided to discontinue the 757 in
October, only hours after Continental Airlines scrapped
plans to buy 11 of the jets, ordering smaller 737's
instead.

Nonetheless, Boeing executives were expected to go ahead
with the 7E7 project, simply because they would otherwise
see Airbus Industrie, their global rival, move out of sight
in a vapor trail ahead of them.

That may already be happening. The first 7E7 jet would go
into service in 2008, while the Airbus A330, the 7E7's
competition, is already in the fleets of Northwest
Airlines, China Airlines and Austrian Airlines, among
others.

Boeing has not introduced a jet since the 777 in 1990.
Analysts say Boeing may have lost valuable time in the 90's
working on two other, flashier jets that it ultimately
canceled: the Sonic Cruiser, a supersonic plane, and the
747X, which would have been the successor to the 747 and a
competitor to the giant A380 that Airbus is marketing.

On Monday, Airbus said Malaysia Airlines ordered six A380
jets, bringing total orders to 129 planes from 11 airlines.
The A380, which would seat 555 passengers, will be
delivered to customers in 2007.

Boeing should know by spring whether it has enough 7E7
orders to begin production, said David Fitzpatrick, a
partner with Deloitte & Touche USA in Seattle. At minimum,
it needs about 100 orders, and ideally 200 to 250, to move
ahead, he said.

He said he did not think that airlines' dearth of interest
now necessarily spelled trouble. "You can bet that there
are people waiting to commit to this," Mr. Fitzpatrick
said. "In the first few months, they should accumulate a
good book of orders."

Airlines that make deals first often have an opportunity to
get planes at a lower price than Boeing will try to charge
later, when the plane's viability has been proved, analysts
said. Boeing has not disclosed what a 7E7 would cost, or
what kind of profit margins it can expect on the jet.
Analysts estimate that it is spending a minimum of $7
billion on the project, and that it will probably earn an
operating profit of 4 percent to 5 percent, half what
Boeing earned in its most profitable years.

Aircraft manufacturers look at projects like the 7E7 as
long-term investments, said Roman Szuper, a credit analyst
with Standard & Poor's. Like the 757, which went into
service in 1982, Boeing would be expected to build the 7E7
for the next 20 years, he said.

"If the decision is correct,'' Mr. Szuper said, "they can
pick up market share lost to Airbus." That company, a
European consortium, is expected to pass Boeing for the
first time in 2004 to become the world's biggest commercial
aircraft maker.

But he added, "If the decision is wrong, it could be very
costly," not just for Boeing but for airlines that buy the
plane. While the 7E7's sleek appearance and interior
comfort will undoubtedly appeal to passengers, he said,
airlines will place a higher priority on an attractive
bottom line.

"The shape and features are a good thing," Mr. Szuper said.
"But they have to have good economics and efficiencies."

http://www.nytimes.com/2003/12/16/business/16boeing.html?ex=1072585030&ei=1&en=c782bab604b47336


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