=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/05= /02/BUGOE6DU8R1.DTL --------------------------------------------------------------------- Sunday, May 2, 2004 (SF Chronicle) Growing market in the East gives much-needed boost to Boeing/Japanese airli= ne sees midsize 7E7 plane as good fit for far-flung cities in China David Armstrong, Chronicle Staff Writer The Boeing Co., battered by its European rival Airbus and dogged by scandal, got a badly needed lift last week by hopping the jet stream to Asia. Its $6 billion deal with All Nippon Airways for 50 of the new 7E7 Dreamliners, announced Monday, puts Boeing back in the jetliner game, as it ties the iconic American company's commercial jet division to the high-flying economies of East Asia. Japanese carrier ANA will fly the first batch of 7E7s. Japanese manufacturers will make a third of the aircraft. And fast-growing inland cities in China will be among the first markets served by 7E7s, which Boeing touts as exemplars of fuel-efficient, next-wave technology. The announcement comes just as Boeing is starting to get back on track after a three-year downturn in the aviation industry. Earlier plans to create a very fast Sonic Cruiser and an extra-long version of the company's 747-400 never got off the ground due to airlines' lack of interest. Then Boeing chief executive Phil Condit had to step down late last year amid corporate governance problems. Some major American airlines are still parking planes in the desert, a legacy of the post-Sept. 11, 2001, slump in travel. However, the aviation industry, led by manufacturers selling planes overseas, started to show signs of life early this year. Boeing, for instance, posted $623 million in net income in the first quarter, compared with a $478 million loss in the year-ago quarter. The brightest spot in the global market is Asia, which has provided the market muscle to lift Boeing. The company has made money this year from defense contracting but last year lost its leadership in commercial jets to Airbus, which sold more jetliners than Boeing for the first time. Good fit for midsize cities Boeing's new Dreamliner -- a midsize plane that will carry 200 to 300 passengers and be able to fly 9,000 miles nonstop, much farther than other planes its size -- is a fine fit for such rapidly growing secondary cities in the Asian market as Wuhan and Chengdu in China. Such cities are increasingly becoming the sites of auto plants and factories as well as high-tech industrial parks, many created with non-Chinese partners from Japan, Europe and the United States. Executives at these firms need to be able to travel quickly to and from formerly remote spots without hopping from airport to airport and enduring long, wearying waits and anxious changes of planes. The 7E7, as a midsize plane, will be able to serve those cities and their smallish airports directly from far-off points rather than funneling passengers through one or even two changes of planes at major hub airports. "Asia is growing faster than the rest of the world. We expect to sell 30 percent of our 7E7s in Asia, which usually accounts for 20 percent of all our commercial jet sales," said Mike Bair, Boeing senior vice president for the 7E7 project. Moreover, the 7E7 will allow Chicago's Boeing to steal some momentum from Airbus, which is building the world's biggest jetliner, the A380, a jumbo carrying 555 passengers. It will serve major airports like London's Heathrow, New York's Kennedy, Frankfurt and San Francisco International. "There is a case to be made for gargantuan aircraft," said Robert Mann, = an aviation industry analyst. Jumbos like the A380 and Boeing's largest plane, the 747-400, are good to have at big airports in world capitals where passenger demand is high and airport congestion limits the number of flights, he said. But those huge planes can't squeeze into smaller airports. However, midsize planes like the 7E7 can, and Mann thinks that is where the market is going, especially in booming Asia. Airbus makes the midsize A330- 200, which ANA could have bought instead of the 7E7, but Boeing won out. Win-win situation "The 7E7 is good for Boeing, and it's good for Boeing's production partners in Japan," said Mann, president of R.W. Mann Inc. of Port Washington, N.Y. "It's doubly significant to have some parts of the plane made in Japan for a company (ANA) that's going to fly the plane from there." Three Japanese heavy hitters -- Fuji Heavy Industries, Kawasaki Heavy Industries and Mitsubishi Heavy Industries -- will help build the Dreamliner. Bair said Boeing has a good relationship with the big Japanese companies, which made parts for the Boeing 777 when it was introduced a decade ago. ANA spokesman Tom Fredo said that having part of the 7E7 made in Japan doesn't hurt in bringing the new offering to ANA's attention, but its Japanese connection was not a major factor in choosing the plane. "If the plane hadn't met our criteria, it wouldn't matter if the whole plane was built in Japan," Fredo said. ANA, which operates a daily nonstop flight between Tokyo Narita and SFO, ordered the 7E7 because it has the right size and range and will save the airline $90 million a year in operating costs, Fredo said. ANA plans to fly the new plane, configured into business and economy classes, in East Asia, including China, where the airline, Japan's second- largest carrier, serves eight cities. It also will fly to Honolulu. While the 7E7 could reach San Francisco from Japan, it won't, because that route includes first-class service, which won't be offered on the Dreamliner. ANA also operates a lucrative freight service to China, whose economy continues to grow at nearly 10 percent a year. "The inbound freight market is quite good, and the outbound market is almost limitless," Fredo said. China has big influence China's growth is driving the airline industry, just as it is driving changes in ocean shipping, steel, auto-making and other globalized businesses. "We are looking to secure new members in Asia, especially China," said Jaan Albrecht, chief executive of the Star Alliance, a global association of airlines that book fliers on each other's flights, cluster members' ticket counters in major airports, market jointly and make joint purchases of jet fuel. "We see substantial growth in Asia, double the rates for North America a= nd Europe," Albrecht said of the Star Alliance, which includes United Airlines, Singapore Airlines, Lufthansa, Thai Airways and ANA. Reflecting the global nature of the aviation business, 7E7 parts will be made in far-flung places before final assembly in Seattle, where Boeing was born. Production will start later this year in Italy, the United Kingdom, France and Japan, as well as in Oklahoma, Connecticut, Arizona and North Carolina, with 60 to 70 percent of the plane being made by contractors. When the Dreamliner, scheduled for its first test flight in 2007, reaches its first customers the following year, its leading-edge design should wow travelers in Asia, where the latest, the biggest and the best has, if possible, even more gee-whiz appeal than elsewhere in the world. Roomier, quieter plane The new plane will be slightly wider than existing midsize aircraft, providing some precious wiggle room for passengers. It will be quieter than older models and cheaper for airlines to operate due to its greater fuel efficiency. The fuel efficiency, Bair said, will come about partly because the aircraft will be made largely of light, composite materials instead of traditional aluminium. "It's chiefly hardened graphite, exactly the same material that's in the shafts of the new golf clubs," said Bair, who added that such composites, which have long been used in military aircraft, are lighter and more durable than aluminum. ANA's big purchase, at an undisclosed launch-customer discount from the = $6 billion list price, is the only confirmed buy. Bair said Boeing is negotiating with British Airways, Lufthansa, Singapore Airlines and Cathay Pacific Airways. A British Airways spokeswoman confirmed the talks and said the airline has had input into the plane's development but not yet decided whether to buy it. Boeing sees a market of 3,500 aircraft worth some $400 billion in the 7E7's midsize range over the next 40 years, Bair said, "and we think we can sell more than half of them. We think we have an airplane the world will want. " E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2004 SF Chronicle