Airbus' plans for new plane hint of vapor trail

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http://seattlepi.nwsource.com/business/189862_air08.html

In the software industry, it is called vaporware.

This is software that doesn't exist and may not even be in development.
But that does not keep salespeople from trying to market and sell it.

Microsoft Corp. used this strategy to spread FUD -- fear, uncertainty
and doubt. Keep 'em off balance and unsure whether to buy your
competitor's product now, or wait on the promise that something better
is about to come along.=20

In the jetliner manufacturing business, Boeing and Airbus are masters of
this technique when it comes to sending out signals about how they might
respond to a new airplane threat from the competition.

Not very long ago, Boeing went through several high-profile marketing
campaigns in response to the Airbus A380 superjumbo. At various times,
Boeing announced it was looking at developing bigger and quieter
versions of its 747.

Remember the 747XQLR, the 747-400 Stretch, the 747-800X?

And Boeing continues to talk about the possibility of developing the 747
Advanced.

But the 747-400 remains Boeing's last update of its venerable jumbo,
though the plane's range was recently extended.

The tables have turned, however, and it is now Airbus that is having to
respond to the threat from Boeing's 7E7 jetliner.

Since before the Farnborough Air Show near London in mid-July, industry
and Airbus sources have let reporters know that Airbus was looking at
the possibility of developing a plane -- tentatively called the A350 --
to better compete with the 7E7.=20

It most likely would be a derivative of the successful A330-200, the
sources have said, and would have more range, with the new fuel-
efficient 7E7-type engines and a modified wing featuring more
composites. Taking this approach is far less expensive than building an
all-new jet.

Last weekend, Airbus boss Noel Forgeard was quoted by Bloomberg News as
saying that Airbus is now "reflecting" on whether to develop an all-new
jet rather than a cheaper derivative of an existing model.

Forgeard said Airbus might let the world know its plans as early as the
end of this year.

He said it was premature to speculate, as news reports have, that Airbus
would modify its A330-200.

"We can start from scratch, or we can modernize existing products," he
told Bloomberg.

"We are working closely with the market and with customers," he said,
adding that the first customers could be signed up by late 2005.

Richard Aboulafia of the Teal Group, an industry consulting firm near
Washington, D.C., noted that Forgeard's words about "customers" and "the
market" is the same kind of language that Boeing executives were using a
while back to talk about new versions of the 747.

"This is guerrilla marketing," Aboulafia said. "It is an all-out effort
by Airbus to try and disrupt the business case of the 7E7."

Boeing has said that customer interest in its 7E7 is so strong that it
could have 200 firm orders by the end of this year and 500 by the time
of the first 7E7 test flight in 2007. That would make the twin-engine,
twin-aisle Boeing plane the best-selling widebody plane ever by the time
of its first customer delivery. (All Nippon Airways, which has ordered
50 7E7s, will get the first in early 2008.)

Boeing has 52 firm orders for the 7E7.

But that total could increase significantly in the next couple of
months. Several Chinese airlines could soon place an order for as many
as100 Boeing jets, including about 60 7E7s, according to industry
sources.

Recently, however, Boeing received a setback when Singapore Airlines
said it would delay ordering the 7E7 as it continues to evaluate the
Boeing plane as well as a counteroffer from Airbus for the A330-200.

Airbus also is known to be talking with Singapore about the A350, the
possible derivative model.

Last week, a report by Credit Suisse First Boston raised doubts whether
the Airbus A350 would pose a serious challenge to the 7E7. Published
reports have suggested Airbus could modify its A330-200 into what would
be the A350 for about $2 billion.

"We find it difficult to believe that Airbus could deliver 7E7 cost
savings with an older airframe for only a $2 billion investment while
also successfully completing development of the A380 and launching the
military A400M," the Credit Suisse report said.=20

Airbus might be trying to "give airlines pause before considering a
large investment in the 7E7," the report said, noting that Boeing did
the same thing with its ideas for modifying the 747.

"While we expect an Airbus response to strong market acceptance of the
7E7, we believe a delivered aircraft is unlikely before 2011 or 2012,"
the report added.

Boeing's new jet, which is about the same size as its 767, will compete
in what's known as the middle of the market. The Airbus A330-200 has won
most new orders in this market in recent years.

The A330-200, which entered service in 1998, is a derivative of the
bigger A330-300.=20

If Airbus decides to build a new middle-of-the-market plane, it would be
replacing a plane that is still fairly new.

Aboulafia said it is impossible to predict with any certainty what
Airbus will do.

"They will continue to throw stuff out there for now, but it will fall
under the heading of guerrilla marketing," he said.

He noted the huge expense involved in developing an all-new plane.

The A380 development costs are about $12 billion.

Boeing won't say, but industry analysts have pegged development of the
7E7 at anywhere from $8 billion to more than $10 billion.

"Given the high hurdles of launching new airplanes, there is a lot of
guerrilla marketing," Aboulafia said. "It is hard to get the money that
is required to develop a new plane."

Which is why Boeing is making such as fuss about a 1992 bilateral
agreement that allows Airbus to get government loans for up to 33
percent of the development cost of an airplane.

Boeing wants to make sure that Airbus does not use this aid to counter
the threat from the 7E7 with either a derivative model or an all-new
plane.

The Bush administration has threatened to file a formal complaint with
the World Trade Organization if the 1992 accord is not changed and these
Airbus "subsidies" eliminated.

Pascal Lamy, the European Union's trade commissioner, told The
Associated Press on Monday that this is simply "election-year politics."

Perhaps. But as Aboulafia noted, Airbus is now talking about building a
new jet, and Europe and the United States are talking about Airbus
subsidies.

"There is a lot going on now that revolves around Boeing's 7E7," he
said.

=20

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