Boeing Giving Up On Airliners?

[320DRIVER]

A new study has aviation industry analysts buzzing and Boeing furiously denying the conclusions it reaches. According to the study, done by Prof. Alan MacPherson, of State University of New York at Buffalo, and David Pritchard, Boeing will be out of the airliner business within 10 years and will be concentrating on military and special aircraft. "This report is riddled with factual inaccuracies and mistaken conclusions," protested Boeing spokesman Todd Becher, who said Boeing is in the airliner business "for the long term."

Full Article (http://www.businessweek.com/bwdaily/dnflash/apr2003/nf20030410_9298_db035.htm)

[arcniz]

That makes sense. Put Airbus in charge of the asylum.

Now, if Airbus can only get the AA587 thing sorted out......

[320DRIVER]

I'm not sure how much you are involved in commercial aviation but if you are, you should at least be aware of the initial findings of AA587. If not, I suggest you review some past postings on PPRUNE.

[sweeper]

as a bus driver and ex b747 afficiando...
i regret the loss of "likeing the aeroplane", but if you look at efficency and costs, b have a lot of catch up to do..

if you will in future buy your ticket on the internet, at the best price,check even now whether the best prices are from bo,s or bus,s...

[N380UA]

Well said sweeper.

[Rabbit]

As much as Boeing is falling behind Airbus technicallyand orders does not automatically mean they will get out of airliner production. However having said that, I do remember reading some time ago an artical about Boeing in which one of the Boeing management stating that they intended to reduce their emphasis on Commercial aircraft production in favour of the more lucritive military production. True or not only time will tell.

Have a nice day

[arcniz]

320Driver - I am familiar but not particularly sanguine in regard to the "tapdance on the pedals" theory. Airbus effectively controls access to the factual data from which all interpretations must arise and thus far appears to have been less than forthcoming about aspects of the flight record and the systems design, probably for purposes of legal manoeuvering in the civil litigation.

It is not exactly the high water mark for 'bus credibility, but other airframe companies have weathered much worse. Still, 'breaking up in flight' does carry a bit of negative connotation.

[NWSRG]

Its not many years ago since Boeing were riding high over Airbus. Any industry where you have two big players tends to be cyclical. At the minute Airbus have the edge - a massive investment in new models has seen to that. But Boeing can use the 7E7 as the start of a turn-around. With that aircraft, plus the 777, the core of the range will be very modern. Then the big question is whether to do something 737 size and go for volume, or something like the BWB at the upper end. But any reports of Boeings demise, after a couple of bad years, is very naive.

[ATPMBA]

Well, I guess it makes sense. It seems like airlines and leasing firms are always playing off Boeing against Airbus. If Boeing goes the military only route they won’t have any of these headaches. Airlines and leasing firms will be in a difficult situation with only one supplier.

[ICT_SLB]

As soon as I saw "Digital Projection by Boeing" on Star Wars Episode 2, I thought they'd made their decision. This was reinforced by a visit to the 73 line at Renton last year - as echoing & empty as any BAC plant was in the 70s.

Can't help thinking that it's a great loss to both the US & the aircraft industry in general when you don't adequately use the talents of one of the greatest design teams ever. It will be a double loss as Lazy B people are the technical backbone to many of the industry groups that dream up & standardize the systems we all rely on.

[TightSlot]

Not being cute just looking for answers...

Why should the military be more lucrative? Is it because they are inefficient in costing and managing projects, so that it is easy to run over budget and/or overcharge? Or is it that the technology used is simply more expensive? Or is it that they have a higher rate of hull loss than commercial and so need replacements? Or is it that they pay up front and/or guarantee a minimum purchase?

If the military were to become competitive in tendering and managing projects (little sign of that in the UK I fear, don't know about U.S. and others) then might not this "lucrative" edge be reduced?

Thanks for any feedback - Boeing has been looking after me for many years and I sincerely hope that they continue to do so.

[xyz_pilot]

I think part of the problem is the way the company has sold its self to its shareholders. It has made an effort to project the image of a “high tech” company, and it has succeeded. With this success has come an expectation in the shareholders for “high tech” rates of return. The reality is a company that has a large part of its business in engineering manufacture. The rates of return in this sort of industry are a lot lower than “high tech”.

One answer could be to split up the company so each part can be seen in its own light. A big problem for the airline part would be how to raise the capital to replace the obsolete product lines (all bar the very successful 777).

[Buster Hyman]

One answer could be to split up the company

Hmmm...and they could call it....McDonnell Douglas!!!:D

[alosaurus]

Hey guys,get real.

Airbus are targetting a sustained 50% of the commercial aircraft market...where do you think the rest will come from.

A 747 has a sticker price of $150 M it costs Boeing around half that to produce a 74 now that is a lucrative market.

[Knold]

If it is true, than it would be a sad day. Perhaps they might cut back a bit but then again in rough times it's an easy made assumption that they will concentrate on less products and with better profit margin. But, the market moves up and down as we all know. Unnecessary to say these times are some of the toughest the industry has faced. Even so, it will someday look better.
Will Boeing make cuts? Likely.
Will they abandon less successful models sooner? Likely.
Will Boeings place in commercial aviation fade? Don’t think so. IMAO ;)

[tsgas]

Not going to happen. Boeing will be building airliners for a long,long time to come. The only airline in the U.S. that has made a constant profit for the past 30 years is SW with a 100% B-737 fleet.
The Americans will never allow themselves to become totally dependent on the Frogs for airliners or for that matter anything else.

[IceHouse]

So what will the Americans buy once the 757/747 production lines close down then? Nothing in the boeing pipeline at the moment to replace these aircraft as the 7E7 is larger than a current 757 model and a 773 is no match for an A380.

[Knold]

"When the 757/747 line close down?" How big a crystal ball do you have?
These lines will stay online for a long time, perhaps longer than some of our careers!
Sure the 737 has be been a child of the 60s and still is but the 757 is still ahead of it's time.

[Flip Flop Flyer]

The problem is that nobody is buying the 757 ... If memory serves me right, Flight International's 2002 survey revealed that the production may halt at the end of 2003 if no new orders are booked, at the current production rate. It may be ahead of it's time, but it's still not selling at the same rate as the A321.

The 747 is also selling very slow; I belive the -400LR has only sold a handful of copies to QF and AF. Seems that large pax transport orders goes to Airbus, whereas the -400 only seems to have a future in the cargo hauling business.

And the 767 ain't faring much better either ....

It'll be 3 - 4 years before the 7E7 enters the fray, and only as a single "stand-alone" product. It will take a few years more before it evolves into a family of aircraft, but will Boeing be able to turn a profit on an ever aging product range for another, perhaps, 10 years?

Having said all that, here's hoping that they'll stay in business. The industry needs, at least, two competitors in the medium-to-large airframe business.

[Nigel PAX]

The USAF tanker order is likely to keep the 767 line open for a few more years yet. Maybe the US military needs to find a use for a few dozen 757s as well? If not, the B739 and A321 are taking a big bite out of the lower end of the 757 market, while the 7E7 threatens the upper end.

Of course the reborn Iraqi (but perhaps US managed) Airways is more than likely to be ordering Boeings, not French/German (and only slightly British) Airbuses, just as PIA's Airbus preference was switched by the government to 777s.

The 747 line is probably more secure as it has no direct competitors, and plenty of scope for price cuts.

[IceHouse]

How can the 747 line be secure when boeing offer the 773 with many more lower deck positions for cargo, the 772/A345 with more range/economy and then the A380 when launched will have more pax capacity, technology and also range.
With the amount of used 744's flooding onto the market from UA, SQ etc then surely the market for brand new 744f aircraft is drying up whilst these are converted into freighters, so what advantage would the 744 have over all these stated aircraft?

[Nigel PAX]

I meant the 747 is more secure than the 757, not in any absolute sense. I agree with all your points, but I still think Boeing would be more likely to close the 757 line than the 747. Of course, if the order drought continues for long, both might go.

[IceHouse]

Nigel Pax

Sorry, misunderstood you...Just hope though that there is fair competition when it comes to Iraqi or any other middle eastern fleet replacement in the future, can't see it though with current Bush administration and the PK B777 order you pointed out as an example!

[Ignition Override]

7E7? What is that? I just got back last night from a four-day trip and heard a pilot describe some common cockpit which will be built by Boeing for narrowbodies.:=

[Snoop]

Are Boeing due to post their financial results within the next couple of weeks?

I don't think it would take a financial genius to say that they will probably be less than spectacular. Call me a bit cynical but with less than impressive results and rumours being put around that Boeing might give up making airliners, people will be more cautious when it comes investing in Boeing and it's projects.

Good tactics by the competition, if it is indeed them who have started the circulation of this rumour.

[Nigel PAX]

I don't know if people saw this article from 21 April in the Seattle Times: http://seattletimes.nwsource.com/html/businesstechnology/134679776_boeingloans210.html

It sounds like Boeing's best customer at the moment is.... Boeing Capital! Isn't this what BAe did before dropping out of the new-build airliner market?

When Midwest Airlines ordered 25 717s last April, Boeing sales chief Toby Bright called it a "huge vote of confidence" for the slow-selling jet.

But in reality, the Milwaukee-based carrier wasn't buying a single plane. The real buyer was Boeing itself.

Boeing Capital, the aerospace giant's finance arm, is using borrowed money to purchase all 25 jets, worth $940 million at list prices. It is then renting the planes to Midwest, which will repay Boeing Capital with monthly payments over two decades. The deal is so sweet for Midwest that it will actually receive more money from Boeing Capital than it pays out this year, as it receives the first 11 planes.

Such deals minimize the danger that carriers will disrupt Boeing production by refusing to take delivery of jets they've ordered. But they increase the risk of missed rental payments and loan defaults by shaky customers.

They also make Boeing a major owner of airplanes, a costly position to be in when the values of used jets are plummeting. Boeing Capital owned 317 planes at the end of 2002, including 77 717s.

When Boeing Capital was created in October 1999, it was expected to be more profitable than Boeing's commercial-airplanes unit by avoiding high-risk deals. But an investment of more than $7 billion in new aircraft finance deals has produced mostly headaches so far.

...
Boeing Capital agreed to reimburse all of Midwest's pre-delivery payments, plus interest on a $45 million loan Midwest had taken from a German bank to cover the payments. Boeing also supplied credits Midwest could apply toward pilot training, maintenance and spare parts.

"I can tell you that without getting into the details, the (717) program will be cash positive in 2003 because of the way the transaction is structured," Midwest Chief Financial Officer Bob Bathman told investment analysts in January.

...
The struggling 767 line is also getting important assistance from Boeing Capital. Employment on the line is on its way down to 400 workers from 1,400 a year ago as production falls to just one plane every six weeks, versus three-and-a-half per month before Sept. 11, 2001.

Again, the picture would look even worse without Boeing Capital. The finance unit has pledged $575 million to help American Airlines take delivery of nine 767s this year — or nearly half of all the planes due to come off the line in Everett.

Given American's failing health — the carrier narrowly averted bankruptcy last week when it received last-minute salary concessions from labor unions — such investments look risky, since the chances of American's defaulting remain high. But Boeing is nervously hoping for a contract from the Department of Defense for 100 767-based air refueling tankers. If the program is approved, production of the planes on the 767 line could begin as early as late 2004.

Since the costs of mothballing and then restarting a production line are extremely high, it may serve Boeing's long-term interest to keep pumping 767s out of the factory until the tanker contract kicks in — even if it takes risky investments by Boeing Capital to make it happen.

"There are no other customers for the 767," said Joseph Nadol, an analyst at J.P. Morgan Chase. "They are trying to keep that line alive for 2003 for hopefully the tanker business in 2004."

Source: http://seattletimes.nwsource.com/html/businesstechnology/134679776_boeingloans210.html

In other words, to produce aircraft for the (many) non credit-worthy airlines, Boeing builds and buys the planes, leases them to the airline, and then sweetens the deal with first year cash backs — much like GM sells cars. No doubt other manufacturers are also having to resort to similar incentives to get business in the current climate — Airbus, Bombardier and Embraer probably all also do whatever it takes to get orders in the current climate, and all four also get covert (or not so covert) government help with export orders. But it does sound like the 717, 757 and 767 (sans tanker orders) are the most threatened at the moment.

As for the 7E7 (presumably to become the 7 Eight 7 if launched), it's, roughly speaking, Boeing's proposed more efficient version of the A332, intended to replace the 767 and 757-300. It will compete with the A332, and whatever Airbus plans to replace the A300.

[JetDriverWannabe]

Its quite intresting....but I have to point.
Quite a few finaically better off carriers DO NOT buy their planes out right, they buy it with finacing options. coughing up 200 million USD for a new B777-300 is still very hard for many well off airlines .....
======================
Lets take a look at the fleet of a particular airline.

Planes Owned by this carrier... 14 planes.
8 x B744 , 4 x 742F , 1 x 744F , 1 x 772

Planes being Financed ( with the option of purchase after x years) 57 planes.
9 x B744 ,2 X B742F , 4 x B744F , 4 x B772 , 7 x B773 , 20 x A333 , 11 x A343

Leased Planes (dry leased) 8 planes..
2 x B744 , 4 x A343 , 2 X A346

From the above examples, we can see even for a resaonably well off carrier, they still use ALOT of finaincing and leasing. 79% of their fleet.

ILFC ( International Lease Finance Corporation, part of AIG),GECAS(General Electirc Capital Aircraft Services),Boeing Capital all play a role here..


Also, when Airlines do buy planes, there always alot of horse trading going on.....I wonder why boeing is selling some spanking new , zero mileage Airbus A340-300 ...look here (http://www.boeing.com/commercial/airtrade/reports/other.html)

[Flip Flop Flyer]

The Busses Boeing have for sale was part of a deal they made to sell SQ 777s. Not only did they have to sell their existing fleet of A340s, they also took brand new ones straight from TLS. Those are the ones you see on their site.

[moggie]

tsgas - and how many airlines operating pure Boeing fleets have made large losses.

To blame airline losses on operating Airbuses is just plain dumb - even the most efficient airliner can be turned into a loss maker by crap management!

And vice versa - old, inefficient airliners can make profits if you keep your overheads down (look at Ryanair and their Jurassic 737-200 fleet!).

[brabazon]

An advert a few months back seem to indicate a direct relationship between airline profitability and Boeing aircraft in their fleet, ie the more Boeings the bigger the profit. However I would have thought just as valid a statistical relationship could be found between airline loss and Boeing aircraft in fleet.

Anyone like to take up the challenge of testing this, for example which airline has the greatest loss and how many Boeings are in their fleet?

[T_richard]

FYI

There was a very interesting article in the US edition of The Wall Street Journal on 4/21/03. Basically are they going to back out of commercial bz and focus on military contracts as well as a discussion about whether or not BA is going forward with developement of a new a/c, I think it was the 777.

[BahrainLad]

Hmmm, how many Airbii does American (losing $1 billon a QUARTER) operate?

[Nigel PAX]

I think there was once a time when you could find a correlation between loss-making airlines and Airbus. It wasn't that use of Airbuses caused the losses, but that Airbus was competing on price and tended to win more deals with financially weak airlines. Presumably it (or the French/German governments) was subsidising the lease deals more than Boeing was. For example, Airbus won USAir while Boeing won AA.

But now, Boeing is clearly also doing the same sort of subsidising, and most conventional airlines are losing money regardless of equipment. A better current correlation might be between involvement in the airline business (building or operating planes) and losing money.

[Richard Spandit]

I flew a three-week old 757 the other day and apart from a very neat weather radar, it doesn't seem to have evolved much from the original design. In this day and age with fuel costs soaring, the 757 is massively overpowered in comparison to the A321. Admittedly there are some airfields where the extra power is useful, but I doubt these are in the majority. Yes, it's fun doing 8000+ fpm upwards, but not really necessary. A variant with engines better matched to the airframe would give much better fuel efficiency than the current GTI models and go some way towards strengthening Boeing's grip on the market.

If anyone witnessed the amateurish launch of the 764 then it will come as no surprise to you that Airbus are making such strong headway against the competition.

[320DRIVER]

And who said there was an air travel crisis in the U.S.? :D

JETBLUE PLACES ORDER FOR 65 AIRBUS A320s
APRIL 24, 2003

New York low-cost carrier JetBlue Airways has placed an order for a further 65 firm Airbus A320 aircraft, plus options for an additional 50 A320s. The newly ordered aircraft will be delivered starting in 2004 and running through 2011. Each will feature IAE V2500 engines, paralleling the rest of JetBlue’s current 41-strong A320 fleet. This new order brings the airline’s number of aircraft on firm backlog with Airbus to 111 A320s.

[tsgas]

Moggie you are an idiot !
I never blamed losses on anybody or any company.
I stated a fact that SW made money with Boeing products.
So lighten up on the goof balls,get an education,and dont piss me off with your stupidity.

[Flight Safety]

Regarding the 757, I agree it's only been improved in relatively minor ways since it was first introduced, especially in the cockpit. Since the 764ER was introduced with a combination 777/737NG style cockpit, and still managed to keep the same type rating, I don't know why the 757 couldn't also be upgraded with the same cockpit. This would make a fine aircraft even better.

Regarding sales of the 757, I just tried to look at the order numbers for last year on the Boeing website, and for some reason the order data is not available for 2002 at this time. However I monitored the sales volume for the 757 for last year (I can't remember the numbers right now), and the orders weren't that bad given Boeing's overall low numbers for last year (a bad year for both Boeing and Airbus).

The 757 orders for years prior to last year were:

1995 = 13
1996 = 59
1997 = 45
1998 = 50
1999 = 18
2000 = 43
2001 = 43

I don't think these are bad sales numbers at all for the aircraft. Sure it's not anywhere near the numbers for 737s or A320s, but the 757 was never designed to be those aircraft.

Regarding the engines being overpowered, the aircraft was designed to have high power right from the start, given the particular market niche it was specifically designed to fill. Even though that specific market niche is not very large, the aircraft is still the only one of it's type available for that niche. While the aircraft has somewhat close competitors, is still has no direct competitor. The aircraft is available with a choice of 2 engine families, each of which have more than one power rating available, if a lower powered (i.e. more fuel efficient) engine is preferred by the customer.

I think as long as Boeing continues to upgrade the 757 (again a new cokcpit would be a very nice addition to the new interior), the aircraft has a future.

I also don't see Boeing ever getting out of the commercial airliner business, since it more than any other company, built the commercial jetliner business. I personally think the 777 is a better FBW jet than the Airbus jets are, mainly because I believe the human interface is better and safer. Having started Boeing's FBW revolution with the 777, it can start extending the FBW airliner fleet with the 7E7, as the 7E7 will be the next family expansion of Boeing's FBW fleet.

[Aviation Trainer too]

Just fill me in on that... wasn't Boeing the manufacturer who used the media extensivly to tell them that FBW was dangerous etc... Only to come two decades later with a FBW and claim it was the best thing to hit aviation since birds started to fly (well something like that)

The problem is that hardly any two Boeings of the wide body fleet are alike and that make them very expensive to operte by second tier operators. They have to buy from one source or face the penalty of having to rebuild the cockpit for commonality...

[Snowballs]

Give a dog a bone, Airbus aircraft may be similar but in reality are worlds apart. The manuals are a dogs breakfast of compromise that only the French can understand, to try and convince people that a common endorsement will cover all types.
While not wanting to defend Boeings multiplicity of types and penchant for tarting up old designs that should have been consigned to museums years ago, Airbus in their own way, in trying to convince people on their commonality, are not much better.
:p

[320DRIVER]

AIRBUS’ A320 FAMILY BECOMES THE AIRLINER OF CHOICE FOR LEADING LOW-COST CARRIERS

Low-cost and charter airlines selecting the A320 Family now include North American operators jetBlue, Frontier, Tango and USA3000; along with Europe’s Air2000, DutchBird, easyJet, LTE, Martinair, Monarch Airlines, MyTravel Airways, Spanair and Thomas Cook.

[Burger Thing]

A320 Driver... The LEADING Low cost airline is still SOUTHWEST. They fly a all Boeing 737 fleet... ;) :p

Airbus pushed hard to get their foot into the No frills market and made offers at times, which Boeing couldn't come up with (easyjet etc.)

From a pilots point of view, I hope, that there will be always more than only one manufacturer, because I believe competition leads to a better product. Personally I don't like the design philosophy of airbus, pushing the pilot more and more out of the loop. I know it is nowadays everything about business :{ , but I still want to have fun sometimes, while going to fly and not getting bored to death. An all airbus world... Hope it never happens!

[Ignition Override]

First of all, I'll probably end up on the A-320 one day, unless somebody gives us some 737s for almost free (which Boeing can not easily do, as the civilian sector can not, by law, receive US taxpayer revenue without a special Congressional exemption).

1) The first airline in either the US, or possibly all of North America, to order the A-320 (fbw) jets was an airline, whose CEO allegedly accepted some per$onal, eh, " gift ". According to the "Wall Street Journal", the former CEO was friends with a Bavarian politician (Strauss?) who was then on the Board of Directors at Airbus. This same CEO lost his golden parachute when the airline was sold to completely new owners.

2) I can not prove this, but was not JetBlue paying either about half the normal lease rate, or almost none at all, until a few months ago? How about the other low-cost operators with similar Airbus equipment? I'm sure that JetBlue was the only company to have been given such marketing advantages............

It must be quite nice to offer a family of aircraft, however well-designed and/or stuffed with microchips, when the taxpayers of various (high-tax) countries subsidize the development or production etc, but when an airline(s) operates for a grace period with reportedly very little in the way of lease payments, that is quite a deal, which is hard to compete with.

Isn't this very similar to what they referred to years ago as "dumping", concerning the steel industry? My comments do not presume to portray the basic industry(s) by way of a few random comments, but are these not fairly accurate assessments of some pieces of the overall picture?
:)

[Tcas climb]

Here we go again, Boeing vs Airbus.

Airbus is subsidised and has a poor pilot/machine interface, we hear from the B(oeing) crowd.

Fact: Airbus does not receive any handouts, only loans that has to be paid back. Allmost all people, who I talk to who have actually flown the Airbus love it, it's just different and takes a little getting used to.

Boeing is old and an out of date aircraft with no progress, we hear from the A(irbus) crowd.

Fact: Boeing is an evolving firm, slowly but surely improving its product line over a period of time. That Boeing has tried to improve on this, by coming up with a publicity stunt that backfired (the Sonic Cruiser) is their own fault. Boeing should have done what they are good at, evolve their product. Next maybe boeing should come up with a new product line, giving airlines and people a new product, that is economically viable for the airlines and giving the pax more space in the width (single isle).
Allmost all people I've talked to who fly's Boeing love them, only complaint is the noiselevel in the cockpit.

[320DRIVER]

To be fair...


Condit Defends Performance...

Despite a gloomy order book and a still-gloomy forecast, Boeing CEO Phil Condit recently assured shareholders the company is on the right track. It's no secret that rival Airbus is edging out Boeing in the commercial aircraft manufacturing sector. Many predications call for Airbus to beat our Boeing in sales this year. However, Condit told a shareholders' meeting that Boeing is still strong due to its diversification into the defense and space sectors. Condit said current data still show Boeing is on track to deliver 280 airliners after shipping 71 in the first quarter. The wars in Iraq and Afghanistan have been good for business and no one else seems to match Boeing's posture in the military market. Airbus is struggling in this sector and recently lost some orders for its long-awaited A400M. Last year, Germany cut its orders to 60 from 72 and Portugal canceled its three orders of the $80 million aircraft, which has been under development for 20 years. Meanwhile, Boeing is on the attack in Airbus's home turf and is talking to France, Sweden, Norway, Germany, and NATO about orders of C-17s or 767 refueling tankers, said Chris Raymond, Boeing's manager of business development for those programs.

...As 1Q Losses Nearly Largest In History

Condit's note of confidence belies the company's financial performance. Boeing last week reported a fourth straight drop in quarterly revenue, and sales in Europe have plunged 35 percent in two years amid a slump in commercial air travel. To cope with the decline in demand from commercial airlines since 9/11, Boeing has eliminated 30,000 jobs and halved jet production. Boeing shares have plunged 37 percent since the Sept. 11, 2001, terrorist attacks that sent the aviation sector into an unprecedented downturn. To add insult to injury, J.P. Morgan Securities downgraded Boeing to underweight, noting that the Commercial Airplanes unit was highly dependent on Asian carriers for deliveries, noting that they are increasingly affected by SARS. At the shareholders' meeting, Condit downplayed the significance of SARS on the company's future prospects since the disease is still contained in a few cities. "Obviously if this becomes a global epidemic, it's a big deal," he said. "Clearly right now, it is the classic reaction to the unknown that is sidelining travelers."

[SLuca]

Hi 320DRIVER,

Airbus lost money for 30 years so what are you trying to infer in bringing up Boeing's loss for a 1/4th of a year ?
So far, EADS & BAE's performance is even worse than Boeing as well !
As far as the EZ deal, EZ publicly claimed early last year that the 737NG is the most efficient airliner for a LCC, while asking Boeing for a better deal.
They didn't get it & went Airbus, does that make the A32X the airliner of choice for LCC ? No, but the higher A32x operating costs can be outbalanced by a very good price on lease rates, spares, maintenance etc...

[Wino]

TCAS,

FACT, Airbus is GIVEN the money for product developement and then repays them via a "license fee" on each aircraft. They don't actually have to repay the loans if they don't sell any aircraft.

Boeing would KILL for a deal like that, because then they don't have to make the economic case for an aircraft they can just build them and hope that someone comes along to buy them, and if they do great, and if they don't no big deal. (Which is EXACTLY what Airbus does)

In the case of the A320 the loans were actually paid back (sort of) but not in any other airbus aircraft.

When it comes to developing aircraft they are breath takingly expensive.

If it costs 10 billion dollars to develope an aircraft and you borrow that money at zero percent interest (something Boeing can't do) and you sell 500 aircraft, 20 million dollars of each and every aircraft is developement costs that are there before you cut the first peice of metal (and build the factory, hire the workers etc).

Now all of that is before INTEREST expenses. that 10 billion dollars is spent years before the first aircraft is delivered. Sorry dude, you got it wrong, and just imagine the uproar from Europe if Boeing got a similar sweet deal.

The market would be flooded with dozens of relatively poorly selling "Common" derivatives like the A340 500/600. In reality the only thing common between the a340 300 and the a340 600 is the cockpit and the fuselage diameter.

Had Airbus come up with the idea of the Sonic Cruiser they most certainly would have built it, because it wouldn't matter if they sold any or not, they could just claim the "technological high ground".

Cheers
Wino

[brabazon]

WINO

So according to your FACT who exactly is it that pays Airbus for product development?

[320DRIVER]

Hi Wino,

I don't think the Americans can give Europeans any lessons on unfair Government support to businesses. Case in point is the US airlines cash-outs after Sept. 11.

Of course the US airlines were hit hard but weren't we all? And don't worry, Boeing (Military) will have plenty of business as long as Mr Bush is around. ;-)

[MarkD]

Wino

what about that USAF tanker dealer that allegedly would have been cheaper to buy all the tankers than lease them?

And apart from the pylons etc., what else changed in the 345-6? Surely tailfin etc. is the same?

[Wino]

345/6
Tail fin is Smaller cause it has a longer arm
Wing is different.
Fuselage skins are completely different (much thicker to support greater weight)
Engines are different


You get a better idea of the effect of length on the tail fin when you look at the tail of the 747sp which was larger and the rudder was segmented because of the shorter arm.

The European governments provided the funding. That has never been disputed and is still the case in the A380 though not at 100 percent now, but its still there at around 60 percent I think it was. Infact the British government was forced to pony up the cash or they weren't going to get any part of the manufacturing.


MarkD
As far as those tankers go, NOTHING HAS BEEN PURCHASED YET. And when they do, its keeping an old line open. How is that helping Boeing to compete? What new product arises?

Buying an aircraft that is long in the tooth is NOT the same as developing a whole new aircraft. And as the military business is bid on among many defense contractors it is not lucrative like a cash grant from the French government. Those contracts go to raw materials, salaries and research that does not really translate well. Military requirements are quite different then civilian ones which is why their are no Civilian C-17s flying though boeing would desperately like to sell them. So that arguement doesn't hold at all.


320,

The cash grant after 9/11 was for the days that the airlines were grounded by government order. They were forbidden from doing business through no fault of their own by federal order and were rightly compensated for their losses during that period. The Loan guarantee program on the other hand was a different animal set up to correct a perceved lack access to the equity market. It never panned out and when all is said and done only about 1 billion out of the 10 billion was actually loaned to any airlines. the bulk of which went to USair. And by the way, they weren't government loans, but Government loan guarantees. not quite the same.

Furthermore, it was never done before in the USA, and I would stop squawking and Airfrance, BA, Olympic, Sabena, etc have all received government money. I would say that was simply leveling the playing field.

Cheers
Wino

[Dr Dave]

Sorry, but this works both ways.

On 24 February 2000, the WTO ruled US FSC exemptions amount to a prohibited export subsidy under the ASCM. The WTO gave the US until 1 October 2000 to comply with the ruling.

Boeing was named as one of the major beneficieries of this programme. For example, in its 2001 financial statements Boeing declared that FSC tax benefits amounted to US$222 million. This is 8% of Boeing's net earnings (US$2.8 billion).

Between 1995 and 2001, FSC benefits for Boeing amounted to at least US$1 billion. In terms of market value, it has been estimated that improved earnings due to FSC subsidies translate into advantages of US$1 to 2 billion for Boeing's market capitalisation, allowing it recourse to relatively cheaper capital.

Note that even after the WTO ruling this saga rumbled on. On 30 August 2002, the WTO arbitrators awarded the full amount (US$4,043 billion) of potential countermeasures that could be applied if the US does not repeal the ETI scheme.

In Feb 2003 even the Bush administration called for Congress to deal with these subsidies.

See:
http://usembassy.state.gov/tokyo/wwwh20030205a8.html

Incidentally, Airbus government loans are prescribed in a WTO agreement of 1992 (at least according Airbus), although questions are being raised by the US at the moment about whether A380 funding meets this ruling (jury is still out).

Dr Dave

[brabazon]

WINO

Sorry to come back on this, but you used the word FACT which implies that and nothing else, can you give me the details of the money which the UK Government has allegedly given in relation to the A380? My understanding is that HMG provided no such aid, but then you may know differently?

[Dr Dave]

My understanding is that the UK government agreed in March 2000 to provide a £520 million loan for A380 development.

In addition, in October 2001 the European Commission agreed a £250 million development loan to Rolls Royce for development of the Trent 900, which will be fitted to the A380.

Previous loans are (I think):

March 1984: £250 million for the A320
March 1987: £450 million for the A330/A340
February 1998: £123 million for the A340-500/600

Note that repayments include royalties, so that for example the UK government continues to receive royalty payments for the A320 even though capital and interest have been repaid.

Dr Dave

[brabazon]

OK here's what the UK's Department of Trade and Industry


http://www.dti.gov.uk/aerospace/launch-investment.htm

says about the A380 "launch investment" - ie it's not "given" to them without any return as is implied in Wino's posts. Also some interesting UK govt views on other countries' "aid" programmes.


LAUNCH INVESTMENT

Launch Investment is a risk-sharing Government investment in the design and development of specific civil aerospace projects in the UK. It has been used to support developments of airframes (or parts of airframes, such as wings), helicopters and aero engines. The investment is not a grant and is repayable to the Government at a real rate of return, usually via levies on sales of the product developed. By this means, the Government shares in the risk of the project, since the company may not achieve sales at the level or price forecast. Launch investment is available only to the aerospace sector and stems from the provisions of the Civil Aviation Act 1982.

Significant projects supported in the past include the Airbus A320 and A330/340 programmes. The A320 investment has already been repaid to the Government, and continues to provide a return. The A330/340 is contributing a steady stream of funds to the Exchequer, and is expected to pay for itself in the medium term. In November 1997, the Government reached agreement with Rolls-Royce to invest in new engines in the Trent family. This included the Trent 500 for the new Airbus A340-500/600 project, and also upgraded Trent 800 engines for the Boeing 777 family.

On 13 March 2000 the Government announced a new launch investment partnership with BAE SYSTEMS (Airbus UK) to support their participation in the Airbus A3XX ‘super-jumbo’ (subsequently launched as the A380). BAE SYSTEMS is now a 20% shareholder in the Airbus Integrated Company (AIC) with the European Aeronautic, Defence and Space Company (EADS), holding the remaining 80%. Airbus UK, the Centre of Excellence for wing design and manufacture, became a subsidiary company to the AIC and will receive the Launch Investment. This is the largest launch investment announced to date. More recently, the Government has also announced that it has joined with Rolls-Royce in an investment to develop the Trent 900 for the A380 and also the Trent 600 for future Boeing projects.

Launch investment enables the company and the Government to share the typically very high level of risk in aerospace projects, characterised by high costs, long payback periods, and a dearth of private sector investors. Launch Investment also recognises that modern aerospace projects are highly internationally mobile, and it enables the Government to capture valuable projects for the UK that might otherwise be carried out abroad.

The provision of launch investment is entirely discretionary. There is no formal scheme, promotion or budget for launch investment. Each launch investment application is considered on its merits against a range of established criteria and also, by the Treasury, against public expenditure constraints.

An applicant must demonstrate: that the project is technically and commercially viable; that Government investment is essential for the project to proceed on the scale and in the time-scale specified in the application; and that Government will recoup the investment at a real rate of return.

The Government undertakes a detailed assessment of the company’s business case and its claim that the project cannot be funded by alternative means. In addition, the Government assesses the technical viability of the project and the market for the product. Finally, an assessment is made of the wider benefits of the project to the economy beyond the company itself. These can include the spin-off of new technologies or production methods with wider applications in other sectors, or transferable improvements to the skill base. If it is decided to support an application, the Government will provide the minimum support required for the project to go ahead.

In view of the significant amounts of public expenditure involved, DTI closely monitors the progress of a supported programme. Payments are linked to actual expenditure by the company and to the achievement of specific technical milestones. Information is also required from the company on the development programme, the commercial position of the project and the financial position of the company.

Most Western countries with aerospace industries have some form of launch investment (including France, Germany, Spain, Netherlands and Italy). The US supports its industry by indirect measures, in particular the very large R&D programmes run by NASA and the Department of Defense. A range of international agreements exists to regulate financial support given to industry by Governments, and these apply equally to launch investment. Any offer of launch investment must therefore be consistent with the UK’s international obligations.

Principally, these are the European Union’s State Aid rules and the EC/US Agreement on support for large civil aircraft. This Agreement, signed in July 1992, covers all Airbus aircraft and aircraft with a capacity of 100 or more seats manufactured in the US. The Agreement recognises the two main types of support as direct support (such as launch investment), and indirect support (such as the R&D programmes run in the US). The main provisions are:

direct Government support limited to 33% of total development cost of a project;


direct support to be repaid to the Government within 17 years at a rate of return at least marginally above the cost of Government borrowing;


Indirect support limited to 3% of the civil aircraft industry’s annual commercial turnover;


detailed transparency requirements on both direct and indirect supports.

[SLuca]

Hi Dr Dave & brabazon,

IMHO, the FSC tax regime was in fact implemented to level the playing field between the very favorable tax regimes we (in Europe) have benefited from since World War II.
Some EU countries such as France or The Netherlands were also found to have illegal tax regime in the past, but the US decided not to pursue the case through the WTO. (Note that EADS is incorporated in The Netherlands & while Airbus is incorporated in France)
Please check those links for more info.

http://www.iie.com/publications/pb/pb02-10.pdf
http://www.iie.com/publications/papers/hufbauer0300.htm
http://www.iie.com/publications/papers/hufbauer0102.htm

Ironically, to comply with the WTO ruling, the US will have to adopt a export tax system similar to the European ones which will further help Boeing as for some strange reasons, the European export tax system allow for even more export subsidies than the current US one (FSC) while being legal (by WTO standards).
Note that Airbus claims to import up to 40% of the value of its airliners from the US thus benefiting from the FSC as well.
Interesting as well, is the fact that bribing was not only perfectly legal but tax deductible in France until 2000.

To compare the government support of the US vs. the EU, I suggest you check the following link (a bit outdated but worthwhile)

http://www.wws.princeton.edu/cgi-bin/byteserv.prl/~ota/disk1/1991/9112/911210.PDF

While the US has to deal with risk-adjusted rate of returns, the EU does not, thus further helping Airbus.

This could also be of interest:

http://web.mit.edu/ipc/www/Subsidies.pdf

Or this:

Government Support for Airbus

The Airbus Integrated Company - a partnership
of the French-German-Spanish European
Aeronautic, Defense, and Space Company
(EADS-80 percent equity share) and the UK's
BAE Systems (20 percent equity share) - is the
second largest aerospace company in the world.
With about half the new aircraft sales
worldwide over the last few years, Airbus is a
mature company that should face the same
commercial risks as its global com petitors.
Since the inception of Airbus in 1967, the
governments of France, Germany, Spain and
the UK have provided direct subsidies to their
respective Airbus member companies to aid in
the development, production and marketing of
Airbus civil aircraft. Airbus member
governments have borne a large portion of the
development costs for all Airbus aircraft
models and provided other forms of support,
including equity infusions, debt forgiveness,
debt rollovers and marketing assistance,
including political and economic pressure on
purchasing governments. The United States
therefore is concerned about the prospect for
further subsidization of Airbus by EU Member
States governments. Any distortions caused by
illegal subsidies would only exacerbate an
already difficult situation for the large civil
aircraft industry, which is facing significant
losses in the wake of the terrorist attacks of
September 11, 2001 as well as a cyclical down
turn of the economy.
In 2001, the EU announced that seven of the
nine EU Member State governments that have
companies participating in the Airbus A380
superjumbo airliner project have committed a
total of $3.1 billion to Airbus for the
development of the aircraft, the total cost of
which is estimated to be $12 billion. France
has committed to provide 1.213 billion Euro in
reimbursable advances. The German government
has committed to provide 1 billion euro in loans.

The British government announced a
commitment of 530 million pounds to underwrite
BAE System's participation in the project. The
repayment terms and interest rates for these loans are not expected to be
equivalent to those available from private lenders. The loan
repayment obligations are to be success
dependent, which means they are repayable only
through royalties on aircraft sold, and at interest rates that do not
reflect the commercial risks involved.
In addition, the city of Hamburg is spending
some 750 million euro to lengthen the runway
and expand the facilities for Airbus at the EADS Hamburg-Finkenwerder
airport to accommodate the expansion of EADS Airbus assembly there,including
that of the A380. French national and local authorities plan to provide 46
million euro($45.8 million) in aid for road expansion and facility
construction for Airbus in Toulouse.
These government funds appear to constitute
production support for the manufacture of the
A380. Furthermore, the EU's aeronautics
research programs are driven significantly by a
policy intended to enhance the international
competitiveness of the European civil aeronautics industry. Through these
research programs, the EC and many of the Airbus member governments have
provided additional funding worth billions of dollars to support the
development of Airbus aircraft programs, including the A380.
European officials claim that Member State
support is in compliance with the 1992 U.S.-EU
Agreement on Large Civil Aircraft. However,
the United States believes that government
support to Airbus raises serious concerns about
the Member States' adherence to their bilateral
and multilateral obligations, including the WTO
Agreement on Subsidies and Countervailing
Measures (SCM Agreement). The United States
has urged the Airbus member governments to
ensure that the terms and conditions of their
A380 support are consistent with commercial
terms, reflecting both their international
obligations and the fact that Airbus is now a
highly competitive global producer of aircraft.
The United States also believes increased
transparency regarding government support to
large civil aircraft manufacturing will contribute to better understanding
and could foster greater cooperation in the aerospace industry.

Belgium:
The Government of Belgium and
Belgian regional authorities subsidize Belgian
aircraft component manufacturers (operating as
the Belairbus/Flabel consortium), which supply
parts to the Airbus Integrated Company. In
November 2000, the Belgian federal
government reached an agreement with the
three regional governments responsible for
aviation research and development on a Euro
195 million ($195 million) package for the
development and prefinancing of components
for the new Airbus A380. Since then,
Belairbus has already received orders worth
$1.3 billion for the A380 from Airbus.
Although the regional governments of Wallonia, Flanders and Brussels are
usually responsible for industrial assistance, this authority has been ceded
to the national level for the A 380 project. There is concern that these
subsidies may be in violation of the U.S.-
EU 1992 Agreement on Trade in Large Civil
Aircraft and/or the WTO subsidies agreement.
The Government of Belgium states that they
have discontinued an earlier Belgian exchange
rate subsidy program which appeared to be
similar to a foreign exchange rate guarantee
program provided by the German government
for its Airbus partner company and its
suppliers.

France:
In addition to the 1.213 billion Euro in reimbursable advances for
development of the
Airbus A380 super-jumbo aircraft, the
Government of France will provide an additional 59 million Euros ($58.8
million) in
reimbursable advances to other aero-structure
companies, which have concluded partnership
agreements with Airbus for development of the
airframe. Further, the government-owned
French engine manufacturer SNECMA will receive 102 million Euros ($101.6
million) in
support under a royalty-based system authorized by the European Commission
for
SNECMA's development work on a family of
large engines, including its participation in the Engine Alliance (a joint
venture between
General Electric Aircraft Engines and Pratt and
Whitney). The French Government states that
this support for engine development is not
covered by the U.S.-EU 1992 Agreement on
Trade in Large Civil Aircraft.

[steamchicken]

I think some people aren't aware that Airbus is no longer a consortium of worksharing companies but a single, unitary co.

"The UK was apparently forced to pony up the cash..."

In the sense that without it no-one would get any manufacturing because the thing wouldn't have happened.

"In addition, the city of Hamburg is spending
some 750 million euro to lengthen the runway
and expand the facilities for Airbus at the EADS Hamburg-Finkenwerder
airport to accommodate the expansion of EADS Airbus assembly there,including
that of the A380. French national and local authorities plan to provide 46
million euro($45.8 million) in aid for road expansion and facility
construction for Airbus in Toulouse."

Waahhh!! Waaahh! Those dastardly European governments build roads! Unlike US Federal highways....paid for, of course, solely by....errrrrrr - the federal government! Clue in the name! Does anyone perhaps recall the US Defence Plants Agency? And what chance do you think that BAE or indeed anyone else have of getting the faintest sniff of the US Dept of Defence's gigantic entitlement programmes for the arms industry?

BTW, you'd have to be a pork-barreling US politician to convince yourself that having only one serious airliner manufacturer in the world would be more competitive than having two....theoretically competition increases efficiency and reduces prices, so the US economy might actually benefit from launch aid....

[Wino]

Steamchicken,
Competition is good if it is fair.
The ability to borrow vast sums of cash without commercial consideration at well below market rates with no real penalty for not paying it back is hardly fair however.

What is happening is a viable commercial enterprise is being gutted by the European governments.

Cheers
Wino

[JetDriverWannabe]

Steamchicken,
Competition is good if it is fair.
The ability to borrow vast sums of cash without commercial consideration at well below market rates with no real penalty for not paying it back is hardly fair however.

What is happening is a viable commercial enterprise is being gutted by the European governments.

Cheers
Wino

It all really depends on how you read it.

The effective ability of a governement to work in partnership with industry effectivly to provide the needs for viable comercial enterprize is good. The Europeans Governments can work effectivly with Airbus towards a Common goal is co-operation.

This contrast vastly with the Washington State Government which for many years has failed to invest enough into the states trasnporation infrastructure....

Some may read it as government subisidies, but other can call it the governements responsibility. It is the governemnt's responsiblity to support industries and help them become comercialy viable.

For those who say that the European are unfairly helping Airbus. I am sure the US fedral goverment has in the past subsidized other US industries directly or indirectly..





As for business model. It was intresting watching the Boeing 777 PTQ (put together quickly) video and the A340-600 assembly video...........select 777 PTQ from the menu hereB777 PTQ (http://www.boeing.com/commercial/777family/multimedia.html)
select Building A340-600 here...building A340-600 (http://www.airbus.com/media/video_clips.asp)


From the video , you can see that the relationship between at boeing and the people which build the parts of the aircraft as employee - employer mostly.

For Airbus, a more significatant majority is outsourcer-contractor......

Obviously there are benifits and disadvantages of one over another..... I boeing you have more direct control....but you have to bear the extra cost of employing so many people (ie bear the overhead)...For airbus, I would belive this cost is attached to the Which one is more effeicent for the airplane business ? hard to say.....but alot of other manufacturing industries have went subcontractor and airbus pays for the direct labor cost of the sub assembly.....

down the out sourcing sub contracting route.....

I suspect Boeing is going to survive, but its going to follow the airbus way of making planes

[casual observer]

Let's look at the A320. It was launched in 1984 when Airbus just finished developing the A310 and A300-600. (FWIW, the A300/310 was a complete financial failure.) Obviously, it was prior to the 1992 GATT agreement, so it was fully funded by European governments. According to the UK government, they "broke even" on the A320 investment in 1997 or 98 after some 1,100+ A320s were delivered. However, when I checked out the numbers, it appeared to me that "breaking even" meant recovering the investment at 0% interest. The A320 has been selling very well. Thus, there is no question that the UK government is now having a "real" return on their original A320 investment probably at a rate of around 5% or so. However, the market rate at that time was in the low teens. The difference between compounding $2 billion at 5% and, say, 13% interest rate for 14 years (when the UK government claimed "breaking even") is over $7 billion. The $7billion figure is not meant to be an accurate estimate. It just provides a rough idea. This is a tremendous saving on cost for Airbus. For Boeing, a rough estimation is to breakeven after 400 deliveries in no more than 10 years after service entry. When it took the UK government 14 years and 1,100+ deliveries to "break even," Airbus has the audacity to claim they will break even on the A380 only after 250 deliveries, I think people really have to question Airbus' credibility.

A common rebuttal here is how about all those US indirect subsidies. Let's look at them:

1. Government/defense contracts: prior to Boeing's acquisition of MDC, Boeing's non-commercial operations accounted for 10-30% of their revenue. Aerospatiale, BAe, DASA, and CASA consistently had larger combined revenue from government contracts than Boeing had. Even with the MDC acquistion, Boeing hasn't been significantly more dependent on government contracts than EADS and BAE Systems combined, especially if we look on a relative basis, namely, the ratio between commercial and non-commercial revenue.

2. Government-supported R&D: there is no question NASA has a large budget, but NASA does not support Boeing or commercial aircraft industry alone. There are plenty of European government agencies that support R&D directly applicable to Airbus. If Boeing is quilty on this one, so is Airbus.

3. US Exim bank: while the EU does not have an equivalent organized operation, European national banks have helped airlines in securing loans for purchasing Airbus planes at very "favorable" rates. Once again, it's not a Boeing-only privilege that Airbus doesn't have.

4. Tax breaks: I don't know enough to comment. I guess if WTO ruled against the US, then the US is guilty.

As Wino said, competition is good if it's fair, but I'm afraid Airbus has an unfair advantage.

[used2flyboeing]

1)Watch the 7E7 carefully - 2)watch the Boeing board of directors decision this fall for program go-ahead authorization - Boeing HAS to do the 7E7 to keep engineering "critical mass". Boeing has a pig in a poke problem - they are sponges for US military spending & programs - but have this losing commercial airplane business. And therefore are beholden to the US political machine in Washington - what do you think will happen to Boeing military spending if Boeing tries to exit the Commercial A/P business ?? Boeing is the single largest employeer & contributor to the foreign trade balance. You don't muck with this without political reprocussions. No doubt we are in a military economy - Ive heard the Republicans are going to run the former Supreme Commander of NATO as Vice President next go-around - if that doesnt say something about the US's future military objectives & spending - I dont know what does. Then we have old "plow-shares" Hillary.. Democrats won't have a chance with a shrill like her.. & a fraud like Kerry.. As far as AIRBUS - the TGV, Concorde & recently the A380 will show the Europeans have an appetite for programs that are too big to fail ! Oh yea - the US EX IMPORT BANK IS SUBSIDIZED BY THE STUPID AMERICAN TAXPAYER - to make loans to risky nations that are not credit worthy by bank standards - Sooo it is the taxpayer that gets hosed on these screwy foreign deals .. Concerning AIRBUS foreign subsidy's - do a search on "Megaliner" - in the EU research contracts at the TUDelf Library - there are tons of research contract awards for the A380 by the EU with the buzzword megaliner in them.. The EU has subsidized the hell out of this airplane since 1994 ..