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Wall Street Journal story: Boeing, Airbus At Critical Crossroads

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Wall Street Journal story: Boeing, Airbus At Critical Crossroads

Old 15th May 2006, 08:35
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Wall Street Journal story: Boeing, Airbus At Critical Crossroads

WSJ(5/12) Boeing, Airbus At Critical Crossroads

(From THE WALL STREET JOURNAL)

By Daniel Michaels and J. Lynn Lunsford

Airbus and Boeing Co. in coming weeks face multibillion-dollar product choices.


Such strategic moves usually occur only once or twice a decade. But now, circumstances have conspired to collapse the time frame. The impact of their decisions on new jetliners will be felt for years by both rivals, their global suppliers and airlines world-wide.


Airbus officials have promised to say soon to what extent they will modify their planned A350 jetliner to address customer criticisms and counter the initial success of Boeing's new 787 "Dreamliner." Airbus needs to firm up its designs and start showing them to airlines and financiers by the end of this month if it is to meet industry expectations for a decision to be announced at the Farnborough Air Show outside London in July, industry officials say.


For the first time in a decade, Boeing appears to have the stronger product line. But airlines, which like uniformity across their fleets as a way to keep costs down, want to see specifics of how Boeing will respond to a new A350. Boeing has said it plans to build a larger version of the 787, but it is still studying how large to make it. At the same time, Boeing is contemplating how to capitalize on its current competitive strength, possibly by churning out 787s quickly to soak up demand before Airbus can get the A350 to market.


But a sprint for market share risks landing Boeing in the trap of trying to produce too many airplanes, as it did in the late 1990s, when it ratcheted up production of its workhorse 737. Such a move could strain suppliers and cut into profitability. Last month Craig Saddler, finance director for the 787 program, said Boeing officials are studying the wisdom of adding a second assembly line early in production.


Meanwhile, customers are doing their best to pick a winner from a number of evolving concepts from both manufacturers. "We want a clear, long-term strategy on products, not a patchwork, because we want to have the least complexity in aircraft types, engines and cabins," said Nico Buchholz, head of fleet management for Lufthansa.


Airbus Chief Executive Gustav Humbert said recently that Airbus had "intensified our dialog with airlines." He conceded that Boeing had "scored some marketing points" against Airbus.


Airbus thought it could compete against Boeing's all-new plane by modifying an older Airbus model, the A330. But in March, U.S. leasing giant International Lease Finance Corp. and Singapore Airlines publicly called on Airbus to change the plane completely. In April Airbus officials acknowledged they were studying whether to modify the plane.


Airbus and its corporate parents -- Franco-German European Aeronautic Defence & Space Co., which owns 80%, and Britain's BAE Systems PLC, which owns 20% -- now must decide whether to tweak the A350 and raise its $5 billion development tab slightly, or redesign it and jack up the bill to around $10 billion. The A350 already is two years behind the 787, slated to hit the market in mid-2008. A total redesign could push it to 2012, letting the 787 own the lucrative midsize-airplane market for four years. Airbus Chief Operating Officer John Leahy said no decision has been made.


Some people inside Airbus and EADS question the wisdom of doubling their bill if the payoff will only be to split the market with Boeing, according to people close to the discussions.


Complicating matters is that another Airbus model faces troubles. The company's larger, four-engine A340 has been losing competitions to Boeing's two-engine 777, which is bigger and slightly cheaper to operate. Last year Airbus sold only 15 A340s, while Boeing sold 155 777s.


In redesigning the smaller A350, Airbus is looking at offering several versions, including a big A350 that replaces the A340. That would mean its improved A350 could take on both the 787 and 777.


But by the time this new A350 family would hit the market in 2012 or so, Boeing could be ready to replace the 777 -- which first flew in 1995 and was recently updated -- with an even better plane. That means Airbus could bet the farm, only to see Boeing leapfrog it within a few years.


(END) Dow Jones Newswires


11-05-06 2349GMT
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