Boeing chooses Everett WA for assembly of 7E7 - to be built about 3 miles from my office.
Boeing to Proceed With Development of 7E7 Airplane (Update5)
Dec. 16 (Bloomberg) -- Boeing Co. will proceed with plans for its first new jetliner in 13 years, a more fuel-efficient passenger jet, that's intended to win over cash-strapped airlines and regain market share from Airbus SAS.
The board voted unanimously to begin offering for sale the 7E7 Dreamliner, a 200- to 300-seat airplane that will use at least 15 percent less fuel than comparable jets. The announcement was made with fanfare to 3,000 employees gathered at a convention center in Seattle, near where the airplane will be assembled.
Boeing expects customers to be attracted to the savings on fuel, the second-biggest cost for airlines behind labor. The 7E7 design also will be the basis for Boeing's future passenger jets, offering consistency in areas such as cockpit configurations. Toulouse, France-based Airbus is outpacing Boeing in orders this year partly because its jets are more versatile for flight crews.
The 7E7 is ``a 30-year program that will sell an awful lot of airplanes,'' said Rich Turgeon, director of research at Victory Capital Management, a unit of KeyCorp, which held 5.2 million Boeing shares as of September. The 7E7 is likely to be more popular than the 555-seat Airbus A380, he said.
Chief Executive Harry Stonecipher, who replaced Philip Condit two weeks ago, said he spent four hours earlier this week pitching the 7E7 to the company's 11 other directors.
He said the board also voted unanimously to locate the assembly plant in Everett, Washington, home to most of the Chicago-based company's commercial aircraft operations. The plant will employ as many as 1,200 people and is expected to generate thousands of more jobs in the surrounding area.
Development Costs
The decision only grants approval to offer the airplane for sale. Alan Mulally, head of Boeing's commercial jet unit, would need to show he has a sufficient amount of orders next year before the board allows him to move ahead with the physical construction, or launch, of the jet. Analysts have estimated that Boeing will have to spend about $5 billion to build the 7E7.
Boeing officials on a conference call declined to detail development costs. The company said it expects firm customer commitments and an approval to produce the jet next year.
Stonecipher on a conference call declined to comment on how many orders or customers would be needed to justify a launch. Twice before, with the 737 and 777, Boeing approved launch with only one customer, Stonecipher said.
``There is great enthusiasm for this airplane,'' Stonecipher said, citing conversations with the chief executives of airlines he didn't identify. ``The only reason it wouldn't go was if no one ordered it.''
The Next Step
The 7E7 would be Boeing's first all new jetliner since the 777 program was launched 13 years ago. Boeing needs a new jet to keep up with Airbus, which will overtake Boeing this year in deliveries. Boeing's commercial airplane sales fell 25 percent to $16.6 billion in the first nine months of 2003 from a year ago.
``If they didn't go ahead with the 7E7, the airlines would question whether Boeing is serious about remaining in the commercial aircraft arena,'' said Standard & Poor's analyst Robert Friedman, who rates Boeing shares ``buy'' and doesn't any.
The vote represents Boeing's first big decision since Stonecipher replaced Condit Dec. 1.
The 7E7 likely will eventually replace the 767. Boeing plans to stop making the 757 next year and wants the 7E7 design to be the basis for more efficient versions of the 747 and the 737. The 737, the world's most popular jet, is used by discount carriers such as Southwest Airlines Co. and Ryanair Holdings Plc.
Boeing has said it can sell as many as 2,500 7E7s, including 1,000 of the base model and the same amount of the longer-range stretch model planned for 2010. The remaining will be versions that will have a range of 3,500 miles. Boeing normally has several variants of one model with different seating and ranges.
``It represents a good mix of improved technology, range, speed, capacity and passenger comfort,'' Continental Airlines Inc. spokesman David Messing said.
Different Strategy
Airbus' Chief Commercial Officer John Leahy congratulated Boeing on its decision. Airbus expects its A330-200 aircraft to be a ``formidable competitor'' to the 7E7, as the larger number of seats on the Airbus jet means lower costs per passenger seat, per mile traveled, he said.
``The Boeing plane will be 2 percent more expensive per trip,'' Leahy said. ``We don't see that as an overwhelming case for the airlines to switch to Boeing's plane.''
Through November, Airbus had 263 orders to Boeing's 229. Orders usually result in deliveries over years. To attract those orders, Airbus and Boeing have been pitching airplanes that fly farther, faster, higher and carry more passengers.
Airbus opted for size, officially launching development of its 550-seat, double-decker A380 in December of 2000. The jumbo jet will compete against Boeing's 30-year-old 747 model.
Boeing initially tried to best its European rival with plans for a larger version of its 747, already the biggest jetliner in the world. Boeing scrapped those plans twice, once in 1997 and gain in 2001, arguing that an airplane of that size was impractical for most of the routes airlines want to fly.
Mulally has said airlines want to fly more routes with smaller planes to minimize the need for layovers and avoid the high cost of flying half-empty airplanes.
Boeing's next idea, a smaller aircraft that would fly close to the speed of sound, was dismissed by investors as likely being too costly to make. Late last year, the company settled on the 7E7, touting efficiency and cost savings over size and speed.
Development Costs
The total cost of developing the airplane will be $8 billion to $10 billion, JSA Research analyst Paul Nisbet said.
Boeing's share will only be half of that because suppliers such as Mitsubishi Heavy Industries Ltd. in Japan, Finmeccanica SpA in Italy and Vought Aircraft Industries Inc. in Dallas will share in the expense. The wings will be manufactured in Japan, the first time Boeing wings will be made outside North America.
Making the 7E7's wings in Japan may also help Boeing win orders from Japan Airlines System Corp. and All Nippon Airways, Asia's two biggest carriers. About 35 percent of the structure of the 7E7 will be made by Japanese companies.
Other major suppliers are Kawasaki Heavy Industries Ltd. and Fuji Heavy Industries Inc., both in Japan. Boeing will decide next year on whether to use General Electric Co., Rolls-Royce Plc or United Technologies Corp.'s Pratt & Whitney unit to supply the engines. The company will choose at least two engine suppliers.
About 35 percent of the 7E7 structure will still be made at Boeing's own factories. The nose of the 7E7 will be made in Wichita, Kansas; the vertical section of the tail in Fredrickson, Washington; and some wing parts will be made in Tulsa, Oklahoma.
Alenia Aeronautica, a unit of Italy's Finmeccanica SpA, and closely held Vought Aircraft Industries Inc. in Dallas will make the rear fuselage and other parts, representing about 26 percent of the airplane's structure.
Washington State
Boeing, already Washington state's biggest employer, had been sifting through proposals for months from as many as 25 U.S. states eager to land the assembly plant.
Landing the 7E7 provides some security to the Everett plants which make the aging 747 and 767 models. Washington lawmakers, jolted two years ago when Boeing moved its headquarters to Chicago, approved tax breaks in June valued at about $3 billion over 20 years to lure Boeing's 7E7 plant to the state.
``This sends a message to every other company that Washington state is a good place to do business,'' said Senator Patty Murray, one of the state's two senators.
The 1,200 jobs provided by the plant are only part of the attraction -- the host state gains suppliers and a leg up on landing more Boeing work in the future, aviation consultants said.
Last Updated: December 16, 2003 20:23 EST |
