After Four Years in the Rear,
Boeing Is Set to Jet Past Airbus
U.S. Giant Thrives With Plane
Built for the Post-9/11 Era,
While Archrival Scrambles
A 24-Hour Engine Change
By J. LYNN LUNSFORD and DANIEL MICHAELS
Staff Reporters of THE WALL STREET JOURNAL
June 10, 2005; Page A1
Six months ago, Airbus's top salesman John Leahy looked unstoppable.
The European jet maker had already surpassed Boeing Co. as the No. 1 builder of jetliners. Last year, it trounced Boeing in every key sales campaign. When Boeing replaced its chief salesman, Mr. Leahy took the opportunity to publicly mock his rival for "doing a good job of not selling airplanes."
Since then, the U.S. giant has handed Mr. Leahy his hat. Underlining how quickly fortunes can swing in this storied business rivalry, Boeing is on track this year to win more new orders than Airbus after four years in second place, both companies say.
[John Leahy]
At the heart of today's race is the market for the industry's workhorses: the midsize planes used on transcontinental and transoceanic flights. Propelling Boeing back into the lead is the 787, the first plane to be designed from scratch since the 9/11 terrorist attacks and the first to fully take into account the industry's dramatic transformation.
As the airline business struggles with its worst financial crisis ever, Boeing designed a plane that could easily shift out of one carrier's fleet into another. Instead of loading it with customized features, Boeing made it easier for the powerful companies who finance such purchases to move or resell the plane to another airline.
One example: making sure one brand of engine can be quickly and inexpensively swapped for another. That would help move a plane to another airline with a different engine preference. Boeing is also promising customers cost savings from new materials and systems that make its plane more efficient.
Air Canada Chief Executive Robert Milton calls the Boeing 787 a "game changer." Just a few years ago, he appeared in an Airbus sales video saying anyone flying non-Airbus planes would be "left in the dust." Swayed by Boeing's pricing and promises of operating efficiency, Air Canada in late April announced plans to replace its entire long-range fleet of mainly Airbus planes with Boeing jets. "We were totally outmaneuvered at Air Canada," Mr. Leahy says.
Boeing, based in Chicago, and Airbus, based in Toulouse, France, are the world's only manufacturers of large passenger planes and are constantly trying to beat up on each other. Airbus had counted on hitting the world stage as the undisputed king of the industry at this year's Paris Air Show, a weeklong global aerospace gathering that starts Monday.
[Scott Carson]
But Boeing has racked up a total of 266 orders and commitments for the 787 from 21 airlines. Airbus, on the defensive for the first time in years, is scrambling to improve its competing model. So far it has only landed 30 commitments for its proposed plane, the A350, from two airlines, one of which is bankrupt.
Mr. Leahy says while Boeing's bounce caught Airbus off guard, his competitor is "a little unfocused, chasing every deal" and "buying market share" -- criticisms Boeing has long leveled at Airbus. "Basically, they've won the PR game" on the 787, Mr. Leahy says. The sales boss admits his new plane is about a year late.
Nonetheless, Mr. Leahy says he will soon announce orders for more than 100 A350s from at least four customers. They could include Emirates Airlines of Dubai and Qatar Airways, according to people familiar with the discussions.
"Scrambling from a position of second place has been a powerful motivator," says Scott Carson, a longtime Boeing executive who took over as chief salesman in December. He says years of cutting costs have enabled his company to offer better prices. He denies Mr. Leahy's assertion that Boeing is doing unprofitable deals. "Airbus is always below us on price," Mr. Carson says. "Always."
The U.S. aerospace titan still faces a long slog in its attempt to regain dominance. Because of deals already in the pipeline, Airbus is expected to deliver more planes to customers than Boeing for the next few years.
But the momentum is swinging toward the U.S. company. Airbus, 80% owned by European Aeronautic Defence & Space Co. and 20% by the United Kingdom's BAE Systems PLC, hoped to exploit the excitement surrounding the two-deck, 555-seat A380 -- the world's largest passenger jet -- which will be on display at the air show. But embarrassing production problems pushed back first deliveries by about six months. In addition, the U.S. last month filed a case with the World Trade Organization accusing European nations of illegally subsidizing Airbus. The EU responded in kind with a suit against the U.S.
Customers of both manufacturers are reveling in the renewed rivalry. Says Enrique Dupuy, chief financial officer of Spain's Iberia Airlines, "Boeing is competing like its life depends on it." John Plueger, president and chief operating officer of aircraft-leasing giant International Lease Finance Corp., says competition is good for the industry. "The worst thing that can happen is have one player permanently in the back seat."
Both companies see a demand for about 2,500 of the midsize planes. They're intended for long-haul flights and markets where airlines can't consistently fill larger planes. The new planes will seat between 220 and 290 passengers and will replace the world's fleet of aging Boeing 767s, 757s and Airbus A330s.
[Chart]
The new year appeared to start well for Airbus. On Jan. 18, after years of hoopla, the company unveiled the mammoth A380 at a spectacle attended by four European political leaders.
But out of public view, the momentum was shifting. Boeing was taking advantage of a decision made in 2001 to design new planes from scratch instead of adapting existing equipment. One example: Rather than using aluminum, Boeing promised to build the 787's wings and exterior from advanced plastics reinforced with carbon fiber. Such composite materials don't corrode like metals.
Airlines worried the planes might suffer "ramp rash" at airports, industry jargon for dents caused by service trucks and baggage equipment. To persuade carriers, Boeing's marketing teams allowed airline managers to whack samples of the material with a hammer. Boeing promised airlines they could keep a new 787 in service for 12 years before its first major maintenance overhaul, compared with six years for an aluminum jetliner.
In designing the plane, Boeing did something else new: It listened to more than just its airline customers. The bankers that finance aircraft purchases were pushing for an airplane with only one engine type. It's hard to sell a used airplane with one maker's engine to a carrier that prefers another. The airlines were seeking at least two options.
Boeing compromised. The 787 will come with a choice of General Electric Co. or Rolls-Royce PLC engines. Boeing, however, required that each engine be capable of being swapped for the competition in 24 hours. On a typical plane, that task would take a couple of months and cost more than $1 million.
Inside the plane, power for lighting and in-flight entertainment systems will be built into the floor rather than hard-wired into each seat. Boeing also cut down the number of ways airlines could customize the interiors. This makes it easier for planes to be updated or revamped for new owners.
As Boeing started to build the first 787s at the beginning of the year, the company revamped its sales force. It wanted to cut a bureaucracy that built crippling delays into negotiations.
Flying 36 hours to India on a small corporate jet with Boeing's then-CEO Harry Stonecipher, Mr. Carson listened as Mr. Stonecipher laid out his new duties. The 68-year-old veteran had endorsed Mr. Carson as the company's top salesman and acknowledged that previously, Boeing hadn't been listening to its customers.
"I want you to be our John Leahy," Mr. Stonecipher told his new sales chief.
Mr. Carson disagreed. He suggested the company create five or six regional John Leahys, all of them empowered to make decisions. Mr. Carson reasoned that would allow Boeing to move more swiftly than Airbus, where Mr. Leahy is involved in almost every deal. Mr. Carson prevailed and the changes were made shortly before Mr. Stonecipher was forced to resign in February in connection with an affair he was having with a female Boeing employee.
[Chart]
On the morning of April 18, Mr. Leahy arrived at Airbus headquarters in Toulouse for a meeting with top managers. Complaining of abdominal pain he thought was a kidney stone, he left early. A day later, doctors determined Mr. Leahy's appendix had ruptured and caused potentially deadly complications.
Despite two major operations in a week, Mr. Leahy tried to run Airbus's sales by cellphone from his hospital bed. During this time, Boeing closed key deals at Air Canada, Northwest Airlines and Air-India. Mr. Leahy says his ailment "will definitely have an impact on our market share this year," although he says in the long run it "won't make a big difference."
Mr. Carson says the Boeing sales force, which had earned a reputation as unmotivated and arrogant, must now visit every customer several times each quarter. Top Boeing officials including Chairman Lew Platt and commercial-airplanes chief Alan Mulally are also making frequent visits to customers.
During one sales campaign, Mr. Carson learned that a customer had questions about pricing and delivery dates. By the time Mr. Carson reached the airline's office across town, the sales chief had an answer that previously might have taken days to work through Boeing's committee-driven bureaucracy. "I put the answer in front of the customer and walked out that night with a handshake deal," Mr. Carson says. He declines to name the customer until they announce the order.
"Boeing is putting a lot more effort into understanding what the customer is saying," says Nico Buchholz, fleet manager at Germany's Lufthansa, one of the world's largest airlines and a customer of both plane makers. Boeing asked Lufthansa to give its input on designs for the 787 even though the airline may not be a buyer any time soon.
By April, Boeing had amassed enough victories for Mr. Carson to predict that his company would win more orders overall than Airbus this year. Airbus and EADS officials concede the possibility but play down its significance. "In a duopoly, you are going to lose to your competitor about half of the time," says Henri Courpron, president of Airbus's North American subsidiary.
As Mr. Carson was revamping his sales team, Airbus was racing to catch the 787. Last summer Airbus offered an updated version of its successful A330 jetliner, which it dubbed the A350. The company was confident it could prevent defections by installing the same engines destined for the Boeing plane plus spending about $1.5 billion for minor updates, according to people involved in the plan.
Instead, airlines pressed Airbus to match Boeing's longer range, bigger windows and more comfortable cabin. To Mr. Leahy's consternation, airlines were also starting to believe Boeing's promises that new technologies on the 787 would cut the costs of operating their planes by as much as 30%.
Equally unsettling, the 787 was beating the A350 in competitions to serve existing A330 customers. Airbus presumed these airlines want a familiar plane and cockpit. In April, Korean Air Lines, a major A330 operator, said it would buy as many as 20 787s. At Northwest Airlines, managers tired of waiting for Airbus to finish its design as Boeing sweetened its offer. In May, the airline announced plans to buy as many as 68 787s.
"We just screwed that one up," concedes Mr. Leahy. The airlines said the 787's radical improvements overcame the costs associated with switching.
Trying to get back in the game, Airbus engineers continued modifying their design this year. They extended the flying range of their two proposed A350 variants by redesigning landing gear and using more-advanced materials. They added space for more seats. To compete with Boeing's promised maintenance savings, Airbus reworked the A350's fuel system, computers and auxiliary power unit.
All that came at a cost: The A350's budget swelled to $5.5 billion from initial estimates of about $1.5 billion. Some 90% of the plane's parts have been redesigned.
Airbus's Mr. Leahy and his team visited customers to present improved iterations. But the frequent changes played into Boeing's hands, Mr. Carson says. "We were pitting the 787, which had already benefited from three years of conversations with these customers, against whichever version of the A350 that Airbus was bringing to the table that day," he says.
Going into the Paris air show, Airbus believes it can stop further defections. Executives from both companies agree that orders for the 787 will taper off now that most of the delivery slots between 2008 and 2010 have been filled. Deliveries of the first 787s are scheduled for mid-2008. The earliest Airbus can field the A350 is 2010.
Mr. Leahy concedes Boeing's advantage. "The guy who gets on the playing field first wins a few," he says. But he promises the A350 is "about to take over the market."
Mr. Carson, with a regained swagger, says Boeing is talking to airlines about selling more than 600 of the planes. "From everything we've seen of the A350, we like the 787's chances just fine," he says. |
