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To: unclewest who wrote (16612)	9/8/2000 8:05:05 AM
From: Jon Koplik	Read Replies (2) \| Respond to of 29987

WSJ - Leading Airlines Reject Terms For Bringing Internet to Skies. September 8, 2000 Leading Airlines Reject Terms For Bringing Internet to Skies By JEFF COLE, ANDY PASZTOR and DANIEL MICHAELS Staff Reporters of THE WALL STREET JOURNAL Boeing Co. and other companies bringing the Internet to jetliners are getting a sobering message from the airlines: Share more of the proceeds and don't get too cozy with the passengers. In recent weeks, leading carriers such as American Airlines, United Airlines and Lufthansa of Germany rejected initial terms proposed both by Boeing and a separate venture led by News Corp. that are angling to provide such potentially lucrative communications services, said airline and aerospace industry executives. By demanding larger equity stakes or more-favorable profit-sharing arrangements, the carriers have disrupted timetables originally envisioned by each team to land their first big customers and build momentum for their competing systems. Relying on unique antennas that can maintain sophisticated two-way satellite links during flights, the goal is to give passengers continuous Internet, e-mail and real-time television access as they zoom along at 500 miles an hour or more. As part of their initial proposals, both teams told airlines they wanted a large majority ownership of any resulting business partnerships. Boeing and the News Corp.-led venture, In-Flight Network LLC, also told some carriers that they wanted to bill passengers directly, instead of having the airlines perform that service. But those ideas didn't fly, forcing Boeing and In-Flight Network to revise their strategies and continue negotiations on terms that were more favorable to the airlines. "We were going to end up making all the investment [for systems] on the airplane and they were going to get all the money," said Robert Baker, vice chairman of American Airlines parent AMR Corp. Whether the airlines get an equity stake in the eventual systems "is sort of the wild card in all of this," said Clay Jones, president of a Rockwell International Corp. unit that is teamed with News Corp. Both Boeing and In-Flight Network "want to deal directly" with the carriers' premium passengers, said Dietmar Kirchner, a Lufthansa senior vice president, who called such proposals "naive." Other executives said the providers had proposed that carriers get only tiny equity stakes -- in one case less than 1% -- in the new ventures. Some United Airlines executives are said to have rejected certain of the proposed terms. A spokesman for the UAL Corp. unit declined to comment. For Boeing, News Corp. and their partners, offering broadband-communications links to commercial jets is a logical way to secure higher-margin service business, with potential revenue from laptop-toting passengers estimated at as much as $25 billion a year by 2005. Boeing's nascent "Connexion" service is a top priority of Chairman Phil Condit, who sees an additional market for the service in catering to executive jets. Another service would provide airlines with detailed monitoring of their planes. Ken Medlin, a Boeing vice president, declined to discuss the precise details of Boeing's offers to carriers. But he said the airlines "really want to own their customers and control more of their services." Mr. Medlin said some airlines want bigger equity stakes in Connexion, partly because Boeing's broad service plan has signaled that "this thing could have even more value" than airlines initially saw. Boeing's goal is to provide Internet access that is as fast and as easy as what is available for home or office link-ups. News Corp. hopes to roll out the In-Flight Network world-wide and to charge customers a periodic subscription fee allowing use for longer periods of time. Boeing, by contrast, is looking to introduce its service gradually, starting with flights in the U.S. by late 2001 and then only a few hundred planes added annually over the next couple of years. Charges would be on an hourly basis or per flight. Boeing has said rates could start as high as $25 an hour and then average out at about $17.50 an hour. Airlines are eager to take advantage of the Internet opportunity, but they are moving cautiously to avoid repeating disappointments that occurred with early in-flight entertainment systems and in-flight telephones. News Corp. Senior Vice President Jeff Wales said "many airlines are extremely cautious about raising people's expectations and disappointing them." One British Airways manager called installation of the required systems "a costly arena" demanding careful choices. A Virgin Atlantic spokesman said consumers will expect airborne service to be "as close to your desktop action as you can get." As Boeing and In-Flight Network try to reel in the carriers, other providers are beckoning. Airbus Industrie, the European jet maker, will offer carriers a choice of vendors and business plans, said Alain Garcia, Airbus's engineering chief, who sees that path as better than Boeing's "monolithic" approach. Some carriers already are setting up e-mail and Internet service by signing with providers of simpler, less-capable systems. Florida-based software developer Inflightonline Inc. (inflightonline.com) offers a much lower-cost service using servers on board a jet that are preloaded with the contents of popular Web sites. Passengers can send and receive a limited volume of e-mail and conduct real-time transactions at the sites, and the whole system can work through existing phones at the seats. Airia Ltd., a real-time television start-up led by marine-satellite system operator Inmarsat Ltd. of London, expects to expand its offering into Internet services. Other companies hoping to enter the airline Internet-access market in some fashion include Honeywell Inc., Harris Corp., Dynatech Corp.'s Airshow Inc. unit, Sextant In-Flight Systems and a unit of Primex Technologies Inc. Write to Jeff Cole at jeff.cole@wsj.com, Andy Pasztor at andy.pasztor@wsj.com and Daniel Michaels at dan.michaels@wsj.com Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.