By Stanley Holmes For Boeing (BA), selling its new, fuel-sipping 787s to Northwest Airlines (NWAC) -- the world's third-largest Airbus customer -- could prove to be a turning point in the longtime rivalry between the storied airplane makers. For the past five years, the Europeans have won key sales campaigns, launching innovative airplanes like the A380 superjumbo, and scoring major public relations gains against the sometimes politically tone-deaf U.S. airplane company.
What's more, Boeing employees have had to endure several high-profile ethical scandals that have sent senior executives to jail or, in the case of former CEO Harry Stonecipher, who had an affair with a female executive, forced him to resign.
But since the first of this year, Boeing's commercial airplane division has been regaining its mojo. The Northwest Airlines sale offers perhaps the most telling example of a company intensely focused on reclaiming leadership of the commercial jet industry.
And Boeing is moving aggressively on other fronts, too. It's prodding the World Trade Organization to end subsidies for development of Airbus aircraft, launching the ultra-long-range 777-200 jetliner, deciding soon whether to introduce an upgraded 747-400 to compete against the Airbus A380 superjumbo, and planning to launch a 777 freighter. New sales chief Scott Carson has boasted that Boeing expects to book more commercial jet sales than Airbus for 2005: "We'll beat them this year," he says.
WINNING GAMBLE. Carson's promise is becoming a reality. Boeing's order book for the year to date tallies 266 airplanes, just short of 2004's total of 277 orders for the entire year. Airbus, which has notched more orders than Boeing over the past five years, has booked 123 firm orders so far in 2005.
The 787 is turning into the fastest-selling new commercial jet in history. Since Boeing launched the program 15 months ago, it has won firm orders and commitments for 203 planes from 17 airlines, including Korean Air's Apr. 10 announcement that it wants 10 jets. Those familiar with the matter expect Northwest Airlines to buy 18 of the 787s, worth about $2.1 billion at list prices, to replace its aging DC-10 jetliners. Northwest Airline officials couldn't be reached for comment and haven't publicly confirmed the sale.
Northwest's choice of the 787 over an Airbus product underscores the appealing efficiency of Boeing's 11th new airliner. The cutting-edge, twin-engine, 230-seater offers enviable operating economics in a cost-conscious era: It consumes 20% less fuel and costs 10% less to operate than other jetliners its size.
Boeing execs say the 787, the first commercial jetliner built out of carbon fiber, will offer passengers more comfort and require up to a third less maintenance than current commercial jets. Execs have long bragged that the 787 would be a "game changer," and it appears the gamble to stretch the boundaries of commercial jetliner technology is paying off.
"HUGE WIN." Boeing also has been more aggressive in other areas. According to sources familiar with the Northwest deal, it's offering enticing discounts. "We were going pretty deep there," says one insider. "We knew this would be a huge win." Because the stakes were so high (experts estimate a market of up to 3,500 medium-size airplanes worldwide), Boeing Commercial Airplane CEO Alan Mulally has been personally involved in closing the deal, say sources. Boeing also was considering various creative dealmaking schemes to help Northwest -- which has a huge U.S.-to-Asia business -- make the transition to the 787.
At one point, Boeing was going to offer new 747s as a "bridge" to help the carrier downsize while it waited for the new jets. Boeing salespeople also considered offering Airbus A330s (which it has leased or acquired as trade-ins) for the same short-term bridging purposes, say people with knowledge of the deal. But it's unclear if either model will be part of the final package.
In the near term, the big loser appears to be the Airbus A350. The European plane maker rushed out its first version of an upgraded 250-seat A330 -- called the A350 -- when it heard Northwest was seriously considering the 787. The latest version calls for making it fly farther by using the same engines as the 787 and adding more weight-saving composites to the aluminum fuselage. But beyond Air Europa, no other airline has expressed serious interest in the A350, and Airbus has not officially launched the program.
SMART POLITICS. Because of Northwest Airlines' status as a steady Airbus customer, with more than 20 A330s in service or on order, followers of the aerospace industry view this campaign as pivotal. "This does appear to be a significant head-to-head test, vs. the Airbus A350, and the economic power of the 787 appears to have been a decisive factor," says Howard Rubel, a veteran aerospace analyst for Jefferies & Co. "Given the financial distress in the U.S. market, it's remarkable that Northwest stepped up to buy this aircraft. It means that its competitors will have to follow."
Boeing's Carson offered an even blunter appraisal: "The A350 is a nonfactor. It's a warmed-over A330." Airbus executives declined to comment on the Northwest deal.
Some industry insiders say Boeing played its political cards correctly to help this deal along. Calling for Airbus to end its dependence on subsidies may have prompted the Europeans to decide it wasn't a good time to seek launch aid for plane that would compete directly with the 787.
CHANGE OF PLANS? An all-new Airbus A350 could have hurt early 787 sales. Instead, when Airbus opted for a derivative of its A330 -- an airplane that can't meet the 787's more efficient operating economics -- it gave Boeing enough time to convince Northwest execs of the 787's merits.
"The [WTO] complaint [on the subsidy issue] did its job: It prevented Airbus from launching an all-new A350, and now they're getting clobbered in the market," says Teal Group aerospace analyst Richard Aboulafia. "If Boeing wins Northwest, Airbus has to completely rethink its A350 strategy."
No doubt Airbus can rebound, and it continues to be a fierce competitor, but a strategic review might well be in order. Boeing is looking hard for customers interested in a stretch version of the 747, called the "747 advance," which would seat about 450 passengers. The jumbo would pack new engines, meaning it could fly farther, and boast interiors similar to the 787.
CUSTOMERS APLENTY. "There has been some interest in the 747 advance," Carson says, estimating a market for 100 to 200 units. "We are encouraged by the responses we've received so far." Even though the 747 advance would not seriously threaten the 555-seat A380, it would certainly hurt A380 pricing and deny it the monopoly on jumbo jets that
Airbus has so coveted for two decades.
Boeing doesn't aim to stop there. It's launching more versions of its popular twin-engine 777 jetliner. Just recently, Boeing rolled out its ultra-long-range 777-200, whose two engines can carry it halfway around the world. And it plans to launch a 777 freighter in the next few months. What's more, Singapore Air (SPAAF) recently ordered additional 777 jetliners. Plus, Air India is expected to buy 23 of the 777 widebodies, valued at a list price of $5 billion, and is also in the market for 27 medium widebodies, worth about $3 billion -- either the A350 or the 787.
For now at least, Boeing's more aggressive strategy in 2005 is paying big dividends. Holmes is a correspondent in BusinessWeek's Seattle bureau