Five years ago, Boeing (BA) bet its future on plastics. On July 8, the company showed the airline industry just how that gamble is about to pay off as it rolled out a shimmering blue-and-white 787 Dreamliner before 15,000 guests and announced at least another $5 billion in new orders for the jet.
The rollout ceremony is largely a symbolic event—but an important one in the development of a new jetliner. Plane No. 1 is not yet ready to fly. Yet it is the first time airline customers and the public get to touch and feel commercial aviation's first large carbon-fiber jetliner. The leap to a composite fuselage and wing, and the use of other advanced technologies, has reshaped the industry and resurrected Boeing's fortunes.
The use of composites will ultimately replace aluminum in future commercial airplane programs, opening new possibilities for increased fuel efficiency, better environmental quality, and improved passenger comfort. "We think it will change air travel," says Douglas Steenland, president and CEO of Northwest Airlines (NWA), which has 18 Dreamliners on order and options for 50 more.
Customers Still Queuing Up
Steenland was standing underneath the belly of the new Dreamliner, parked just outside Boeing's Everett (Wash.) plant, as throngs of employees and guests touched the new jet, kicked the tires, and snapped photos of the first new Boeing jetliner in a decade. Steenland says the technology advances in the Dreamliner only happen once every 10 years. He credited Boeing for using the new technology to appeal to airline companies trying to cut costs and improve the passenger experience. "We have a very big bet on this airplane," he said.
The initial success of the Dreamliner has forced rival Airbus to follow with its own version of a new composite jetliner—the A350 WXB—which has begun to attract some buyers. This heated rivalry will benefit passengers in ways that previous new airplane designs have paid only lip service to. Think wider fuselages for more legroom, improved air filtration systems for cleaner air on long flights, and lower altitude pressurization for less altitude sickness among passengers.
Few can argue with the Dreamliner's continued success. On the eve of the rollout, airlines continued buying the airplane. Air Berlin ordered 25 of the new 787-8, valued at $4 billion at list prices. Aviation Lease & Finance Co. (ALAFCO) of Kuwait bought 10 787-8s, worth about $1.62 billion, and Qantas Airways, which already has purchased 45 Dreamliners, ordered an additional 20 of the aircraft. That makes 47 customers that have ordered a record 677 Dreamliners since its launch in 2004.
Promises to Keep
Even Airbus President and CEO Louis Gallois took note of the Dreamliner's technological and commercial success. In a letter to Boeing Chairman and CEO James McNerney, Gallois wrote: "Today is a great day in aviation history. For, whenever such a milestone is reached in our industry, it always is a reflection of hard work by dedicated people inspired by the wonder of flight.…Airbus will get back to the business of competing vigorously, [but] today is Boeing's day—a day to celebrate the 787."
Boeing executives celebrated the milestone with customers at a posh party at Boeing's Museum of Flight on the evening of July 7. But they know Airbus is working hard to narrow the gap. As the recent flurry of new aircraft orders from the Paris Air Show suggests, rival Airbus is back with a credible competitor—the A350 XWB family of three midsize, long-range jetliners (see BusinessWeek.com, 6/18/07, "Airbus' Big Paris Curtain-Raiser").
And though the Dreamliner has a formidable lead in the 200- to 300-seat category, the slightly larger A350 is aimed at the 300-seat market that Boeing's 777-200 jetliner has dominated since entering service in the early 1990s. Airbus has correctly seized on a potential weak spot in Boeing's product line. What's more, the European jetmaker will finally enter its 520-seat A380 into service next year with Singapore Airlines, and the super-jumbo has the potential to reshape the market for 400 seats and beyond just as the 787 is doing for the market in long-range, midsize jets.
Now, Boeing has to begin delivering on its promises. As production gears up and the first test planes are getting assembled, there are clear signs that Boeing and its suppliers are struggling. An unanticipated fastener shortage has tripped up Boeing's mostly meticulous production planning with real concerns about meeting the higher-than-expected demand for the specialized bolts that hold together the airplane. It will take about six months for the fastener suppliers to catch up, but the company should have enough fasteners to keep production moving, Boeing executives say. A very ambitious and aggressive flight test schedule is only intensifying the pressure on Boeing and its suppliers. Any announcement of a significant production delay would send Boeing stock sharply downward.
Another significant issue is weight. Boeing executives acknowledged on July 6 that the first test airplanes will still be overweight by up to 3%. Senior executives for All Nippon Airways (ANA), the launch customer for the Dreamliner, confirmed the heavier airplanes at a briefing on July 8. "They will be a little heavier than we'd like," said Osamu Shinobe, ANA executive vice-president for planning. But he said ANA was confident the production planes would meet the weight specifications. "The difference in weight is not going to be a concern," Shinobe said. Boeing has said it will reduce the remaining weight by the time it starts producing the production models.
Boeing executives say the 787 will make its first flight in September. That's slightly later than the original schedule. Boeing insists it will deliver its first production airplane to ANA in May, 2008, as promised. Mike Bair, Boeing's vice-president for the 787 program, says Boeing could slip flight testing back to November and still make the May delivery date. ANA's Shinobe says Boeing is struggling with some parts and work packages that are behind schedule, but he says, "they have a buffer to absorb the delays." Shinobe and ANA CEO Mineo Yamamoto say they plan to take delivery of the first airplane next May.
The 787 is the first large commercial jet to incorporate an all-composite fuselage and wing—about 50% of the plane is made from carbon-fiber materials. The lighter-weight materials combined with advances in jet-engine technologies have resulted in an airplane that will use 20% less fuel than similar-size aircraft.
Another key advantage of composites: maintenance-cost savings. That's because plastics don't corrode like aluminum, thus eliminating some required and costly airframe inspections and repairs. Boeing estimates such costs will be reduced by 30% over the life of the aircraft—a huge potential savings for airline operators.
As a result, airlines have turned the Dreamliner into the fastest-selling commercial airplane in history. Even before the rollout, airlines and leasing companies continued to order the airplane despite a seven-year wait period. The earliest delivery spots are 2015. Los Angeles-based International Lease Finance (ILF), the world's No. 1 aircraft-leasing firm, recently bought another 50 Dreamliners. That takes its total to 74, making it the largest 787 customer. "We vote with our checkbook," says ILF President John Plueger. "If we had any major concerns, we wouldn't have signed for 50 more airplanes."
Dreamliner sales are dominating the most lucrative segment of the $60-billion-a-year commercial aircraft market: midsize, long-range jets. By the time Airbus delivers its first A350 XWB at the end of 2013, Boeing may have sold more than a thousand 787s. But that 1,000 mark could come much sooner. Three of the world's biggest airlines—British Airways, Emirates, and Delta Air Lines (DAL)—are in the market for 787s or A350s, and they likely will choose by yearend.
Delta, which operates a large Boeing 767 fleet, has talked about buying as many as 150 787s. "The gap is unbridgeable," says Doug McVitie, a former Airbus employee and managing director for Arran Aerospace. "The world's major bellwether carriers are re-equipping with 787s, and the A350 will be in the race—but only as an also-ran."
Second Out of the Gate
John Leahy, Airbus' chief operating officer and chief salesman, isn't concerned about Boeing's lead. The A350 will benefit from entering service later than the 787, he says, giving designers time to enhance the overall design. Already, the fuselage diameter is five inches wider than the 787, which will make it more comfortable for passengers. And because the market for midsize, long-range jets is projected to be 3,005 airplanes over 20 years, Leahy professes to be unconcerned about the A350's late start. "If this were a market for 1,000 airplanes, I wouldn't have much of a market," Leahy says. "If I lose the first 600 orders to Boeing, so what? Over that 20-year period, I'll more than catch up."
Airbus already has orders and commitments for 180 A350s, up from 13 before the Paris Air Show in June. Leahy's biggest victory, though, was securing a commitment from US Airways Group (LCC) to buy 22 A350s, among other Airbus aircraft. Though ILF did not order the A350 at the air show, Plueger says Airbus has addressed most of the company's concerns and said he expects to buy some A350s soon. "Unless there is some major hiccup on the program, I can see the stars aligning for us on the A350," Plueger says.
The key to the A350's larger fuselage is a wider cabin in first and business class, but it will be more comfortable in coach, too, Leahy says. The 787 seats nine abreast in economy, but he claims the design is missing about five inches. "Nine abreast is very comfortable in our plane but marginal in theirs." He added that the larger fuselage will be able to carry more cargo than the 787, which is a critical revenue generator even on passenger flights. "Coming out second means you lose the first wave of orders, but it means you get to study what your competitor has done and improve on it," he says.
Leahy claims the fuel efficiency of the A350 will be 4% to 5% better per seat than the 787. The A350-800 and -900 models include a fuselage that will carry 30 more seats than in the 787, Leahy says, which follows historic trends of new airplanes moving up in size. About 60% of the aircraft will be made out of carbon-fiber plastic panels, with an aluminum-lithium alloy frame. The wings will be all composite. Rolls-Royce plans a more "advanced engine" than what's propelling the 787, Leahy says. General Electric (GE) has not decided whether it will design a new engine for the A350.
The A350 threat has not gone unnoticed by Boeing executives. Company officials have said they would likely spend money freshening up the 777 before they consider replacing the older 737 with an all-new composite airliner. Boeing Commercial Airplanes Chief Executive Scott Carson says Boeing will upgrade the 777 with new technologies, though he shot down an all-new composite wing. "We believe we can address the market challenge with more and newer technologies," Carson says.
And while Boeing executives and their throng of guests celebrate the shimmering new Dreamliner, Leahy will be knocking on the doors of other potential customers, delivering what he calls "cold hard facts" about the newest Airbus model. When executives hear the A350's specifications, "they get really excited," Leahy claims. "What I need to do is get in the door."