Boeing Winning Jet Order Race

By Peter Pae

Dec. 26, 2005 12 AM PT

By Peter Pae Times Staff Writer

Boeing Co. is about to win back some bragging rights.

In what’s been a record year for commercial aircraft sales, Boeing is expected to edge out Airbus in jetliner orders for the first time since 2000.

Boeing’s orders are likely to surpass 850 airplanes -- more than triple last year’s count. Demand was so strong in 2005 that airlines were ordering Boeing aircraft even while a strike by machinists was shutting down its large Seattle-area assembly lines for a month.

“It’s been a gangbusters year for Boeing,” said Scott Hamilton, an aviation consultant and analyst with Leeham Co. of Sammamish, Wash.

For its part, Airbus also expects to close out a record sales year. With only a few days left, the Toulouse, France-based company insists that it could still come out on top.

“The year ain’t over yet,” said Mary Anne Greczyn, a spokeswoman for Airbus.

Being the top plane maker is more than just a public relations tool.

Boeing and Airbus are the world’s only manufacturers of large passenger jets. Chicago-based Boeing dominated the industry for decades until Airbus surpassed it a few years ago, and it was one of the few bright spots in a country where the manufacturing base had been shrinking. But inside the industry, there was concern that Boeing was relying on an outdated lineup of aircraft and would continue losing ground to Airbus.

Things have changed.

Through November, Boeing had received orders for 827 planes this year, compared with 687 for Airbus. But Airbus won the delivery derby, handing over 337 planes to customers versus Boeing’s 268.

Industry experts consider orders to be a key indicator of future performance. Airbus, for instance, booked more orders than Boeing in 2001 but didn’t begin delivering more planes than Boeing until two years later.

Because of the breakneck pace of orders in 2005, analysts forecast that Boeing will surpass Airbus in deliveries by 2007. Either way, the record sales and prospects for a prolonged uptick in commercial aircraft sales have helped hundreds of suppliers in Southern California that make parts for the two aircraft giants.

Certainly, Boeing is ending the year on a roll. It hit a jackpot this month when Australia’s Qantas Airways picked it over Airbus in a $10-billion deal for new planes. It was a hotly contested contract and both Boeing and Airbus put up competing billboards along highways leading to an airport in Sydney to publicize their campaign.

The Qantas contract was Boeing’s third major win this year, along with a $9-billion order from Emirates airline and one from Ireland’s Ryanair for 84 Boeing 737s with a list price of $5 billion. On Friday there were also reports that Boeing was close to winning a $10-billion deal with Singapore Airlines.

Boeing’s rediscovered ability to win big plane contracts is pushing its shares near record highs even as revenue from the company’s defense unit, its largest business, has slowed. Shares of Boeing rose 17 cents Friday, closing at $71.49. The stock is up 38% this year.

Not long ago, Boeing appeared incapable of doing anything right. After the 2001 terrorist attacks triggered a slowdown in worldwide airline traffic and plane orders, the company laid off 35,000 workers, faced two embarrassing federal ethics probes, had a revolving door in the executive suite and refrained from making the financial commitments needed to develop new planes.

Boeing’s slide culminated in 2003 when Airbus toppled it from the top spot in commercial aircraft deliveries -- a position the company had held for decades.

At the time, some analysts and key airline customers were openly questioning whether Boeing was going to stay in the passenger jet business. It was one of the company’s “darkest times,” recalled Alan Mulally, president of Boeing’s commercial aircraft making business.

Several factors contributed to Boeing’s swift comeback, analysts said.

One was its near-perfect timing in 2004 when Boeing announced plans to build the mid-size 787, a twin-engine jetliner the company touts as the world’s most fuel-efficient jet. Soon after, jet fuel costs hit record highs and airlines started putting in orders for the 787, which is expected to burn 20% less fuel than comparably sized planes. Much of these cost savings come from reducing the plane’s weight by 10,000 pounds through the use of composite materials and from being powered by a new engine. The first 787 is scheduled to be delivered in 2008.

Going ahead with the 787 also sent a message that Boeing was committed to its commercial plane business. “It was the strongest signal possible to the market that Boeing was here to stay,” Hamilton said. “It also energized the workforce and led to a complete change in attitude.”

In April, Boeing’s top salesman, Scott Carson, 59, vowed that his company would outsell Airbus. “We’ll beat them this year,” Carson said. “I’m confident of that.”

This kind of bravado had long been the trademark of Airbus and John Leahy, its often cocky sales chief.

Carson’s boast seems to have altered Boeing’s mind-set. Company executives no longer are reluctant to exchange public barbs with Airbus and Leahy, a New York native who led the sales assault that propelled Airbus ahead of Boeing.

Carson, a 32-year Boeing veteran who served as chief financial officer of the commercial aircraft business and as head of its in-flight Internet service business, was named top salesman in late 2004 to shake up the sales organization.

Under Carson, Boeing’s sales team became more nimble and less arrogant, said John Plueger, chief operating officer of Century City-based International Lease Finance Corp., the world’s largest aircraft leasing company. Boeing’s “sales organization [is] more responsive to their customers, from the top down,” he said.

These days a Boeing sale can be completed in as little as 20 minutes, contrasted with weeks previously when a salesman had to phone headquarters, which then convened a committee to discuss whether to accept the terms.

Some Boeing sales goofs became legendary. When Air Berlin, Germany’s second-largest carrier, wanted to replace its Boeing 737s, Boeing stood firm on pricing for 11 months. Fed up, the airline’s chief executive flew to Airbus’ headquarters, where after a 90-minute lunch meeting he inked a $7-billion deal.

Many Boeing customers felt mistreated. “You are one of the top three [customers], and every time you go to Boeing, you’re getting grief,” Plueger said. “Just from a human factor point, you’re going to wonder what are these guys doing.”

Now, any potentially big deal can result in a sales call from Boeing Chief Executive W. James McNerney Jr. or Mulally, head of its commercial aircraft unit.

Mulally contends that the surge in orders is a “validation of a strategy” put in place after 9/11 put a crimp on air travel.

As a way to “just survive,” Mulally said, Boeing slashed its supplier base by half. It also changed its assembly process so that planes move along a production line similar to an auto factory, rather than having all the components moved to stationary assembly points, he said.

The change makes the assembly of planes easier, faster and cheaper and gives the sales team more flexibility to negotiate deals, Mulally said.

This quick turnaround may have helped Boeing secure the Qantas order. The airline was deciding between Boeing’s 787 and Airbus’ A350, and it cited Boeing’s capability to deliver the 787 by 2008 -- two years ahead of the Airbus jet -- as a key factor.

Meanwhile, Airbus may have made a poor financial bet in building the A380, a double-deck super-jumbo jet that will seat as many as 800 passengers. After an initial flurry of interest, orders have slowed to a standstill at about 150 aircraft.

“Airbus had a tremendous opportunity to put Boeing away but they squandered it,” said Richard Aboulafia, aerospace analyst for Teal Group Corp. of Fairfax, Va.

In 2006, analysts expect another good year for plane makers as domestic carriers begin to recover and start ordering new aircraft to replenish their old fleets.

Eventually, Boeing’s new fuel-efficient technologies for the 787 could help it build a replacement for its stalwart, single-aisle 737, Mulally said.

Southwest Airlines Co., with more than 500 of the 737s, has been pushing Boeing to develop a 737-sized version of the 787.

“We could have one of the longest runs in orders we’ve ever had,” Mulally said. “These are very exciting times for us.”

(BEGIN TEXT OF INFOBOX)

After struggling in its competition with Airbus, Boeing has retaken its dominance over its European counterpart.

Boeing at a glance

Headquarters: Chicago

Founded: 1916

Employees: 153,309

Chief Executive: W. James McNerney, Jr.

Ownership: Publicly traded on New York Stock Exchange

2004 revenue: $52.5 billion