787 proves to be the right plane at the right time

Published 11:09 pm Friday, July 6, 2007

It can make the difference between a strike and a home run, heartbreak or a honeymoon, failure or success.

Timing is everything, they say.

Boeing Co. executives like to repeat, with fondness, the same phrase: this is the right plane for the right market at the right time. They’re referring, of course, to Boeing’s new 787 Dreamliner – the plane they’ll show off to the world today.

Boeing officials aren’t simply talking up their new jet. With orders for 632 Dreamliners in less than four years, the 787 is enjoying market success.

“Orders continue unabated,” Mike Bair, vice president of the 787 program, said in April when the jet had reached the 500-order mark. Within three months, the 787 had added another 100 orders.

But the Dreamliner didn’t start off with such a surge of orders.

Boeing’s board of directors gave the formal OK to begin taking orders from customers in December 2003. The first Dreamliner request came in April 2004 when Japan’s All Nippon Airways placed an order for 50 787s. Still, the Dreamliner didn’t win the 200 orders that Boeing officials predicted it would in its first year.

A couple of factors have affected the Dreamliner’s success.

When Boeing first launched the 787, the aviation industry was only beginning to recover from the economic downturn that followed the terrorist attacks of Sept.11, 2001.

In 2003, when work began in earnest on the 787, airlines placed 520 orders for aircraft – between both Boeing and rival Airbus. In 2006, by contrast, Boeing raked in 1,044 orders, Airbus 790.

Today, both Airbus and Boeing see a huge demand for midsize – 200- to 400-seat – jets over the next 20 years. Boeing forecasts a global demand for 6,290 new aircraft in the 200- to 400-seat market over two decades while Airbus estimates a slightly lesser need of 5,668 new twin-aisle jets.

Based on Dreamliner demand, Boeing’s Bair suggests his company’s predictions could be low.

“It feels like the pie is bigger than we anticipated,” Bair said.

Both Scott Carson, president of Boeing Commercial Airplanes, and company chief executive Jim McNerney say they believe the recent flurry of orders for the 787 and other jets demonstrate a prolonged order cycle.

“Every cycle until this one was led by Europe and the U.S.,” Carson said.

Only two major U.S. airlines – Northwest and Continental – have ordered Boeing’s Dreamliner. Virgin Atlantic is one of the only major European carriers to order the 787 while British Airways and Germany’s Lufthansa have not. U.S.-based Delta hinted it might announce Dreamliner orders later this year.

U.S. and European legacy carriers simply can’t afford to wait much longer to place major orders, analysts say. Many have fleets comprised of planes approaching 20 years or older. And older planes can’t compete with the Dreamliner when it comes to fuel consumption.

Five years ago, in the midst of designing the high-speed Sonic Cruiser, Boeing started to scope out the midsize jet market. The results of their findings convinced Boeing officials to abandon the Sonic Cruiser and change course. Boeing would develop a 200- to 300- seat fuel-efficient jet.

“Fuel prices are at places none of us would have anticipated just a few short years ago,” Carson said.

The need for fuel-efficient jets has prompted Airbus to create a fuel-savvy, mostly composite jet of its own: the A350.

But that jet, as analyst Scott Hamilton, with the Leeham Co., points out, doesn’t compete directly with the 787. Instead, Airbus has aimed its A350 at Boeing’s slightly larger 777 jet.

The European company has left its A330 jet to compete directly with the 787. Airbus’s A330, Hamilton said, essentially “killed” Boeing’s 767, the plane Boeing is replacing with the 787. For its part, Boeing eventually will need to respond to the A350 with a newer 777.

“It’s just this back and forth between the two,” Hamilton said.

While airlines wait for Boeing to deliver its Dreamliner in 2008 and Airbus its A350 five years later, the manufacturers’ existing A330, 767 and 777s are enjoying recent successes. At the Paris Air Show in June, Airbus won more than 80 orders for its A330. Boeing’s 767 has received 36 orders this year – as many orders as the jet has received in the previous three years.

The downside of introducing the right product at the right time is dealing with the demand effectively. The storm of Dreamliner orders already has forced Boeing to push out the introduction of the latest 787 family member, the 787-10, Bair told investors recently. And Boeing is definitely feeling the pressure to boost 787 deliveries. as the company now is sold out of the Dreamliner until at least 2013.

“We are kind of dragging our heels” on increasing rates, Bair said.

With a goal of pushing one 787 through final assembly every three days, Boeing still needs to get a better sense of how well its new production method for the Dreamliner will go.

“Our sense is, it will yield faster than anyone anticipated,” Bair said.