Boeing still looks for key 7E7 deal

  • By Bryan Corliss / Herald columnist
  • Tuesday, January 4, 2005 9:00pm
  • Business

The Boeing Co. failed to hit its 7E7 sales target in 2004. Has the program failed? Is it time to panic?

The consensus among experts: not yet.

However, in a world where corporations get rich by selling the sizzle, not the steak, the fact Boeing didn’t get 200 announced sales by New Year’s Eve means the company is starting 2005 with stock analysts and reporters talking about failure, not success.

It was “a lukewarm launch” for the Dreamliner, The Washington Post reported this week. In London, the Telegraph reported it has been a “struggle” to get sales to take off. Bloomberg News reported that Airbus has successfully blunted Boeing’s momentum with its new A350.

That’s not the kind of buzz you want for your new, state-of-the-art airplane.

Is the perception reality? Not exactly.

Compared to other Boeing programs, sales of the 7E7 have gotten off to an average start. In the eight months since All Nippon Airways announced it would be the launch customer for the Dreamliner, Boeing has signed firm deals to sell 56 of the planes.

That’s better than Boeing did in the first eight months of the 777 program, when it sold 28 planes. But it’s not as good as the first eight months of the 747 program, when it sold 81 planes.

If you compute the average sales for the first eight months of the five other jets Boeing produces these days, you’ll come up with a figure of 57.2, which is close to that total of 56. Given that, it seems the Dreamliner is off to a good, but not great, start.

The analysts, for now, aren’t concerned about the pace of sales.

“They didn’t make their 200, but the order from Continental has to be encouraging,” Robin Laird, a defense and aerospace consultant, told The Washington Post. “It’s a validation of Boeing’s business model.”

That 10-jet Continental order, which came last week, is “a significant psychological victory for Boeing,” Ragen MacKenzie analyst Peter Jacobs told clients in a note. “While far short of the 200-order goal management had set out for 2004, it is nonetheless encouraging that a major U.S. airline placed an order, and it is a positive indicator that the outlook for the U.S. airlines may be improving.”

What is worrying them is the source of the orders that Boeing has landed so far.

Teal Group analyst Richard Aboulafia noted before Christmas that the big buyers, so far, have been Boeing’s friends – All Nippon and Japan Airlines, which account for 80 of the 126 announced deals between them. Boeing has enjoyed a near-monopoly in the Japanese market. The first major U.S. buyer, Continental, flies an all-Boeing fleet, and its recently retired chief executive, Gordon Bethune, was a former Boeing executive.

For the Dreamliner to succeed, Boeing needs to land a deal with an airline that isn’t traditionally in its camp, Aboulafia said. “Qatar, China, Singapore, Emirates – anywhere where the turf is contested.”

Singapore Airlines would be a key customer to land, he added. The airline has a reputation for doing meticulous research into new aircraft and for making jet purchase decisions solely on price and performance, without the politics that are so often involved in airplane deals. Singapore’s stamp of approval on the 7E7 could prompt fence-sitting airlines to sign up.

The expert opinion seems to be that as long as Boeing continues to announce new customers over the next few months, the fact that it missed the New Year’s Eve deadline won’t matter.

But if sales should stall over the next three to six months, Wall Street could start getting antsy.

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.

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