Boeing: Hard times put bright future on hold

06 December 2002

Enter a search on The Boeing Company's website for the number of aircraft orders it has booked in the Middle East since September 2001 and the response reads: 'No records were found to match your query.' The world's biggest commercial aircraft manufacturer has endured a rough ride following the 11 September attacks on New York and Washington. So the prospect of an imminent US military campaign against Iraq is a sobering thought for the company's sales executives.

'The impact of 11 September on the airline industry has been much worse than what we saw after the Gulf war,' says Tobias Bright, executive vice-president for sales, commercial airlines. 'Another war in the Middle East would be an unthinkable catastrophe for the sector at this point in the business cycle.'

Boeing's latest results show just how hard the manufacturer has been hit by 11 September. Total revenues at its commercial aircraft division reached $6,100 million in the third quarter of 2002, 23 per cent down on the $8,000 million recorded for the corresponding period last year. Deliveries also fell by a quarter, to 73 aircraft.

It is not all doom and gloom, however. According to its latest 20-year market forecast, the Middle East's passenger fleet will more than double from 409 aircraft to 833 by 2021. Over the period, regional airlines are forecast to spend up to $63,000 million. Boeing, which claims to have more than a 60 per cent market share, is banking on winning its fair share of this business.

Recently, however, the company has had to watch its European rival, Airbus, score some impressive successes in difficult conditions. Boeing has yet to offer Middle East customers an alternative to the Airbus A380-800 superjumbo. The 555 or 656-passenger aircraft has already caused a buzz in the region, following high-profile orders from Dubai-based Emirates and Qatar Airways.

Boeing strategists argue there is no long-term market for such a large aircraft. Instead, the company is hedging its bets, choosing to stretch out the lifespan of its veteran 400-passenger 747, while sounding out the industry about its Sonic Cruiser concept. 'Too much attention is placed on the A380 versus Boeing. We have a product strategy that is based on serving a market that wants to fly point-to-point. Our philosophy is that air transport will fragment: just look at the number of routes that are flown out of Dubai,' says Bright.

In 2001, airlines operated 1,000 weekly flights from Dubai International Airport to 68 non-stop destinations worldwide. Bright believes Dubai's example of an airport implementing an effective open skies policy, coupled with the growth of its indigenous airline, is a lesson that could benefit the entire region.

'There is no question that a liberalised operating environment in the Middle East would be a positive step and we are doing everything we can to encourage this. Liberalisation could be the driving force behind the growth in air travel in the region over the next 10 years,' he says.

Fewer airlines, operating larger fleets on more routes, would also help to spur the industry forward in the Middle East. 'More consolidation would be good for the industry. When the world's leading carrier has only 7 per cent of the business available, there are clearly too many airlines. My gut feeling is that this is the case worldwide. We have gone past the day when every country needs its own flag carrier,' says Bright.

With no firm plans yet in place to produce the Sonic Cruiser, which is pitched to fly just below the speed of sound, Boeing is relying on its existing best sellers - the 747, 777 and 737 airframes - to entice airlines in the region. The company is still waiting to firm up a $7,000 million order from Emirates for 25 777-200 and 777-300 aircraft. The deal was announced last year, when the carrier also decided to buy 22 A380s and eight A340-600s. Emirates' decision to go for the A340s was a double blow, as it took more sales away from Boeing's similar long-range 777.

Talks were expected this year with Boeing's biggest regional customer, Saudi Arabian Airlines, to update its fleet of 747s, but they have so far failed to start. A potential $1,100 million order from Royal Air Maroc for 22 medium and long-haul jets has also sat on the shelf. The company's only notable success in recent months came in October when Algeria's Khalifa Airways, normally an Airbus carrier, signed up to lease two 777-200s for five years from Boeing Aircraft Trading. 'What is vital in a downturn is [to recognise] that every airline, no matter how small, is important to us. We look to spread our risk across as many operators as possible,' says Bright.

Iran Air, which flies a large fleet of ageing 747s, is one operator that Boeing would like to open a dialogue with - it cannot do so because of US economic sanctions. The flag carrier is not prepared to wait for Washington to restore diplomatic links, however. It has talked to Airbus about a possible deal for 10 modified aircraft that would fall outside the existing legislation that prevents the export of aircraft with more than 10 per cent US-manufactured content.

Bright is aware that in today's climate the company cannot afford to ignore any potential customers for its commercial jets. 'We would like to sell worldwide without sanctions. After all, aircraft are about bringing people together. In the case of Iran, the country has a long history with Boeing and is still operating our aircraft. We would like to sell them some more,' he says.

Air travel has changed dramatically since William Boeing wheeled out his first aircraft from a garage in 1916. The Middle East has also experienced tremendous change over the same period and Boeing's aircraft have played a significant part in opening up the region to the outside world. Regardless of the present downturn in air travel, Boeing is banking on continuing to play an important part in helping the region's airlines deal with the challenges that lie ahead.

Andy Critchlow

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