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Published: Wednesday, January 18, 2006

Reality is setting in for Boeing and Airbus

Bryan Corliss
Herald columnist
Funny how much things can change in a year, isn't it?
In January 2005, Seattle was all abuzz about the amazing SuperSonics, while bitterly lamenting the early exit of the Seahawks from the
National Football League playoffs. This year, it's the Seahawks who reign in Seattle, while the Sonics have turned into the gang that
can't shoot (or pass or play defense) straight.
A year ago, the Boeing Co. also was mired in a big losing streak.
It had badly missed on its public goal of selling 200 787s in 2004. It had been thumped by Airbus in both the number of jets it sold and
the number it delivered for the second year running. Its former chief financial officer and another top executive were headed to jail in a
Pentagon procurement scandal that threatened the future of the 767 program.
In addition, Boeing had pulled the plug on the slow-selling 717, and with sales of its iconic 747 jumbo jet drying up, the company was
publicly warning that its days could be numbered as well.
Meanwhile, across the pond in Toulouse, France, Airbus was not only reveling in its status as the world's top jet builder, it was No. 1
with a bullet, having just rolled out the A380 superjumbo, a technological marvel and a triumph for European industry.
So what has happened since then?
* The A380 program has been beset by delays and overruns. With the first deliveries running six months late, launch customer
Singapore Airlines has threatened to sue.
* After revising its design four times, Airbus finally launched its new A350 in 2005, only to find that airlines preferred Boeing's 787.
Airbus executives had boasted they would hit the first-year goal of 200 orders that Boeing had missed with the 787, but at year's end it
appeared they would fall far short.
* Airbus' once strong-selling A340 was overwhelmed by Boeing's 777 by close to a 10-to-1 margin in orders. The problem, analysts
said, was that the four-engine A340 sucks more fuel than the twin-engine 777, and with fuel prices soaring, airlines lost interest.
* And, in a confusing about-face, Airbus chief executive Gustav Humbert last week denied that his company was developing a mostly
composite jet to replace its hot-selling single-aisle A320 - just two days after his boss, EADS co-chief executive Noel Forgeard, said
that was exactly what Airbus had in the works.
Airbus managed to get its 2005 order total past Boeing's by pushing through a last-minute order from China. But add it all up, and it
looks like tough times for Team Toulouse.
Still, perception is not reality. In the long run, the success or failure of the A380 won't hinge on whether Airbus delivered the first one six
months late, but whether its customers make money with it in the first six years.
Yet, analysts say Airbus has some serious challenges ahead. The Europeans invested a lot of money and energy in the A380, which is
selling slower than expected, and now must contend with Boeing's new 747-8. The A340 appears doomed, at least as long as fuel
prices remain high. The Wall Street Journal reported Monday that Airbus needs to significantly modify the A340, which could cost $1
billion. And, based on early returns, the A350 doesn't appear to be as competitive as Airbus expected.
"The company should be embarrassed by its performance in the twin-aisle line," Leeham Co. analyst Scott Hamilton said.
Boeing vice president of marketing Randy Baseler - an expert source, if not an unbiased one - raised these points this week as well.
"I can't help but wonder what discussions are going on in Toulouse right now," Baseler, Boeing's blogger-in-chief, wrote in his Web log
Monday.
"In light of the overwhelming response Boeing has had to the 787 and 777 this past year, do you think the other guys are beginning to
ask some difficult questions? Could they be talking about whether their wide-body product strategy is out of step with today's market
realities?"

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

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