Series Title | The Economist |
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Series Details | No.8307, 18.1.03 |
Publication Date | 18/01/2003 |
Content Type | Journal | Series | Blog, News |
Date: 18/01/03 In a market shrunk by 50%, and with Airbus ahead, Boeing has big problems IT IS easy to be gloomy about Boeing as it prepares to report another fall in profits at the end of this month (analysts expect a drop of over 20% for 2002). The overall market for jet airliners has fallen from around 800 a year to barely 400 last year. This week Airbus confirmed that it has overtaken Boeing in both orders and output. The two companies, the only big makers of large passenger jets, expect a further fall in orders to some 350 this year - on top of which there are about 500 brand-new jets parked unused in the Mojave desert. Orders are an important indicator, but between signature and delivery many are cancelled, trimmed or postponed. The two companies saw stricken airlines last year cancel orders for a total of 142 aircraft, with Boeing slightly the worse affected. Deliveries reflect actual output and cash, and here the news is just as grim. Boeing deliveries will fall this year to around 280, down from 527 in 2001. Airbus, down from a peak of 325 in 2001, is still sticking to its previous forecast of 300 deliveries, although it will probably soon revise that downwards. So far its only big concession to the crunch has been to cancel previous plans to increase production to 450 planes a year. Neither company sees any improvement before 2005, if then. Alan Mulally, chief executive of Boeing's commercial aeroplane business, says he has never seen things so bad in his 33 years in the business. In private, Boeing executives are very critical of their European competitor, accusing it of slashing prices and offering residual-value guarantees to keep its factories and workforce fully employed. Airbus points the finger at Boeing's aggressive use of vendor financing to boost sales. The past two years have been unkind to Boeing in other ways too. Its product-development plans look to be in chaos. Its proposed stretched version of the flagship 747 flopped and had to be withdrawn two years ago. To cover that retreat, the company trumpeted its Sonic Cruiser, a futuristic 250-seater jet that would fly close to the speed of sound and clip hours off long-haul flights. But struggling airlines want planes that fly cheaper, not faster. So the Sonic Cruiser was quietly shelved over Christmas. Meanwhile, Airbus successfully launched its A380 super-jumbo, which now has an impressive order-book of more than 100, even before breaking into the crucial Japanese market. A few years ago, all this could have been catastrophic. But today Boeing is no longer so heavily dependent on its civil-jet business, now down from 80% of sales to little more than half, as its defence and space interests have grown. The loss of the biggest defence contract ever, to supply the F-35 fighter to America's armed forces, has been made up for by a $20 billion contract to supply converted wide-body 767 aircraft as refuelling tankers for the United States Air Force. “Connexion by Boeing”, the company's airborne internet service, is now finding customers, such as British Airways, Lufthansa and Japan Airlines, which judge Boeing's service to be superior to a more modest offering from Tenzing, a Seattle company in which Airbus has a big stake. Boeing, which moved its corporate headquarters from Seattle to Chicago 16 months ago to emphasise its diversification, is also forging ahead with ambitious plans to offer satellite-based air-traffic management services as soon as governments have the courage to adopt this technology. Most importantly, in the heart of its civil-jet business, Boeing seems to enjoy a huge competitive advantage. It has been more easily able to adapt to the market slump. By the end of this year, 35,000 jobs will have been shed in Seattle, as its civil-jet division cuts its workforce by a third. Boeing has also revamped its production to improve productivity and protect profit margins even as its factories empty. Airbus, which has cut only the equivalent of 6,000 jobs (mostly contract workers), faces heavy redundancy costs in France and Germany if it tries to lay off any more people. On the other hand, partly through use of contract workers and outsourcing, it already manages to make more jets than its rival, with only two-thirds the number of employees. Let battle continue. |
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Source Link | http://www.economist.com |
Subject Categories | Business and Industry |
Countries / Regions | United States |
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