NOVEMBER 16, 2005
News & Features

By Stanley Holmes

Boeing's Reborn 747

A new version of its venerable jumbo jet packs enough advances to ensure that it will keep rival Airbus' A380 closer to the ground

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For the past decade, Boeing (BA) has endured its share of critics complaining that the commercial-jet maker had become too cautious about launching new airplanes. But Tuesday's debut of a bigger and more efficient version of the popular 747 jumbo jet should erase any doubt. The new 747-8 follows last year's introduction of Boeing's fuel-sipping 787 Dreamliner. All of these new commercial jets are aimed at ratcheting up the competitive pressure on Airbus and its A380 super-jumbo.

The launch of the 747-8 had been expected for some time, but certain analysts had been skeptical. On Nov. 15, Boeing finally announced that two freighter companies -- Cargolux and Nippon Cargo Airlines -- had ordered 18 cargo versions for a list price value of $5 billion, though launch customers receive deep discounts. Boeing execs expect orders for passenger planes to roll in early next year.

"MORTALLY WEAKENS."  But after several false starts, the fact that Boeing has launched new versions of this iconic airplane underscores just how far the pendulum has swung toward the U.S. jet maker. "It's hugely important and potentially a pivotal moment, because it mortally weakens the A380 business case," says Teal Group analyst Richard Aboulafia. "It's a no-brainer business plan."

Indeed. It's hard to know if Airbus execs really believed Boeing would launch a newer version of the 747. Until recently, most of the evidence suggested that Boeing had no appetite for designing another jumbo jetliner. It had killed four potential new versions in less than 10 years. So, the stretched, refreshed, and distinctively shaped 747-8 won't be welcome news at Airbus headquarters in Toulouse, France. The "A380 business case" looks far better as a monopoly.

Boeing appears to have come up with an innovative design that lets it capitalize on the 747's distinctly shaped hump-nose design -- which sets it apart from every other commercial aircraft -- even as it incorporates new technologies from other Boeing airliners. The new 787 technologies could make the smaller 747-8 lighter to fly and cheaper to buy than the larger A380.

AIRBORNE DIVISION.  For starters, the combination of General Electric's (GE) new GenX engines and aerodynamic improvements means the 450-seat 747 will have 18% lower trip-mile costs than the 550-seat A380, while maintaining similar seat-mile costs. And the presence of a new 747 jumbo jet hurts the Airbus' ability to raise the A380's pricing beyond the steep discounts it gave to launch customers.

Airbus will have to compete with Boeing for the lucrative large-airplane market, potentially even splitting the share of the estimated 900 400-seat or larger planes that Boeing predicts will be purchased over the next 20 years. Airbus believes the market for jumbo jets is 1,700 units over 20 years. About the only thing certain, as Merrill Lynch analyst Charles Armitage writes, is that the 747-8 "will eat into the A380 market."

The new passenger version of Boeing's four-engine jumbo jet carries more people in a redesigned interior that borrows heavily from the advances in the 787. The jet will seat 450, up from 416 in the most current model. It will be nearly 12 feet longer and capable of flying 9,200 miles. The freighter version is about 18 feet longer than today's 747. The aerodynamic improvements include a new wing based on the current 747 wing, but with refined leading and trailing edges, as well as a new outboard aerodynamic shape and a new contour borrowed from the 787.

R&D; ADDS UP.  The upgraded flight deck will be identical to decks on the 787, 777, and 737 -- a design feature that will narrow the advantage Airbus has enjoyed since introducing common flight decks across all of its airplane models. "What we have always been waiting for is a set of enabling technologies, so we could make a significant improvement in the technology and efficiencies of the 747," says Alan Mulally, chief executive of Boeing Commercial Airplanes. "Now, we just have a killer application."

Another advantage is the cost of development: Analysts estimate Boeing will spend about $4 billion to develop the new 747-8, compared with at least $14 billion for the Airbus A380. According to Merrill Lynch's Armitage, Boeing has to amortize only about $5 million of research-and-development spending per aircraft, vs. $16.5 million for Airbus. That's assuming each manufacturer sells 850 airplanes over the next 20 years. Even if Airbus ends up with a 22% higher average purchase price because of its larger number of seats, Armitage estimates R&D; will represent about 10% of the A380 purchase price, vs. 3.6% for the 747-8.

Still, Airbus continues to outpace Boeing in total deliveries, while Boeing will record more airplane orders this year. And though the A380 has had some technical glitches, delaying deliveries by six months, the all-new mega-carrier did make its first tour to Asia, where it has chalked up most of its 159 firm orders.

UNFRIENDLY SKIES.  Airbus officials say they're unimpressed by the new 747 jetliner, noting that the only launch customers are air-freight companies. "It's not a surprise that Boeing is going forth with a counter to our product, but it's very clear to Airbus that our customers are looking for far more than a warmed-over '60s design," says Airbus spokeswoman MaryAnne Greczyn. "What is putting the A380 so much in demand is its economy, technology, comfort, and flexibility. Adding a few rows to an old airplane isn't gonna be a big draw."

Unfortunately for Airbus, the new 747 doesn't need to be a big draw. What's more troubling for Airbus is that the 747's presence in commercial flight for another 20 years means the A380 won't be the future of the industry. The 787 Dreamliner and now a refreshed "Queen of the Skies" have seen to that.


Holmes is a correspondent in BusinessWeek's Seattle bureau

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