Boeing announced Tuesday it would go forward with building its new 7E7 jetliner, signaling a new chapter for the world's largest commercial airplane builder just one day short of the 100th anniversary of powered flight.
“I'm very happy to share with you the board's decision to go ahead and offer for sale the 7E7 to airlines around the world," CEO Harry Stonecipher told thousands of Boeing workers at a company meeting in downtown Seattle Tuesday afternoon.
Reports of the decision had been hinted at in recent weeks, but the board's final move didn't come until Monday. The plane, a super-fuel-efficient jet made largely of lightweight composite materials, will be assembled at Boeing's facilities in Everett, Wash., about 25 miles north of Seattle. Thousands of workers at that plant, where such planes as the 747 and 777 currently are produced, had been anxiously awaiting a decision about the plane.
Components for the new 7E7, however, will be constructed around the world, with pieces built everywhere from Wichita, Kan., to Japan. Boeing itself will build about 35 percent of the airplane, with contractors constructing the rest.
The company has telegraphed its willingness to build the plane, going so far as to show off mock-ups of its planned interior, but it wasn't until this week that its board gave its OK. Their decision was unanimous, Stonecipher said, both in a vote to go ahead and in a choice of location.
“The board had more questions about the airplane than you can imagine … and it’s because they love the airplane,” he said.
The 7E7 Dreamliner, as it was dubbed, will rely on advanced manufacturing and new design techniques to operate long-haul flights -- nearly 8,000 miles -- while allowing airlines to trim their operating costs. Boeing included the "E" for efficiency, a signal to its customers that it understood their need to fly farther for less money.
“I think we’re going to have some very major customers step up early,” Alan Mulally, president and CEO of Boeing Commercial Airplanes, said at a press conference later in the day. “It’s not just about one or two or three customers, it’s about a view of the world.”
However, the company has yet to announce a customer for the jet. While officials said some 50 current Boeing customers have expressed interest, no one has yet agreed to buy it. And even when customers are signed up, the plane still needs years of development. Some decisions, like which engines will be used, could come early next year. But the jet's final form and initial assembly won't be done until 2005, with flight testing in 2007 and the first deliveries in 2008.
'They really need to do this'
Still, the 7E7's approval signals a step forward for the aerospace giant, which has been stung in recent weeks by the resignation of CEO Phil Condit amid a scandal involving its deal to provide military refueling tankers, as well as an acknowledgment that this year, for the first time, it would be eclipsed in commercial aircraft deliveries by rival Airbus.
"If they succeed in making the product as good as advertised, it will be a positive for the company," said Craig Fraser, aerospace analyst for Fitch Ratings. "They really need to do this. It's probably a greater risk to do nothing,"
Analysts have been lackluster in their outlook on Boeing. While its commercial airplane division has seen a few bright spots, it is set to deliver about 300 airplanes this year, down from 527 in 2001.
The 7E7 will put Boeing in even more fierce competition with Airbus, which will be first to market with its A380 superjumbo jet. The A380, set for service by 2006, is also designed to be far more efficient than current long-haul jets, but similarities with the 7E7 end there. While the long-range 7E7 is designed for 200 to 250 passengers, the A380 will carry over 550 passengers, far more than even the most packed 747.
The two planes define a battle over competing visions of air travel. Airbus sees potential in carrying large numbers of passengers over long distances, where they can connect at hub airports to their final destinations. Boeing sees growth in point-to-point services, allowing airlines to fly direct international flights between smaller cities: San Francisco to Milan, Minneapolis to Paris.
The 7E7 will also round out Boeing's fleet offerings. Its 737 -- the most produced commercial jet ever -- remains popular for domestic and short international flights. The 777 provides long-haul capabilities for large numbers of passengers -- though fewer than the 747 or A380 -- and the 7E7 could offer mid- and long-range direct service between smaller markets.
At the same time, airlines are able to fly intercontinentally with the extended range of new 737s -- though few carriers have yet pursued that option. And a shorter-haul 7E7 version will carry up to 300 passengers and have a range similar to a 737, but should cost less to operate.
"The 7E7 will be a dramatic improvement from all we hear about in terms of efficiency, in terms of range," said Aaron Gellman, professor of transportation studies at Northwestern University.
Too many aircraft
On the other hand, airlines also face a glut of aircraft. Not only are many flying planes that are too empty to make money, but thousands more jets have been mothballed amid the downturn in air travel during the past two years. Fraser believes many airlines will turn to the new airplanes being offered by Boeing and Airbus and will either convert existing airplanes for freight service, sell them off to reduce their debt or simply leave the older fleet in storage.
"Not a lot of it is coming back out of the desert," said Fraser. "Those planes are generally old and not cost efficient."
In that way, the 7E7 reflects Boeing's take on the commercial market. It scrapped two earlier projects -- a high-speed sonic cruiser and the 747X, a major overhaul of its trademark jumbo jet -- when it became clear that its airline customers were more interested in cost savings.
Mulally said Tuesday that its versatility would also be a major selling point with many airline customers who are trying to simplify their fleets, and said he saw the potential to market the plane to new low-cost airlines as well as traditional international carriers. "I think we'll see a lower-cost, international, global carrier" using the 7E7, he said.
Win for Washington state
Boeing's decision also was a boon for Washington state, which was seriously stung when Boeing moved its headquarters to Chicago in 2001. The company insisted the move east was simply a reflection of its diverse operations, including large defense and space divisions. But many in and around Seattle, which once took the moniker "Jet City" for the numerous Boeing factories in the area, saw the move as an affront.
Boeing's commercial airplane division has been tentative in its desire to move operations, even as thousands of Boeing workers were laid off since 9/11. And despite the Chicago move, Washington Gov. Gary Locke and state lawmakers approved a $3.2 billion package of tax breaks to convince Boeing to build the 7E7 either in Everett or at a remote site in the eastern Washington town of Moses Lake. Without the 7E7, Locke said after Monday's announcement, "it would have meant the end of Boeing building airplanes in the state of Washington."
The actual impact of the 7E7 assembly will be modest, adding perhaps 800 to 1,200 new jobs to payrolls in the state. But the state projects thousands more potential jobs could be created with suppliers and service businesses, and the symbolism of the decision is likely to resonate with residents and employees worried that Boeing might simply pull up stakes and move all its operations.
"This really will go a long way in reinstilling confidence in the company from all stakeholders," said Bill Dugovich of the Society of Professional Engineering Employees in Aerospace, a union that represents many Boeing engineers.
The Everett site currently manufactures all Boeing's widebody aircraft, including the 767, which is slowly being phased out of commercial service but had been planned for use as a military tanker. Those plans were put on hold last month after the discovery that Darleen Druyun, a Defense Department official who had helped negotiate the deal, was simultaneously being recruited for a key executive post at Boeing.
That finding led to the firing of CFO Mike Sears and then Condit's resignation. The Pentagon is investigating the details of its deal before it approves the tanker order.
No other option?
While the 7E7 announcement -- positioned amid the celebrations of the centennial of the Wright brothers' first flight -- marks a major step forward for Boeing, industry watchers had generally assumed the Boeing board had no option but to approve it.
Sales of the 737 and 777 have been stable, but Airbus' orders gained momentum in the past several years, despite the global airline industry facing a slump. The European consortium's ability to unveil the A380 well before the 7E7 gave it a jump in soliciting customers, since it will have the A380 flying at least two years before the 7E7 is delivered to its first customer.
Though Boeing downplayed Airbus' strong sales, many saw it as a sign Boeing had lost its way. Tuesday's announcement helps to signal that Boeing is willing to move forward.
It still faces steep development costs in building the 7E7, perhaps as high as $10 billion. But Gellman noted that Mulally has exercised stiff financial discipline and ensured the company was paid fully for new planes.
Tuesday's announcement was also designed to charge the spirits of Boeing employees, who were largely overjoyed at the long-awaited announcement.
"Some people go through their whole career and don't get to experience something like this," said Tom Cogan, the chief project engineer on the 7E7. "As a young engineer, this is what we all dream about."