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:: January 2003 Newsletter ::

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Dear Fellow Cross-Border Shoppers,

Just back from an enjoyable long vacation in Mexico, a country that offers zero aerospace news that I can read. The closest I came was a local comic strip called Condorito. Alas, the sanguine little condor was unable to help me in my quest to find Boeing’s New Product Development team. Fellow analyst John Walsh suggested that I would be able to find them there, under the FBI’s Witness Relocation Program. But no. They weren’t dressed as mariachis in Guadalajara’s Plaza de Armas. They weren’t serving tequila in a small bar in Guanajuato. They weren’t hawking souvenirs at the Teotihuacan pyramids. Where could they be?

Okay, poking fun at Boeing’s new jetliner efforts in the aftermath of the Sonic Cruiser cancellation is like hunting sheep with JDAMs, and really not very sporting. Suffice to say that the Sonic Cruiser decision was inevitable, and the real question, perhaps, is whether it ever really existed. A lot of claims were made, yet very little money was spent—a suspicious juxtaposition of facts. On the spectrum between real and unreal technology (one end of the spectrum being “bypass turbofans” and the other end being “Raelian Cloning Procedure”), where did Sonic Cruiser stack up?

The probable reality is that Boeing had found some intriguing possibilities suggesting that faster, cheaper subsonic designs were practical, but they didn’t have enough concrete research to justify the confident pronouncements. “Market Conditions” provided a convenient (and certainly accurate) rationale for burying it all, probably forever. Did Sonic Cruiser alone do any harm to the A380? Did it keep Japan from defecting to Airbus? Did it forestall any A380 orders? We may never know.

Then there is the new 250-seat Boeing design, or 7E7, as it is suddenly known. At first, I was prepared to call this the NVP, or New Vague Plane, but as it turned out, it’s kinda specific. Matter of fact, for another plane with little research cash behind it, the 7E7 has mighty clear details, with an operating costs reduction of 15-20% from the current 767. The target is set; just leave it to the engineers to make it happen, I guess. The upshot could be a scaled-down 777. Alternatively, they could just tweak the 767, and leave it to the engine guys to do the real work. And of course, we have no way of knowing if it’s real, or if it’s doomed to follow the 747-X and Sonic Cruiser, resulting in another FBI-sponsored engineer migration south of the border. BCAG may love the idea wholeheartedly; Boeing’s board and shareholders may have other ideas.

On the positive side, there is definitely a big market here. International routes are still fragmenting, and a 250-seat 7,500 nmi low-cost plane is a powerful argument in favor of additional fragmentation. But the least fortunate aspect of this proposal is what the development schedule says about Boeing’s product line over the next five years. If the new plane doesn’t arrive until 2008, doesn’t that imply that Boeing has few other plans up its sleeve in that period? Can the 757 survive until then, without a major update? Given the relentless expansion of the 737 (now offered as the 205-seat 737-900X) we may have to rethink our 757 forecast. Similarly, how long can the current 747-400 hold off the A380 without an upgrade?

And yet. And yet. Just how foolish is Boeing’s hard-core low-cost jetliner position? Given the horrors of the next 30-40 months, could it actually make sense? While I was in Mexico, Airbus came out and admitted that 2003 deliveries might not hit 300 planes, which means that I had actually been giving them too much credit. They also hinted, for the first time, that they might not be able to fund the A380 with cash flow—debt might be necessary. And as I write this, Daimler Chrysler is making noises about cutting its stake in EADS. EADS denies this, but the possibility is real.

So once again, the next few years are going to be fascinating, in a train wreck sort of way. There are two possible outcomes. In one, Airbus remains unscathed and aggressive as ever, bringing the A380 (and an A300/310 replacement) to market on time, while Boeing continues to lose market share. In the other outcome, financial and market pressures combine to negatively impact Airbus/EADS, resulting in an A380 delay or deferral, and a less aggressive market posture.

I propose a method of keeping score. Before the Airbus 2003 deliveries announcement, I would have put the odds at 79:21, in Airbus’s favor (i.e., their ability to aggressively compete and develop new planes survives intact). The Airbus announcement changes the score, to 77:23, and Daimler Chrysler’s comments change it again, to 72:28. Let me know if, and when, you think it should move.

This slightly late January supplement has our annual World Aircraft overview. It also has updates of both 50-seat RJs, the B-2, MiG-29, E-8 JSTARS, S-92, Challenger 300 (formerly Continental Jet), C-212, and the Comanche, the victim/beneficiary of another restructuring. February’s update will include a bunch of high priority reports, including the Fighter Overview, A330, 777, and F-16. Get in touch if you need any updated numbers. And enjoy the ski season.

Yours, ‘Til Microsoft’s Sonic Cruiser Flight Simulator Hits The Market,

Richard Aboulafia
(703) 385-1992 ext. 103 (office)
raboulafia@tealgroup.com
www.richardaboulafia.com

 

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