And not before time.... Boeing's strategy dept really bet wrong on the long-range...

Bloomberg , 15 Nov 2005

Boeing Co., the world's second-largest commercial planemaker, will build a bigger and more efficient version of the 747 to challenge Airbus SAS's A380 in the market for planes seating more than 400 passengers.

Boeing decided to extend the life of the 36-year-old aircraft after Japan's Nippon Cargo Airlines Co. ordered eight cargo versions and Luxembourg's Cargolux Airlines International SA firmed up a commitment for 10 planes. The 18 aircraft are worth $5 billion at list prices, or $278 million a plane, said Alan Mulally, head of Boeing commercial aircraft, at a London press conference today.

The new plane, which follows two earlier failed attempts to stretch the 747 in the 1990s, will borrow technology from Boeing's new 787 jet, including General Electric Co. engines, to provide 20 percent lower trip costs, Boeing said. The plane, called the 747-8, will have about 450 seats, 34 more than the current 747-400, and carry 15 more tons of freight. The A380 seats 555 and costs $280 million in the passenger version and $300 million as a freighter.

``This means a really bad year for Airbus just got much worse,'' said Doug McVitie, managing director of Arran Aerospace, an aerospace consulting company in Dinan, France. ``For Boeing to be able to say they're going to have 20 percent better economics than the A380 means Boeing is taking the high ground.''

Shares of European Aeronautic, Defence & Space Co., the owner of Toulouse, France-based Airbus, fell as much as 28 cents, or 0.9 percent, to 29.59 euros and were down 24 cents at 1:36 p.m. in Paris. EADS has gained 39 percent this year compared with a 28 percent advance for Boeing.

`Sweet Spot'

The 747-8 ``is right in the sweet spot of what we think airlines will want,'' said Mulally. The new airliner won't require expensive investments in reinforcing runways and new airport terminals ``helping our customers enormously,'' he said.

Airbus is running six months late on production and deliveries of the A380, which will result in paying unspecified financial penalties to several airlines. Boeing also is outstripping Airbus with new orders this year, powered by demand for the 787 Dreamliner. Airbus has 159 orders for the A380.

The 747-8 extends the life of a plane that has been flying since 1969, with a monopoly in the market for planes seating more than 400 passengers, which it will lose when the A380 enters service next year. Boeing has sold 1,400 of the 747s and the aircraft operates from 210 airports worldwide, Mulally said today.

Both the passenger and cargo versions of the new 747 will have reduced emissions, offer lower trip costs, and operate with four engines, Boeing said. General Electric will supply the same motor, called the GEnx, developed for Boeing's twin-engine 787 aircraft and will be the exclusive engine provider.

More Competitive

The new technologies and bigger size will make it more of a challenge to the A380, which is 35 percent bigger than the current Boeing 747 and cost $12 billion to develop.

Boeing tried and failed several times to come up with a plane larger than the current 747 to avoid ceding the entire market for large aircraft to Airbus. Boeing has said it didn't believe the market big enough to warrant investment in an all-new plane.

The fuel-efficient GEnx engine and composite technologies developed for the 787 ``absolutely made the business case'' for the 747-8, said Mulally. He declined to say how much Boeing will invest in the new aircraft.

The new passenger plane will be stretched 3.6 meters, or 11.7 feet, compared with the 747-400 to accommodate 34 additional passengers in a typical three-class configuration. The 747-400 plane seats about 420 passengers in three classes. The new plane will have a range of 8,000 nautical miles, about 500 more than the current model.

Longer Plane

The new 747 freighter will be 5.6 meters longer and with payload capacity of 140 metric tons will provide 16 percent more cargo revenue volume than the current model. It will also have a nose door to help movement of cargo.

Cargolux ordered 10 747-8 freighters and will take delivery of the first in the third quarter of 2009. It also holds purchase rights for 10 additional planes. Cargolux currently operates an all-Boeing fleet of 13 747-400 freighters.

Nippon Cargo Airlines ordered eight 747-8 freighters and will receive its first airplane in late 2009. The airline also acquired options for six additional airplanes. Nippon Cargo currently operates 13 747 freighters and has six more 747-400Fs on order.

``If the investment for Boeing is an incremental cost in comparison to what Airbus spent on the A380, then it's worth the risk-reward for them,'' said Will Mackie, an analyst at Mainfirst Bank AG in London. ``With the 747 Advanced, they can maintain their position in the marketplace, disrupt the competitive balance with Airbus, and keep a full product lineup.''

747 Niche

Boeing is forecasting demand for 900 aircraft with more than 400 seats over the next 20 years and expects the 747-8 to win more than half of those, Mulally said. The market is expected to be split 60-40 between passenger and freight aircraft, he said.

``This is an aircraft that will be suitable for Asia; you need a certain amount of big aircraft in a hub like Hong Kong,'' said Damien Horth, a Hong Kong-based analyst at UBS Securities Asia Ltd. ``I'm sure Boeing's sales force will be calling on Cathay Pacific Airway Ltd. a starting point, and maybe even Singapore Airlines Ltd. although they've placed an order for A380s.''

Airbus's freighter version is being readied for 2008. Customers for the A380 freighter include package-delivery companies United Parcel Service Inc. and FedEx Corp. Singapore Airlines is scheduled to take the first A380 delivery in December 2006.

Boeing is talking to all three airlines about buying the 747- 8, Mulally said.