Air Transport World

Airframe, engine manufacturers mounting assault on costs. (Buying and pricing aircraft, part 2)

More for less. What airline executive would argue with any airplane or engine vendor promising something so attractive?

It is that promise which the manufacturers are now trying feverishly to fulfill. In the competitive airline world, and in the equally competitive commercial aircraft and engine business, there is no choice.

At the Paris Air Show, Boeing Commercial Airplane Co. Executive VP Joseph F. Sutter said Boeing would delay its new airplane until 1992 in order to give customers 1) radically superior fuel economy, 2) lower maintenance costs and (3) lower initial costs.

Boeing has to offer these attractions to current and potential customers in a deseperate attempt to fend off competition from Airbus Industries' A320, whose 1988-89 delivered price is estimated at about $23 million. Boeing's "me-too" airplane--i.e., one it could have ready at the same time as the A320--was $5 million more, says Peter Morton, director of cost management in Boeing's product development organization. McDonnell Douglas, too, is pursuing Boeing with a derivative MD-80 that would have the new propfan engine.

Much as they may wish to spend money on new aircraft in the same easy-going way they did in the past, the airlines will no longer do so. Resistance to the types--and costs--of some current models is evident. Boeing had sold 52 airplanes through June 25; it was selling 472 transports a year as recently as 1978. "Our current designs are perceived as overpriced," Morton declared to a Boeing management club meeting. Another Boeing official noted that a rule of thumb of $150-160,000 per seat is used in some parts of the industry for pricing a new transport. On that basis, you could calculate that the 757 is overpriced by one-third and the 767 by one-half.

Sometimes it takes awhile to convince people that the world has changed. Boeing is an old, proud company whose commercial products and marketing acumen have gained it a justifiable reputation. Because of that, many people at Boeing Commercial did not immediately translate the changed airline environment into a different environment for themselves. "We were a little slow to react," admits Morton.

To overcome some of the inertia characteristic of a big company, Morton decided Boeing managers had better hear from the customers themselves. He started a series of talks by top airline management to get the story across.

Said People Express Chairman Donald Burr: "There is an enormous unsatisfied demand for air travel. . . .it takes a different mindset," meaning cheaper planes to permit the cheaper fares that will satisfy that demand. Airborne Express Chairman Graham Dorland represents another untapped new-plane market, for small packages. But, Dorland told managers, "We cringe at the price of a new airplane." (So does United Airline Chairman Richard Ferris, who lately has bought used planes when he's bought at all.) Philip Condit, Boeing Commercial's VP-sales and marketing, reminded his employes, "We have to understand that airlines don't fly just so we can sell our planes."

The whole internal Boeing pitch, in fact, has a kind of evangelistic tone. Implicit in the customer speeches, increased monetary incentives to employes for cost reduction suggestions, and adoption of a "New Directions" campaign theme is the company's future in the commercial airline business. …

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