Today’s Challenge: Boeing vs. Airbus
By Scott Clay, Bishop & Associates Inc.

To properly compare these two giants in the airframe market, one must examine their two latest major challenges. The U.S. Air Force has awarded the new KC-X fueling air tanker aircraft program to a team from Northrop Grumman and EADS (the European consortium). Boeing’s loss of this key program—worth up to $40+ billion over the next 10 to 15 years—is a blow to Boeing’s long-term plans, especially to the future of the 767 aircraft line, which is the airframe that Boeing intended to use for the tanker aircraft. This could mean the closing of that assembly line, because orders are dwindling for the 767. This will also be the first time in the history of the Air Force that Boeing has not built its refueling aircraft.

Boeing can use the excess space and workforce that would have been used on the tanker to finish the work on the 787 Dreamliner, plus, they are getting ready to start work on the next-generation 737 single-aisle aircraft. This recent decision, however, is sure to affect Boeing’s stock price, which is down by more than 25 percent from its high of $107.83 in July of 2007.

Airbus has also had its share of major problems in recent years. They had an almost two-year delay on the production of the giant A380 passenger aircraft, with the first deliveries beginning late in 2007. With these delays, and the cancellations of some major orders by customers for the cargo version of the A380, Airbus has decided not to build that version of the aircraft. That leaves the very large cargo aircraft market to Boeing, with its 747, and to a lesser degree the 777 airplanes. This is a plus for Boeing, but Airbus hopes to benefit from additional orders for the A380, which fits perfectly into their hub-to-hub strategy for this aircraft. They also have had to redesign and reconfigure the A350, which is their answer to the Boeing 787’s mostly composite twin-aisle aircraft. This program was also set back, and yet they have more than 200 aircraft on their order books. They have record bookings for the A319-A321 size aircraft, and are looking at the next generation of this aircraft type. Airbus still has record order backlogs for their other airframes, and have set records for aircraft deliveries in 2007. Two years ago, the A380 problems looked like it would spell the end of Airbus, but they have emerged from that disaster to appear even stronger.

Boeing has over 1,000 orders for their 787, but they have had a series of delays due to assembly problems, parts shortages, and FAA approvals and test timing. They had hoped to be well into the testing phase by this point, but aircraft “#1” has yet to make its first flight, and the schedules have slipped badly. The first aircraft delivery to Japan’s All Nippon Airways is expected to be “early 2009,” instead of fourth quarter of 2008. That is not confirmed, and Boeing will not disclose exactly how many 787s will even be built in 2008. They had initially planned on 40 aircraft or less, but that figure is not attainable now with the slip in the assembly schedules and test programs. There is even a thought that 2009 deliveries of the aircraft could be cut to 50, from the more than 100 initially planned. This still is to be sorted out as many of the aircraft slated for 2008 will no doubt be delivered in 2009 or 2010. Exact numbers are not available. Boeing also has a large backlog of aircraft, including hundreds of 737s, and good volume in 777s and 747s. Their military business also has been very positive, with current production of F-18s going well, good volume of F-15s for foreign customers, and a new potential for the latest edition of F-15s for the U.S. Air Force. Many of the older F-15s currently in service have major fuselage structural problems, and over 400 of them in active duty have been grounded over the past year. As the Lockheed Martin F-35 also has had delays in volume production, the Air Force feels it may desperately need the latest F-15s in the “Strike Eagle” configuration to “bridge” the deployment of the F-35, and to meet the needs of a two-person aircraft for ground attack, precision strike, and electronic jamming and surveillance. Boeing is making this version of the F-15 for several Far East customers, and wants very much to gain orders from the American Air Force to assure keeping the assembly line active well into 2010 and beyond.

Boeing’s other military aircraft, defense and space sectors, are also looking positive, but even with these areas looking good, the main focus of the industry, and especially the investment community, is the 787 situation. Boeing will work the 787 problems out, just as Airbus eventually overcame the problems in the A380. Experts from the industry predict huge quantities of aircraft will be needed in the future. Boeing estimates the market for the 787-type aircraft at more than 4,000 in the next decade, and they see themselves getting well over 50 percent of that market. Some estimates are that over 13,000 new commercial airplanes of all types will be needed in the next 20 years, out of the 14,980 planes currently in service. Huge growth potential for aircraft is seen in China, India, and the rest of the Asia-Pacific rim area. As planes become more efficient, more reliable, and incorporate the latest electronics and systems, older and more costly to operate and maintain aircraft must be replaced. Also, as the global marketplace grows, more fuel-efficient cargo aircraft will replace the older planes in very large quantities. The rise in jet fuel costs makes this a more urgent situation.

The aircraft engine makers are in a very competitive situation, with huge amounts of time and money being spent developing more powerful and vastly more efficient jet engines for all sizes of aircraft, including the A350 and 787. They are also developing engines with the same attributes used by the A350 and 787 for smaller planes, such as the very light jets, regional aircraft, business jets, military and commercial turbo props. With the goals of lighter weight and better fuel economy, this market sector also is slated for double-digit growth in the next decade.

Evaluation
Boeing stock is currently in the $76 range. If the 787 gets into testing, passes early tests, gets its first flights going, and starts plans for deliveries to its customers before the end of the year, then the price should rebound. Also, they may get a large contract from the Air Force for F-15s, as some consolation for losing the tanker program. The F-15 contract could be worth almost $5 billion, and those aircraft builds could begin in 2009, continuing for three to five years, depending on the quantity. The production of the Navy’s F-18E/F fighter-bomber also continues, with additional potential for more. The key now is the 787, and to watch as the mid-summer months arrive with that news.

Connector outlook
With EADS winning the A330 tanker program, Fokker Elmo, who is doing most of the Airbus and F-35 wiring, will most likely do the wiring on the tanker. Also, most design work is done on the airframe. The total number of aircraft for this is 179 so far, with production several years away. Also, they need more development on their refueling boom through Northrop Grumman. Some wiring is done at local MO shops, and some at Boeing Mesa. If, as I suspect, they get Air Force orders for more F-15s, they will order more connectors and harnesses from the usual sources that provide the wiring and circulars for current F-15Es being made for other countries (all aircraft builds are still in St. Louis for F-15). There could also be additional system interconnects, more connectors for embedded computers, test and simulation, recorders, etc. The use of VME backplane systems will also increase, and new denser VME systems to handle more data and signals will be needed. This could also open the door for more fiber channel systems for the cockpit in the aircraft. Also, Ethernet systems and ports will be needed to mate the latest avionics and radios, displays, computers, radar, mission recorders, and weapon management systems.

Scott Clay, Director Military & Aerospace, Bishop & Associates Inc.
Scott Clay has worked more than 25 years in the connector and wiring systems markets. He has held various positions in field applications and marketing for Molex, Tyco, Methode, and ITT. For the past 15 years, Clay has focused on the military/aerospace sector, and five years ago formed his own company for consulting and application engineering. He has worked on design-in and electronics on F/A-18E/F, F-22, F-35, C-130J, C-5M, C-27, P-8, A-10, and numerous other aircraft. Some of the Navy programs Clay has participated in are SSN-774 Virginia class subs, CVX, DDG-1000, and the Littoral Combat Ship class. He has extensive expertise in land vehicle systems, and has worked closely with the worldwide locations of GD, BAE, AM General, and other key manufacturers. He is currently working on variations of MRAP, JLTV, upgrades for the Bradley fighting vehicle, M-88 recovery vehicle, FMTV, and other platforms in the wiring and systems areas, plus portions of the future combat systems.