Not-So-Unfriendly Skies

Dec. 21, 2004

For Airbus and Boeing, developing new planes may seem risky, but aerospace takes a long-term view.

Now doesn't seem like a great time for Toulouse, France-based Airbus SAS and Chicago-based Boeing Co., the world's dominant large-commercial-aircraft producers, to be launching new passenger jets. Think about it. Terrorist threats continue. The U.S., Japanese and several European economies are growing more slowly than expected. There are fewer passengers in the air and fewer commercial flights. One major U.S. airline is in bankruptcy; another is on the brink. Executives of Boeing and Airbus, a European consortium jointly owned by BAE Systems PLC and the European Aeronautic Defence & Space Co. NV, could be excused if they were sitting back, their seat belts tightly fastened, waiting for the market turbulence to pass. But Airbus, with 97 orders and commitments, already is cutting metal for its 555-seat A380 superjumbo aircraft. Boeing continues development work on its 200- to 250-seat advanced-design Sonic Cruiser but has yet to make a production decision. The fact is that while the financial risk for each of the plane makers is very large -- estimated to be as much as $10 billion -- the gamble may not be as big as it seems. "The aerospace industry is a very long leadtime industry," stresses Jon B. Kutler, chairman of Quarterdeck Investment Partners, a defense and aerospace investment firm with offices in Los Angeles, Washington, D.C. and London. "Aircraft designers tend to look at long-term macro trends. And while the economy and the terrorist threat are very real today, it doesn't mean that the world won't be a different place five or six years from now." The A380 is slated to go into commercial service in 2006; the Sonic Cruiser, if it's built, could take to the skies in 2008. Airbus may have two promising markets for its double-deck A380, suggests Kenneth Button, a professor of public policy at George Mason University in Fairfax, Va. One market, he says, is the large-aircraft Asia-Europe long-haul passenger market, which "is forecast by everyone to be growing in the future." The other promising market is air freight. This past July, for example, air-cargo traffic was up 10.5% from July 2001, while passenger traffic was down 7.9%, according to figures from the Geneva-based International Air Transport Association. Boeing forecasts a 6.4% average annual growth rate for air-cargo traffic during the next 20 years, a dramatic contrast to the 5.9% decline between 2000 and 2001. "The world's fastest growing aviation market is not moving people around; it's moving things around," Button emphasizes. Especially in the Far East, with the economic development of such countries as India, China and Thailand, "there is quite a big market for large air freighters. And, indeed, that could be something the A380 could fit into." In contrast, Button has reservations about Boeing's proposed fast-flying, smaller aircraft. Particularly for business travelers, "I don't know how much you gain by it," he states. Button notes that telecommuting is "slowly taking off" and wonders whether that will reduce business demand for airplane seats. The market for the time-saving premium service that the Mach .95-.98 Sonic Cruiser would offer is "uncertain," says Andrew Watterson, a Dallas-based vice president of Mercer Management Consulting. But he believes that if one airline buys the plane, competitors will follow -- not unlike the collection of airlines that followed British Airways' lead a few years ago in installing premium-priced seats that fully recline into flat beds. Watterson also notes that 75% of the interior space on a United Airlines Boeing 777 already has seats that carry a premium price -- from extra-cost economy to first class. "So Boeing is not off the mark," says Watterson. "I don't think the A380 is quite the bet-the-company kind of risk that others believe it to be," states Quarterdeck's Kutler. "And Boeing, while it has had its ups and downs over the past couple of years, is a well-run company that has a great deal of diversification on the military side also."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.