Aero giant Boeing goes into a spin over its future

Boeing has flown into heavy turbulence. Is it just another jumbo-sized company heading for disaster? BARRIE CLEMENT reports.

One of America's great capitalist enterprises is undergoing an identity crisis. Unlike some organisations in similar circumstances it has decided, so far, to keep its name. After all, Boeing is a byword for aircraft manufacture. But is the company happy with such an image? Apparently not.

Then there is the jumbo jet, the company's most successful product. Presumably America's biggest exporter would develop and manufacture the successor to the world's biggest airliner - but management appears to have decided against it.

And finally there is Seattle, the beautiful coastal city at the north-west extremity of the United States, with which Boeing is synonymous. Chief executive Philip Condit has announced the group's headquarters will shift to Chicago.

The giant seems to be in the middle of the kind of mid-life crisis experienced by the archetypal high-flying US executive. It is clever, overweight, arrogant but lacking self-confidence, and concerned about the ambitions of younger rivals. It is reassessing long-standing relationships and looking for new ones.

Perhaps the most puzzling Boeing business decision was to abandon plans to build the next generation of big 500-seat airliners, leaving the field open to its European arch-rival, Airbus.

Originally the scene was set for a toe-to-toe battle between the American company and the younger European upstart to build a super-jumbo. Then Boeing astonished the industry by pulling out.

Boeing executives say carriers told them the days of massive aircraft flying long-distance from large hub airports were numbered. What airlines and passengers wanted was the ability to fly "from where they were, to where they wanted to be."

Thus the concept of the "sonic cruiser" was developed - an aircraft that would travel near the speed of sound and seat between 100 and 300 passengers. Boeing says the sonic cruiser is aimed at attracting customers from Concorde and from the first-class sections of other slower aeroplanes.

The American group says its new aircraft will reach 1207 km/h and be able to fly non-stop between Sydney and London. Mike Bair, Boeing's vice-president in charge of marketing, expects the new delta-winged plane could be in service by 2006-2008.

Airbus is sceptical. It says that within 20 years there will be a need for 1200 "very large aircraft" with a capacity of more than 600 passengers each. But Boeing reckons the Europeans have their sums wrong and the true potential demand for such a plane is nearer 400.



Airbus executives claim Boeing's seeming enthusiasm for the sonic cruiser may be based solely on the dusty response US salesmen had when they touted the idea of their own super-jumbo around the airlines. Boeing derives considerable satisfaction from British Airways and the main American carriers not being among the enthusiasts for the jumbo's successor.

However, Airbus is determined to fight Boeing for business. It has opened its first sales office in Tokyo in an attempt to loosen Boeing's tight grip on the Japanese market. And there are signs that the Japanese may be prepared to look again at the Airbus proposals.

Some sceptics believe Boeing's proposed smaller aircraft will eventually be regarded as the "sonic loser." First, because potential customers might simply think again about the proposal and second, that the US company has underestimated the demand for big airliners carrying large numbers of people at minimal cost. Clearly, the company would prefer it if there was no such speculation, particularly because it wants to move from its image of a company that relies solely on aircraft for its financial health.

Not that it wants to move out of the industry, because both Boeing and Airbus Industrie believe huge numbers of people will be taking to the skies in 20 years. Yet when the US group recently reported a 36 per cent increase in fourth-quarter profits last year, its shares slid 4 per cent.

Airlines had reported weaker earnings, leading to concerns about future orders for commercial jets. Thus, when the airline business catches cold, Boeing's market valuation sneezes. It is a link that the company would like to be broken.

And the company is uncharacteristically keen to make the world aware of its new approach. After years in which the US group sold airliners to the world, but kept itself to itself, it is at last developing a global public relations strategy.

Until recently the US group had no PR operation to speak of outside America, an omission that it is remedying. For the second year the company invited journalists from all over the world to witness the development of the brave new Boeing.

Boeing is especially keen to promote its $US10 billion space business and in particular its ability - with the help of Russians, Ukrainians and Norwegians - to put 14 tonnes of ironmongery into orbit at the behest of commercial, scientific and public sector customers.

The company has converted an old North Sea oil-rig as a sea-going launch pad. The rig is stationed at Long Beach, California and sails under its own power some 3500km into the Pacific Ocean. A faster command ship sails a few days later and joins it for the launch.

Boeing decided that using the state-owned Cape Canaveral complex in Florida involved too much negotiation with the US Government. As long as international law is respected, the company can launch rockets to its heart's content from the remote site on the Equator, which maximises efficiency for equatorial orbits.

Some of Boeing's new ventures are tied closer to the airline industry. Its Connexion product is one case. This is a system that will enable airline passengers to use their personal computers in-flight. Travellers will be able to e-mail, plug into the internet and their own organisation's intranet and to access live television programmes, apparently without affecting the plane's avionics. Another programme to provide air traffic control services via satellite is even more ambitious, or "pie in the sky" as one observer put it.

Despite the strategy of widening the scope of the company, management is keen to ensure each tentacle knows what the other tentacles are doing. It has established the weirdly named "Phantom Works" division - packed with some of the group's most talented boffins. It develops its own ideas, but also exists to ensure technological breakthroughs in one part of the group are assessed to see if they can be applied elsewhere.

And Mr Condit has decided that no one will take the company's strategy of diversification seriously as long as the nerve centre of the business remains at Seattle, where most of the company's commercial airliners are built. Hence the move to Chicago, chosen after relocation teams were dispatched to various cities around the US.

Chris Avery, aerospace analyst at JP Morgan, believes Boeing has got its strategy about right.

He forecasts a weaker period in the demand for aircraft and believes the company's wider range of interests will give it more resilience in any economic downturn. In particular, the move into service industries will give it a resistance to economic cycles.

The company's defence interests look well placed to profit from a more hawkish US administration under President George W. Bush.

Boeing, for instance, has a 50-50 chance of securing a contract to build America's new Joint Strike Fighter. It is the core military aircraft programme over the next 25 years and is a major priority for the company.

But what of the group's new strategy? That depends on the success or failure of its dogfight with rivals such as Airbus in the commercial aircraft sector and America's Lockheed as far as military aeroplanes are concerned.

The full benefits of diversification are unlikely to be seen for another 10 years at least.

- INDEPENDENT