Boeing Versus Airbus

by John Newhouse

  CHAPTER SEVEN

  The Very Large Airplane

  AFTER THE AIRCRAFT industry’s downturn in the early 1990s, it appeared that the only new airliner likely to be built for the next several years would be a superjumbo. A much bigger airplane, the argument ran, would increase the number of passengers who could be flown between major urban centers connected by the hub-and-spoke airlines. Seat mile costs had to come down, and only the very large commercial transport—the VLCT as it was then labeled—would allow airlines to accomplish that, provided, of course, they could fill all those seats.

  The unknown but unavoidably huge cost of building the very large airplane, or VLA, as it was also known, was intimidating. All sides wondered whether the project would dictate cooperative arrangements. The superjumbo (another of its designations), many thought, might have to be built as a joint venture, or not at all.

  Just how this airplane, known formally now as the A380, actually came about is a muddled and contradictory saga. Within the Airbus family, the story blends misjudgment with duplicity and corporate roughhousing. Within Boeing there was also misjudgment, mixed with evasiveness and a strong whiff of self-deception. On both sides, there were those who believed what they chose to believe, or wanted others to believe.

  The idea of a bigger airplane was hardly new. “Boeing has been thinking about it for twenty years or so,” said John Hayhurst in 1993. Hayhurst, now retired, was a highly respected Boeing engineer and vice president, among whose tasks was managing what his company called large airplane development. “Most of our thinking was on stretching the 747—anywhere from ten or fifteen feet to fifty feet,” he said. “But two years ago, we saw the need for something even larger by the end of the decade—something not just twenty percent bigger, but more. A few carriers helped with that decision.” He cited United and British Airways as being among them. “They forced us to focus and get busy studying the project,” he said.1

  Airbus was looking at it, too, and was being pulled, or pulling itself, in various directions. Its leaders had convinced themselves that Boeing was making the larger part of its profits with the 747, thereby enabling it to sell the rest of its product line at giveaway prices. They were wrong. The most profitable airplane that Boeing ever made was not the 747; it was the 767-300—the extended-range version.

  By 1991, Airbus had attained a secure foothold in the single-aisle airplane market with its A320. Also, the Gulf War had ended, and Airbus was beginning to deliver the first aircraft in its A330 and A340 series.

  “By then,” says Jean Pierson, “we had an aircraft product line ranging from a hundred fifty to three hundred seats. At the air show in 1999, we announced ourselves as serious competitors with the goal of obtaining fifty percent of the market. But to achieve that goal we couldn’t leave Boeing with the high end. You have to span the market. You need a cash cow of your own. And that is why I said Airbus intends to launch a competitor to the 747.”2

  In Europe, there was concern that Boeing might be using the superjumbo to divide and conquer Airbus. Frank Schrontz held discussions over a period of several years with Edzard Reuter, the legendary chairman and CEO of Daimler-Benz, about collaborative ventures; Daimler-Benz owned Deutsche Aerospace, an Airbus member company, known as DASA. Schrontz said that he and Reuter “talked repeatedly about a big airplane. It would be a very complicated program. But we could use our joint expertise.”3

  Schrontz and Dean Thornton, president of the commercial airplanes group, agreed to do a joint study if Airbus or its member companies were ready for that. As usual, Schrontz and Thornton saw the pros and cons very much the same way and, on balance, favored going forward. However, Ron Woodard, the executive vice president of the commercial group and Thornton’s heir apparent, felt differently. “It all changed when Woodard took over from Dean,” said a closely involved Boeing executive. “He was constantly working on Schrontz to do less about this.”

  Early in 1992, Boeing and all four of the Airbus member companies reached an agreement to do a joint study of the prospects for a superjumbo. By then, Edzard Reuter had turned the management of Deutsche Aerospace over to an ultrahard charger named Jürgen Schrempp, who knew nothing about making airplanes but was widely judged to have set for himself the goal of unseating his famous boss and managing a large conglomerate of which DASA was just one part. (Schrempp reached his goal; he retired in 2005 as chairman of DaimlerChrysler.) The four partners also agreed that Schrempp and Pierson would manage the talks for Airbus. But Pierson declined to take part.

  Almost overnight, Schrempp became Pierson’s bête noire. Pierson called him “the new Führer.” Schrempp, he said, was already planning to replace Reuter by making himself a star in this new arena. He intended to reshape the European aircraft industry by rebalancing it in Germany’s favor. According to Pierson, Schrempp saw the move toward a joint study with Boeing as an opportunity for himself.4 But since a superjumbo would compete with the 747—the supposed cash cow—Boeing’s interest in helping to build one jointly impressed Airbus as suspect. Still, if there was to be a superjumbo, Boeing, it seemed, might insist on having a large piece of the action. Otherwise, the better part of wisdom for Boeing would lie in discussing the project with other parties—the Europeans, the Japanese—and then doing nothing.

  Boeing’s strategy, although well understood by European players, created serious divisions among them, notably between the French and the Germans; British Aerospace, feeling itself too puny to play a serious role in the superjumbo game, actually nudged Boeing toward Deutsche Aerospace and Schrempp, by then a bitterly controversial figure.

  It began in early 1992 when Schrontz and Larry Clarkson met at the St. Regis Hotel in New York with Richard Evans, who was British Aerospace’s chief executive at the time. “He encouraged us to talk to Edzard Reuter and Jürgen Schrempp,” said Clarkson, who managed the Boeing side of the joint study, along with Hayhurst. Clarkson was vice president for international planning and often described as Boeing’s secretary of state. “We all agreed,” he said, “that there wasn’t room for two airplanes in the market and we should try to do it together. It was agreed we would work with the Airbus partners, not Airbus itself, to lessen the antitrust issues. Frank [Schrontz] believed strongly in the program. Woodard did not, as he ‘feared’ Airbus. At some point we brought in the three [Japanese] heavies. Schrempp made it clear that he was ready to go it alone if the French didn’t want to take part. He thought he would become the leader of Europe’s aircraft industry.”5

  A meeting of the Airbus board in Seville, Pierson said, “gave Schrempp an opportunity. He announced there that he had met with Frank Schrontz, who, he reported, had agreed that Germany could lead a European team on the very large aircraft study.” Schrempp, Pierson continued, “then threatened to take Daimler out of Airbus. He turned to Henri Martin [his French counterpart], and said, ‘Do you want to follow me, or not?’ He seemed to be suggesting that it didn’t matter. He had Boeing in tow. But no one was ready to confront the prospect of German withdrawal. That would have collapsed Airbus. But I knew the Boeing team. Why would guys who had a monopoly [of jumbo aircraft] share it with a guy who had twenty percent of the market and help that guy get to fifty percent?”6

  A former Boeing executive who declined to be quoted by name and was one of the few figures closely involved in the affair said, “The Germans told us: ‘We will take a leadership role in Europe if you, Boeing, will take responsibility for the U.S. and Japan.’” This meant that Boeing, in effect, would survey the prospects for a superjumbo in both the American and the Japanese airline markets and try to enlist the eventual participation of Japanese companies in what seemed an enormous undertaking. “There’s no question about it. We did start the talks with Deutsche Aerospace,” Hayhurst said flatly.7

  Alan Boyd was president of Airbus North America at the time. In various jobs, including secretary of transportation, he had made many friends within the industry and was well connected in Seattle. His account of Bo
eing’s liaison with Schrempp runs as follows:

  In February 1992, Schrempp went to New York to work something out with Boeing, and told his partners nothing. He let on nothing. And then, in the summer, at the Farnborough International Airshow, in Britain, the partners began talking about the big airplane. Jürgen pulled the Boeing people aside and said, “Remember, this is our first meeting.” But he had been tracked. They knew what he’d been up to.

  It was then agreed that the partners would talk with Boeing. Jürgen went and returned with a draft agreement to do market studies with Boeing. He wrote in a clause that Boeing agreed to and which said that neither of the parties would talk to anyone else. [Anyone else meant Japan’s three “heavies.”] Pierson hit the roof. “That blocks us out,” he said. “Boeing is already in bed with the Japanese.” So then Jürgen volunteered to remove the offending clause. And he said he had done so. But Boeing sent in another draft which showed that Jürgen had not talked to them, and that left a lot of mistrust of the German partner.8

  Schrempp had not only been freelancing, according to Airbus people. He had given Boeing the Japanese card to play on its own. But Schrempp’s partners would not yield that card—not without a struggle. “We talk to the Japanese bilaterally,” said one Airbus executive at the time. “They are essential for what they can contribute financially and can contribute on the industrial side. We also want to co-opt the Japanese in order to discourage the possibility of a Japan-led Asian aircraft consortium striking out on its own.”9

  However, it was already a little late for Airbus. In January 1993, Pierson had the rug pulled from beneath him. He was in Tokyo negotiating with the three heavies on the very day that they and Boeing issued a statement announcing their intention to examine jointly the feasibility and potential market for a very large airplane.

  Shortly afterward, tempers quieted. Boeing and all of the Airbus member companies reached an agreement on doing the joint study of a superjumbo. Still, no one thought that Schrempp would give up trying to gain a lasting advantage in his duel with the French. And in conversations with Boeing executives at the time, one drew the impression that they wished him well. “There are differences within Airbus,” said Schrontz. “The Germans say, ‘You can’t give away airplanes.’ For the French, market share is everything.”10

  And was Boeing fishing in troubled waters so as to sidetrack the superjumbo? “We are not stalling,” said Schrontz. “We do not see this as an attempt to forestall Airbus on a very big airplane. It is not an attempt to break up Airbus and its products. But one consortium managing another consortium would be impossibly complex. We are serious. If there is a market [for the jumbo], we want to play in that market. I think there is a market. The question is whether it is big enough. There are interested airlines: British Airways, United, JAL, ANA, Singapore Airlines, Cathay Pacific, and Lufthansa.” And what about that other consortium, the Japanese one? “We don’t know whether the Japanese will take part [in building the aircraft]. We have kept them up to date. The question is what kind of airplane makes sense and in what time frame.”11

  Boeing and Airbus interpreted the outcome of the joint study differently. Airbus foresaw a market for 500 to 600 airplanes. Boeing envisaged sales of between 300 and 350. What was interesting, though, as Clarkson says, was that “both sides calculated the development cost to be $14.5 to $15 billion, with negative cash flow reaching $22 billion, all in 1992 dollars.”12 This meant that for some unknown period of time these airplanes, if built, would be sold for much less than it had cost to develop them because the various factories building them would not yet have come down the learning curve.

  Still, Airbus’s hierarchy, starting with Pierson, was convinced right from the start that it had to build a VLA, with or without Boeing or the Japanese heavies. It didn’t take long for Pierson to get the better of Schrempp, and the Airbus commitment to the A3XX, as the big airplane was called in its developmental stage, remained intact, although there would be skirmishing periodically between the Airbus leadership in Toulouse and their colleagues in Deutsche Aerospace.

  Boeing’s attitude toward the big airplane is hard to disentangle from the divergent views of its executives. Some of them professed doubt that an airplane of that size would find a market large enough to justify the cost of creating it. Others, although attracted to going ahead, felt that the company had more than enough on its plate, given the ballooning costs of the 777 program and the need to modernize the 737. And then, in recent years various Boeing personalities have ascribed to themselves some artful forethought; their approach to the big airplane issue, they said, was to play for time—to allow Airbus to commit itself to a losing proposition. Boeing would “ambush” Airbus. Harry Stonecipher recalls saying to colleagues, “We must not do anything to drive them away from that airplane,” because “we knew the market for it wasn’t there.”13

  Did Boeing actually try to entrap Airbus with some crafty forethought? The answer almost certainly is no. What we know is that Airbus felt strongly pushed to complete a family portrait of its airplanes with a very big one and thereby prove that the company’s improbable blend of corporate cultures and divergent methods could match Boeing’s most conspicuous accomplishment, the 747.

  As for Boeing, it did play for time, mainly because it lacked a strategy. Its management was divided. Curiously, none of the senior figures seems to have considered, at least not seriously, building the big airplane jointly with DASA, BAe, and the Japanese. Doing so would have greatly diminished, if not extinguished, Airbus, and Boeing would have become the leader of a huge international consortium and been able to offload a lot of the financial risk in building airplanes, large or small.

  In buying time, Boeing’s behavior seemed directed toward confusing the competition about its own intentions and thereby causing Airbus to slow down the A3XX program or even discontinue it. And if Airbus actually built the airplane, Boeing just might have already created a stretched version of the 747 to compete against it.

  Boeing did quick-march an array of new versions of the 747 past airline customers. They heard about 747-500’s, -600’s, and -700’s. Even today, people who should know—Boeing people past and present, industry analysts—can’t say whether the company wanted to steer Airbus away from the A380 by talking the talk, announcing new programs that would not be pursued. Or did management flirt seriously with these paper airplanes and then allow its increasingly cautious instincts to cancel them, one after the other?

  Some among the company’s first- and second-tier executives feel that management was never going to build another jumbo airliner. Some were also certain that the world’s airlines wouldn’t be attracted to newly made-over 747’s built around 1960s technology. And some echo Boeing critics who say that the company spent ten years trying hard but failing to divert Airbus from the A380.

  In January 1997, Boeing proclaimed an end to its plans for new versions of the 747, citing a limited market that didn’t justify the $7 billion cost of developing one.14 Aside from British Airways, none of the airlines had shown an interest in another 747. Yet just a year later, Boeing was again talking the talk about a new 747 variant, one of which was designated the 747X. (The X stands for “experimental,” and Boeing was actually discussing a bewildering variety of 747X’s, a reflection of the company’s highly tentative approach to what it was doing.)

  In August 1996, an article in the Wall Street Journal reported that Boeing “has secured orders from Asian carriers for more than 30 of its new larger, longer-range 747 jumbo jets, paving the way for next week’s expected announcement to proceed with production, according to executives familiar with the jet maker’s sales effort.” But the second half of the article undercut the first half: “‘The problem is that it’s a very limited market and the investments are really big,’ said Ronald Woodard, president of Boeing’s commercial airplane group, in a recent interview. ‘We’re going to have a real struggle to come up with a sound business case.’”15

  Among pot
ential buyers, the most interested was Singapore Airlines. It probably would have been the launch customer for this new stretched 747 with a new wing, had Boeing gone ahead with it. Instead, SIA became the launch customer for the A380.

  The airplanes that Boeing didn’t build deserve attention partly because of their influence on two programs currently under way. One is called the 747-8 (known initially as the 747 Advanced), which comes closer to being a new airplane than most of the models that Boeing was waving around in the 1990s. This airplane, too, will have a new wing, and it will incorporate many of the features of Boeing’s highly innovative 787, including the new light materials and the new higher-performance engines.

  The other new program is the 787 itself. It was foreshadowed by the most heralded of the airplanes that Boeing didn’t build, the so-called Sonic Cruiser. The tale of how this misconceived program led to the 787 is a reminder of how dicey and, indeed, accidental this business can be. On March 29, 2001, Alan Mulally announced cancelation of the 747X program. Customers, he said, had provided “clear direction…that the 747-400 [the then current model] will satisfy the majority of their large airplane needs.” Instead, Boeing would build a new and faster airplane, one that, Mulally claimed, “could change the way the world flies as dramatically as did the introduction of the jet age.” It would be called the Sonic Cruiser and would “fly at speeds of Mach .95 or faster over extended ranges.”16

  Just what Mulally and others had in mind with this notional airplane remains unclear. Lacking an explanation, many onlookers inside and outside Boeing wondered whether this, too, was a gesture aimed at buying time. Was Seattle still trying to confuse or divert Toulouse? Or confuse the airline industry?

  The airplane’s cruising speed was supposed to hover just below the threshold dividing subsonic speed from supersonic, a zone of especially high turbulence. The turbulence would create drag, thereby increasing the airplane’s fuel burn.