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Last Updated: Thursday, 10 February, 2005, 07:35 GMT
Boeing faces up to Airbus challenge
By Tim Bowler
BBC World Service business reporter

Boeing 787
Boeing expects its commercial unit to recover in 2005 and 2006

For 40 years, the US aircraft maker Boeing was the world's dominant civilian aircraft manufacturer.

Every airline, it seemed, had the company's aircraft in its fleet.

However, Boeing's dominance in the aircraft business has slipped. Its great European rival, Airbus, now sells more airliners and is challenging in markets where Boeing previously held sway.

Both are now engaged in a struggle for commercial advantage in the world's fastest growing aviation market - China.

In January, Boeing announced a deal worth up to $7.2bn (3.8bn; 5.6bn euros) to supply 60 of its new 7E7, now 787, Dreamliner jets to Chinese carriers, including Xiamen, China Southern and China Eastern.

Greater flexibility

Boeing and Airbus have very different visions of how we will fly in the future.

Airbus' huge double-decker Airbus A380, which was officially unveiled at a ceremony in Toulouse last month, will be limited to flying to and from the world's major airports.

Boeing has taken such a long product development holiday that it really takes more than just one aircraft to reverse the Airbus tide
Richard Aboulafia, Teal Group

Boeing, on the other hand, sees flexibility as the key to success in the aviation market. It is banking on its smaller, slimmer 787 plane.

Twin engined but with a long range, it will be able to fly direct to far more of the world's airports.

That means passengers will not need to make a connecting flight first to travel long distance.

"We believe that people want to fly on a comfortable, middle-sized airplane when they have to go long distances," says Thomas Pickering, Boeing's senior vice president of international relations.

Limited market

Boeing could produce an updated version of its larger 747 jumbo jet if there is demand, Mr Pickering says.

But he adds: "That market is limited. To create the market for the number of A380s that Airbus will have to sell, you'll have to be drawing people from all over the hinterlands of these hubs."

The Airbus A380 superjumbo
The Airbus A380 will be able to carry up to 555 passengers

Whichever vision of the air travel market turns out to be true, both sides are going to need to continue investing heavily.

Crucially, this is an area which Boeing has fallen behind in recent years.

Richard Aboulafia, aerospace analyst with the Teal Group, says the firm now has to invest in its new 787 airliner.

"The 787 could be the basis for a major Boeing counter attack," says Mr Aboulafia. "The problem is Boeing has taken such a long product development holiday that it really takes more than just one aircraft to reverse the Airbus tide."

'Lost opportunity'

The military is also a huge part of Boeing's business, accounting for more than half of its earnings. Yet here too Boeing has had problems.

In November, the Pentagon scrapped a $23bn deal for a tanker version of Boeing's 767 airplane for the US Air Force, which would have kept the civil side of the 767 production line going.

This followed a corruption scandal involving former air force official Darleen Druyun - now in jail. She admitted giving Boeing special treatment on the contract, and was then hired by the company.

"The 767 tanker deal was a real lost opportunity," says Mr Aboulafia. "It would have saved the 767 production line, which is now looking - frankly - doomed, and it would have proven once and for all that the concept of a commercial and military aerospace company is a superb idea in terms of synergy."

Future fortunes

Last week, Boeing announced an 84% drop in its earnings in the last three months of 2004, due to the cost of stopping production of its smallest airliner, the 717, and the cancellation of the air force 767 tanker contract.

The company's profits hit $186m after charges, down from $1.13bn in 2003.

Looking to the future, though, Boeing is currently a successful company. However, it cannot afford to take its eye of the ball.

It is not yet clear whether Boeing will be able to win back the title of the world's number one airline manufacturer.

In part, that all depends on how well we like travelling on its rival Airbus's giant double-decker plane.

Thomas Pickering, Boeing international relations
"People want to fly on a comfortable, middle-sized plane."

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