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Originally published August 22, 2012 at 8:34 PM | Page modified August 22, 2012 at 9:20 PM

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Boeing slows the pace on 777X

Major Boeing customers say the jet maker has tapped the brakes on its plan to develop a new version of its star widebody jet, the 777, a plane that Washington state's aerospace industry dearly wants to see built here.

Seattle Times aerospace reporter

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Major Boeing customers say the jet maker has tapped the brakes on its plan to develop a new version of its star widebody jet, the 777, a plane that Washington state's aerospace industry dearly wants to see built here.

The slowdown in the schedule for the so-called 777X has raised suspicion within the industry that despite a competitive threat from rival Airbus, Boeing's management in Chicago is unwilling to commit the money because of the risk attached to doing several major new jet programs at once.

Boeing's stance seemed to have changed even before the sudden departure of Boeing Commercial Airplanes Chief Executive Jim Albaugh right before the Farnborough Air Show last month.

Some observers say the delay risks playing into the hands of Airbus, which is working on its own updated twin-aisle jet, the A350-1000.

"If Boeing doesn't do anything, the A350 will kill the 777. Period. Everybody knows that," said one major Middle Eastern airline executive who is a top 777 customer, speaking on condition of anonymity.

Aerospace analyst Richard Aboulafia, of the Teal Group, said in a letter to clients this week that Boeing's reluctance to move ahead is reminiscent of the six years before the 2004 launch of the 787 when company management slashed research and development spending, hoarded its cash and repeatedly declined to commit to new airplanes.

"A parsimonious, risk-averse (and by some estimations greedy) management culture made launching a new jet a near-impossibility," Aboulafia wrote.

He added that "backpedaling on promising efforts such as the 777-X ... would presage a return to Boeing's dismal pre-787 days of shortchanging the engineering department."

Last March, Albaugh said publicly he wanted to ask the company's board by the end of this year to pull the trigger on the 777X.

His message reverberated around the state's aerospace industry. Gov. Chris Gregoire marshaled a team to persuade Boeing to assemble the jet here and also to build here its new wings, expected to be the largest carbon-fiber composite wings ever built.

Yet by last month's Farnborough Air Show in London, two weeks after Albaugh's abrupt resignation, Boeing no longer touted that fast-track schedule.

New Commercial Airplanes Chief Executive Ray Conner repeatedly declined to provide specific timing for putting the 777X before Boeing's board.

"We're not backing away," Conner insisted in London. "When we get the airplane right, that's when we'll go forward."

Nevertheless, Lars Andersen, the top 777 engineer who came out of retirement to act as consultant on the 777X, left the project earlier this summer, unhappy about a shift in the program.

According to two people close to the program, Andersen was persuaded to return only after a personal appeal from Conner.

Candid talk

Potential customers aren't happy.

Tim Clark, president of giant Middle Eastern carrier Emirates, the largest operator of 777s in the world, said in an interview this month that at a lunch with Boeing's top leadership at Farnborough, he unleashed his fury at Boeing's procrastination in a candid talk with CEO Jim McNerney, Conner and a Boeing board member.

("I barely escaped with my life," McNerney exaggeratedly told the trade magazine Aviation Week after the tongue-lashing from Clark.)

The other Middle Eastern airline executive said he has seen "a slowing down in 777X." He believes it's a matter of engineering and material resources as well as Boeing's cash limits.

Boeing's most immediate development project is the 737 MAX, due to enter service in 2017. In addition, the airline executive said he's confident Boeing will ask its board by early next year to formally approve a new, larger version of the Dreamliner, the 787-10.

"I don't think Boeing right now can cope with another major program like 777X," he said.

Yet Boeing cannot afford to procrastinate too long, this executive said, because Airbus is scheduled to bring out its all-carbon-fiber composite A350-1000 in 2017.

As Boeing weighs what to do and when to move, its board and corporate management must pay attention to the concerns of large shareholders.

After a period when Boeing overspent by billions of dollars on the much-troubled 787 Dreamliner program, Wall Street analysts say those shareholders naturally want to see spending reined in for the years just ahead, allowing some time to harvest profits from the previous investments.

Launching 777X would not only require hefty research and development funds but would also depress the pricing on existing 777 models, which are cash cows in the current airplane market.

Abrupt departure

Since Albaugh's abrupt departure in June, just before Farnborough, multiple rumors have swirled about the cause of his exit.

Though Boeing will say only that the decision was "personal," two people close to Boeing said that in addition to whatever else may have motivated his departure, there had been continuing friction between Albaugh and McNerney over the pace of 777X.

Yet even Aboulafia cautions that it's not a simple story of "black-hat money guys against white-hat engineers." Engineers need market discipline, he wrote.

That was evident last year when Albaugh for many months publicly pushed the idea of Boeing producing an all-new small airplane to go up against the Airbus A320neo, which was a derivative jet sporting new engines.

Order split

That solution may have pleased the engineers. But when American Airlines was poised to place a big order for the neo, it forced a rapid about-face. Boeing launched the 737 MAX derivative with new engines instead of an all-new plane, and split the American order with Airbus.

Steven Udvar-Hazy, chief executive of Air Lease Corp. and the most influential market-maker in the airline industry because of his leading role in developing the business of jet leasing, indicated in an interview that the 777X won't be finalized this year.

Hazy, a member of the customer-focus group Boeing has assembled to pin down the 777X configuration, said the group's next meeting is set for October and "we hope to make progress."

"But I don't think the configuration will be defined or launched this year," he said.

Yet Hazy doesn't see that delay as problematic. He said Boeing is taking the time to test the market so it can get the 777X concept exactly right.

The latest three-month delay to the Airbus A350 program that was announced at Farnborough "has lessened the time pressure" on Boeing, he said.

A top executive inside Boeing who helps steer the 777X agreed.

The insider, who asked not to be identified because he spoke without authorization, said work continues on the 777X. And he said that a delay in launching the program doesn't necessarily mean it will enter service later than planned.

Albaugh spoke of aiming for the 777X to enter service around 2019. Boeing could probably launch the program as late as 2014 and still meet that target.

In a statement responding to inquiries about the program, Boeing said it remains committed to the 777X.

"When we are confident in a plan we can deliver to our customers, we would formally launch the program following additional development work," the statement said.

Still, key customer Clark, of Emirates, cannot contain his impatience.

Clark said Conner has told him that interest from airlines in the 777X is already such that he could probably announce orders for 150 to 200 planes "straight away" if he chose to launch now.

"If they launch, Emirates will step up," said Clark. "Ray knows that."

Clark said he needs replacement aircraft for his older 777s starting in 2017. He wants the 777X by 2019.

By then, Clark said, Emirates will have a fleet of more than 250 widebody jets, and will be "the largest carrier in the world by a long way."

He said Emirates will be "an entity that has to be reckoned with ... They would be foolish to ignore what we have asked for."

If Boeing pushes the entry into service of the 777X out into 2022, Clark said, "we'll look elsewhere."

Clark is visiting Seattle again next month for a conference and said he will likely drop in to "lock horns" with Conner again about the 777X.

Alex Pietsch, who heads Gregoire's aerospace office, is watching closely.

"A new 777 variant is inevitable and we'll continue to position the state ... to make a play for it when it emerges," Pietsch said.

He added that securing the 777X composite wing plant for this state remains a priority, "important not only for job preservation but also to make sure the state is on the cutting edge of the technology."

As Boeing ponders its move, the market is not static.

At Farnborough, Boeing suffered a defection when big 777 customer Cathay Pacific placed an order for 26 Airbus A350-1000s.

So how far out might Boeing executives push the 777X?

"I don't think they know. It depends how many Cathay Pacifics there are," said Aboulafia. "The decision may be made for them."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

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