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Buying a jetliner An act of faith
June 24, 1983
The salesman demands part of the payment up front, but the airline has to wait-sometimes for years-for the payoff. Meanwhile, there may be doubts: Will the airplane be ready on time? Will it do what the manufacturer says? And will the maker be there, indefinitely, continuing to tend to the buyer's needs?
"You sell on the basis of the relationship of the top people and engineers of the two companies," the manufacturer and the airline, said E.H. "Tex" Boullioun, who's had a hand in selling hundreds of Boeing jetliners.
"The company that's buying the airline is putting up a third of their money, or part of their money, for something that's not going to be delivered for two to four years," Boullioun said.
"And so they have to have faith in the people (making the airplane) ... They're going to buy on the integrity of the people they're talking to, and their past performance," he said.
The airline's risk is greater if the plane has never flown. When British Airways and Eastern Airlines became the customers that launched the Boeing 757 project almost five years ago, they paid millions for an airplane that was nothing more than drafting paper, images on a computer screen and wind-tunnel models.
Although Boeing assigns salesmen to each of the world's airlines, "there's no such thing as a single guy selling an airplane anymore," said John Swihart, Boeing's vice president for domestic sales.
"We all sell," said Carl Munson, Boeing's vice president for strategic planning. "Anybody in Boeing management is prepared to jump on an airplane and go try to sell an airplane any time."
Boullioun and other top Boeing executives travel the world talking to airline chiefs. Sometimes, though not frequently, they will load a new jetliner with executives, engineers and maintenance personnel and fly it to an air show or on a tour of world airlines. The idea is to stir up interest.
Until a few years ago, Boeing also spent millions of dollars on payoffs to foreign airline officials who were in a position to influence purchasing decisions. After a federal crackdown such practices and payment of stiff fines by Boeing for these illegal "sales commissions," the company says the practice has been ended.
Typically, selling begins years before contracts with airlines are signed. Boeing courts the customer with technical arguments, financial schemes and the less quantifiable lures of product prestige, confidence in Boeing's competence and the kinship formed by long personal associations.
Even after the airplane is delivered, the selling continues. Boeing is widely regarded as a foremost practitioner of the art of product support, and its reputation for taking care of its customers is a crucial sales tool. "We want to help them make money," said Jim blue, who headed Boeing product support for several years.
Boullioun tells a story which illustrates both the importance of establishing a personal relationship with airline executives and helping the customer after the sale.
Boullioun, who for years was president of the Boeing Commercial Airplane Co., said Delta Airlines was exclusively a Douglas customer until it purchased five 747s in about 1970.
He recalls that not long after Delta took the 747s, its president, David Garrett, told him the jumbo jets were too large for his airline to operate profitably. He showed Boullioun why.
The Boeing executive said he was impressed by Garrett's argument and offered to try to get the 747s off Delta's hands. "I was able to put together a deal where Flying Tiger would take those airplanes. It was not a sale for Boeing," Boullioun said.
Soon thereafter, Delta ordered the first of 116 Boeing 727s. Then it ordered $1.5 billion worth of Boeing 767s. And on Nov. 12, 1980, it placed a record-breaking order for 60 Boeing 757s valued at $3 billion.
The 757 order was crucial to Boeing because it gave the new airplane commercial credibility. Until the Delta sale, there had been no large orders since those placed by Eastern Airlines and British Airways two years earlier.
Last December, Delta ordered 33 short-range 727s, and Robert Oppenlander, the airline's senior vice president for finance, said Boeing would be front-runner for a 150-seat airplane Delta wants to buy.
When Boullioun relieved Garrett of his unwanted 747s a decade ago, there was nothing in it for Boeing directly.
"But in my min, a relationship was established there," Boullioun said. "So he's willing to gamble his resources. And by God, Boeing will come through."
A PARADOX in selling airplanes is that the market is tiny but the amounts of money involved are huge.
Boeing estimates that between now and 1995 there is a market for $167 billion worth of new jetliners, but in the non-Communist world there are only about 300 potential customers. That makes every customer vitally important.
"Twenty of those airlines will need 50 percent of the world's production. So you try to be as responsive as possible," Munson said. "It's not like in the consumer business. You don't have people walk in off the street to buy like you do with automobiles."
Another anomaly is that airlines typically don't know what they want to because the industry is so volatile that planning sometimes seems futile. Boeing employs about 300 people to analyze airline needs and finances, but choosing airplanes for the future is largely guess-work.
Swihart said Boeing's analysts sometimes father more information on the airlines than the airlines have themselves. "They know the airline completely," he said. "In fact, for many of the smaller airlines, again they depend on us."
Boeing analysts use information on airports, airline schedules and financial data to put together sales proposals for a particular airplane. "We'll develop scheduling plans: where an airline ought to fly, what time of day ... show them how the airplane fits," Swihart said.
A Boeing salesman carries ideas back and forth between the manufacturer and the airline. He lobbies the airline to buy, but he also may lobby Boeing to build what "his' airline wants or needs. "We do an awful lot of in-house marketing," said Hal Crawford, until recently Boeing's salesman to Eastern Airlines.
When it becomes clear that an airline is seriously considering a particular Boeing offering, the salesman becomes an orchestrator. He calls on Boeing engineers, analysts, maintenance supervisors, top executives-anyone whose sales efforts he thinks could help clinch the order.
"As a salesman at Boeing," Crawford said, "I can draw on anyone in the corporation, including the chairman of the board."
Swihart said, "We've got financial experts who can round up 20 banks, and maybe we test the water with the banks and see what kind of credibility these (airline) people have. And so we'll put together a banking consortium to finance the airplane for them."
In the later stages of negotiations, an airline will ask Boeing and its competitors to submit formal proposals, including prices. That's where the bargaining really begins in earnest, and that's when complicated deals are struck.
Price negotiations are tricky because neither Boeing nor an engine-maker wants one airline to know that they might have given someone else a better deal. One way around this is to charge a fairly standard "sicker price" for an airplane (in the case of the 757, about $40 million in 1983 dollars), then sweeten it with bargains in other areas, such as reduced maintenance costs, or credit for future purchases of spare parts, or attractive financing arrangements.
These sweeteners, which accomplish the same thing as price reductions, are known as incentives," "inducements" or "concessions."
One incentive used occasionally is an offer by Boeing (or a competitor) to buy an airline's unneeded lanes while selling them new ones. Another is to offer to sell at a favorable price, the data needed by an airline to operate its own computerized flight simulator.
Yet another is financing. Boeing likes to downplay its role as a participant in financing schemes, but it is forced to compete with Airbus Industrie of Europe and McDonnell Douglas both of which have used attractive financial packages to help clinch sales.
Engine-makers battle with incentives, too. General Electric, Pratt & Whitney and Rolls Royce compete vigorously and may offer such tings as free engine maintenance shop in return for a large order of engines on a new airplane.
"I don't mind telling you what form Rolls Royce puts concessions in," said John Hodson, a Rolls vice president. "They will either give or sell at a very low price the initial tooling needed to set up an overhaul shop ... We provide engineers to help them in the introductory period. We provide those either free or for a very nominal sum ... We will put a lease engine at their disposal so that they only have to buy the minimum number of spare engines until they've got their overhaul facility working."
When Delta was considering engines for the 757 in 1980, it looked both at Pratt & Whitney and Rolls Royce. Eastern Airlines and British Airways were using a Rolls Royce engine, but both Pratt and Rolls said they could do much better with a new design-and both engine-makers desperately wanted the Delta order.
Delta's Oppenlander recalls the price performance guarantee and incentive battle between the two engine-makers. "It was beautiful competition. It was ideal from the buyer's standpoint."
Pratt won the competition, partly by guaranteeing its engine would outperform any Rolls engine by about 8 percent. This was a guarantee made on the basis of engineering estimates, since neither company's engine will be ready for service until 1984.
There is a theory at Rolls Royce, postulated by many executives including the director of marketing, Alan Smith, that Pratt gambled that it would drive Rolls out of the 757 market if it won the huge Delta order.
The theory, which Smith calls "a bit more than a rumor," is that Pratt guaranteed 8 percent better performance than any Rolls engine because it thought there would be now new Rolls engine.
Under such a guarantee, Pratt might pay Delta cash to the extent its engine is not 8 percent better than a Rolls' engine.
But Rolls didn't drop out of the competition, and now Rolls executives gleefully expect Pratt will have to pay a fortune to Delta to meet its guarantee.
"Delta doesn't talk much," Smith said. "How much Delta will benefit, and Pratt will bleed, we'll never know."
Richard Coar, president of Pratt & Whitney, concedes the 8 percent guarantee figure is "about right." But he said the guarantee is based on his engines superior technology, which he said is at least 8 percent better in fuel economy.
Coar predicted Rolls Royce will drop its new engine in less than 18 months after the performance of Pratt's engine is demonstrated. "They'll have to drop the engine to cut their losses," he said.
And if Rolls Royce doesn't drop out?
"If they want to go bankrupt a second time," Coar said, "they are welcome to."
BOEING HAS RECEIVED ORDERS for only nine new 757s in the past two years, though not for lack of trying.
A combination of factors may be to blame. The airline industry is in recession, United and some other airlines don't want a plane the size of the 757, and some airlines may be waiting to evaluate new engines which will be available in a few years.
Whatever the reason, Boeing's salesmen are getting turned down a lot these days. So it seems especially ironic that Boeing rejected its first chance to sell the 757, six years ago.
The date was Tuesday, April 12, 1977. The time 8:30 a.m. The place, Miami.
Eastern Airlines president Frank Borman was ready for a new, fuel-efficient airplane, and he had one question for Boeing chairman T.A. Wilson: "Are you ready to produce?"
The 757 was only an idea under development, called the 7N7, and its design was far from settled. Other customers weren't ready to order, and "we kind of knew we didn't have the right airplane yet," Swihart said.
Boeing and Eastern officials met all morning at Eastern headquarters, with Wilson winding up a Boeing presentation just before noon. The gist was that Boeing wanted Eastern's business, but not yet. The answer to Borman's request was no.
EASTERN didn't wait long to react. If it couldn't buy from Boeing, it would buy elsewhere. That afternoon it voted to accept an offer from Airbus Industrie for the lease of four new A-300s-thus opening North American to Airbus for the first time.
Airbus, anxious to get established in the crucial North American market with its 240-seat airplane, offered incentives described by those familiar with them as "incredible."
The Europeans let Eastern use the first four airplanes free for six months, then leased the planes at reduced rate rates which pretended the 20-seat airplanes had only 180 seats, the size of the airplane Eastern wanted.
A year later, on April 6, 1978, Eastern agreed to buy 23 A-300s. Swihart estimates Airbus lost $10 million on each airplane it sold Eastern "It's an absolute give-away subsidy, no question about it," he said.
Airbus can afford to sell below cost because it enjoys the backing of several European governments and apparently considers such sales worthwhile to establish credibility. "The Eastern deal gave us credentials in the rest of the world," an Airbus official said recently.
Boeing didn't give up on Eastern after the Airbus purchases. Boeing's engineers produced volumes outlining the evolving design of the proposed new Boeing airplane, which Crawford delivered to Eastern during frequent trips to Miami. His goal was to learn every aspect of every problem of the company, so he could explain how a 757 would solve those problems.
"I've worked the flight line," he said. "I've been out at night watching airplanes. I've talked to their ground crews. I've talked to their guys in the hangar.
"I've talked to their field engineers. I've talked to their performance engineers, their power-plant engineers. I've talked to their service managers, their stewardesses, their cabin attendants, their finance guys you cover them all.
"And hopefully, and as does happen, you end up with the executive decision-makers," Crawford said.
Finally all the pieces came together.
On Aug. 31, 1978, after months of selling, the results were announced in a story on the front page of The Seattle Times. The story began:
"British Airways and Eastern Airlines announced plans today to order more than $1 billion worth of Boeing 757s.
Super simulator helps train pilots quickly in Boeing's new airliner
CARL YOUNG, an Eastern Airlines pilot with a gentle southern drawl, spoke evenly when a red indicator light came on in a Boeing 757 cockpit during takeoff.
"We've got a fire here, Virgil," he said.
Virgil Tedder, his co-pilot, a consulted a checklist and made a couple of adjustments. A display in the center of the control console said "L ENGINE FIRE" - a fire in the left engine of the two-engine airplane.
Outside the cabin windows, it was dark. Inside, panel lights and futuristic video screens glowed subtly. The cockpit was tilted back, nose up, in the early moments after takeoff. There was a hiss of air rushing over the 757's smooth nose, but the mood inside was quiet. Both men were intent.
"fire went out," Tedder reported seconds later.
The airplane, powered by the remaining engine, made a wide circle to return to Boeing Field. Suddenly, one of the two video screens whose purpose is to alert pilots to problems went blank - another failure. But essential information from the screen transferred automatically to a companion display.
Young edged the airplane down toward the runway. Tedder pushed down a large lever, and landing gear could be heard rumbling into place. The cabin bumped on touchdown, but now more than usual.
The pilots shut down the flight deck and stepped out of the cockpit - not into a passenger cabin or an airport, but into a large, bright, mostly empty room. On the other side of the plate-glass windows were computers.
"You can't tell me I haven't been flying," Young said.
But he hadn't.
Carl Young and Virgil Tedder had only been pretending, and the perils of their flight had only been drills, not actually emergencies. The two veteran pilots had been playing an electronic game so realistic and enthralling it would make an video-arcade junkie weep with envy.
The game is a multi-million dollar full-flight simulator at the Boeing Customer Training Center, less than a mile from Boeing Field. In this machine and others somewhat like it, airline pilots receive training in new airplanes before they ever take control of a real one.
Viewed from the outside, the simulator is a metal box on legs, like some stilt-legged mechanical creature one might see in a Star Wars movie.
The device is pure Star Wars on the inside, too. The array of controls is identical to those of the "Century 21" flight deck Boeing has incorporated in both the 757 and 767. Video displays offer sophisticated data in soft colors. Flight and maintenance instruments are linked to a computer which simulates flight circumstances - and emergencies - with an accuracy that pilots say is remarkable.
Looking through the the cockpit "windows," a pilot sees realistic computer-generated color video images. When a pilot "takes off" in the simulator he sees an identifiable airport and its surroundings. The simulation of Boeing Field, for instance, may show a fuel truck on the runway and Mount Rainier in the distance.
The simulator, built in England by Rediffision Simulation Ltd., also imitates the noise and motion of flight. Six hydraulic systems under the simulator raise and tilt the cockpit to mimic a real airplane. The only thing that's missing is the feeling of acceleration, that feeling of being pushed into one's seat upon take-off - and most people don't miss that until its absence is pointed out to them.
During the simulated flight by Young and Tedder, a Boeing instructor, Dant Bourn, observed the pilots. He played the role of air-traffic controller and threw them curves, like engine fire and display-screen failure, by manipulating a special computer console.
In the computer room nearby, operators tended machines that can conjure up images of Moses Lake at noon and Bombay, India, at midnight, with equal ease.
Before a pilot graduates to a full-flight simulator, he receives several weeks of instruction using small computerized learning stations and other aids. After sessions in the simulator, the pilot has to fly a real 757 for only one hour, for the benefit of a Federal Aviation Administration inspector, in order to receive federal approval to fly the airplane in commercial service.
"Flying the airplane is rather anticlimactic after flying the simulator," Young said. "Simulators are getting so realistic. We are in fact approaching the point where pilots will be certified in this plane on a simulator only," he predicted.
Not many pilots have the opportunity to receive their training directly from Boeing. Most airlines send a selected number who return to the airline to train others. In the case of Eastern, the first airline to fly the 757, only eight of 4,400 pilots received 757 training in Seattle.
Large airlines often have their own simulators, though not necessarily the full-motion and vision simulators used by Boeing. The airlines' Boeing-trained pilots use the simulators to pass along the specialized skills necessary to fly a new airplane.
In the Boeing Customer Training Center one can find pilots from almost anywhere in the world. It's not unheard of to find Taiwanese and Chinese pilots bumping into each other and getting along. English is only one of many languages heard here, although all of Boeing's instruction is in English.
But training pilots, though important and expensive, is far from the only thing an airline does to ready itself for a new type of Boeing jetliner. There are plenty of other preparations to make.
SUSAN BORMAN liked what she saw. The colors were right, the textures were right, the uniforms were right.
It was her first trip ever in a Boeing 757, the airplane her husband, Frank Borman, Eastern president, had helped launch with an order. The couple was aboard a Boeing flight from Montreal to London last September.
Mrs. Borman had visited Renton more than two years earlier to examine mockups of the 757 interior and express preferences about what passengers should find when they stepped inside the airplane. The interior design was a particular concern of hers.
Eastern's 757s use earth tones and striped seat-upholstery patterns that change subtly as one walks the length of the airplane. Eastern's interior design is more subdued than most airlines'.
"This is not a flying circus," Mrs. Borman said.
During the September flight, while her husband got a first-hand opportunity to assess the 757's performance ("This is an incredible airplane"), Susan Borman inspected the decor and explained the quasi- military uniforms Eastern flight attendants wear.
"This is our first uniform after the cutesy-pie," she said. "We're excited about the look. I think people like a structured environment. It gives a sense of security, and this is a business where people want security."
A lot goes into the interior design of an airplane. Substantial areas of Boeing's Renton plant are devoted to making elements of the 757 interior. Extensive use is made of expensive composite materials, which save weight.
The airlines are responsible for much of the interior design, working with Boeing and an interior-design firm, Walter Dorwin Teague Associates. The airlines also purchase seats from any of several manufacturers other than Boeing.
Choosing the paint design generally is easier because airlines typically have a color scheme already in use on other airplanes. (One trend in exterior design-a trend employed by eastern-is to keep large portions of the airplane polished metal rather than painted. This lends a flashy appearance, but that's a small consideration next to the weight savings realized by using less paint.)
Eastern made a last-minute change to the 757's paint scheme. Boeing's 757s carried the numerals 7-5-7 on their tails in mammoth size, and last November Eastern decided to keep the same-sized numerals on its 757s, too.
That decision was made in Panama city on Nov. 8, when a 757 in Boeing paint landed to refuel on its way back to Miami from Buenos Aires. The Eastern Airlines board of directors and some Boeing officials got off the airplane, and someone asked why Eastern didn't keep the numbers.
Russ Ray, an Eastern board member who doubles as vice president of marketing, took to the idea immediately, seeing its promotional value. "I don't know of another commercial airplane flying around that has its model designation on the tail," he said.
The decision was made then and there to keep the numerals on for the first couple of years, during the period that Eastern is the only U.S. airline flying the new jetliner. The first time the 757s need repainting, Eastern plans to take the super-sized numerals off.
BECAUSE EASTERN intended to begin commercial service with the 757 at the first of the year, the November decision to change the paint meant some fast shuffling of promotional material. Photos of the airplane used in advertising should have the numerals, Eastern decided.
One service Boeing provides every customer is a "photo flight" for each paint scheme on a given Boeing model. The customer's airplane is flown around Washington state for an hour two while another jetliner flies alongside with photographers on board.
Half the seats are removed from the photographers' airplane to give them freedom of movement. They holler their preferences to a coordinator on a radio who asks the pilots of the two planes to fly a little closer together, or a little farther apart, or to move ahead or drop back to give the photographers the perspective they want.
When Eastern decided to change the paint on its tail, it meant a new photo flight would be necessary. But by the time the paint actually was changed, it was December and the weather was uncooperative. The airplanes could fly above the clouds, but that would allow no variety for backdrops in the photos.
More than once Boeing's photographers got on an airplane and waited on the ground while a 757 scouted the state looking for a break in the weather: No luck.
"I need those pictures bad," Jim Ashlock, Eastern's director of public relations, said on Dec. 13. He wanted to assemble promotional material on the 757 for the press.
Finally, there was a break in the weather on a day when a 757 destined for Eastern was available. The photos were taken in a tandem flight over western Washington, and shipped to Ashlock in Miami.
Just two weeks later the 757 entered commercial service for the first time-flown by Eastern pilots trained on simulators in Seattle, its interior decorated in earth tones and its tail wearing a huge 757.
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