Bigger vs. Faster

By Nadya Labi/Seattle

Some people bike to the office. Dan Detton dodges bikes inside his office. It's a hangar the size of 75 football fields, by volume the world's biggest building, where Detton, 37, an aeronautic mechanic, helps assemble the world's biggest commercial plane. He works for Boeing, the U.S.'s biggest exporter. And yet he observes, in the shadow of a Boeing 747, "Bigger isn't always better." A few years ago, those would have been fighting words at the Everett plant where Detton works, outside Seattle. But now even CEO Phil Condit is pushing the same line. Boeing, he insists, is becoming faster, more agile, more diversified. We're not an airplane company, he is fond of saying; we're an aerospace company.

This sort of talk elicits snickering halfway around the world, at the Toulouse, France, headquarters of Boeing's archrival, Airbus Industrie. Its executives scoff that there's only one reason bigger isn't better anymore at Boeing--because Airbus will soon have the biggest plane. John Leahy, the American who heads Airbus' marketing arm, beams like a proud papa as he guides a visitor through a full-scale model of the A380. "My plane has 50% more floor space than the standard 747, but I'm only putting in a third more seats," he boasts. He shows off a double staircase with brass handrails, a piano bar flanked by a reading area and a full-size shower. With a wingspan of 262 ft. (50 ft. more than the 747's) and the potential capacity to seat as many as 1,000 passengers (vs. 525 for the 747), the A380 has become the symbol of Airbus' new heavyweight status. In 1999 the company won the biggest share of new passenger-jet orders for the first time. So look who's big now.

The two companies can sound like a couple of jocks comparing size, but the trash talk masks a healthy degree of fear on both sides. The two aircraft manufacturers are betting billions on very different visions of the future of flying. Airbus believes that scarce gates and congestion at such big hubs as Tokyo's Narita, London's Heathrow and New York City's John F. Kennedy will create demand for 1,550 large-body jets like the A380 by the year 2020. Boeing disagrees. It anticipates that airport expansion and new construction in smaller cities will propel demand for more midsize and faster jets like the subsonic cruiser it is now developing. Whoever is closest to getting it right will win the choicer share of a commercial-jet market expected to be worth well more than $1 trillion by 2019.

With such sky-high stakes, the insults can get ugly. Boeing likes to portray Airbus as a pampered mama's boy that survives on subsidies from European governments. But this isn't child's play. The two companies' wagers on their futures matter not just to traveling global executives but also to thousands of suppliers of everything from engines to beverage carts. And the struggle of these two giants is instructive for any executive who has to reinvent his or her company.

Boeing's taunts obscure the quiet transformation of Airbus from a sort of pan-European employment agency to a savvier, profit-driven company. The 30-year-old manufacturer was the first to introduce a sophisticated fly-by-wire system (where the pilot's actions send electronic signals, rather than pulling cables, to maneuver the plane) and adopt virtually uniform cockpits for its entire fleet (thereby lowering the cost of pilot training). And Airbus often sells its jets for less than comparable Boeing models. "I'm a red-blooded American, and I want to see our side succeed," says David Neeleman, CEO of the New York-based start-up airline JetBlue. "But I had to go with the better product for the price." He has ordered more than 80 of the popular single-aisle A320s for his fleet. Decisions like that helped Airbus garner 48% of the market last year, up from 20% five years ago.

That doesn't make Airbus the market leader, but the company has lately mastered the knack of acting like a winner. An Airbus marketer derides the 747 as a "bone shaker." And Leahy has no qualms about going for the jugular. "The A380 will be a new flying experience," he says. "That's what the 747 provided in 1970." He maintains that airlines will probably install casinos, gyms or duty-free shopping in the A380's abundant cargo hold. Joseph San Pietro, an analyst at Dresdner Kleinwort Wasserstein, dismisses such a notion as a flight of fancy. "You're not going to be running on a treadmill if you hit turbulence," he says.

Though Leahy denies the figure, launch customers such as Singapore Airlines, Virgin and Qantas are reportedly buying the A380 for as much as 40% off the original list price of $235 million--compared with $215 million for the biggest version of the 747. To recoup the $10.7 billion it will expend to birth the A380, Airbus must sell 250 of them in five years. "The company has an awful lot of eggs in that basket," says Paul Nisbet, an industry analyst at JSA Research in Newport, R.I. "The A380 will live or die on its own sales."

But will it? "Airbus receives success-dependent, low-interest loans from European governments," says Dorothy Robyn, an economist who worked in the Clinton Administration. "Essentially that means Airbus has no bottom line." Britain, Germany, Spain and France will lend Airbus a third of the development costs at close to market rates. The loans don't have to be repaid if the project fails. That kind of cushion, critics charge, guarantees the A380 a soft landing. Boeing gets indirect handouts through its lucrative U.S. defense contracts. Last March, for example, the Air Force floated a plan to encourage private carriers to buy a Boeing transport plane. The bottom line, however, is that Airbus gets more government help, which often translates into deeper discounts for its customers. "We would like the playing field more even," says Randolph Baseler, a vice president of marketing at Boeing. "But we're focused on figuring out how to produce airplanes for less."

That is a revolutionary concept for Boeing. In the early '90s, Boeing chased market share, often at the cost of lower profits. Now it is more deferential to its shareholders. "Boeing's basic thinking has changed," says Nisbet. "It isn't who can sell the most airplanes but who can make the most money." In order to do that, Boeing is promoting itself not merely as an airplane maker but as a diversified aerospace company with high-tech missile-defense contracts, space and communications systems and a growing aircraft-service business. To emphasize its new orientation, Boeing in March announced plans to relocate its corporate headquarters. Its earnings for the first quarter were $762 million, up more than 100% from the same period last year.

Boeing hopes to continue that trend by instituting a new assembly line for its single-aisle jets. At night at the Renton plant near Seattle, a 737 fuselage arrives by train from Wichita, Kans., and cruises into the fabrication hangar on a huge yellow flatbed nicknamed "the Queen Mary." Almost every day, a completed 737 rolls out the exit. Mechanics are divided into teams such as the Bulldogs and the Jets. "We want to treat mechanics like surgeons in an operating room," says Sandy Angers, a factory spokeswoman. She switches on a mechanical game that gives workers about five minutes to assemble a table-size model plane, an exercise that trains them for the upcoming 737 line.

But no innovation is as dramatic as Boeing's newest plane design. Just a few short months ago, Boeing went begging for someone to buy its concept of a stretched 747. It landed zero orders, in contrast to 60-plus to date for the A380. Humiliation begat inspiration. "Airbus forced a conversation about, 'Is this really where we want to go?'" says Alan Mulally, head of Boeing's commercial division. The face-saving answer was no. Adds Mulally: "We concluded that the sweet spot is in the midsize range."

And how sweet it may be. The Sonic Cruiser, as it is being called, will fly just shy of the speed of sound. It will fly farther (850 miles farther than the A380) and faster (saving one hour for every 3,000 miles flown) than today's aircraft while maintaining standard operating costs. All of a sudden, the A380 looked like an expectant mother next to Marion Jones. Who wants big if they can have legs like that?

Leahy counters that "unless Boeing has discovered some new law of physics, this plane will consume more fuel, be heavier and have higher operating costs." But Boeing has a head start. It plans to use the powerful engines it developed for the popular 777. "Boeing already has a track record on the propulsion plan," says analyst Pietro. "The tough part will be the aerodynamics. If Boeing gets that right, it will probably be able to hold the trip costs constant."

Airbus isn't blinking. The workers at the Clement Ader plant in Toulouse toil away to the scream of rock-guitar music while tourists observe their labors from a metallic catwalk. Across from the plant, on the other side of a runway, a site has been cleared for the colossal building that will house the A380s. The engineers will probably bike in the hangar--an aerospace version of the Tour de France. And like the tour's cyclists, they know better than to discount the American competitor.

--With reporting by Sally B. Donnelly/Washington and Bruce Crumley and Thomas Sancton/Toulouse

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With reporting by Sally B. Donnelly/Washington and Bruce Crumley and Thomas Sancton/Toulouse