Boeing sees fertile ground in Gulf for 747-8
In Boeing’s estimation, the Middle East will become the third largest market in the world for jumbo-sized airplanes over the next 20 years. So what better time and place than this year’s Dubai Air Show to make a pitch for the new 747-8–Boeing’s largest ever commercial airplane and one, in the opinion of Boeing Commercial Airplanes vice president of marketing Randy Tinseth, bound to command a significant presence in the Gulf region in particular.
“Clearly the Middle East is a market that has many of the characteristics that are necessary for big airplanes,” Tinseth told AIN in a pre-show interview. “You have large levels of demand, oftentimes long distances; you have limited departure and arrival windows, depending on where you want to go; and to some extent there are bilateral constraints in some of the markets, and slot limitations.”
Scheduled for certification and first delivery to launch customer Cargolux in September 2009, the cargo version of the 747-8 has so far won over one noteworthy airline in the region–Dubai’s own Emirates Airline, which has placed a firm order for 10 for delivery starting in 2010. However, the passenger version, known as the Intercontinental, at press time hadn’t extended its customer base beyond Germany’s Lufthansa, which holds an order for 20. Exactly when the 747-8I finds firmer footing remains an open question, but it wouldn’t surprise Boeing if the airline that follows Lufthansa on the firm order book hailed from this region.
“When you look at an airline like Emirates that’s got a big 777 fleet, [and] a big A380 fleet, there’s got to be some room in a fleet like that for a 747-8 size,” said Tinseth. “And when you have the commonality with the 747-8 freighter, it makes the economics even work better.”
Positioned halfway between Europe and Asia, the Middle East has become the world’s fastest growing air transport hub for both freight and passenger traffic. During the past five years, Middle East passenger growth has outpaced even Asia’s, averaging about 12 percent per year. Meanwhile, cargo traffic as measured by freight-ton kilometers grew by 16.1 percent last year. According to Boeing’s market forecast, the Middle East cargo market will grow at a rate of at least 7 percent a year over the next 20 years, while passenger traffic grows at a more modest, yet still brisk, 5.7 percent.
Of course, the kind of long-haul, high-volume freight transport in which Middle Eastern airlines specialize will demand more big airplanes. Passenger traffic, too, still involves relatively few regional and low-fare operations, and Boeing’s forecast doesn’t predict a drastic change in that regard.
“I know we’re talking about big airplanes, but the question in our minds is where will low-cost carriers in this region go?” said Tinseth. “They’re providing only about 5 percent of the capacity today, and that compares to 30 percent when you look at Europe and the United States.”
For now, Boeing expects most of the 1,200-airplane demand projected for the region over the next 20 years will come from the twin-aisle or larger categories. It predicts that the 747-and-larger models will account for 110 of the roughly 700 airplanes in those categories. If, as it often asserts, Boeing can split the market for jumbo-sized airplanes with Airbus, it can expect to sell at least fifty-five 747-8s to Middle Eastern airlines over the next 20 years.
Although relatively small, the market for such models will account for $270 billion in sales worldwide, said Tinseth. If the Middle East accounts for a ninth of the market, as Boeing estimates, it alone represents $30 billion in sales. Home to a relatively substantial installed base of 747s, the region presents replacement opportunities as well as growth potential.
“The Middle East is a little bit different,” said Tinseth. “In total, we see the airplane to be a replacement. But I think some of that demand will be moving from Asia to the Middle East. So I think from a Middle East perspective, these can be seen, many of them, as growth aircraft.”
Boeing continues to stress that the 747-8 and Airbus A380 will appeal to distinct market segments, and that an order for A380s does not disqualify the 747-8 from joining the same fleet. In fact, the Intercontinental’s only customer so far holds an order for 15 A380s. Emirates, which holds an order for 55 A380s, stands as one of the 15 airlines on Boeing’s potential customer list, about half of which consists of prospects for the passenger version, half for the cargo version “and a couple in between that are actually looking at both airplanes.”
At 467 passengers, the Intercontinental’s standard capacity falls almost exactly midway between that of the 368-seat 777-300ER and 555-seat A380. Original plans called for a shorter fuselage in the passenger version compared with the freighter, a configuration that would have given the Intercontinental more range than the 8,000 nm engineers now estimate it will offer. But the apparent preference from European prospects for more size apparently trumped the desire from Asian and Middle Eastern airlines for extra range, resulting in a common body length that, according to Tinseth, “seems to work pretty well for everyone.”
The “everyone” to which Tinseth referred no doubt includes the leasing companies and banks that finance the airplanes. Uniformity across a product line helps support residual values because a more standardized airplane will appeal to a wider audience. Boeing makes a similar case when it argues the benefits of a single engine type; in this case, a variant of the General Electric GEnx powerplant developed for the 787.
Some observers have wondered, however, whether the lack of an alternative engine and the decision to limit range in favor of more capacity might hurt in the long run.
British Airways–traditionally one of Boeing’s best customers and seen as a solid prospect for the 747-8 Intercontinental–last month opted for A380s to help replace its aging fleet of 747-400s. Although no one has implicated the 747-8’s sole-source powerplant as the reason for BA’s decision, it came as little surprise that the entire order–which also included 24 Boeing 787s–consisted of airplanes powered with engines built by Rolls-Royce.
Range, meanwhile, remains a preoccupation of Emirates, which wants to fly between Dubai and Los Angeles with close to a full payload–something the stretched 747-8I could not do in its current form. Boeing and Emirates continue to look for a solution.
“We’re always looking at development,” said Tinseth. “Is there going to be margin in the structure, how are the engines going to perform and can we provide a little bit more value to our customers? That’s yet to be determined.”