Monday, Jan. 24, 1983

Boeing Buckles Up for Takeoff

By Janice Castro

Its thrifty new jets may be just what hard-pressed airlines need

If the people of Seattle have some of the best-educated cab drivers in the world, they owe it all to the Boeing Co. During the past two years, caught by the worst downturn in U.S. airline history (estimated 1982 industry losses: $500 million), the giant plane builder has reduced its work force by 14,000 as its production of new commercial aircraft dropped to half of its capacity. But now, thanks to some sharp maneuvering, Boeing's prospects are looking brighter. In the past six months, the company's stock has shot up from 15 to 36 7/8, and investment analysts still think it is a buy. Boeing Chairman T.A. Wilson is less effusive than the analysts but still upbeat. Says he: "It will take some time for the airlines to start making money again. But we expect the traffic to grow."

Right now, the trunks are keeping Boeing busy filling orders for its new wide-bodied 767. Boeing has sold 177 of the $46 million, twin-engine planes so far, and will produce five a month this year, which will keep the assembly line moving efficiently until business picks up enough to allow the industry to buy more. United Air Lines, the first carrier to fly the 767, has taken out newspaper ads proclaiming: "If you had a favorite airplane, this one's going to take its place."

That goes for airline executives as well as travelers. Passengers, who have been crammed into planes as if they were suitcases, like the extra leg room, wider seats and the 50% increase in overhead storage space. The carriers, which now include TWA, American and Delta, like the new plane's low operating costs. Narrower than the mammoth 747, the 767 carries 210 passengers and is versatile enough to be used for 1,000-mile flights, as well as transcontinental routes. Thanks to new engines and wings, and the use of lighter composite materials, United says that the 767 is 30% to 54% more fuel efficient than the older planes it replaces. Boeing claims that airlines can save up to $2.5 million annually for every 767 they fly.

Boeing is also beginning to profit from the industry's twin problems of overcapacity in big airliners (as many as 100 747s, DC-10s and L-1011s are grounded because they cannot be filled), and the fare wars sparked by the Airline Deregulation Act of 1978. While the trunks have been slugging it out in expensive discounting duels for a shrinking number of passengers on such popular routes as New York-Los Angeles and Miami-Chicago, small regional airlines, known in the industry as "bumblebees," have been making fat profits serving medium-size cities abandoned by the major carriers. Now the trunks want some of that business back, and to get it they need smaller planes. The most popular: Boeing's new twin-engine 110-passenger 737-200, a fuel-efficient improvement over the older 727s that it usually replaces.

Since most airlines do not have the money now to buy the airplanes they need, Boeing is offering some innovative financing. Last month the company announced that Delta Air Lines will lease 33 new 737-200s for 15 years; that will ensure that Boeing can keep production lines warm and the work force in place until orders spring back, and it will enable Delta to start battling those bumblebees more effectively. As part payment, Boeing will take eleven of Delta's surplus Lockheed TriStar wide bodies and try to resell them overseas.

The shift to smaller airliners has also saved McDonnell Douglas' commercial-aircraft division, which is long on cost-efficient smaller planes but has not been able to sell one of its star-crossed DC-10s in two years. In November, the company announced a $1 billion contract to sell 30 new 142-passenger DC-9 "Super 80s" to Alitalia, Italy's national airline.

When passenger traffic picks up, Boeing will be ready with its newest twin-engine plane: the 757. Certified just last month, the $37 million airliner carries 185 passengers. So far, 123 of these smaller planes have been ordered. Boeing's Wilson sees the 757 as the company's strongest card in the long run, because it is intended to replace the middle-size, medium-range jets that make up some 72% of the U.S. airline fleet. Says he: "I would not be surprised to see the 757 as the best seller we have ever had."

Meanwhile, the aerospace giant expects to ride out the rest of the recession in lean but solid shape. Military contracts for AWACS (the special radar-equipped 707s that give advance warning of air attacks), air-launched cruise missiles and other systems, which account for 25% of total revenues, will help. Boeing is scheduled to deliver 189 new planes this year, compared with 177 in 1982. That is still 68 planes fewer than the 257 delivered in 1981, but Boeing has shown that tight cost controls and efficient new computer-aided design and manufacturing equipment enable it to operate profitably at reduced capacity: during the first nine months of 1982, the company earned $201 million, half of it from commercial aircraft. Says Wilson: "We've battened down the goddam hatches, and we are going to survive." Before long, he may even be hiring back some of those overeducated cab drivers.

--By Janice Castro.

Reported by Joseph J. Kane/Seattle and Stephen Koepp/New York

With reporting by Joseph J. Kane/Seattle, Stephen Koepp/New York This file is automatically generated by a robot program, so viewer discretion is required.