Interview: Jim Albaugh, Boeing Commercial Airplanes CEO

The growing influence of Mideast airlines over aircraft developments.
INTERVIEWS, Aviation

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Boeing Commercial Airplanes CEO Jim Albaugh Interviewed By Robeel Haq {Note: Interview before Dubai Airshow 2011}

The success of international airshows, whether at Paris, Farnborough or Singapore, is traditionally measured by the value of onsite orders. While some attention is paid to exhibitor numbers, attendance levels and even the venue size, ultimately it’s all about the money – in short, the more dollars that are generated in aircraft purchases, the better. It’s hardly surprising, therefore, that airshows have somehow emerged as unlikely battlegrounds, where the likes of Boeing and Airbus compete head-to-head in securing lucrative orders from their airline customers. Most recently, with the countdown to Dubai Airshow 2011 reaching its final minutes, much has been written about potential announcements at the event, mainly focusing on cash-rich players such as Emirates, Qatar Airways and Kuwait-based leasing company ALAFCO.

Until now, the aviation industry has been somewhat divided about whether Boeing or Airbus will walk away with the larger orderbook – a debate that neither manufacturer has been willing to discuss before the five-day exhibition commences on 13th November 2011. “Let’s wait and see,” Boeing Commercial Airplanes CEO Jim Albaugh tells Aviation Business during our exclusive interview at the company’s Seattle headquarters. “We have many great customers in the Middle East and discussions are ongoing about their future requirements. The region has become a very important part of Boeing’s operations and will remain that way for years to come, especially with its location at the all-important crossroads between Asia and Europe.”

The popularity of Middle Eastern carriers has increased in tandem with their purchasing power. Even during the 2009 economic downturn, when markets in other parts of the world contracted, Middle Eastern airlines bucked the downward trend with higher passenger volumes – an achievement that continued the following year too with a 17.8 percent boost in international traffic, more than double the global average of 8.2 percent. This, in turn, led to a multitude of billion-dollar fleet investments across the region, much to the delight of Boeing’s sales team. In fact, the company’s latest market outlook has estimated that 2520 airplanes will be delivered in the Middle East over the coming 20 years, equating to a market value of US$450 billion.

“I’ve been watching how the Middle East market has developed with great interest. If you look back, Europe and the United States accounted for something like 72 percent of the global market, but another 20 years from now and that figure will be reduced to 40 percent,” continues Albaugh. “There has been a noticeable shift to other regions, such as the Middle East, and if you look at some of the airlines there, especially the big three of Emirates, Qatar Airways and Etihad, they are amongst the most innovative and aggressive players in the world right now.”

Indeed, the well-documented capacity growth of Emirates, Qatar Airways and Etihad has been unprecedented over the last decade – collectively around 23 percent each year – and Albaugh is confident that such levels will be maintained in the future too, as the large backlog of new airplanes that have been ordered by ‘the big three’ will provide a competitive advantage over their European and Asian rivals. To highlight the point, Boeing estimates that half of the 885 aircraft on order in the Middle East, including a massive 72 percent of wide-bodies, will either head to Dubai, Doha or Abu Dhabi – the respective homes of Emirates, Qatar Airways and Etihad. “It’s a testament to their growth that these carriers have become more and more involved in working with Boeing to ensure our aircraft configurations are correct,” states Albaugh.

At present, around 15-20 percent of Boeing’s commercial business is coming out of the Middle East and the bulk of deliveries from now until 2030 will be single-aisle models, representing around 46 percent of total deliveries. Demand will be fuelled by a growing emphasis on short-to-medium-haul routes, especially in terms of low-cost carriers, who are looking for more efficient aircraft with reduced operating costs. In response, Boeing launched its much-awaited 737 MAX earlier this year, which promises a seven percent advantage in operating costs over the competing Airbus A320neo as a result of optimised engines, more efficient structural design and lower maintenance requirements. Although first deliveries have been scheduled for 2017, Boeing is currently focused on talking with customers to understand market expectations, after which the final design and capabilities will be revealed in partnership with suppliers, together with details on a location for the aircraft assembly.

“When the 737 MAX was first announced back in August 2011, we had close to 500 order commitments from five airlines and that figure has continued to increase, so there is a strong business case for the aircraft,” explains Albaugh, who has yet to announce a launch customer in the Middle East, even though interest has been expressed by the likes of flydubai and ALAFCO. “We need a Middle East customer to order the MAX; it’s not clear whether something will come through in time for Dubai Airshow. In terms of single-aisle airplanes, the majority of Middle East airlines have been ordering Airbus products, so we need to really highlight the MAX’s advantages in terms of increased efficiencies over its competition, and then hopefully we will have our first Middle East orders as well.”

Boeing has also predicted that 1110 twin-aisle aircraft will be delivered to the Middle East between 2011 and 2030, a fraction smaller than the number of single-aisle models but still an impressive 44 percent of the region’s total deliveries. The recent introduction of the company’s 787 Dreamliner, along with the forthcoming Airbus A350, has been attributed for the resurgent demand, as both aircraft offer considerable improvements in efficiency over previous models. Of course, there have been a series of unfortunate delays in the 787’s production – apparently costing Boeing billions of dollars in compensation – but Albaugh celebrated a historical milestone in September 2011, when the first Dreamliner was finally handed over to launch customer All Nippon Airways (ANA).

“Airlines are primarily concerned about three things – profitability, efficiency or fuel burn, and environmental footprint. With the Dreamliner, it will make them more profitable, it will burn less fuel and it will be a much cleaner airplane, so this really satisfies the needs of airlines around the world, including the Middle East,” claims Albaugh. “Its not often that we have the chance to make history, do something big and bold that will change the world in untold ways and endure long after we are gone. That’s what the 787 Dreamliner is and what Boeing and ANA have done together – build what truly is the first new airliner of the 21st century.”

While the capital investment in researching, developing and producing the Dreamliner has not been revealed, media reports have valued the 787 programme’s costs for Boeing and suppliers at $40-50 billion, with a cash-positive breakeven point at 1200-1900 airplanes. Although that stage will not be reached in the near future, the aircraft will make its Middle East debut at Dubai Airshow this month, while the region’s launch customer Qatar Airways receives its first delivery around the second half of 2012, with CEO Akbar Al Baker famously promising to operate the “most luxurious” Dreamliner in the skies.

“Clearly, Qatar Airways is one of the premium airlines in the world today. When you travel on their airplanes, the service is premium, the equipment they have is the best, and it’s all down to the vision of my good friend Akbar Al Baker,” comments Albaugh. “While developing the Dreamliner, we tried to involve as many airlines as possible to ensure we got the airplane right. Of course, with factors such as the interiors, each airline will customise this according to their own requirements. I think that Middle East airlines probably have more attention to detail than some other carriers out there, so Akbar Al Baker and his team have developed something that will feel very different to anything passengers have ever flown, from the lighting, the roominess, the windows, the seats, everything will feel different.”

Following its recent progress with the 737 MAX and 787 Dreamliner, Boeing is now looking to the future with its other twin-aisle product, the ever-popular 777, which has become the backbone of many Middle Eastern fleets. The company has entered discussions with around 20 existing customers of the 777, including Emirates and Qatar Airways, to discuss the potential of launching an enhanced version around 2013 to compete against the forthcoming Airbus A350-1000, with a potential rollout by the end of this decade. Rumours suggest the new models – known as the 777-8X and 777-9X, replacing the 777-200LR and 777-300ER – will still have two engines (which could be a new derivative of the GE90 family) as well as the same fuselage diameter as the current 777, but with a new raked wing design and similar cabin interior to the 787 Dreamliner - including high ceilings, mood lighting, large overhead bins and bigger, dimmable windows. In addition, the airframe might be developed from advanced aluminium and composite materials to reduce weight. With these factors combined, the potential fuel burn saving per seat could be 10-15 percent over the existing 777-300ER.

“At this stage, we are talking to a number of airlines, including some in the Middle East, about modifying the 777 to further improve its efficiency. However, these are preliminary discussions, we’re a long way from launching the programme,” confirms Albaugh. “It’s great to have the involvement of Qatar Airways and Emirates, who operate some of the largest fleets on earth, so Akbar Al Baker and Tim Clark have lots to say about what we should do and how we should do it. And this proves, once again, the influence that Middle East carriers now have in shaping the future of the global aviation industry.”

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