Boeing's Sears outlines outlook for U.S. aerospace industry
September 12, 2002
Aerospace business in the U.S. will improve, but not without a bit more time in the doldrums, according to Boeing's CEO.
Editor's note: The following are excerpts from Boeing Co. CFO and Senior Vice President Michael Sears' "Transformation in Aerospace" speech and Q&A session at this week's Metals Service Center Institute (MSCI) 2003 Forecasting Conference in Chicago.
The [aerospace] industry was already entering into one of its traditional cyclical downturns last year when the tragic events in New York and Washington, D.C., triggered an unprecedented drop in air travel. The effect on our airline customers has gone well beyond the economic cycles we've witnessed in the past. Many major carriers are still searching for ways to restore profitability.
At Boeing ... we are continuing to work closely with each of our airline customers on solutions to support the long-term health of the industry.
We've seen traffic recover somewhat since Sept. 11, but it remains significantly below historical levels. Recent reports indicate that the recovery has slowed a bit over the last couple of months in both the U.S. and Europe. Asia, however, is a bright spot where traffic is recovering ahead of expectations.
To help quantify this picture, let me give you our deliveries for the three-year period ending 2003. In 2001, we delivered 527 airplanes. And this year we expect to deliver around 380 airplanes, down 27 percent. Our current forecast is that 2003 could be the bottom of the trough in terms of deliveries--around 275-300 airplanes, down another 21 to 26 percent.
We expect deliveries could begin recovering sometime in late 2004. But at this point we don't know what shape that recovery might take. Much of it depends on the global economy and the confidence levels of the flying public.
But recover it will, just as it did after the last downturn during the Gulf War. Over the long term, we still foresee strong demand for new aircraft. Our latest long-range forecast projects that nearly 24,000 new airplanes will be delivered over the next 20 years.
On the military side, recent events have seen a reassessment of defense priorities. The forecast is for modest, sustained growth in U.S. defense spending after a period of decline in the '90s. We're looking at a potential $48 billion increase in the Pentagon's budget for fiscal 2003. Although there will be little change in immediate procurement priorities, R&D levels are set to rise, with much of the funds supporting Pres. Bush's priority to transform the military.
Improvements in metals processing and manufacturing technologies are helping transform the way aircraft are built. Leveraging the inherent affordability of metallic materials and processes offers opportunities to cut costs for both existing and advanced aerospace systems.
Here's [a] process that's making a real difference -- friction stir welding.
This welding produces welds much stronger and more defect-free than those using traditional techniques. This process uses a rotating welding head pin to plasticize metals through the force and heat of friction as it travels across the joint. In the process, it stirs and recombines the plasticized material to form a weld on the trailing side of the tool.
Friction stir welding allows us to assemble components made of high strength aluminum and aluminum alloys once considered too difficult to weld. That means less mechanical assembly for joining airframe components.
In the assembly of the Delta II launch vehicle tanks, the result has been a 65 percent cost savings compared to gas metal arc welding.
Friction stir welding is also starting to be introduced on high performance military aircraft. We've used the process to fabricate landing gear doors for the U.S. Navy's T-45 trainer at a 60 percent reduction in cost. And an empennage fairing assembly with friction stir welded T-joints has undergone flight tests on an F-15 fighter.
Our commercial airplanes unit is also looking at the potential benefits of employing friction stir welding techniques. Large plate panels and spars for advanced metallic wing concepts are on the list.
So advances in materials technology and processes are offering some new and exciting benefits, ones that are challenging composite materials, which have gained a larger footprint on new aircraft over the past few decades.
We're constantly assessing new technologies and processes as we make materials trade-offs in new products we're developing.
When we first started our work on the Sonic Cruiser, for example, the strength of materials was such that our planned baseline airplane was about 60 percent carbon fiber composites, 17 percent titanium, and the remainder aluminum and steel.
Since then we've seen the aluminum industry step up with new alloys they've been developing that offer a 20 to 25 percent improvement in material properties -- and perhaps at even more favorable pricing.
Right now it's open as to which parts are aluminum and which parts are composites. Whatever provides the best value is the way we'll go.
In response to a question about the Sonic Cruiser:
We have found ways to travel at faster speeds, and we're working on how to do that affordably. It's not about going fast; it's about going fast at a ticket price that you all [passengers] are willing to pay.
In response to a question about the future of jumbo-jumbo passenger jets:
The middle-of-the-market [200 to 225 passenger] airplane probably looks like the next airplane for us.
Point-to-point travel is going to be the high-density way you all are going to travel. That's the way the market's going to segment. We do see this segmenting in a point-to-point fashion, which means that the quantity of larger airplanes will be going down and the quantity of littler airplanes will go up.
Talking about the company's business model and revenues:
Two hundred fifty commercial airplanes is $22 billion in revenue. Should you be able to make a profit on $22 billion of revenue? Everyone shake their heads "yes."
This year, we said, "We're going to make money on $22 billion of revenue." We are going to work our tails off to be profitable at 250 airplanes a year forever.
In regard to a question about travel outside the atmosphere:
There are some people who will pay $20 million to going into space. We don't happen to think that's a good businesses model, and our shareholders are not enthusiastic about us investing in that capacity.