7E7 facing powerful resistance

CHICAGO — Two powerful Boeing board members are reportedly raising concerns about the cost of the proposed 7E7, and may move to block the project unless company engineers can develop it much more cheaply than previous models.
Board members Harry Stonecipher and John McDonnell argue that Boeing should focus on maximizing profit from its existing jetliner models and continue expanding its defense, aerospace and finance businesses, The Wall Street Journal reported in yesterday’s editions.

Stonecipher, the former McDonnell Douglas chief executive, and McDonnell, formerly McDonnell Douglas chairman, became two of Boeing’s biggest shareholders when they received stock in the Boeing-McDonnell Douglas merger six years ago. Though Stonecipher retired as Boeing’s vice chairman last year, he remains influential on the Boeing board and active with his former team of executives, including Chief Financial Officer Mike Sears and Chief Technology Officer Dave Swain.

Boeing’s board has not authorized a new model since 1989, when it gave the go-ahead for the 777.

Boeing executives have said they plan to ask the board in the next year for authorization to develop the 7E7 and sell it to airlines, a decision that would require a multibillion-dollar investment.

European jet maker Airbus is spending at least $10 billion to develop its latest new model, the A380 superjumbo.

The Journal, citing insiders at Boeing, said Stonecipher and McDonnell will push to block the 7E7 if the cost can’t be substantially lower than Boeing’s 777. The company has never disclosed its development cost for the 777; published estimates range from $7 billion to more than $10 billion.

The 7E7 is a plane Boeing says would be engineered for fuel efficiency and low cost of manufacturing and operation. The program’s executives have said they plan to develop and build it more cheaply than previous models, but haven’t said how cheaply.

The Boeing board has said the 7E7 must be designed for no more than 40 percent of what it cost to build the 777, and built for no more than 60 percent of what the 777 cost, said the Journal, citing people involved with the 7E7 program.

To reduce Boeing’s own investment in the 7E7, company officials are seeking investments from aviation companies that could make parts of the plane, as well as subsidies from governments that want 7E7 work for their jurisdictions.

While many on Wall Street applaud Boeing’s emphasis on maintaining profits and boosting its stock price, some analysts and big airplane buyers are worried that Boeing will be unwilling to make the investment it takes to compete with Airbus. They say Boeing might go the way of McDonnell Douglas, which stuck with an outdated product line until it fell too far technologically behind rivals.
The 7E7 would strengthen the middle of Boeing’s product line now populated by the slow-selling 767 and 757, both designed in the late 1970s.

“Boeing should be trying to leapfrog Airbus the way that Airbus leapfrogged them,” Steven Udvar-Hazy, chairman of International Lease Finance Corp., told the Journal.

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