Plane guru says many more sales needed for 787 program to break even

PHOENIX — The most influential man in the world of commercial aviation, aircraft lessor Steven Udvar-Hazy, delivered good news and bad news for Boeing at a conference here Tuesday.

In a ringing endorsement of Boeing's proposed new small-airplane strategy, he predicted that "based on historical performance and just their DNA," Boeing will build a new airplane family that will "address the next 25 to 30 years of airline demands."

But after coming off the stage where he spoke on an industry panel, Udvar-Hazy also gave a shocking assessment of the ongoing 787 Dreamliner development program.

Because of all the delays, "the break-even point on the 787 has moved far, far to the right," Udvar-Hazy said in an interview with reporters huddled around him. "The research-and-development cost has skyrocketed."

Udvar-Hazy said his guess is that Boeing will have to deliver 1,500 Dreamliners just to break even.

That's almost twice the current tally of firm orders, at 843. A typical initial assumption for break-even on a new jet program is more like 400 or 500 airplanes.

Suggesting a break-even of 1,500 indicates the financial impact of the jet program's delays has been catastrophic.

Udvar-Hazy is famous in aerospace for his invention of the aircraft-leasing business, which made him a billionaire with his former company International Lease Finance Corp. (ILFC).

He has personally bought more than 800 planes from Boeing over 30 years, granting him regular access to Boeing's leadership and to their latest thinking.

He has no less influence at Airbus. In 2006, at this same annual meeting of civil-aircraft financiers and lessors, the International Society of Transport Aircraft Trading (ISTAT), Udvar-Hazy's public savaging of Airbus's initial A350 design caused the European plane maker to scrap the idea and come up with an all-new jet.

This year, Boeing got the aviation equivalent of a papal imprimatur for its proposal to build a new family of airplanes to replace the larger 737 and 757 models, a strategy contrasting with the Airbus decision to add new engines to its existing single-aisle A320s.

Udvar-Hazy outlined how Boeing can get the big performance boost needed to justify an expensive all-new design by 2020: It can use an improved version of the engines built for Airbus, but with a larger fan diameter to make them not only more fuel efficient but also impossible to retrofit on the A320s.

Such a fuel-efficiency improvement will "respond to all the regulatory, environmental and operating cost constraints the industry faces."

"You are building a multidecade workhorse" that will enable Boeing to "vault into the next era," he said.

As for Airbus, Udvar-Hazy said its decision to put a new engine on its current narrow-body planes was forced by lack of money.

He said the cost of fixing the A380 double-decker, then developing its new A350 airliner and its A400M military cargo plane, will tax Airbus's finances for the next five years.

"It will not be possible as a practical matter for Airbus to launch a completely new airplane," he said.

Still, the Airbus interim fix remains a threat to Boeing in the short term.

Udvar-Hazy said Boeing will have to work on incremental 737 improvements to stave off major sales losses to the re-engined A320.

"Airbus will make a very strong push with both Delta and United," he predicted.

Udvar-Hazy said he thinks the upper end of Boeing's new family will be a 757-size jet with more than 200 seats, for which he thinks a twin-aisle makes sense.

But he said the lower bound will be about 150 seats. That could leave the market segment of still-smaller jets to Bombardier's new CSeries jet, and perhaps to Embraer of Brazil and to new Russian and Chinese market entrants.

In a sour note for this region, Udvar-Hazy said Boeing will find it tough to compete in building smaller jets against low-cost countries because of its high costs in the Puget Sound area.

He said to stay in this market segment, Boeing might have to shift production to some nonunion plants.

But that issue may be moot. Boeing commercial-airplanes chief Jim Albaugh indicated at the conference Monday that if the company goes ahead with its new jet family, it likely won't go below 150 seats.

Albaugh will no doubt be delighted to have Udvar-Hazy's backing. At the same time, the Los Angeles-based lessor's comments on the Dreamliner will sting.

Udvar-Hazy said the initial 787-8 model is overweight to such an extent that Boeing will have to add more powerful engines to increase the maximum takeoff weight and meet the range and payload specification.

He said the promise of lightness from making the airframe out of carbon-fiber plastic composites was scuttled by the need to reinforce the structure with titanium in locations, including the place where the wing joins the body.

"My gut feeling is that the airplanes will always be heavier" than intended, Udvar-Hazy said. "It's just going to become a heavier, more powerful animal."

He said the second version of the 787, the 787-9, will be much better, and a proposed third version, the larger but shorter range 787-10, will be a success.

In another welcome piece of analysis for Boeing, he said the pressure to redesign the company's star wide-body, the 777-300ER, is now much less because the rival Airbus A350-1000 is not only likely to be late but will need new more powerful engines to compete.

That's lucky, for Boeing has plenty to do.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com