GE-Rolls to power Boeing's new 7E7
By Allison Linn
Associated Press
SEATTLE — Boeing Co. chose General Electric Co. and Rolls Royce PLC to supply the engines for its planned new 7E7 Dreamliner airplane, striking deals that could be worth billions of dollars to the two companies.
The announcement yesterday was a blow to Pratt & Whitney, the No. 3 commercial engine maker, who analysts had said needed the business the most. Richard Aboulafia, an analyst with the Teal Group, had called the contract Pratt's "best chance for a renaissance."
The contracts to supply the engines could be worth as much as $40 billion if Boeing's projections for the airplane market are correct, said Paul Nisbet, an analyst with JSA Research.
The fuel-efficient, 200-plus passenger jet is slated to compete with rival Airbus' A300 and A310 airplanes and to replace Boeing's older 757 and 767 airplanes. The twin-engine jet is expected to fly commercially in 2008.
Mike Bair, Boeing's 7E7 senior vice president, said the new engine designs "will enable the 7E7 to fly higher, faster, farther, cleaner, quieter and more efficiently than comparable airplanes."
But Bair declined to give details on the agreements with the engine makers or say why Pratt & Whitney, a division of United Technologies Corp., did not make the cut. He said it was a "very close decision."
Sir John Rose, chief executive of Rolls Royce, called the decision "highly significant" and said he expected it to provide good financial returns. David Calhoun, head of GE Transportation in Evendale, Ohio, called Boeing's decision "a huge day in the history of our jet engine business."
East Hartford, Conn.-based Pratt & Whitney's spokesman Mark Sullivan said the news was a blow to Pratt's commercial engine business. But he said it will have no immediate effect on employment.
"No one program is make-or-break for a company the size of Pratt," he said.
The decision also could pave the way for Boeing's Seattle-based commercial airplanes division to announce a first customer for the 7E7.
Boeing has yet to announce any takers for the 7E7, which it formally offered for sale in December. Bair reiterated yesterday that the company is in serious discussions with many airlines and hopes to have a customer "sooner rather than later" this year.
Analysts said airlines may have been waiting for the engine announcement before deciding whether to buy the new plane.
Boeing has said it believes there could be a market for 2,000 to 3,000 airplanes similar to the 7E7, meaning the plane would potentially offer a substantial amount of business to the engine makers.
"It could be a very big deal, depending of course on the success of the 7E7," Nisbet said.
Aboulafia said the engine makers could expect as much as $1 billion in revenue each year from the 7E7 deal.
It's also a major undertaking for the engine companies. Nisbet estimated that a staff of 100 to 200 engineers toiled for months to just win the bid. After that, the real work — and expense — of building the engine begins.
Boeing has said it would offer the planes at a list price of around $120 million, comparable to the company's 767-300ER. Executives expect the relatively modest price to be a big selling point.
Airlines typically pay far below list price for an airplane, although Aboulafia said the company may not be willing to discount as much on the 7E7.
Another scenario, which Aboulafia considers more likely, is that Boeing will push its suppliers to cut costs as much as possible so customers can be lured by those savings. Such a model — pioneered by Wal-Mart Stores Inc. — would squeeze profit margins for everyone, including the engine makers.
Other analysts agree.
"It's difficult for the suppliers and for Boeing because to be competitive that airplane has got to be kept at a minimum price," Nisbet said.
