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Originally published December 31, 2011 at 8:01 PM | Page modified January 1, 2012 at 8:58 PM

Corrected version

Despite wobbles, a smooth landing at Boeing

The past year saw wild swings in Boeing's fortunes, but the company enters 2012 in a better competitive position than it has had for a long time.

Seattle Times aerospace reporter

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The past year saw wild swings in Boeing's fortunes, but the company enters 2012 in a better competitive position than it has had for a long time.

The Air Force tanker is in the works. The 787 Dreamliner has begun delivery, however slowly. The larger 777 jet is selling as never before.

And though Boeing stumbled in the narrowbody-jet market, it regained its footing with the new 737 MAX.

Meanwhile, Boeing's early and unexpected contract deal with the Machinists union promises the labor peace needed to capitalize on its opportunities, and suggests a continued boom in local aerospace jobs.

The only clouds on the horizon are a precarious global economic outlook and Boeing's continued production problems on the Dreamliner.

In the market for single-aisle jets, a slew of blowout orders midyear for rival Airbus' fuel-efficient A320neo left Boeing standing at the gate. But by year-end, the new 737 MAX was on its way to matching the neo's sales streak.

"The MAX has really taken off," said Randy Tinseth, vice president of marketing at Boeing Commercial Airplanes. "The neo is in our sights and we're looking to come up to market parity."

In the widebody passenger-jet market, the large 777 has no current competition. As of Dec. 20, the plane had raked in a record 200 net orders for the year, worth an estimated $32.4 billion after standard discounts, according to aircraft-consulting firm Avitas.

And the smaller twin-aisle 787 Dreamliner should eventually be a winner, too — if Boeing can only get deliveries flowing through the logjam of planes awaiting work on the flight line.

Industry analyst Doug Harned, of Bernstein Research, wrote to investors in a recent note that except for the niche of very large jets, where the Airbus A380 is dominant, "long term, we expect Boeing to lead in widebodies."

As for the air-cargo market, Airbus is almost out of the picture.

When FedEx this month decided to pass on the Airbus A330 freighter in favor of an order for 27 Boeing 767s, industry analyst Adam Pilarski, of Avitas, read confirmation that Boeing owns the market for production cargo planes.

"That was the final nail in the coffin of Airbus as a freighter player," Pilarski said.

So despite uncertain prospects for the world economy and Boeing's continued problems with production of the Dreamliner, the plane-maker is set to sharply raise production rates.

Over the next three years, it plans to increase 737 production in Renton by a third, and widebody-jet production in Everett — that's 747s, 767s, 777s and 787s — by about 50 percent.

That means a boom in jobs at the assembly and parts plants in the Puget Sound region. Boeing has added nearly 8,000 jobs in Washington state this year and that pace of hiring looks set to continue.

Doubts about demand

Certainly, some aviation-industry observers are worried that such a boom is not sustainable.

Pilarski believes Boeing and Airbus have sold too many airplanes and inevitably "the order bubble will burst."

The bankruptcy of American Airlines may be a sign "the airline industry is going through another shakedown," said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass., who follows aviation closely.

"The prosperity Boeing has been assuming may not be as solid as the company ... would like to see," he said.

Boeing brushes away such glum analysis.

Tinseth said Boeing is watching closely the possibility of a recession in Europe. But even if it comes, he said, the "multispeed world economy" will still have Asia, the Middle East and South America.

In short, airlines elsewhere will still be ordering, even if a double-dip recession hits the West.

"The (proposed) production rates are definitely in line with the true demand in the marketplace," he said.

Ups and downs

During a tough year for the overall global economy, Boeing came out well.

It got off to a great start in February, when its 767 won the competition for the $35 billion Air Force tanker contract. At year end, signs are that Boeing may snatch the job of completing the tanker's military systems away from its Wichita, Kan., plant, and place that work in Seattle or Everett, adding more jobs here.

Midyear, Boeing dithered over plans to design an all-new narrowbody jet.

Under pressure to quickly match the Airbus A320neo, executives finally reversed course. A pending order from American Airlines pushed Boeing into a rushed launch of the 737 MAX.

Yet the end-of-year deal with the Machinists, which included Boeing's commitment to build the MAX in Renton, immediately took away major risks to the program. Shortly after, Southwest Airlines placed a massive order validating the MAX strategy.

The neo — which launched a year ago, eight months ahead of the MAX — still has more orders, giving Airbus a comfortable win in the 2011 sales race.

As of Dec. 20, Boeing had 778 net jet orders for the year; Airbus already had 1,378 net orders when it last reported sales at the end of November.

But in 2012 Boeing can expect to match the neo as the 737 customer base steps up to buy replacement aircraft. That could make it a huge order year for Boeing.

"They caught up with Airbus and have a credible plane," said Pilarski, of Avitas.

Furthermore, he said, the twin successes of the neo and the MAX seem to have shot down the chances of Bombardier's CSeries airplane, which was aimed at the smaller end of the narrowbody market. None of the major airlines went for it in 2011.

Airbus and Boeing have essentially "eliminated the CSeries as a serious threat," Pilarski said.

While it scrambles to restore parity with Airbus in narrowbody jets, Boeing has its greatest opportunity and also its greatest challenge with its widebody airplanes.

The opportunity comes from Airbus' trouble with its rival A350 jet family.

At the Paris Air Show in June, the European plane-maker announced that the largest of the three variants — the A350-1000, designed to match up against Boeing's 777-300ER — would need a new engine and would be pushed out two years to 2017. The plane already had a different wing and landing gear than the other A350s.

The news prompted jeers from customers, including big Middle Eastern airlines with orders for the airplane.

Boeing's Tinseth said Airbus' A350 strategy "is in a bit of disarray."

In the breathing space provided by that delay, he said, Boeing has time to figure out how it can address the needs of the large widebody market. It has two major options: designing a stretch version of the Dreamliner, the 787-10; or revamping the 777 with a new wing, the 777X.

Because the company won't be building the new small airplane that was planned earlier, it will have the engineering resources it needs to focus on the widebody options.

Dreamliner logjam

Boeing's biggest challenge remains the Dreamliner, the one shadow on an otherwise glowing 2012 outlook.

The aircraft ramp space around Paine Field in Everett remains littered with about 40 Dreamliners that need major modification work before they can fly.

The mess will take at least a couple of years to clear, and so far it's going even more slowly than anticipated.

A person familiar with the condition of the planes said some recently needed to be almost completely gutted and rewired inside.

Boeing spokesman Scott Lefeber said planes assembled before the Federal Aviation Administration certified the 787 must be modified to meet the final certification standards, including "removing and reworking wiring or equipment that needs to be updated."

With two Dreamliners delivered, Boeing mechanics worked through the holidays, struggling to get three more ready to meet at least the low end of a target set in October: delivering five to seven 787s by year-end.

Boeing will not disclose the final delivery tally until Jan. 5, but last week the person familiar with the state of those three Dreamliners said only one would be delivered in 2011.

Other unexpected setbacks continue to pop up. Last month, Boeing had to replace auxiliary power units on three Dreamliners.

Separately, the first Dreamliner for Japan Airlines (JAL), which in early 2012 is supposed to be the first delivered with GE engines, was rolled out of the paint shop Dec. 14. But the company rolled it right back into the factory.

Before painting, it had failed a test designed to measure the potential effects of electromagnetic interference during a lightning strike.

The test consists of applying a relatively small electric current to the airframe and measuring the effect as it passes through the wings and fuselage to detect any feedback into the wire harnesses, cables and avionics components.

Earlier, a Dreamliner with Rolls-Royce engines passed the test.

Boeing acknowledged that the GE-powered airplane required modifications to the pylons that attach the engines to the wing. Dreamliner spokeswoman Jennifer Cram said "minor" changes were made, and the modified design has passed Boeing's internal engineering tests.

A repeat of the lightning test is needed for certification. But Cram insisted that the extra testing won't delay the delivery to JAL.

Tinseth said the company is focused on the 787 deliveries and "getting those airplanes in the right condition for our customers."

But he was noncommital as to whether Boeing can clear enough of that 787 logjam in 2012 to get on track for its ambitious planned ramp-up: delivering seven Dreamliners a month from Everett by the end of the following year.

"Only time will tell," Tinseth said.

Look for 2012 to be a year of blockbuster 737 orders for Boeing, and of intense activity at Paine Field.

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

Information in this article, originally published Dec. 31, 2011, was corrected Jan. 1, 2012. A previous version said the Air Force tanker contract was worth $35 million; it's worth $35 billion.

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