Jumbo's getting fatter

It's Europe versus America in a brutal battle to corner the market for jets carrying up to 800 people

Drive around Heathrow Airport on a summer day and you are sure to see an odd collection of lawn chairs, binoculars and notebooks. The plane spotters are at work, identifying flights by their livery, engine configuration and airframe shape. Most likely they can tell you where a particular plane is coming from and whether it is running late. Amateurs, however, can usually only identify two - Concorde, with its droopy nose, and Boeing's 747 jumbo jet, with its bulging upper deck.

A third, easy-to-identify plane is now in the works. Europe's Airbus Industrie plans to build a new double-decker aircraft called the A3XX. Boeing plans to counter with an enlarged 747, jokingly called the 787 by the Seattle Times. Even before these super jumbos take wing, the roar of their engines is sending shockwaves around the industry. While they promise cheaper travel, the planes threaten to cause upheaval at airports and the most bitter trade war yet between America and its European allies.

The new super jumbos will carry 600 to 800 passengers, up to twice as many as the 400-seat 747-400. Precise details of both companies' plans are still under wraps, but industry insiders expect the giant planes to start rolling down runways by the turn of the century.

The market they are vying for is immense, but so are the risks. The airline industry has recovered from the recession of the early 1990s and is growing by more than 5 per cent a year on average. In the Pacific region, it is surging at more than 11 per cent. Analysts estimate that 1,000 to 1,500 jumbos and super-jumbos will be needed worldwide over the next 20 years.

BAA, which owns Heathrow, says its passenger volume will jump from 50 million a year to 80 million a year - a 60 per cent rise - with only an 8 per cent increase in the number of flights. Planning to accommodate bigger aircraft has been under way for 15 years, so most new airports have been designed to handle them. Terminal Five, the much-debated new passenger hub at Heathrow, will be one of them. Its baggage carousels will be half as long again as those in Terminal Four, it will have boarding bridges that can reach two levels, and its stands - aircraft parking slots - will be spaced further apart to allow for wider wing span. Airbus says its plane will come in at under 80 metres, while Boeing is thought to be aiming at 85m. A 747, by comparison, has a wing span of less than 75m.

Older terminals will have to be refitted. Airports Council International, which represents 430 airports worldwide, estimates the bill will run to $105m (pounds 70m) each. However, only 20 or 30 of the larger international hubs will have to be upgraded. The planes are only likely to be used on routes described in the industry as "thick" - those with high passenger volumes.

There is also concern about the effect the super jumbos will have on runways. One proposed version would have 28 wheels, compared with the 18 on the 747, to spread the load. Even so, America's Federal Aviation Authority is building a $28m runway in Atlantic City, New Jersey, to test how it will be affected by having double-sized aircraft thumping into it every few minutes.

The arrival of the jets will also usher in a renewed spate of transatlantic political quarrelling. Aircraft have been America's biggest export for half a century, and are regarded there as the country's natural preserve. Europeans think differently. In their brutal sales battle, Airbus and Boeing have enlisted the help of presidents and prime ministers. Even Prince Charles has delivered a pitch.

Recently, however, the Europeans, who used to rely heavily on the late French president Francois Mitterrand and former British prime minister Margaret Thatcher, complain quietly that their successors have been less enthusiastic. Deals can turn as much on whether a country is in an anti- American, or anti-European mood as on the relative merits of the goods on offer. Airbus's sale of 30 A320s to China earlier this year is thought to be due largely to the acrimonious disputes raging between Peking and Washington.

The relationship between aircraft sales and geo-politics can be complex, and was clearly illustrated in the cut-throat days of the last recession, when airline travel collapsed and carriers put new orders on hold. President Clinton leant on the Saudis in 1993 to buy American planes as payback for US involvement in the Gulf War. Europeans rushed politician after politician to Riyadh to counter his intervention, pointing to their support for Palestinian self rule. The White House, hamstrung by the power of the Jewish lobby, retaliated by highlighting its support for Bosnia's Muslims.

The tactic worked, and Saudi dutifully announced that it would buy American, even before deciding what kind of planes it wanted. The $6bn contract was then held up by President Clinton as a success for his administration.

The commercial/political dogfight over the super jumbo is already well engaged. Boeing scored first by inviting the four members of the Airbus consortium - British Aerospace, Daimler-Benz Aerospace, Aerospatiale and Casa - to discuss joint development of a new generation plane. Officials with the company made it clear, however, that Boeing would get the lion's share of the work, including the crucial wing design and manufacture, the area in which British Aerospace excels.

By the time talks were dropped, Airbus had fallen two years behind. The delay leaves a bad taste in the mouth of the company's managing director, Jean Pierson, who says that Boeing was only ever interested in derailing his project.

The second round also looks likely to be a Boeing victory. The company is trying to undermine the market for the A3XX by bringing out two larger versions of the 747, the -500 and -600 first. They will share a new, larger wing with bigger fuel tanks. Thus the 747-600 will be able to carry 550 to 600 people, while the 747-500 will be able to reach more distant locations without refuelling, filling two niches at the top end of the market. "Boeing is trying to get as many orders as possible to make it as difficult as possible for the A3XX," said Mike Turner, chairman of BAe's commercial aerospace division.

Boeing is expected to unveil the 747-600 at the Farnborough Air Show tomorrow. The launch was delayed at the beginning of the year, because no airline was prepared to buy it without significant modifications. Even tomorrow's launch is considered shaky by some observers. Leaks by Boeing that it had lined up 30 customers were hotly denied by some of those identified, notably Singapore Airlines. If it goes ahead, the plane is scheduled to enter service in 2000, 18 months before the A3XX.

Boeing's tactic of building outstretched versions of its existing jumbo is relatively inexpensive at $2bn, compared with $10bn or more for the A3XX. A clutch of big sales by Boeing now could force Airbus, or its partners, to reconsider their commitment. Boeing has the added advantage that stretched versions of aircraft are more efficient than shrunk versions. For Airbus to compete in the 400- to 600-seat markets it will have to produce smaller version of the A3XX.

But the airlines are tired of having to deal with a monopoly supplier in the top end of the market and may prefer to wait until competition from Airbus starts to drive down prices. There is also the incentive that the European consortium's plane promises to be technically superior. Industry insiders say airlines are demanding that Boeing adopt the fly-by-wire techniques used by Airbus. These use computers and electronics to control the wings surfaces, rather than the direct mechanical controls that Boeing has traditionally employed.

The idea that Europe can regain the lead in global aircraft manufacturing by leapfrogging over the competition technologically has a long and unhappy history. In the 1950s, the De Havilland Comet, the prototype passenger jet, briefly stole the limelight, only to fall out of the skies for no apparent reason. By the time the cause - metal fatigue - had been identified, the company, and Europe's civil aerospace ambition, was ruined.

Then came the Anglo-French Concorde. It also proved a spectacular failure, though for financial rather than engineering reasons. Production was halted almost before it got going due to development cost overruns, environmental opposition, and the soaring cost of fuel in the early 1970s. Added to that was the unexpected success of the jumbo.

The story of the 747 was almost exactly the opposite to the Comet and Concorde. It was designed in the 1960s almost as an afterthought, following a dare by Juan Trippe, the boss of PanAm, while on an Alaskan fishing trip with his counterpart at Boeing, Bill Allen. "Build it and I'll buy it," said Mr Trippe. The Seattle company, itself working on a supersonic jet, saw the jumbo as a stop gap until the faster plane was available, and envisioned a future for it as lowly cargo haulier. Instead, the wide- bodied jet became the backbone of the passenger industry. Cut-price holidays in Florida and Greece would be impossible without it.

The impetus for the development of super jumbos comes from several directions. Airlines - including BA, Air France, Lufthansa, JAL, Singapore Airlines, Cathay Pacific, United and Virgin - are clamouring for them. Congested airports, facing increased opposition from their neighbours to noisy flights, also want to see, fewer, larger, and quieter jets introduced. And finally, Airbus itself is pushing into the market as a way of correcting some of its own commercial weaknesses. "Airbus has no choice," said Mr Turner. "It has to do the A3XX."

Boeing's monopoly on jumbo jets gives it a guaranteed quarter of a market expected to top $1,000bn over the next two decades. Airbus is intent on entering that segment, if only so that it can stop its American rival from cross-subsidising its smaller planes. Subsidies are a key part of the debate. Americans complain that Airbus gets too much overt government help. Europeans counter that Boeing receives back-door subsidies for its defence contracting. Its recent $3bn purchase of Rockwell, a big American defence contractor, has strengthened its position.

The big question for Airbus is whether it will be able to wring more subsidies, typically in the form of loan guarantees, from the four countries - Britain, Germany, France and Spain - that have companies in the consortium. Development costs are conservatively estimated at $10bn, and could easily run to $12bn. Here, too, the dividing line between commerce and politics is blurred. French support for such a flagship project is assured, but Britain would be more likely to back it if Labour wins the next election. Moves by Mr Pierson to reorganise Airbus as a proper company, rather than its current odd structure as a Groupement d'Interet Economique, is partly aimed at getting political support for the project. The company is also approaching other manufacturers, most recently Sweden's Saab Aircraft and Italy's Alenia, to see if they will join it.

When the Jumbo jet first took off, conventional wisdom had it that there was only room for one manufacturer at the top end of the market. Some pundits trot out the same argument today.

But in the long run, the aircraft manufacturing business could see more players rather than fewer. McDonnell Douglas, the third largest manufacturer, is re-entering the fray with a new jumbo jet, though not yet a super jumbo, to complement the MD11, which has been doing well in the 300-seat mid range.

The Russians also have a substantial aviation industry, with expertise in building their own supersonic jet and the world's largest aircraft. They lack finance, however, and their industry could wither before the massive amounts of capital needed become available.

A more realistic problem could emerge from the Far East. Last year, a Taiwanese consortium spent considerable time talking to American and European manufacturers, including British Aerospace, but dropped the project as too expensive. Meanwhile another invasion from Japan, Korea or even China is possible. With skilled workforces, relatively low labour costs and superior management skills, they could be a serious threat to both Boeing and Airbus.