Blue Sky for Planemakers

Eighteen years ago next month, a National Airlines plane leased from Pan American took off from New York for Miami. It was a routine flight except that the plane had no propellers. Commercial jetliner service in the U.S. had begun, and with it the inescapable problem that faces people and airplanes alike: aging. About 90 jet planes currently used by major U.S. airlines are almost as old as the commercial jet age itself. The average age of the U.S. fleet is 7.9 years; hundreds of aircraft are nine to twelve years old. To replace aging aircraft, airlines will need $26 billion between now and 1985. To many analysts, that sum seems unattainable for an industry plagued by a long record of poor earnings and lackluster appeal on Wall Street.

Renewed Strength. But in recent months the picture has brightened somewhat, boosting spirits of airline officials and the big U.S. planemakers alike. The major carriers, which as a group lost $250 million last year, are benefiting from more passengers and stable (though high) fuel costs. The result: they could well earn $300 million to $350 million this year. A number of lines are using the renewed strength to do what many of them have not done in years: buy new planes. American. Braniff and Northwest have placed orders with Boeing for 23 727-200s (value: $251 million). Eastern has ordered nine DC-9s from McDonnell Douglas. In September, United Airlines, the nation's largest air carrier, handed Boeing its biggest order from any major U.S. airline in eight years: 28 727-200s worth $350 million, including spare parts.

United's order was particularly significant. Only last year the airline shocked the industry by canceling plans to buy 50 planes because of the uncertain economic outlook. Its new planes, like those for the other carriers, will be replacements only and will not increase the size of United's fleet. United will trade in 28 of its old DC-8s to Boeing and will finance the purchase with existing cash plus money generated internally from earnings and depreciation. It will be getting quieter, more economic planes. Each of them, United executives estimate, will save 1,300 gallons of fuel ($428 worth) over the old DC-8s on a single fully loaded flight from, say, Denver to Chicago.

Boeing's business is running ahead of the company's own gloomy projections. It now has 151 orders v. 99 a year ago, most of them from domestic airlines. The Boeing 747 plant at Everett, Wash., the world's largest building in terms of capacity (200 million cubic feet), is busier now than at any time since the early 1970s when the 747 jumbo was new and the competitive rush to put it into service was at its peak. McDonnell Douglas expects to deliver 18 jumbo DC-10s next year, about the same as this year, plus nearly 40 smaller DC-9s between now and the end of 1977. Even scandal-scarred Lockheed Aircraft is doing moderately well with its jumbo TriStar. Lockheed failed to book a single TriStar order during 1975, but it sold six extended-range TriStars to British Airways last summer. It plans to deliver a dozen by 1978, adding to the 138 TriStars already in service. Those orders, plus a brisk military business, have helped brighten the outlook for Lockheed after seven bleak years.

Modest though it is, the improvement in airline profitability and orders is important to U.S. plane builders. U.S. companies still produce about 90% of the planes used by the Western world's airlines: Boeing's 727 is the most popular plane, with 1,200 flying. But there is some worry that foreign makers will steal part of the business. They are in a good position to do just that because of demonstrated ability to design truly new aircraft (v. derivatives of existing models) and get them into production; an example is France's A-300 Airbus. More likely, U.S. planemakers will enter into more cooperative ventures with foreign makers. McDonnell Douglas, for one, is involved with a number of European aerospace firms in working out plans for a 160-180 passenger jet with a range of about 1,700 miles.

Stalled Designs. Other American companies have designs for similar economical "minijumbos," but they have yet to get beyond the drawing board because U.S. airlines have not been able to afford them. That situation could change if the lines' profitability continues to improve. Says John Brizendine, a top executive of McDonnell Douglas: "I believe the lenders will be there in the crunch. A good year for the airlines will restore confidence."

The lines have received some thrust from tax-law changes favorable to them. Their taxes will be reduced by $150 million during the next three years, and the industry as a whole has about $800 million in unused tax credits from prior losses. The new tax bill signed by President Ford a few weeks ago extended some earlier tax credits, which would have expired. Even that is not much compared with needs. But the pressure is on to replace old planes, and there is no doubt where the tax windfalls will go.

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