When bigger is better

Charles Colburn, Boeing Business Jets/VIP director of marketing, was trying to explain the recent sales boom for his division's airliner-sized executive aircraft. "There's just been a tremendous rise in the number of billionaires," he said.

Indeed. While new models such as Dassault's Falcon 7X and Cessna's Columbus have garnered attention in the large-cabin business jet marketplace, the big news in this arena is the growing demand for executive-configured airliners sold by Airbus, Boeing, and Embraer.

"We've seen quite a jump in orders for these aircraft in the last year or two," said David Velupillai, marketing director for Airbus' Executive & Private Aviation division. "We've sold a lot more aircraft than we expected."

Brazil-based Embraer is apparently enjoying similar success. The Lineage 1000 executive-configured airliner "is beating our expectations in terms of market interest," said Claudio Galdo Camelier, the company's vice president of market intelligence for executive jets.

As Colburn noted, private rather than corporate buyers have fueled most of the growth in ultra-large-cabin aircraft sales, with many orders coming from the Middle East and Eastern Europe. The weak dollar has acted as an accelerant.

Manufacturers acknowledge the appeal can be as much a matter of vanity as utility. If customers can afford it, Velupillai said, "sometimes...it pleases them to have the biggest and the best." Colburn agreed. "I think it is a little bit of prestige," he said. "They can show [the airplane] off to their associates and competitors."

But marketers are quick to emphasize that whether or not ego is involved, the aircraft justify themselves economically. "It costs around $62 million for an A318 Elite, including the standard cabin developed in conjunction with Lufthansa Technik," Velupillai said of the smallest of the Airbus executive airliners. "That's the same as potential buyers tell us that [Paris-based] Dassault is asking for a Falcon 7X," which has less than one-third the cabin volume. A Dassault spokesman said the standard price of a completed 7X is closer to $42 million.

Colburn also argued that ultra-large-cabin business jets offer good value. "They cost a little bit more to operate, and burn a bit more fuel [than somewhat smaller models]," he conceded, but he added, "You're getting a whole lot more for your money." ["A bit" may be a bit of an exaggeration here. Buyers should make careful comparisons of costs and fuel burn.-Ed.]

Both Boeing and Airbus began going after the private jet market a decade ago. Seattle-based Boeing Co. launched Boeing Business Jets in 1996, sparked by an inquiry from General Electric Co. CEO Jack Welch. Welch couldn't find a business jet that met his needs for capacity and range and asked Boeing why the company didn't make an executive version of an airliner. In response, Boeing designed the Boeing Business Jet (BBJ), based on the 737, and GE became a 25 percent partner in the aircraft's development costs and profits. (GE's CFM56 turbofans power the 737.)

The following year, Toulouse, France-based Airbus launched its Airbus Corporate Jetliner division, starting with an executive version of the A319-the Airbus Corporate Jet. The ACJ was joined by the A320 Prestige and the A318 Elite. Boeing kept pace by introducing bigger versions of the BBJ. The company says the latest iteration, the BBJ 3, will enter service in 2009.

Embraer launched the Lineage 1000 in 2006 and expects to receive certification and begin deliveries later this year. A derivative of the manufacturer's E-190 regional jet, the Lineage is comparable in size to the A318 Elite.

These aren't just gussied-up versions of standard airliners. Structural reinforcements and standard or optional extra fuel tanks to boost range are among the design differences. But this first generation of executive airliners from Airbus, Boeing, and Embraer is based on single-aisle aircraft with a capacity of about 200 passengers. And for many potential customers, those jets lack the desired size and range.

In 2006, Boeing introduced its VIP aircraft line-executive variants of the widebody 777, the 787-8 Dreamliner, and 747-8-and the following year Airbus announced the first customers for its VIP widebody aircraft, based on the A330, A340, A350, and A380 families.

Boeing initially estimated the worldwide market for executive airliners to be about 10 per year, while Airbus predicted a dozen annual orders. Embraer forecasts a market for about 250 ultra-large executive-configured aircraft over the next decade. But with the introduction of the VIP lines, sales have been running far ahead of those projections. Airbus took orders for 38 executive airliners last year, while Boeing, which had a backlog of only three executive aircraft orders as recently as 2003, now has 59. Embraer reports firm orders for more than 20 Lineage 1000s. While that may suggest there's plenty of business for all three companies, competition among them is fierce, particularly between Airbus and Boeing-a fact many customers seek to exploit.

"More often than not, Boeing and Airbus are in the same competition," said Colburn. "Maybe a third of the time the customer is looking for a Boeing product specifically. But the businessman billionaires, they're usually looking for a good deal, and they'll do competitive shopping."

Competitive Advantages

Thus, each company is quick to point out its products' advantages. Boeing underscores the track record of its aircraft and its ability to customize avionics packages to buyers' specifications. Airbus touts its newer designs and the commonality of its cockpits, which simplifies crew training and maintenance. And like their customers, these companies are apt to use their biggest airplanes—Boeing's 747-8 VIP and the Airbus A380 VIP, dubbed "the Flying Palace"—in a battle for prestige. For example, Airbus notes that the A380 (the world's largest and heaviest aircraft) is 30 percent bigger than the 747-8 yet can take off and land in shorter distances, and with four more tires has less impact on runways than Boeing's VIP flagship. Boeing points out that the 747-8, due to begin flight tests later this year, will share many systems with earlier models and have the same type-rating as the 747-400 and -200, making it easy to crew, and minimizing the need for spare parts for customers currently operating 747s with retrofitted executive interiors. That group includes the first customer for the Airbus A380 VIP, Prince Alwaleed bin Talal of Saudi Arabia, chairman of the Kingdom Holding Co.

Embraer emphasizes that it delivers the Lineage completed—rather than green, as Airbus and Boeing sell their executive airliners—sparing customers the task of dealing with the completion process. The Lineage's five-zone cabin configuration provides ample interior design flexibility, and Embraer stresses the quality of the fabrics, veneers, and other materials. And while Boeing and Airbus compare the value of their single-aisle offering to large cabin business jets, Embraer measures the Lineage's worth against comparable size executive airliners.

"It's the right combination of cabin size, range, and pricing," Camelier said. "We have a smaller cabin than the BBJ and the A318, but not as much smaller as you would expect for such a price difference." The Lineage is $46 million [in 2008 dollars].

Though Boeing and Airbus do deliver their aircraft green, both companies are responsive to customers' design needs and will incorporate their requests into the airframe if possible. Such requests have included elevators for boarding and onboard medical facilities.

"A lot of people would like to access the lower cargo hold in flight," Colburn added. "It is pressurized and some of our customers have thoroughbreds, and they'll take their horses [onboard], and some of them have falcons. They ask if they can put a stairway into the lower hold."

Airbus and Boeing customers select a completion center from a list of about half a dozen companies that have satisfied the manufacturer with their capabilities, and the centers have access to engineering data from Boeing or Airbus needed to design and install the interiors. Many buyers, however, engage other firms to design the interior and use the completion center simply to carry out the work.

Such work can add tens of millions of dollars to the purchase price. A green VIP A380 lists for about $325 million, and estimates on completion costs typically range from $50 million to $150 million. And though money may be no object to some buyers, both Boeing and Airbus have developed standard executive interior configurations to reduce completion costs. Boeing engaged BMW DesignWorksUSA to create a cabin interior mockup for the Dreamliner 787 VIP.

But a shortage of qualified completion centers and employees could lead to a delivery bottleneck. Last year, Airbus "relaunched" its majority-owned completion center, Airbus Corporate Jet Centre in Toulouse, to increase completion capacity. Meanwhile, demand is pushing back delivery dates for some executive airliners by more than a decade.

"Our biggest hurdle is the availability of airplanes," Colburn said. "Right now, we're selling into 2020, and it's hard for people with substantial wealth to wait that long."

The backlog has opened the airliner-sized cabin market to refurbishers. Last November, a new venture, Dubai-based Project Phoenix, Ltd., announced plans to convert used 50-passenger Bombardier CRJ 200s into the CRJ-Phoenix, an executive aircraft seating 12 to 19 passengers. Expected to sell for about $17.9 million, the jet will be outfitted with fuel tanks that will give it a range above 3,000 nautical miles. (In the mid-1990s, Bombardier developed a "Special Edition" variant of the Canadair RJ for the business jet market, but the company scrapped the program because airline demand for the RJ absorbed all available airframes.) Marketing will initially be aimed at the Middle East, Asia, and Europe,

"There are two driving factors: schedule and cost," said Viswanath Tata, executive vice president of Aerospace Concepts, Ltd. in Montreal, which has partnered with Project Phoenix to handle the aircraft sourcing and refurbishment work. "Once we have a contract, we can deliver an aircraft within 10 months."

As ultra-large-cabin business aircraft gain popularity, meanwhile, buyers are likely to continue to get in line for newly manufactured models.
"There doesn't seem to be any end to this market," said Colburn.