by Richard Shevell
What makes any group of people decide that they're going to build a new airplane? In the capitalistic world, the basic motivation is always profit. After all, the thing that makes an aircraft company exist is the desire of the stockholders to make money. If the aircraft company continually fails to make a profit, the stock goes down, and eventually the company may become bankrupt. In many countries, aircraft companies are all or partially government-owned. Sometimes a project is promoted for national prestige or as a make-work program to employ a skilled work force. Even then, however, it is usually necessary that a reasonable chance to make a profit be demonstrated.
In recent years, aircraft projects have been initiated, even in so-called capitalistic countries, without a a strong likelihood of profit. In some cases there may be a potential economic justification in long term future, but private capital does not exist to exploit it. In other cases the economics of the project are doubtful, or hopeless, but other national needs are judged to justify government financial support.
The Concorde program is a good example. Probably the British and the French Governments have voluminous studies that show how much money the companies building the Concordes will eventually make and prove that the participating Governments will eventually get all their money back. Once these reports are in hand, the governments can proceed to subsidize the program whether it ever happens or not. In the United States, we have seen the same thing with the Supersonic Transport in which the capital requirements are so great that no aircraft company or consortium of companies can begin to handle them. The Douglas Aircraft Company dropped out the SST competition in 1963. At that time, a study showed that if Douglas could borrow all the money required to build the SST at 6% interest and had an agreement with the lender that if the project did not succeed, none of the money had to be paid back, even then Douglas Aircraft Co. could not have afforded to go into the program. The interest charges alone on the investment over the ten-year cycle of development were more than the net worth of the Company. In this case the doubtful economics and changing national priorities finally terminated the program.
An aircraft company is also motivated by the need to keep its facilities busy. One of the major problems in the aircraft industry has been the extremely cyclic nature of the aircraft production rate. This is brought about by the fact that when an airline decides to buy new-type airplanes, it usually doesn't want them delivered at a slow rate. The airline decides, for example, that it's going to outrun its competitors and it wants enough of those airplanes to put at last a couple of lead flights on each important route. Then there's another reason; once the airline pays for all the maintenance equipment, space parts, loading equipment, and for the training of crews to fly and maintain the airplane, it is not desirable to be flying only a few of them. There is a sort of critical mass of aircraft that makes any sense for a big airline. Training people at Los Angeles, New York and three intermediate places to service, maintain and load an airplane that only comes through once a day is a terribly inefficient thing.
A special case, of course, is the small country with a small airline that can afford only a couple of airplanes. In such case, the airline cannot really afford even these but because of national prestige, they feel they cannot afford not to buy the airplanes. Furthermore, in recent years, the small airlines have developed a very sensible approach to this problem. Very often, an airline in Europe, Africa, or Asia that has 1 to 2 707's will contract with an airline like TWA or United Air Lines to do some of their maintenance. For example United Air Lines does the major maintenance for many small airlines at its San Francisco overhaul base. Then the smaller airline does not have to make a huge investment in equipment and United Airlines gains from spreading the overhead cost of its expensive facility.
In general, the airlines buy airplanes in big blocks. When an airline buys a sizable number of airplanes much larger than their previous type, both their load factors and their capital funds are abruptly reduced and they cannot consider buying more airplanes for a while. So, there's always a lull in demand and this has happened again and again and again. When the DC-6 came out in 1946, American bought 25 and United bought 25. By 1948, the Douglas plant was practically empty. Douglas had saturated the market. By 1951, DC-6's and DC-7's could not be built fast enough. In 1958-59, Boeing and Douglas introduced the jet transport. By 1961 again, the airlines were in financial trouble and 707 and DC-8 production was down to a trickle. The increase from 130 or 140 seats in standard 707's and DC-8's or 200 seats in a stretched DC-8, to 360 seats in the 747 was an enormous jump and that, together with the serious business recession in 1970-71, led to lack of repeat orders for the 747. Later the 747 order rate rose to a very satisfactory level.
The merger of the Douglas Aircraft Co. with McDonnell Aircraft was forced by this cyclic problem. In 1961-62 Douglas was building one DC-8 a month. That was the total production of transports at Long Beach. The employment was reduced to under 10,000. Then came the sudden big build up in worldwide air traffic, plus the fact that Douglas came out with the DC-9 which started selling beyond anyone's dreams. Furthermore, after several years of effort by the engineering department to convince management to improve the DC-8, the management finally decides that this was the time to develop the DC-8 series 60 and the orders poured in for that. And in two years the Douglas Company tried to go from 10,000 to 40,000 people. It was also a time of a tight labor market when few people were looking for work in the aircraft industry. So, the DC-9's and DC-8's were being built by carpenters, hairdressers, barbers and people with all sorts of skills, none of which had anything to do with building airplanes. And the man hours required to build the airplanes literally tripled. Now, if Douglas had been able to keep its facilities busy in 1961 and not let employment drop so low, it would have had sufficient experienced people to provide a base for expansion.
This cyclic problem goes on all through the history of the aircraft business. The intelligent aircraft management (and I think now that probably all the companies are well aware that this is essential) does everything it can to level the work load. It tries to discourage the airlines from requesting excessively fast deliveries - in an effort to spread the deliveries over a longer period. Each company tries to initiate a new project in the engineering phase so that about the time the workload on an old project is plummeting, a build-up starts on the new one, thereby leveling out the peaks and the valleys. On the other hand, one cannot just say you need a product and therefore decide to build something which has no market. Of course that may level out your peaks and valleys so you no longer have the oscillations. In fact, you may find that your production rate has been permanently leveled out at zero because there is no company. A company never goes into a new project unless it thinks it can make a profit. Experience shows that if you are ever going to break even, you had better think that you're going to make a profit.
Now, what are the requirements for a profit? The prime requirement for a profit is a large enough market. The number of factors involved in a market are very great.
First, there is the basic travel growth pattern which will be discussed in more detail later. The there's the capacity of the projected-airplane. If you build the wrong size, just after you have spent several hundred million dollars in development, somebody else will come and build the right size and you'll have to take your airplanes and sell them off as unique lunchrooms. History has a few of those. There was large engine airplane built in the twenties called the Fokker F-32. It was a four engine airplane with a nacelle under each wing with each nacelle having both a tractor propeller in front and a pusher in back. And it was magnificent to behold. But it was much too big for the traffic. And within a couple of years the F-32's literally were being used for lunchrooms. It was the wrong size.
Then you have to have passenger demand for your airplane. The airlines will often emphasize that aircraft economy data alone may be meaningless. Suppose an airplane is produced with a ten percent lower cost per seat mile. The airlines may say "that's just great, but what does it mean if the people don't come into our gate?' A new airplane must have all the features desired by the public and you have to know and anticipate what those features are. As an example, in history, the Boeing 247 had many of the technical advances of the DC-3. It was built only a year or two ahead of the DC-3. Most of you have never heard of a Boeing 247 because it was too small and after Boeing built something like 65 of them it disappeared from production. It was a fine looking airplane and it still is today. But it was a ten passenger airplane. The DC-3 came along with 21 seats, a floor to ceiling height permitting people to walk down the aisle without bending over, a more spacious feeling in the cabin, and a higher cruise speed. And all of a sudden, nobody ever bought another Boeing 247. The DC-3 took over the world. So, you have to have passenger demand for your airplane. It should be mentioned that the DC-3 also benefited from significant technological advances such as gull engine cowls, wing flaps, more powerful engines and structural efficiency improvements.
First among the items that contribute to passenger appeal is speed. The whole function of air travel is to go fast and the airplane second best in speed, if it is second by a significant amount, has little chance of economic survival. The next important factor is comfort. Comfort is affected by a great many items, such as seat width, seating arrangement such as the triple seat versus the double seat, leg room, interior noise, vibration, good beverage facilities, entertainment systems, and storage for brief cases and coats. Another important comfort factor is ride roughness which depends on wing loading, cruise altitude and wing sweep. Baggage retrieval is a very important factor. Design of the airplane cargo holds, containerization and associated ground systems for rapid transportation of baggage to the pick-up area all vital to this phase of an airline trip. A delay of 15 minutes in baggage retrieval can produce a substantial reduction in effective overall speed, about 10% or 40 knots on a 1000 mile flight. All of these things could make a passenger prefer one airplane to another. Usually all airplanes of a given generation are about equal in order to remain competitive, unless a slightly later design is able to introduce and innovation which the earlier airplane cannot duplicate because of the cost of changing tooling.
An overriding requirement in all airplanes is safety. I purposely did not list safety first because it is so self-evident. If one has some new invention that increases speed or reduces cost but not compromises safety, it cannot even be considered. The extensive government safety requirements must be satisfied. The requirements cover all safety-related phases of flight including strength, fatigue, stability and control, emergency performance, and emergency design such as fire resistance and control, and evacuation. Thus we have uniformly high standards of safety both because the companies in the commercial business are really ethical on this point and also Big Brother is constantly watching over their shoulders to eliminate any concern about ever being tempted from the straight and narrow path.
The next important characteristic is range. In order to get the market, the airplane has to be designed to cover the distances required by the passengers and the airplanes at that time. If the market is growing a great deal internationally, a new airplane tailored to the transcontinental routes with poor ability to do the international job, will face a severely reduced market. If market studies show a sufficient need for aircraft of a shorter range, then you may design for the 700 to 1000 mile range successfully, e.g. the DC-9 and the 737. Companies look for niches that can be filled in the spectrum of airplane range and payload.
Then there is the total operating cost. I emphasize "total" because operating cost is basically broken up into two parts. There is direct cost that deals with flight crew, fuel, maintenance, depreciation, and insurance. You can determine direct cost in a fairly logical way. The indirect costs are the costs of the loading equipment, the ramp space, terminal space, cabin attendants, food, advertising, selling tickets, management, etc. If cost is not competitive, an airplane cannot be sold. One of the things that is killing the helicopter, and the helicopter is incidentally being killed in the commercial business, is that the total operating cost is so high. This is partly due to the high maintenance of the helicopter. But it is also due to the fact that when you run an airline with a very short flight, it costs you just as much to board a passenger, to sell a ticket, to advertise, to load the airplane, to load the baggage as if the passengers were going three thousand miles. And you collect $15 to $30. Total operating cost is probably the major measure of effectiveness of aircraft. Fuel usage is also very important but shows up in cost also.
Another vital design factor today is community acceptability. Community acceptability primarily concerns noise and air pollution, visible and invisible. In addition, there are the requirements of the airport community itself, namely runway length, runway strength, ramp parking areas, loading docks, etc. The subject of runway flotation, i.e., the wheel loading on the runway, is a vital consideration in landing gear design as is the radius of turn. Airplane design to minimize ram space per passenger is an important factor in airport compatibility.
Now another very important thing is the manufacture's reputation for dependability, reliability, and service. An airplane is terribly complex. You know the problems of getting a T.V. set or car serviced; they're bad enough. An airplane has the complexity of a T.V. set and a car a hundred times over. So the manufacturer has to provide a vast system for supplying parts, technical assistance and training. An airline receiving a new airplane like a DC-10 or 747 will find it absolutely useless unless it has previously obtained pilot training, mechanic training, special tools, special loading stands, and a tremendous amount of equipment. The dependability of the service and emphasizing an airplane design that minimizes the required services is vital.
An item of less technical nature, but of equal importance in market determination is the manufacturer's presidents' charming golf. The ability of a president of a manufacturer to establish a good relationship with the airline president and to inspire confidence, a process often done over a beaker after a golf game, is often significant. In spite of the fact that most airlines go through very elaborate technical analysis of new aircraft and come out with books 3 inches thick comparing the competitive airplanes, the purchase decision usually is made by one man. Very often someone takes the grand engineering evaluation and simply files it. The only time it's important is when an airplane is deficient. If an airplane is really deficient, then the prejudices will have to get swept away, and that airplane will lose. But in this world, the major aircraft companies are all very capable. So it's unlikely that there's any terrible blunder pulled by any one of them. As a matter of fact if there is one or two deficiencies, it's not unheard of for an airline president to say to a manufacturer "we really want to buy your airplane, but my engineers tell me that your landing gear is going to fail from fatigue in a short time." That is the same thing as saying "go fix that landing gear design and I'll buy your airplane." So, it gets fixed. Although this type of decision is not dominant, I'm sure it's not wrong to say that ten to twenty percent of the airplanes purchased come from this kind of relationship.
Now another very important factor in evaluating the market size, is the airline's financial position. If the airlines of the world are having trouble keeping their financial heads above water, they're not going to be able to buy a new fleet.
Market timing is timing is tremendously important. Suppose we have decided to initiate a project. Our company needs a new project and we are sure that it can be profitable. But if we are right that the world needs the selected airplane but wrong about when they needed it, then we may end up in bankruptcy. Sometimes, people go into a project with the hope that it will work. In past years when aircraft were less complicated there were several examples of airplane types for which the first airplane completely saturated the market. One example is the Douglas DC-4E. I will bet there are many of you who have never heard of the DC-4E, an airplane with a triple vertical tail. In fact it would be easy to jump to conclusion that this was an artist's joke with an old Lockheed Constellation tail on a Douglas DC-4. In the middle thirties, very shortly after the DC-3 came out, the airlines contracted with Douglas to build a 40-passenger airplane, the DC-4E. By the time the DC-4E was built, the technology had moved so fast that the airlines and Douglas realized that it was a blunder. It had a 2100 sq. ft. wing to carry 40 people. The same useful work was being accomplished with 1/3 less wing and tail structure. The reasons for the large improvement were that the original DC-4E did not have wing flaps of an efficient type, was underpowered, and had to comply with a federal regulation prohibiting stalling speeds higher than 65 mph. When the economics of the DC-4E were compared with those of an airplane with more powerful engines, a better flap technology, and a less restrictive law, the DC-4E was discontinued.
There is another example of one airplane saturating the market. In the 1947 Lockheed built an airplane called the Constitution. This airplane was enormous double decker, a design idea that was not duplicated until the Boeing 747's small upper deck, originally used only as a lounge was stretched in late 1980's to hold about 35 pass. The Constitution was bought by Pan American Airlines. In order to demonstrate that they were the pioneers in the air travel development, probably to justify the federal financial aid they received for so long, Pan American Airways always bought the biggest airplane available whether it was the most sensible thing or not. The Constitution was the biggest airplane in the world at that time and was never heard from again. The difficulty with both the DC-4E and the Constitution was that they appeared too early. The market was not ready for them and neither was the technology. Market timing is very, very important.
So much for the failures. Now let us examine some successes. In 1952 Boeing built a prototype of the 707 jet transport while Douglas management was following the policy of "never cut a piece of metal until you see the green of the customer's money." When the engineering analyses showed that an economical jet transport could be built, Boeing could take people for a ride in wonderful jet transport and Douglas had only color pictures of an airplane-to-be. It was a tribute to Douglas' skill in engineering salesmanship and in preparing presentations on swept wing drag, swept wing stall characteristics, and Dutch Roll stability that at least one major airline wrote in their evaluation study that Boeing had an airplane flying but Douglas understood why it flew. Nevertheless Boeing achieved a strong lead in jet transport sales which Douglas struggled to overcome for years.
The B747 is another example of really jumping ahead and leap frogging the competition. In order to start a project early enough so that competitors such as Douglas and Lockheed would not be financially able to compete, Boeing started selling this 360 passenger airplane (mixed class) in 1966. ("Mixed class" refers to interior arrangements with first class passenger accommodation in the front of the cabin and coach in the rear. Normally about 15% of the seats are first class.) I have mentioned the B-747 as a successful example but its financial success was in doubt for years and a profit for the project was delayed for many years. Two years after the B-747 production engineering began, Douglas and Lockheed started projects about 2/3 the size of the B-747. originally built for domestic service the Douglas DC-10 was soon extended to the range of the 747 but with a smaller size. On many routes, 360 passenger airplanes are too large. On may routes, 360 passenger airplanes are too large. After the Lockheed L-1011 the Douglas DC-10 were offered, the re-orders for the 747 were being greatly reduced. The situation for Boeing was aggravated by the fact that the economic recession in 1970-71 reduced travel growth for both business and pleasure. In 1973, the future of the 747 seemed a little indefinite and Boeing's financial situation was poor. By 1975 the economic recovery was followed by an air traffic resurgence and B-747 orders improved. Then reduced fares stimulated a large air travel increase and 747 orders grew to a high level that insured that the project will be profitable. But Boeing faced a few years of very low production when the airlines found the smaller airplanes more suitable. The B-747 was too big, too soon.
Another example of a timing error is the Boeing 737. By the time Boeing decided to build the 737 over half of the market had been taken by Douglas and 10% by the British BAC 111. Still another example is the Lockheed 1649 which was a long range version of the famous Constellation. TWA forced Lockheed into the design, a major change from the basic Constellation, in order to compete with the Douglas DC-7C. Only about 40 of them were sold and a great deal of money must have been lost on that project. Timing is one of the very important factors.
Related to timing is the important matter of competition. The overall market may be strong and a great airplane design may be under consideration. However, if there are two other companies six months or a year ahead of you, with many of the major airlines having already spoken for their airplane, you may be finished before you start.
A vital decision factor is the ability to sell a an airplane for a profitable price. How can you sell the airplane at a profit? The sign that you have seen that says "This is a non-profit corporation but we did not mean it that way, " is really more true than humorous in the aircraft industry. Among the historical examples is Convair which would have gone completely out of existence if they did not belong to General Dynamics Corporation which could withstand the $400 million loss on the CV-880 and CV-990 airplanes. These airplanes were great flying machines. If you ever happened to ride on them with their large windows, 4 abreast seating and excellent flying qualities, you may have found them preferable, from a passenger's point of view, to more successful aircraft. It is a tragedy that people who could create this magnificent craft derived only disaster from it. Several had heart attacks and most of the rest lost their jobs as result of the financial problems that struck Convair. Convair's problem was a case of bad timing and bad sizing. Convair arrived late in the market place, and compounded the error by choosing the wrong size. Aiming at a somewhat smaller and faster airplane, they failed to make it small enough to attract a truly different market. The higher design speed introduced severe technological risk which proved very costly especially in the higher speed 990. Furthermore, their original customer was Howard Hughes' TWA. Hughes' eccentric demands were an automatic invitation to financial disaster since they involved development for specialized customer rather than for a broad market.
One important aspect of selling at a profitable price is having an understandable technical risk. "Understandable" means knowing that the technical problems can be solved with a reasonable amount of expenditure. One of the reasons that Douglas dropped out of the SST program in 1963 was that the technical risk was known to be tremendous. There were great problems in the SST not only in the aerodynamics and structure but also in the machinery involved in the systems, the hydraulic fluids, the gaskets and sealants, and the lubricants. At the high temperatures involved everything was a question. While all of these problems are capable of solution, the cost of development was high and indefinite. The cost of manufacture of the final product -- so many ways not yet specified-- was also unknown but certain to be high. Thus the eventual economics of operation were a grave concern.
Even in a less bold design, it is possible to find after initial flight tests that substantial changes, costing many millions of dollars are required. Thus an understandable technical risk is something that the prudent management will want to have well in hand.
Another important factor affecting price is obtaining some degree of standardization. The airplane manufacturers would like to have complete standardization among all customers. The automobile industry gets to build hundreds of thousands of cars and they all look alike. They do offer many different paint colors and features, but the design is based on the most complex car, with the other models obtained by leaving parts off. Unfortunately airlines usually want changes that involve substitution, not simply omission.
An airplane involves complexity that is almost unbelievable. The DC-9 was sold to about 33 customers. There were 4 different basis types of DC-9 using 4 combinations of 3 fuselage lengths and 2 wings. (In 1973, Douglas offered a 4th fuselage length.) In addition there were cargo versions of two of them. Most of the 33 airlines wanted a different cockpit arrangement. You can never get two pilots who want to put their airspeed indicator in the same place. It sounds ridiculous and it is ridiculous. On the DC-9 there were about 30 different compass systems. The question of where you put the indicator, the location of the flux gate and here you run the wiring were selected differently by 30 airlines. These kinds of changes require re-engineering and a vast communication system to the purchasing and manufacturing departments. Custom design and manufacture is a significant factor in raising airplane costs.
Just to process the paper to tell someone to move one wire is expensive. I know of one case, where the standard airplane had a mirror on a wall of a cockpit. Some airline said that they didn't want it and they wanted the manufacturer to remove it. The usual paper work was filled out and a price quotation for the change was developed. The cost of removing the mirror was $500. The airline woke up to the fact that it was much cheaper to buy the mirror and have a mechanic remove it with a screwdriver and throw it in the trash. The reason that it was so expensive to remove a mirror was that it required instructions to the appropriate people not to buy the mirror, not to send the mirror to the right place, not to install it, and to an inspector not to get hysterical because the mirror was missing. Somebody had to produce all the paper, transmit it , read it and file it, consuming a lot a man-hours. A large transport manufacturing system is not designed for that kind change.
Some degree of standardization is essential. In the case of the DC-10 the initial customers, American and United Airlines, cooperated in setting the specifications. Their engineers worked with Douglas engineers, and later additional customers joined the conferences. The cockpits are very standard and a great deal of equipment is standard. However, in the battle for standardization some things are just hopeless. One story about standardization is hard to believe. The toggle switches in airplanes are such that, whether they are on the ceiling or on a pedestal, the switches are moved forward to the "on" position. TWA for many years had developed a training process in which the pilot was supposed to think in circular terms -- that when he moved his hand in a circle, forward on the bottom and aft on the top, he turned things on. So TWA toggle switches had to switch on with a backward motion on the ceiling. Thus on the DC-9, all toggle switches are moved forward to be turned on, except for TWA.
In summary, in order to have a reasonable expectation of a profitable market for a new airplane, one must have an understood and reasonable technical risk, the correct size airplane to obtain an adequate total market, a satisfactory competitive situation, and a reasonable amount of standardization.
The foregoing discussion was written in the early 1970's and updated in 1977 and 1987. Although based on the early history of air transportation, the discussion is still correct with the following exceptions:
1. The relevance of the personal relationships between the presidents of the airlines and the presidents of the manufacturers is no longer so important. The major aircraft manufacturers and airlines were founded by giants who headed their respective companies for decades. Bill Paterson of United, C.R. Smith of American, Eddie Rickenbacher of Eastern, Donald Douglas, Bob Gross of Lockheed, Bill Allen of Boeing, and other builders of the industry are gone, so the great mutual respect between individuals is not what it used to be.
2. Foreign subsidized competition is a new element. The European Airbus, a company financed by the French, British, and German governments, has emerged as a very competent aircraft manufacturer. Because their worries about losing their company are mitigated by their governments' history of forgiving debt, if necessary, Airbus can proceed with projects that prudent financial people might avoid. This aspect of the transport aircraft scenario is discussed in the discussion that follows this section.
3. Because of government financial interests in Airbus and in many of the world's airlines, non-economic and non-technical factors sometimes warp airplane purchase decisions. For example, a country may offer nuclear fuel to another country whose airline is about to buy some transport aircraft; the nuclear fuel sale may be dependent on the aircraft contract going to the right manufacturer.
4. Significant progress has been made in streamlining the configuration managment using computer-based systems. This is particularly true in the recent Boeing 777 development.