x Abu Dhabi, UAEThursday 27 July 2017

Less a dogfight than a tea dance

On the surface it looks as though Boeing and Airbus are in a battle to win orders for aircraft, but look beyond the posturing and it becomes clear the two giants have little to fear from anyone else in the industry.

Airbus’s A320 series has been known for its fuel efficiency. Above, an A320 assembly line in Tianjin, China. Nelson Ching / Bloomberg News
Airbus’s A320 series has been known for its fuel efficiency. Above, an A320 assembly line in Tianjin, China. Nelson Ching / Bloomberg News

They are at it again - the big beasts of the aviation jungle, Boeing and Airbus, slugging it out for sales.

It's a tough world out there for aircraft makers, or so they will tell you. Rising fuels costs, global recession, money getting tighter, airlines re-trenching or going out of business; the news is bleak.

But not for everyone. Last month Boeing's line was that it had stepped up the pressure on Airbus in the battle for control of the short-haul aircraft market.

In previous years, Airbus had gained and edge with the A320 series and was trying to tighten its grip with launch of the A320neo.

This is an upgrade of the plane popular with airlines from Abu Dhabi's Etihad Airways, to no-frills European carriers such as easyJet. So far there have been 1,289 firm orders.

But Boeing is gaining ground with its 737 Max, its revamping of a tried-and-trusted model.

Last month, Randy Tinseth, the vice president of marketing at the Boeing Commercial Airplane Company, announced that the company was focusing on achieving "parity" with the fuel-efficient A320neo, after notching up about 451 firm orders.

"We are on the right trajectory to catch them," says Mr Tinseth. "And that's where we want to be."

While he was talking, Airbus was telling the world about "sharklets" - yet another modification to the A320 series, easy to fit with a promise of even more fuel efficiency. The sharklet is a vertical wing tip extension that gives it greater lift for less fuel burn - words airlines love to hear.

Behind the rhetoric, however, there is a rather elegant little long-term dance going on between to two behemoths of aviation. Look at the business landscape they bestride and it suddenly becomes apparent that there is fodder enough for both.

Last year, Airbus ended the year with 64 per cent of aircraft ordered, leaving Boeing with just 36 per cent. Indeed, apart from a blip in 2006, Airbus has been leading Boeing on orders since 2001.

But in the first quarter of this year, the roles reversed, with Airbus scooping up a mere 20 per cent of orders and Boeing bouncing all the way back up to 80 per cent.

"Our biggest constraint right now is production slots," says John Leahy, the chief operating officer, customer, at Airbus, by way of explaining the sudden order gap. In other words, he is saying, "We're too busy fulfilling existing orders to look for more."

Boeing, meanwhile, is quietly predicting it is on course to regain the lead in orders this year. Analysts appear to agree.

"Boeing had a very impressive first-quarter 2012 order book. The company received net orders for 412 commercial airplanes in the first quarter versus 90 airplanes at Airbus," reports Zacks Equity Research in Chicago.

"Boeing's order book swelled in the quarter due to a stellar performance of its 737 Max, which received 301 orders. Despite a dull April order book, it appears the recovery in the commercial airspace market will be a prime driver of Boeing's fortunes in 2012. Boeing expects total revenue for 2012 to be in the range of US$78 billion [Dh286.5bn] to $80bn, of which $47.5bn to $49.5bn is expected to come from commercial airplane sales."

Airbus' fight-back opened with feigned disinterest, hence the "we're too busy" allusion.

Mr Leahy also says the 737 Max is not that good - it still burns 12 per cent more fuel per passenger than the A320neo, and that is the kind of fact airlines can not ignore. He also believes the orders gap is just a blip.

"I want to be back in that 40 to 60 per cent band," he says. "We'll be there before the end of the year."

But one look at the market reveals this is megaphone rivalry, not the roar of a fight to the death. The trends show both companies have every reason to feel quite happy when contemplating the future.

During the past 15 years, the demand for air travel has doubled, according to figures compiled by the UN's International Civil Aviation Organisation.

Market projections by Airbus indicate it will more than double again by 2030, from more than 5 trillion revenue passenger kilometres - a measure of the volume of passengers carried by airlines - last year to almost 13 trillion.

A look at the gross deliveries for both aircraft makers during the period also shows them unaffected by the major events of the last 15 years - the Asian economic crisis in 1998, 9/11 in 2001, the Sars epidemic in 2003 and the global financial crisis in 2008 and 2009.

Nor has rising fuel costs dented this growth. Demand for for aircraft has soared against a relatively steady airline fuel demand.

And while Airbus might have been selling more planes, Boeing's return on investment is looking better. According to data compiled by Bloomberg, in the past five years Boeing's commercial aircraft business has earned a profit margin of 6.5 per cent on average annually, compared with 1.9 per cent for Airbus.

Both have had their problems, though, especially with their next-generation carbon-composite jets - the Boeing 787 Dreamliner and the Airbus 350 series. But the only ones to suffer have been the airlines.

Airbus suffered a setback in April on the A350-1000 when Etihad cancelled seven jets, after already paring its order book in December. That left the Abu Dhabi state-owned airline with 12 A350s, less than half the number it originally agreed to take.

The reason: Airbus had put the aircraft through a major re-design to extend its range, a move which has delayed its entry into service by up to three years. So while Boeing celebrated the delivery of the 1,000th 777 in March, the A350-1000 had won just 62 orders, and not one them since 2008.

Other airlines have expressed their displeasure, not least Qatar Airways and Emirates Airline.

Also design and production flaws caused cracking in the A380 Superjumbo, forcing aircraft already in-service to undergo more rigorous maintenance. Airbus has announced the problem has been fixed but it has already cost its customers dear.

But Boeing is not without its own problems. It received 19 new orders for its 787 this year but other customers cancelled a total of 25 because of delays getting it into service. It is another headache for the airlines who, in order to meet all this growing demand, know they have to buy their aircraft from someone.

No airline will say as much on the record but they all dream of alternative suppliers. Out there, snapping at the heels of the two giants are a number of smaller companies: Russia's Sukhoi, with its Superjet; the Commercial Aircraft Corporation of China, Comac; Canada's Bombardier; and Brazil's Embraer.

But effectively all they are offering are their own versions of the Boeing 737 or the Airbus 320. If asked, how many airlines would opt to buy an unproven, unfamiliar airliner when it could buy more of what it already knows works? Very few would be the answer - just ask the big beasts.


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