Bloomberg News

Airbus Neo Order Run Leaves Boeing 737 Behind at Paris Show

June 21, 2011

(Updates with TransAsia order in third paragraph. Hit SHOW <GO> for more stories on the Paris Air Show.)

June 21 (Bloomberg) -- Airbus SAS reached a goal of topping 500 orders for its upgraded A320neo aircraft by the end of the Paris Air Show on the second day of the event as carriers put pressure on Boeing Co. to respond with an all-new airliner.

U.S. leasing firm CIT Group Inc. signed an outline order for 50 single-aisle neos worth $4.6 billion at list price, propelling the model to Airbus’s pre-show target, and a 10-plane deal from PT Garuda Indonesia gave the re-engined jet a first contract from a client until now loyal to Boeing Co.’s rival 737.

JetBlue Airways Corp. of the U.S. also bought 40 A320neos and TransAsia Airways Corp. of Taiwan ordered six A321neos, while Boeing won 15 737 orders from Norwegian Air Shuttle ASA plus 10 from Malaysian Airline System Bhd. that were pre-booked. The contrasting fortunes in the single-aisle market, the biggest in the civil airframe business, underscore Airbus’s success in peddling the re-engined A320 as a more efficient take on its bestseller as Boeing ponders its next move. The U.S. company should skip an engine fix and build a new jet, clients including industry doyen Steven Udvar-Hazy’s Air Lease Corp. said.

“I’m not talking to too many airlines, in fact none, zero, that think a re-engine is the way to go for Boeing,” John Plueger, the co-founder and business partner of Udvar-Hazy at Air Lease, said in an interview at the Paris show yesterday.

General Electric Co.’s air-leasing unit and SAS AB of Sweden ordered a total of 90 A320neos from Toulouse, France- based Airbus on the first day of the Paris Show yesterday, while Boeing didn’t secure any firm orders for the 737, other than a two-plane deal from Mongolian Airlines announced in Washington.

‘Total Panic’

The neo has become Airbus’s fastest-selling aircraft since it was announced at the end of last year, with 232 commitments announced at the Paris show, taking the total to 594. Chief Operating Officer John Leahy said yesterday he’s now confident of securing more than 600 deals by the time the French expo ends.

Airbus’s success will be of concern to Boeing, which should already have mapped out its thinking on the single-aisle market, Tim Clark, president of Emirates, the world’s biggest international airline, said yesterday in an interview in Paris.

“They’re in a total panic, of course they are,” Clark said. “We’ve just seen 90 neos ordered and Leahy is going around with a big grin on his face.” While Emirates isn’t a narrowbody operator, the 737 delay will be a concern if it affects Boeing’s thinking on a replacement for the 777 long-haul model, he said.

No Rush

Boeing has maintained that it won’t be rushed by Airbus into a decision, and that a choice between new engines and a redesigned plane will come only at the end of the year. Airbus markets the A320neo as 15 percent more fuel efficient than a factory-fresh version of the jet on sale today. The new variant goes on sale at the end of 2015 and has two new engine choices.

“The story at the show is the neo,” said Norman Liu, chief executive officer of GE’s leasing unit, which placed an order for 60 of the planes yesterday. The order has a value of about $5.5 billion at list price, though customers typically get discounts on larger or multiple deals. SAS bought 30 neos.

Hazy’s Air Lease announced preliminary agreements yesterday that call for firm orders for 14 737-800s plus four options and the conversion of options for six more in a deal Boeing said has yet to be completed. The leasing firm also has an outline accord for 36 A320neos plus 14 options.

New Entrants

Boeing is weighing its options at a time when the duopoly with Airbus in the single-aisle market for jets with 100 to 149 seats is poised to crack open. Bombardier Inc. is marketing its CSeries single-aisle jet, and the Canadian company completed the first day of the show by announcing an order for 10 CS100 planes worth $616 million at list prices, with options for six more.

Embraer SA, the Brazilian airframe producer specializing in regional jets, is awaiting Boeing’s next move before deciding whether to go ahead with a possible 150-seat model.

“Once Boeing has decided what to do, the shape of the market will be clear,” CEO Frederico Curado said in an interview after announcing orders and commitments for more than 50 of Embraer jets at the Paris show.

While the A320neo has outshone Boeing’s single-aisle announcements at the Paris event, the U.S. manufacturer pulled ahead on more lucrative orders for larger aircraft.

Boeing yesterday signed orders and commitments for 17 747-8 Intercontinental jumbo jets valued at $5.4 billion at list prices from two undisclosed customers. GE’s GECAS leasing arm today ordered two freighter variants, together with eight of the Chicago-based manufacturer’s 777-300ER long-range aircraft.

Last year at the Farnborough Air Show, which alternates with Paris, Airbus picked up 130 firm orders worth $13 billion and Boeing secured 103 valued at $10 billion. Bombardier’s CSeries, slated to enter service in 2013, won none.

Older Design

Airbus went through months of intensive studies before unveiling its A320neo strategy, as CEO Tom Enders fretted over the engineering resources the project would absorb. Airbus is still optimizing production of the A380 superjumbo, which missed its first delivery by years and will remain an unprofitable program at least until 2014 or 2015.

Boeing’s original 737 design is more than three decades old, while Airbus spearheaded innovation including fly-by-wire technology on its A320, which debuted at the end of the 1980s. Boeing revamped the design of the 737 at the end of the 1990s.

Output Issue

Both companies are lifting single-aisle output to meet demand. Boeing is planning to churn out 42 units a month, as it aims to cut the overall production backlog to three or four years from seven, Commercial Airplanes President Jim Albaugh said at the show. Airbus is considering a similar rate.

Market forecasts suggest the U.S. company will need to build 60 to 70 narrowbodies a month by 2030, almost twice the current monthly rate, Albaugh said yesterday. That’s coloring Boeing’s calculations, Nicole Piasecki, head of business development, said in an interview in Paris.

“We’re comfortable with the technology around the new small airplane,” she said. “The work we’re embedded in now is around the production system and the engagement with customers on the definition of the airplane.”

Albaugh said Boeing is taking the time necessary to consult with airlines and make the right decision.

“While some may think we’re dithering, it’s because we’re working with customers to truly understand what their needs are,” he said. “It’s no surprise to me that we have good customers that are talking about the neo. I would expect all of our customers to take a hard look.”

--With assistance from Nicole Itano and Rachel Layne in Paris and Benedikt Kammel in Berlin. Editors: Chris Jasper, Benedikt Kammel.

To contact the reporters on this story: Andrea Rothman in Paris at aerothman@bloomberg.net; Susanna Ray in Paris at sray7@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Ed Dufner at edufner@bloomberg.net


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