Bloomberg News

Airbus Pledges A330 Engine Upgrate to Confront Boeing 787

July 14, 2014


Members of the media photograph and film a model Airbus A330-800neo aircraft on the first day of the Farnborough International Airshow, on July 14, 2014. Photographer: Paul Thomas/Bloomberg

Airbus Group NV (AIR) said it will go ahead with an upgrade of its A330 model, extending the life of the two-decades old wide-body while dropping the more modern A350-800 from its range after a lackluster sales performance.

Airbus plans to build the A330-800neo and A330-900neo with new Trent 7000 engines from Rolls-Royce Holdings Plc (RR/) following a decision by the board. The A350-800 will be scrapped in response to customer feedback, Fabrice Bregier, who leads the airliner unit, said today at the Farnborough Air Show.

The A330 upgrade will enter development as Toulouse, France-based Airbus seeks a model to fit below the larger A350 and challenge Boeing Co. (BA:US)’s 787 Dreamliner in the mid-size market. The aircraft, for which Steven Udvar-Hazy’s Air Lease Corp. will be the initial customer, should reduce fuel consumption by 14 percent and offer a range increase of up to 400 nautical miles, the manufacturer said.

“The three largest costs for airlines are fuel, capital cost of equipment and labor, and airbus has addressed two of those very efficiently here,” Udvar-Hazy said at the signing ceremony of his purchase commitment, where he also announced plans to buy 60 additional A321neo airliners.

Market Decides

Hazy said the A330neo’s price point -- the -900 version will cost $275 million at list price -- makes it a compelling alternative. Boeing’s mid-sized 787-9 costs $249.5 at list price, though customers customers typically get discounts.

The decision to halt A350-800 development will allow the company to focus on the more successful and larger A350-900 and to address concerns that some major carriers have expressed about the largest -1000 variant.

“We listen to the market,” Bregier said at the Farnborough expo southwest of London, which began today.

Shares of Airbus rose as much as 1.6 percent to 47.87 euros and were trading at that price as of 10:21 a.m. in Paris. Rolls-Royce gained 2.5 percent and was later 1.5 percent higher at 1,052 pence.

Airbus has been pondering the future of the A330, which sits between the A320 single-aisle family and the new A350 made of composite structures, following an order surge for the re-engined version of its A320 narrow-body. The wide-body aircraft has been a popular alternative to the more modern 787 after the Dreamliner was plagued by delays on service entry.

Capacity Concern

“The A330 is a very important margin contributor for our group,” Airbus Chief Executive Officer Tom Enders said in the release. “It is also one of the most reliable and efficient commercial aircraft ever. Customers love it.”

Los Angeles-based Air Lease has an agreement to take 25 A330-900neos with a list price of $6.9 billion, or $275 million apiece, it said in a press conference with Airbus. The company could also take the -800neo variant, it said.

“Our understanding from customer discussions is that this airplane needs to be in service before 2018, which this timeline achieves,” said Douglas S. Harned, an analyst at Bernstein Research, “As with the A320neo, Airbus’s development commitment will be much lower than an all new airplane.”

Exclusive Deal

Harned said likely deliveries of more than 100 A330neos a year raise concerns about a capacity glut in the wide-body market after 2018 as 787 production accelerates, the A350 -- which will enter commercial service later this year -- ramps up and build levels of the 777 are sustained ahead of the introduction of the revamped 777X at the end of the decade.

Development costs for the A330neo will be incurred from 2015 to 2017, with the plane entering service in the last quarter of that period. The investment in a model that’s also getting aerodynamic enhancements and new cabin features will wipe 70 basis points from Airbus’s return on sales in that time.

Rolls-Royce said in a statement that it will be the exclusive provider of engines for the new plane after winning the lion’s share of orders for the original 20 year-old model.

The deal represents “a small positive” for Rolls given that Airbus would not have chosen to launch the A330neo at the Farnborough show “without high confidence as to the number and quality of launch customers,” Westhouse Securities analyst Harry Breach said in a note to investors.

General Electric Co. (GE:US) is the alternative turbine provider on the existing A330, though the U.S. company had said that it wouldn’t invest in a new engine for an A330neo.

GE Aviation Chief Executive Officer David Joyce said today that the company sees no obstacles to a re-engining project for Airbus’s largest A380 model, other than any commercial ones.

“If the business equation works, any of the technology we are talking about now could be introduced into the A380,” Joyce said in a briefing in Farnborough, while adding: “If we do a Neo there has to be enough incremental orders to pay for it.”

To contact the reporters on this story: Christopher Jasper in London at; Andrea Rothman in Toulouse at

To contact the editors responsible for this story: Benedikt Kammel at

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