Jetmakers: Better Flying Conditions?


By Stanley Holmes

SPECIAL REPORTFROM THE PARIS AIR SHOW

Jetmakers: Better Flying Conditions?

Puddle-Jumpers' Bigger Pond

Boeing's Duel with Complacency

Air-to-Air Combat over Paris

Airbus' A350 Gets a Lift

Another Turbulent Paris Air Show

The A380 behemoth flew despite concerns that Europe's latest and greatest aircraft would remain grounded. Airbus got its head back in the game, winning the biennial battle for new jet orders on its home turf. The commercial airplane recovery is in full bloom, thanks to Asia's continued economic strength and the spending of several unknown Indian startup carriers. And Boeing's (BA) Alan Mulally and Airbus' Noël Forgeard put their differences aside over the companies' rivalry, jet sizes, and subsidies to graciously tour each other's newest high-tech jetliners.

Those were some of the expected and surprise themes that coursed like high-octane jet fuel through this year's Paris Air Show. After a slow start, the weeklong event at Le Bourget roared to life as Boeing and Airbus triggered a near frenzy of order announcements.

AIRBUS SURPRISES DOUBTERS. "Order volume has been unquestionably strong at the show, even considering high expectations,'' Joseph Nadol, an analyst at J.P. Morgan Securities, wrote in a note on Wednesday. The surge of new sales seems to reflect the optimism of an industry that has finally emerged from the shadows of September 11 and the worst recession in aviation history. "The recovery is in full bloom,'' crowed John Leahy, Airbus chief commercial officer.

Combined orders for both jetmakers at this week's air show total about 360 aircraft, worth $40.6 billion, including an Alaska Airlines (ALK) order for 35 Boeing 737s. Airbus grabbed 60% of the new business, surprising doubters by racking up 97 orders and commitments for its new midsize A350 plane, its answer to Boeing's brisk-selling 787 Dreamliner (see BW Online, 6/20/05, "Boeing's Plastic Dream Machine").

Said Leahy, who recently returned to work after a severe illness: "There was a lot of skepticism in Seattle, some in Chicago, and a little skepticism on Wall Street. But there was no skepticism in Toulouse. We're feeling pretty comfortable about the success of the A350.''

LATE REVIVAL. But it also raises some questions about the direction of Airbus' product strategy (see BW Online, 6/20/YY, "Why Airbus Is Losing Altitude"). The biggest one: Does the initial success of the A350 -- a highly efficient, long-range twin-engine aircraft -- mark the beginning of the end of its less fuel-efficient, four-engine strategy?

Leahy says no, noting very long flights over the Pacific or the Arctic still require the safety margin of four vs. two engines. But the evidence seems to point in a different direction. Qatar Airways, which plans to buy 60 of the A350s, is going to replace its four-engine A340 jets with the newer twin-engine models. Air Canada, another A340 operator, is opting for Boeing's efficient twin-engine Dreamliner and plans to sell its A340s.

The recovering market even gave hope to Boeing's dying 767 and 747 production lines. Mostly cargo carriers have expressed interest in keeping the 747 going as a "bridge'' to the proposed Advanced 747 -- which could be launched later this year -- says Boeing Commercial Airplane CEO Alan Mulally.

And "with the success of the 787, which is sold out for the first three years, we're getting more interest in the interim with the 767. We should be able to continue for a number of years.'' But so far, Boeing's board has yet to approve a debut for the Advanced 747, which would have new interiors and fly a longer range.

NEOPHYTE CARRIERS. All the enthusiasm, however, may merit a bit of doubt. The biggest obstacle: The looming legal battle over Airbus' use of subsidies in the development of new aircraft programs. Boeing, fed up with losing market share to its rival, has pressed the World Trade Organization to end what it calls unfair subsidies.

Furthermore, the fact that some of the airlines ordering at Le Bourget are new and relatively unknown suggests the recovery could be softer than everyone predicts. Kingfisher, a five-week-old carrier founded by India's biggest brewery, said it will spend $3 billion for 15 Airbus aircraft, including five superjumbo A380 double-decker planes.

Airbus also nabbed an order for 100 single-aisle A320 planes, valued at $6 billion, from IndiGo, another new Indian carrier. "It's very easy to exaggerate the good times in this industry,'' says Richard Aboulafia, aerospace analyst for the Teal Group. "And India is no exception to that.''

ASIA IS SIZZLING. Finally, few U.S. players, other than Alaska Airlines and the leasing giants International Lease Finance Company and GE Commercial Aviation Service (GE), ordered any aircraft. With few exceptions, large American carriers are still hurting financially and in no shape to purchase new equipment. "It confirmed the market has been split,'' Aboulafia said. "There's the depressed U.S. domestic market, and there's the rest of the world, which is doing pretty well.''

Still, Asia-Pacific is sizzling. The region's airlines, including those in India, will account for 36% of the $2.1 trillion dollars to be spent on new planes over the next 20 years, according to Boeing's market outlook. The U.S. jetmaker has benefited, too, from hot Asian growth. The company secured an order at the show for 10 each of its 737s and 777s from Bombay-based Jet Airways, a longtime customer. And it recently won a big order for 787s and 777s from flagship carrier Air India.

Because India's economy is growing in the double digits, it seems everyone wants to launch an airline there. Take Indian travel agency InterGlobe Enterprises, which is starting IndiGo. In an effort to meet the growing travel demand inside India, it plans to replicate the low-fare model pioneered in the U.S. by Southwest Airlines (LUV).

BIG JET, SMALL ORDERS. No stranger to the airline business, Rakesh Gangwal, chief executive of the global reservation system Worldspan since 2003, will be "actively involved" in managing IndiGo in his capacity as a board member of InterGlobe. Gangwal held senior positions at US Airways (UAIRQ), Air France (AKH), and UAL Corp.'s United Airlines (UALAQ).

"The Indian market is growing rather dramatically right now,'' Leahy said Thursday at a press conference announcing the InterGlobe order. "We now see new carriers entering the market.''

All of this Asian order activity overshadowed the intended main event at Le Bourget this summer -- the A380's debut. Other than five orders that startup Kingfisher placed for the A380, sales have remained exceedingly slow for the big jet.

That's too bad. The big bird makes for a magnificent display of aircraft technology. Its agility in the air and nearly noiseless takeoffs and landings impressed the crowd of aerospace executives and aviation buffs lined up at Le Bourget to watch the megaplane fly overhead.

FANTASTIC VOYAGE. "I feel very happy about this aircraft,'' said Gerard Blanc, Airbus' executive vice-president of operations and a key player in the A380's development. "It flies beautifully. This aircraft promises to be extremely good.''

Never mind its weight problem and the six-month delivery delay that will cost Airbus tens of millions in late penalties. The world's biggest commercial jetliner graced the skies of Paris, and it was a moment to behold. Holmes is a correspondent for BusinessWeek in Seattle


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