Will Jetmakers Always Have Paris?


By Stanley Holmes Feeling good about the number of airplane orders Airbus SAS was racking up at the Paris Air Show in mid-June, the outfit's supersalesman, John Leahy, boasted to reporters that the European jetmaker would win twice as many orders as Boeing (BA). Turns out that Leahy came up short by 37 airplanes. But Airbus did emerge ahead of Boeing at Le Bourget, silencing at least some of the doubters who had begun to wonder if the world's largest commercial airplane company was falling too far behind its resurgent U.S. rival

At Le Bourget, Airbus notched 279 orders and commitments, vs. 148 for Boeing, according to justplanes.com, a Web site that tracks orders. The European jetmaker welcomed the surge of new business with open arms, especially the renewed interest in its proposed midsize A350 jetliner, a more efficient design crafted to compete with Boeing's popular new composite airplane, the 787 Dreamliner.

At the show, airlines ordered 95 of the yet-to-launch A350, vs. not a single 787. Says Leahy: "We are feeling pretty comfortable about the success of the A350."

BRISK BUSINESS. Yet winning at the Paris Air Show is less important in many ways than the year's total volume of jet orders. Though business at the show was strong, with about 452 jet orders placed (including those going to regional specialist Embraer), that number means little if not ultimately converted to deliveries. The key barometer will be the number of firm orders that Boeing and Airbus report at the end of 2005. By that measure, Boeing still appears poised to beat Toulouse-based Airbus for the first time in four years.

Perhaps the biggest theme emerging from the air show is that strong demand for aircraft continues to outstrip supply, to the benefit of both jetmakers. Indian carriers placed 150 orders, about 33% of the total, while Middle Eastern airlines accounted for 94 orders, about 21%. Leasing companies picked up their buying for the first time since September 11, ordering 90 airplanes -- 20% of the total. However, none the world's top 14 airlines placed orders, and North American carriers accounted for just 8% of the total.

One big risk is the commercial airplane industry's nearly "exclusive" dependence on the Middle East and Asia. "Any signs of economic slowdown in Asia could result in a sell-off," noted JP Morgan analyst Joseph Nadol in a recent report. Indian discount carriers KingFisher Airlines and Indigo, which wants to buy 100 Airbus A320s, have either just started flying or are yet to get off the ground. As Lehman Brothers analyst Joseph Campbell wrote: "The combination of the low-cost carriers' approach and growing emerging markets is proving explosive."

"THE RIGHT PRODUCT." Airbus still trails Boeing in the annual contest for total aircraft orders. According to justplanes.com, as of June 23, orders and commitments for Boeing total 592, vs. 413 for its European rival. This revised number excludes the 32 Air Canada 777s and 787s which the airline had ordered, only to put on hold when its pilots rejected a cost-cutting initiative that was essential if the purchase was to proceed. Even without the Air Canada order, Boeing still has captured nearly 60% of the 2005 market for new aircraft.

Boeing has launched an airplane that airlines and passengers want to fly. The lightweight, composite-based 787 jetliner directs technological innovations at reducing purchase price, operating costs, and fuel consumption in an era of higher energy costs. Boeing's first all-new airplane since the widebody 777 in the early 1990s now has 246 orders and commitments, vs. 105 for the A350.

Customers also have been ordering more 737s and 777s, with even some renewed interest in the 747 Jumbo Jet and aging 767, to be replaced eventually by the 787. "We feel we have the right product line," said Boeing's chief salesman, Scott Carson, at the air show.

DESIGN MAGIC. Moreover, Boeing has finally unshackled its sales force, allowing reps to cut deals with customers instead of subjecting them to an internal, Kafkaesque tribunal that demanded every deal be profitable. Carson insists that Boeing isn't giving away airplanes, saying that the sales force now enjoys more flexibility to make on-the-spot decisions.

It could be argued that Boeing lost its way for several years. The Seattle airplane division experienced a factory meltdown of its own making in 1997-98, a slip that cost it $2.5 billion and immeasurable amounts of credibility. Led by CEO Alan Mulally, Boeing's commercial unit dug itself out of that gaping hole, while cutting costs and improving production. And when Boeing's elite designers finally got the green light for the first airliner of the 21st century, they produced a gem -- the 787 Dreamliner -- just as they have time and again since the beginning of the jet era.

Airbus is no slouch when it comes to superb aircraft design and engineering. And it has been the leader in orders for the past four years. That lead now includes aircraft deliveries, the most accurate measure of a jetmaker's strength. But Airbus' ascent was helped to some degree by Boeing's internal battles and breakdowns, and those problems appear to be ending.

OVERBOOKED? What's more, Airbus has been experiencing its own internal troubles. First, Airbus execs dismissed the 787 -- only to realize too late that Boeing might be right about the middle of the market, which the U.S. outfit believes has a potential to absorb 3,500 new jets over 20 years.

Airbus unveiled its fourth iteration of the A350 at the air show after coming up empty in head-to-head battles with the 787. The improved version will seat about 250 passengers and fly farther than the U.S.-made jet. Despite garnering nearly 100 orders at the show, some of the new A350 customers beg answers.

Indian startup KingFisher, which ordered five, is barely operational. Why did Qatar Airways order 60 A350s, even though it only flies 40 aircraft today? Qatar also ordered 20 777s, and it has a pair of A380s on order. Can Qatar's growth strategy really accommodate all those jets?

SLOW TAKEOFF. Meanwhile, sales have slowed for Airbus' mega-airliner, the 555-seat A380. The high-tech behemoth is a marvel, now boasting 159 orders and commitments. But can Airbus sell 700 to 1,000 in 20 years, as it claims, and while still turning a profit? Performance and weight troubles are plaguing the jetliner, and an original 2006 delivery date has been pushed back six months into 2007.

Still, none of the questions about either outfit cast a cloud over a festive Paris Air Show, which confirmed that there is strong demand for airplanes -- and some uncertainty about when this cycle will peak. Some observers see single-aisle deliveries reaching their apogee in 2007, but twin-aisle wide-body deliveries may grow beyond 2010 as a result of the new A380, 787, and A350 entering service. If true, that's good news for both of the industry's biggest players. Holmes is a writer for BusinessWeek in the Seattle bureau


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