Sunday, June 16, 2013

Big guns blaze in wide-body war

June 16, 2013 10:15 pm 

By Andrew Parker

The Financial Times

The focus of this week’s Paris air show at Le Bourget shifts to the intensifying battle between Airbus and Boeing in the lucrative long-haul jet market.

The last show, in 2011, was dominated by Airbus and a slew of orders for its revamped short-haul passenger jet, the A320neo.

In this latest duel, Airbus is vowing to cut Boeing’s lead in the wide-body twin-engine market with its new A350 passenger jet. The Toulouse-based manufacturer is hoping to make a statement of intent by having a test model do a fly-past at the show. The US group is underlining its determination to stay on top by considering launching in Paris the latest and biggest version of its twin-aisle Dreamliner jet – the 787-10.

Increasing demand for these more fuel-efficient aircraft in an era of high oil prices highlights how Asian, European and US airlines are placing big bets on rising air travel to support the most profitable parts of their businesses – long-haul flying.

But with the eurozone still in recession and global economic growth forecasts being cut for this year, some analysts are questioning whether record levels of aircraft production at Airbus and Boeing are sustainable. The companies delivered jets worth about $88bn to customers last year, and some analysts argue that Airbus and Boeing risk over-saturating the market if production continues at current rates. Still, the civil aerospace industry looks relatively healthy compared with the defence sector.

Western governments have made austerity-inspired cuts to defence spending, prompting US and European weapons makers to increase their efforts to secure deals in emerging markets such as India.

One potentially large source of growth – the development of unmanned aerial vehicles for the next generation of combat aircraft as well as civilian uses – is facing strong political and regulatory headwinds. So-called drones will attract some attention at the Paris air show this week, but the big deals are likely to be in the wide-body passenger jet market, which usually generates higher profit margins than the single-aisle equivalent.

Fabrice Brégier, Airbus’ chief executive, recently scoffed at Boeing’s response to the A350-1000 – the largest version of the European manufacturer’s new twin-aisle jet that is due to enter commercial service in 2017.

Boeing is proposing a major overhaul of its popular 777 wide-body twin-engine aircraft, but Mr Brégier noted the US manufacturer had not finalised the details. “This aircraft [the A350-1000] is real – this aircraft is not a paper tiger ... it will come alive in 2017,” he said.

Still, Airbus knows the A350 carries all the same large-scale development risks as the Dreamliner.

Boeing reeled in January when US regulators triggered a global grounding of the 787 after lithium-ion batteries on two Dreamliners burnt. This was the first time such draconian action had been taken in 34 years.

The flying ban was lifted only in April after major modifications to the Dreamliner battery system were approved – and this affair was the last thing Boeing needed given the 787 entered service more than three years late in 2011 due to a step change in technology and materials.

Like the Dreamliner, the A350 is made mainly from lightweight carbon fibre reinforced plastic in order to reduce fuel burn, rather than traditional aluminium alloy. And also like the Dreamliner, the A350 is running behind schedule.

The A350-900, the first version of the Airbus jet, is due to enter service in the second half of 2014, which would represent a delay of up to 18 months compared with the original timetable.

With more products in the pipeline than Airbus, Boeing can increase its lead in the wide-body twin engine market, says Randy Tinseth, senior marketing executive at the company’s commercial aircraft unit. “We have a great opportunity to grow our market share,” he says. “With a full array of products ... we actually ... box in [Airbus].”

Once the 787-10 is in service, there will be three versions of the Dreamliner, carrying between 210 and 320 passengers. And the proposed overhaul of the 777 – dubbed project 777X – is expected to involve two new versions of the aircraft.

This compares with how Airbus is planning three versions of the A350.

But while Boeing could be better positioned in this market by having a total of five new generation aircraft compared to Airbus’ three, it is not a certain victor. For example, Airbus has the potential to boost its market share by having its A350-1000 in service sooner than Boeing’s 777X models.

Some analysts argue these models risk undermining the company’s venerable 747 jumbo, and hurt sales of Airbus’ flagship A380 superjumbo.

This underlines how the new generation of more fuel-efficient aircraft could have far-reaching consequences for some of the industry’s most famous workhorses.

Nick Cunningham, analyst at Agency Partners, a research firm, says: “The 777X will clearly undermine the few remaining prospects for the latest version of the 747 passenger jet, and it will also narrow the niche role of the A380.”

The latest version of Boeing’s jumbo – the 747-8 that carries up to 500 passengers – has an order backlog of just 55 aircraft, partly because the air cargo market has suffered during the economic downturn.

The rival A380 has an order backlog of 159 aircraft. But it has yet to notch up any orders this year because of the global slowdown and the discovery of a wing cracking problem that is now being fixed.

Airbus needs A380 orders to hit its target of delivering 30 superjumbos to customers in 2015 – the year when this lossmaking aircraft programme is supposed to break even.

While the A380 and 747 may struggle to find many buyers, new levels of fuel efficiency are enabling Airbus and Boeing to amass a lot of orders for their new generation of wide-body twin engine aircraft – and even more contracts for their cheaper single aisle jets.

The two rivals have therefore raised production of many of their aircraft to record levels, but analysts are divided about whether this output can be maintained.

Jet manufacturing is a cyclical industry, usually following the ups and downs of the global economic cycle. Yet in spite of this, Airbus and Boeing have enjoyed a decade of almost uninterrupted strong growth.

Douglas Harned, analyst at Bernstein Research, says the current cycle is different, partly because the two manufacturers’ outstanding orders are for the first time dominated by fast-growing airlines in emerging markets. “We do not view this [as] a bubble,” he adds.

But Richard Aboulafia, analyst at Teal Group, another research firm, disagrees, saying Airbus and Boeing face at least a slowdown in coming years.

He estimates jet deliveries by Airbus and Boeing have increased in value by 12 per cent each year between 2008 and 2012, thanks to a combination of cheap financing and high oil prices.

“This unusual combination has created a huge market surge that could turn into a bubble,” he says. “If financing gets more expensive, or fuel gets cheaper, these production rates at Airbus and Boeing are not going to be sustainable.”


Airbus and Boeing battle heats up

 June 16, 2013 9:38 pm

By Andrew Parker and Hugh Carnegy in Paris 

The Financial Times

The escalating battle between Airbus and Boeing in the lucrative long-haul passenger jet market will be laid bare at the Paris air show this week, with the two manufacturers set to unveil orders for their new generation of widebody aircraft.

Boeing is poised to launch the third and biggest version of its 787 Dreamliner aircraft at Le Bourget, in the latest sign of its determination to maintain a lead over Airbus in the widebody twin engine market.

Airbus, however, is planning to underline its effort to usurp Boeing in this market by announcing orders for the A350, its new passenger jet that last Friday completed its maiden test flight and will compete against the US group’s Dreamliner. The A350 might also do a fly past at Le Bourget.

Ray Conner, head of Boeing’s commercial aircraft division, expressed confidence on Sunday that the US group would stay ahead of Airbus in the widebody twin engine market because of its broader range of products, and played down suggestions of a price war.

“Price wars? We are going to compete, they are going to compete,” he said. “I would not necessarily call it a price war – it’s going to be good, healthy competition.”

Boeing is planning five next-generation widebody twin-engine aircraft – three models of the Dreamliner, plus two new versions of its popular 777 jet.

That compares to Airbus’s three versions of its A350 aircraft.

The Dreamliner and the A350 are brand-new twin-aisle aircraft mainly made from lightweight carbonfibre-reinforced plastic rather than traditional aluminium, so as to reduce fuel burn.

Boeing’s proposed upgrade of the 777 – dubbed the 777X project – will involve new engines and a carbon wing, although the fuselage is still due to be made of metal.

Tom Enders, chief executive of EADS, the Airbus parent company, said last week he expected the jet manufacturer to secure orders for a “a few hundred” aircraft in Paris. These could include an order from Air France-KLM for A350 aircraft.

Mr Conner declined to provide an orders tally for Boeing in Paris. However, Boeing is expected to launch the 787-10 – the biggest version of the Dreamliner, carrying about 320 passengers – with customers including Singapore Airlines, International Airlines Group, parent of British Airways, and United Air Lines of the US.

The Dreamliner suffered a significant setback in January when it was grounded by regulators because batteries burned on two 787s, but the flying ban ended in April after Boeing finalised significant modifications.

Although Airbus and Boeing sell fewer widebody jets than single-aisle aircraft, these long-haul models are more expensive and usually generate better profit margins than the short-haul equivalents.

Airbus and Boeing are due to announce some narrowbody orders in Paris. EasyJet of the UK could agree in principle to buy about 100 single aisle jets from Airbus, and have options for another 100 aircraft, although this deal has yet to be approved by the airline’s board.