Airbus-Boeing Duopoly Holds Narrow-Body Startups at Bay at Paris Air Show
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The Airbus SAS-Boeing Co. (BA) airliner duopoly survived the Paris Air Show intact as challengers from Canada, China, Brazil and Russia offered little evidence that they’ll break the pair’s stranglehold on single-aisle jets.
Bombardier Inc. (BBD/B)’s CSeries won 30 orders from Korean Air Lines Co. and an unnamed carrier before the program took a blow. Qatar Airways Ltd. shelved a deal and Republic Airways Holding Inc. of the U.S. bought Airbus’s rival A320neo, casting doubt on a contract for 40 of the Montreal-based company’s jets.
Russia’s SuperJet won a single 12-plane deal, while Brazilian regional jet specialist Embraer SA said it’ll wait for Boeing’s next move in the narrow-body market before deciding whether to go ahead with a 150-seater. Commercial Aircraft Corp. of China’s C919 may be most likely to mount a challenge after enlisting Ryanair Holdings Plc (RYA) as a development partner, though the Irish discount carrier is also in talks with Boeing, and analysts said a deal for the Comac model is unlikely.
“Going up against Boeing and Airbus in head-to-head competition is really tough, not only because of their size, but because of their existing product line and industrial capacity,” Embraer Chief Executive Officer Frederico Curado said in an interview in Paris. “They can have a very quick response and literally flood the market.”
Bombardier and Embraer are targeting single-aisle jets after building up their capabilities by adding bigger regional models over the past decade. Russia is seeking to rebuild a civil-aircraft industry shattered after the collapse of the Soviet Union, and China wants to establish its credentials as an airliner manufacturer as a booming economy stokes air travel.
All are seeking a slice of the biggest part of a global airliner market estimated at $4 trillion over the next 20 years.
Airbus’s neo, already the Toulouse, France-based company’s fastest-selling plane, won more than 300 orders during the first three days of the Paris show, bringing commitments since the jet’s December launch to more than 600. Boeing, which says it will take the rest of the year to decide between re-engining and an all-new model, still clawed in 75 orders for the 737.
Airbus added more contracts today, with a firm order for 72 A320neos from GoAirlines (India) Ltd. Skymark Airlines Inc. of Japan also placed a contract two A380 superjumbos, the first for victory for the double-decker model at this week’s event.
The narrow-body market is split 52 percent to 48 percent in Airbus’s favor, according Jim Albaugh, president of Chicago- based Boeing’s commercial airplanes unit.
‘Smallest to Buckle’
Louis Gallois, CEO of Airbus parent European Aeronautic, Defence & Space Co., said at a briefing in Paris that he expects some of the new models in the 100-seat-plus sector to fail.
“Can the market accept six single-aisle planemakers? I’m sure the smallest will have to buckle,” he said.
Republic Airways signed a letter of intent to buy 80 neos with a list price of $7 billion for its Frontier Airlines unit, split between A319 and A320 variants that carry 124 and 150 people, overlapping with Bombardier’s 100-149 seat CSeries.
It’s not clear how Republic, which bought Frontier out of bankruptcy in 2009, will be able to buy the neos after agreeing a 40-plane CSeries deal worth $3.06 billion in February 2010, said Bob McAdoo, an Avondale Partners LLC analyst based in Prairie Village, Kansas. E-mail and phone messages to Republic weren’t immediately returned, though Bombardier said its accord with the Indianapolis-based airline won’t be affected.
The Republic announcement is “a marginal negative” for Bombardier, according to Hamzah Mazari, a New York-based analyst at Credit Suisse AG who said the CSeries order book “remains robust” and reiterated his “outperform” rating on the stock.
Qatar Airways has deferred a decision on whether to order the CSeries for the moment, Chief Executive Officer Akbar al Baker said June 20. The Middle East’s second-largest carrier is hopeful about making an order announcement regarding the Airbus neo before the end of the Paris event, he said.
Bombardier’s president for commercial aviation, Gary Scott, said at the show that the Korean CSeries deal for 10 CS100 and 10 CS300 derivatives is a “marquee order,” though the company is focused on adding as many customers as possible -- including leasing firms -- rather than on chasing blockbuster deals.
“Getting that customer breadth is really, really important,” Chet Fuller, Bombardier’s commercial aircraft sales chief, said in an interview after the Asian contract was announced. “And diversity too, because that’s what’s going to make it a good, strong lessor’s airplane and a good, strong financial asset.”
As a publicly traded business, unlike rivals including Comac and SuperJet, Bombardier undertakes new projects for no other reason but to make money, he said.
The SuperJet, Russia’s first major passenger plane since the Soviet collapse in 1991, requires 300 orders to break even, CEO Mikhail Pogosyan said June 21 in a briefing at the French show. It has so far secured 131, including a sole Paris contract for 12 planes from Blue Panorama Airlines SpA, based in Rome, Italy, the home city of Finmeccanica SpA (FNC), which is marketing the plane via its Alenia Aeronautica division.
Moscow-based manufacturing group United Aircraft Corp. is looking at extending the SuperJet’s capacity from 75 to 115 seats to as high 130, Pogosyan said.
China’s Comac said June 21 in Paris that Dublin-based Ryanair, Europe’s biggest discount airline, is exploring a requirement for at least 200 single-aisle jets after agreeing to help evolve the C919.
Chief designer Wu Guanghui said the day before at the show that the plane, slated to begin test flights in 2014 and enter service by 2016, may attract 50 to 100 more orders over the second half of 2011, revising guidance from March for it to win that number of contracts for the whole year.
Ryanair CEO Michael O’Leary said he’ll push Comac to develop the 150-seat C919 into a 199-seat version available by 2018, allowing his airline to carry the maximum number of passengers without an extra flight attendant. The Irish company, which will have 300 Boeing 737s by 2013, could move to a mixed fleet if the economies offered by a new entrant can at least match those of the current fleet and the purchase price is right.
Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, said Ryanair’s preference would still be to stick with 737s and that O’Leary’s development accord with Comac amounts to a “warning shot” over pricing.
Still, the C919 is undergoing a “remorseless development program” that includes 70 percent western technology and is likely to reach production thanks to a critical mass of orders in China itself, Joe Gill, an analyst at Bloxham Stockbrokers also based in the Irish capital, said in a note to investors.
Building orders outside China will be much tougher, so that “planting 400 C919s in the center of Europe, in a business model that already has clear cost advantage over all others, would be one helluva strategic play,” he said. “It would give the C919 global legitimacy and Ryanair gets a killer app.”
Boeing reckons a potential customer may turn to a Chinese planemaker “sooner than anybody thinks,” though probably not until a C919-successor has been built, Albaugh said in Paris.
The Bombardier CSeries, while a major technical challenge, is a “pretty interesting airplane” and may influence some of the design space Boeing is looking at, he said. The U.S. company regards the “heart” of the single-aisle market as the 125-200 seat range and will defend that “very diligently,” he said.
Albaugh, too, said it’s unlikely that the marketplace will sustain six players. The biggest test for the new entrants may come later in 2011 when Delta Air Lines Ltd. decides on an order for as many as 200 narrowbodies over a range of capacities. Delta fleet strategy chief Nat Pieper said earlier this year that the company is looking at all of the available options.
Embraer Chief Curado said he’ll target the Delta contract with the 120-seat Embraer 195, currently the Sao Jose Dos Campos, Brazil-based company’s biggest model.
“I think we do have a chance,” he said in Paris. “We have several airplanes flying for them and they’re very suitable for what they need. It’s going to be a very, very tough one, but we’re going to fight for it.”
Even then, the design and build of a new plane is only half the battle, and it can take many years to attain the mature technologies and global abilities needed to win the confidence of airlines, according to Filipo Bagnato, CEO of turboprop producer ATR, which is also mulling a move into jetliners.
“Getting an aircraft flying is like the life of a person,” Bagnato said in an interview yesterday. “You have to go to elementary school, high school and university before you reach maturity, and only then does the real test begin, because a plane has to really perform to become a serious contender.”
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