GE-Safran Beats Pratt on A320Neo Engines Behind AirAsia’s 200 Plane Order
GE-Safran’s A320neo Orders Pass Pratt as Race Heats Up
Chris Ratcliffe/Bloomberg
CFM International's Leap-X jet engine on display at the Paris Air Show in Paris.
CFM International's Leap-X jet engine on display at the Paris Air Show in Paris. Photographer: Chris Ratcliffe/Bloomberg
General Electric Co. (GE)’s jet-engine venture with Safran SA (SAF) grabbed the lead on orders for Airbus SAS’s A320neo during the Paris Air Show, upending a head start by Pratt & Whitney on history’s fastest-selling aircraft.
The CFM International venture, winless until June 15, has now racked up orders for 455 of the upgraded Airbus single-aisle jets, surpassing Pratt & Whitney’s 270. Airbus has booked orders and commitments for more than 1,000 A320neos, which offer customers more fuel efficiency with the choice of Pratt’s geared turbofan or CFM’s Leap-X model.
CFM surged past its rival yesterday with a 200-plane order from Air Asia Bhd., larger than the 150-jet order from Air Indigo that was Pratt’s opening volley on the A320neo. At the time, the plane order was the biggest ever.
“We’re right where we want to be,” CFM Executive Vice President Chaker Chahrour said during a celebration of the AirAsia order yesterday.
CFM’s and Pratt’s new engines both have an estimated list price of about $12 million, and top executives from each side implied this month that the other offered incentives beyond the usual discounts to win orders.
“Bottom line is, this is a tough fight between Pratt and GE and the margins of both may suffer for a while versus prior expectations as they duke it out,” Nicole Parent, co-founder of Vertical Research Partners in Stamford, Connecticut, said in a note to investors.
‘Price Wars’
Fairfield, Connecticut-based GE is the world’s largest maker of jet engines for airplanes. Its GE Capital Aviation Services unit is the world’s largest aircraft lessor and provides financing for planes.
Prior to the air show, when Pratt & Whitney was still leading on A320neo orders, GE Chief Financial Officer Keith Sherin told investors of Pratt’s initial contract wins that “you wouldn’t go there based on what the dynamics were.”
Engine makers typically make little or no profit on the engines themselves, and instead line up decades-long revenue streams for parts and service contracts after spending more than $1 billion developing new technology.
“All engine wars lead to price wars,” said Richard Aboulafia, an analyst at Teal Group in Virginia. “Engine wars with new products produce even worse up-front price wars.”
Pratt & Whitney’s geared turbofan uses a gear to slow the outer fan, adding efficiency and reducing noise, while CFM’s Leap-X incorporates new materials in the engine’s hot-section, or core, to cut fuel consumption.
‘Throwing Money’
CFM also made adjustments to the fan of its engine, and both power plants offer about a 15 percent improvement in fuel burn over current A320 models.
Pratt spent a decade developing its technology after missing the market surge 30 years ago when Boeing Co. (BA) launched the 737, which became the world’s most widely flown aircraft. That jet offers only an engine from CFM.
“We believe you cannot overcome our technology by throwing money at customers,” said Louis Chenevert, who ran Pratt before becoming chief executive officer of the engine-maker’s parent, United Technologies Corp. (UTX)
“If you assume oil’s going to be $70 a barrel, maybe it’s doable,” he said at a lunch this week with reporters. “If you assume oil is over $100 it gets really hard. We’ve invested a long time in this game-changing technology.”
‘Technology Evolution’
Pratt & Whitney President David Hess said in an interview at the show that the company thinks it can keep more than 50 percent of the A320neo market. He has said he’s pleased with pricing.
“The kind of technology evolution the GTF brings fits in perfectly with what our objectives were with fuel burn, emissions, et cetera,” said Aditya Ghosh, president of Indigo, the first carrier to order the geared turbofan. “We had certain objectives internally and Pratt & Whitney met them.”
CFM maintained at the show that the reliability of its fleet -- the world’s biggest -- is what’s drawing customers, not discounts.
“We don’t do dumb deals,” CFM’s Chahrour said yesterday. “We don’t do deals that don’t make any sense. We’re happy with the price we got.”
‘Short-Sighted’
AirAsia Chief Executive Officer Tony Fernandes said he chose CFM in part because of his long relationship with GE, beginning when the airline started with two planes in 2005. More important than price, he said, was his perception that GE had matured its technology in existing engines over the years.
“We know the supply chain of GE and we know the capabilities with GE,” Fernandes said. “Pricing’s important. But I think pricing’s short-sighted. You can pay for a cheap engine and have a nightmare later on.”
Rolls-Royce, the second-largest aircraft-engine maker, elected not to offer an engine for an upgraded A320neo, saying it couldn’t justify the business case.
CFM is currently the sole provider of engines for the Boeing 737 model, while it competes with International Aero Engines, a group led by Rolls-Royce and Pratt, on existing A320 models.
To contact the reporter on this story: Rachel Layne in Paris at rlayne@bloomberg.net
To contact the editor responsible for this story: James Langford at jlangford2@bloomberg.net
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