Boeing Co. (BA) is under mounting pressure from airlines eager for an improved version of its biggest twin-engine jet as Airbus SAS makes inroads in the wide-body market with a model available years earlier.
Airbus plans to fly its A350 for the first time tomorrow in a show of confidence that the jet can enter service in late 2014, followed by a stretched version in 2017 to challenge Boeing’s 777. Boeing is asking carriers for patience until the decade’s end, when its so-called 777X with new wing and engines will be ready.
At stake is the leadership in twin-aisle planes, the workhorses of intercontinental flying that Boeing pioneered and in which it remains dominant. Executives are warming up for next week’s Paris Air Show with barbs about each other’s lineup as they jostle for a larger slice of a market Boeing estimates at $2.2 trillion over the next two decades.
“All the attention is going to be on the battle between Airbus and Boeing on the wide-body side,” said Ken Herbert, a Los Angeles-based analyst with Imperial Capital LLC. “What kind of orders and what kind of commitments they’re getting from customers is probably one of the biggest issues.”
Airlines are ready to commit to new, more efficient planes to replace fuel guzzlers at a time of persistently high oil prices. The mood in the industry is more upbeat, with the International Air Transport Association predicting June 3 that earnings will be 20 percent higher in 2013 than forecast just three months ago.
Boeing and Airbus parent European Aeronautic Defence & Space Co. are part of that optimism. Their shares are riding the best year-to-date rallies since at least 2000, based on data compiled by Bloomberg. Boeing rose 34 percent to $100.89 through yesterday, while EADS climbed 46 percent to 42.99 euros.
Both planemakers will use the Paris event, the industry’s biggest showcase for new models, as a stage for their wide-body ambitions.
Boeing is bringing over two 787 Dreamliners, of which one will perform in flight displays, while Airbus is showing off its A380 double-decker in British Airways livery. The company hasn’t said if the A350 will make a surprise showing at the event from Airbus’s base in Toulouse, France, where it’s built.
Airbus moved ahead of Boeing on orders for newly introduced narrow-body planes two years ago with its A320neo, which dominated the last Paris expo and prompted Boeing to redesign its 737 to also add more fuel-efficient engines. Now Airbus is banking on an A350 made largely of lighter composite materials to add wide-body sales.
Momentum swung to Airbus as the U.S. planemaker focused on fixing a battery flaw with its 787 Dreamliner that led to a three-month grounding of the fleet. Boeing stalwarts Cathay Pacific Airways Ltd. (293) and British Airways have signed up for the A350-1000, the largest version and a direct rival of the 777.
Boeing’s new models, the 787-10X Dreamliner stretch and the 777X, still require board approval. The Chicago-based planemaker may commit to building the 787-10X in Paris after Singapore Airlines Ltd. (SIA) agreed conditionally on June 4 to buy 30 starting in 2018.
In the runup to the event, Ray Conner, the head of Boeing’s commercial’s division, said the bigger 777 and smaller 787 have Airbus “boxed in on the A350 at the top and we’ve got them boxed in at the bottom.” Airbus’s sales chief, John Leahy, shot back that 777X is just a rehash of a 20-year-old airliner.
“A modified aircraft can never compete with a clean-sheet design,” Leahy said in an interview. “It won’t have a chance against the all-new A350.”
The 77 still retains a large following eager to buy into the upgraded variant. Boeing will quickly secure “a few hundred orders” for the 777X, with existing customers ready to sign on, said Tim Clark, the head of Emirates and biggest operator of the 777.
Timing right for new products is vital in one of the few global industries still governed by a duopoly, with success and failure by one planmaker directly affecting the other. Airbus saw orders for its A330 wide-body grow during the delays for the 787, which ended up more than three years late, and a positive response to the 777X could all-but snuff out Airbus’s momentum from A350-1000 orders.
With products that have some of the longest life-spans in industrial manufacturing, committing to a new long-range jet at a cost exceeding $10 billion isn’t easy for either company.
Airbus’s initial response to the Dreamliner fell flat with customers, forcing a redesign of the A350 as a wider, all-new plane. Boeing, by contrast, has repeatedly held off on the debut of the 777X, in part to grapple with fixes on the 787, and also because the current version’s popularity creates breathing room to assess Airbus’s offering.
Both companies have more to watch than only their rival. With the 777X, Boeing risks cannibalizing the market for 400-plus-seat aircraft, a segment it created in the 1960s with the iconic 747 jumbo. A 777-9X, the largest model of the re-engined and re-winged plane now being marketed, would seat almost as many as the four-engine 747-8 variant and burn less fuel.
“With the 777-9X, Boeing may not sell many more 747-8s,” said Emirates’ Clark, who is also the largest operator of the Airbus A380 superjumbo. “People who want that size airplane will probably buy the A380.”
Boeing has more than 800 orders to fill on the 787 and is doubling production to 10 a month by the end of this year. Airbus, with 613 A350 sales, will decide this year whether to add production capacity to satisfy demand, Leahy said.
Airbus left Paris two years ago with 418 firm orders worth $44 billion at list prices, 16 times the value of Boeing’s 23 contracts. With Boeing’s potential to rake in sales of new planes and Airbus’s A350 moving closer to service, predicting a winner for this year’s air show isn’t easy, said Peter Arment, an analyst with Sterne, Agee & Leach Inc. in New York.
“In the longer run it looks like advantage Boeing,” he said. “In the short run, it’s more neutral because the A350 is going to have its first flight and that’s a major milestone.”