Airbus SAS (EAD) won a first-ever order from Japan Airlines Co. (9201), securing a deal for as many as 56 wide-body planes that signals its penetration of a key aviation market where Boeing Co. (BA) has enjoyed a near-monopoly for decades.
The European manufacturer won firm contracts for 18 A350-900 aircraft and 13 larger A350-1000s worth $9.5 billion at list prices, plus options for 25 more planes, Chief Executive Officer Fabrice Bregier said today at a press conference in Tokyo.
Airbus’s big break in a country with one of the largest wide-body fleets comes after Boeing’s 787 Dreamliner was delayed for years during development and then grounded with battery faults on entering service. The A350 order takes the company’s share of the Japanese market to 20 percent from 13 percent and will provide momentum for further deals, according to Bregier.
“This is an outstanding achievement for Airbus,” said Bertrand Grabowski, managing director for aviation at DVB Bank, one of Europe’s biggest aircraft financiers. “It’s hard not to imagine that the 787 grounding hasn’t played its part, and that Japan Airlines finally realized dependence on one manufacturer isn’t perhaps the best policy for a world-class airline.”
Airbus parent European Aeronautic, Defence & Space Co. rose as much as 2 percent to a record 50.18 euros and was priced up 1.9 percent as of 12:39 p.m. in Paris, taking the stock’s advance to 70 percent so far this year.
JAL, as Japan Airlines is known, closed 3 percent higher at 5,810 yen in Tokyo for a 57 percent gain in 2013. The carrier suffered a fire on one of its 787s on Jan. 7, while a Dreamliner operated by rival ANA Holdings Inc. (9202) made an emergency landing nine days later after a lithium-ion battery began smoking.
Boeing is disappointed at losing out to Airbus but respects JAL’s decision, the Chicago-based planemaker said in an e-mail.
“We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward,” it said. The A350 order is unrelated to issues with the 787, Yoshiharu Ueki, JAL’s president, said in Tokyo, adding that the Airbus model will improve fuel consumption.
ANA, Japan’s largest airline, said last month that it, too, is evaluating the latest Boeing and Airbus models and will reach a decision soon. The planes ordered by JAL today will enter service from 2019, according to Airbus.
“This is the blue-chip order Airbus was hoping for,” said Will Horton, an analyst at the CAPA Centre for Aviation in Hong Kong. “It certainly opens the door for follow-up orders at JAL. If ANA orders Boeing, it will have to stress why. The market will now be sensitive to who you order from.”
Bregier said today’s deal is a breakthrough order and marks the attainment of a personal goal, adding: “I am very proud to be leading the team who has accomplished this great success.”
The A350 had its maiden flight earlier this year and the first variant, the mid-sized -900, is slated to enter service in 2014, followed by the smaller -800 model in 2016 and the larger -1000 stretch in late 2017.
The A350-1000 has a list price of $332.1 million and offers 25 percent better operating economics than Boeing’s best-selling 777-300ER, Airbus says. The -900, with a price tag of $287.7 million, and the -800 both compete with the Dreamliner. The A350 has logged more than 300 test-flight hours so far, Bregier said.
Japan has been an anomaly for Airbus, proving tougher to crack even than the U.S., where it won orders for 40 jets worth $5.6 billion from Delta Air Lines Inc. last month and sold 260 narrow-bodies to AMR Corp.’s American Airlines in 2011, building on previous deals with carriers including Northwest Airlines.
John Leahy, Airbus’s sales chief, has referred to its shortcomings in the world’s No. 3 economy as his “only failure,” and EADS CEO Tom Enders said in 2011 that he was “frustrated” with the challenges of doing business in the country.
Japanese carriers were operating 43 Airbus jets at the end of last year, versus 409 Boeing planes, excluding MD-90s, according to the Japan Aircraft Development Corp.
JAL had 166 Boeing jets at the end of June, equivalent to 78 percent of the 214-aircraft fleet. The carrier also had 25 planes from Bombardier Inc. (BBD/B), 12 from Empresa Brasileira de Aeronautica SA, and 11 made by Saab AB -- but no Airbuses. ANA has also favored U.S.-made planes, with its 199 Boeings equating to 84 percent of a 238-strong fleet as of Sept. 20.
Before today, Airbus gains in Japan had come mainly from low-cost carriers leasing its planes, with both Peach Aviation Ltd. -- an ANA affiliate -- and Jetstar Japan Co. using single-aisle A320s. Skymark Airlines Inc. (9204), Japan’s top discount player, had been the only operator to order Airbus wide-bodies, with the first of six A380 superjumbos due to enter service next year.
Shukor Yusof, an analyst at Standard & Poor’s in Singapore, said Airbus’s failures in Japan have been “mostly due to politics.” Boeing’s ties there stretch back to post-World War II reconstruction, and local contractors have traditionally been given significant work-share on the U.S. manufacturer’s models.
Japanese companies designed and made 35 percent of the 787’s structure, with Mitsubishi Heavy Industries Ltd. (7011) supplying the wings and Kawasaki Heavy Industries Ltd. (7012) and Fuji Heavy Industries Ltd. (7270) part of the fuselage and center wing boxes. The record level of work coincided with Japan’s airlines being among the biggest 787 buyers, with ANA also the first customer.
The A350s that JAL ordered today will be 12 percent built in the Asian country, when the engines are included.
Today’s deal represents a “significant blow” to Boeing and the 787 and suggests the A350 will be a “game-changer” in the twin-aisle market, with ANA likely to be tempted to buy the A350 plane and even the A380, Yusof said.