For more than a decade, Airbus SAS and Boeing Co. had only each other to watch.
Now rivals from Canada, China and Russia are developing models to break into the narrow-body segment, dominated by about 10,000 Airbus A320s and Boeing 737s in operation and 4,000 on order. The single-aisle jet market will likely reach $1.68 trillion over the next 20 years, Boeing estimates.
“This cozy world of just the two of us is almost over,” Boeing Chief Executive Officer Jim McNerney said in an interview. “We’re still going to compete like crazy. If you think you had to meet promises with two guys, think about when you’ve got five.”
The shifting dynamics will be visible at the Farnborough Air Show, the world’s largest aerospace exhibition, which starts July 19. Bombardier Inc., China’s state-owned Comac and Russia’s Irkut will brief on their jets’ development. At stake is the incumbents’ hold on a narrow-body market that is the cash cow of the civil aviation industry, accounting for more than two thirds of output and about 40 percent of sales, with the two manufacturers churning out a combined 70 planes each month.
By the time the show returns to Farnborough in two years time, Bombardier’s CSeries jet will likely be in test-flight phase, ahead of market entry in 2013. Comac and Irkut have said they’ll field challengers to Airbus and Boeing by 2016.
Chicago-based Boeing and Toulouse, France-based Airbus will seek to use this year’s show to assert their dominance in the $60 billion commercial plane market. Boeing will bring its 787 Dreamliner, the jet’s first appearance in Europe, while Airbus will fly its A380, the biggest passenger jet with capacity for more than 800 seats.
About 153,000 people visited in Farnborough in 2008, and exhibitors from 38 countries are signed up to come this year. The daily flying display will include drones, or unmanned aerial vehicles, for the first time.
Manufacturers have flagged the show as a guide to the strength of the recovery, after airlines shunned new orders last year at the equivalent event in Paris. Before the global recession, Airbus and Boeing combined won $64 billion in orders at the Farnborough 2008 show, mainly from the Gulf region.
“We are negotiating several deals and believe that we could have a good show,” said Airbus Chief Operating Officer John Leahy. “The market is clearly firming as the economy recovers.” In the first half of this year, Airbus has won 131 orders, and Boeing has won 177 in the period.
One field where the two companies remain without competition is in the market for larger wide-body planes, which comprise less than a third of all jets built, yet represent about 45 percent of the value of planes delivered.
Airbus has begun building parts for the A350 jet that seats as many as 350 passengers, responding to Boeing’s mid-sized, long-range 787 Dreamliner and 15-year-old 777. That’s increased pressure on Boeing to revamp or replace its 777 to battle with the A350, scheduled to begin service in 2013.
While none of the new jets competing with Airbus and Boeing will be on display as they remain in various stages of design, Bombardier has orders for its CSeries. Deutsche Lufthansa AG, Germany’s largest carrier, plans to buy 30 units, and Republic Airways Holdings Inc. has ordered 40, bringing the backlog to 90. Qatar Airways, one of the world’s fastest-expanding airlines, has also said it may order the CSeries.
End of an Era
The 130- to 149-seat plane has a “high potential” of pulling in additional orders at Farnborough, JPMorgan Securities Inc. aerospace analyst Joseph Nadol estimates.
“One has to watch the competition, one has to take competitors seriously, like Bombardier, our Russian friends, and the Chinese,” Airbus CEO Tom Enders said. “The duopoly is slowly coming to an end. Maybe not as far as very large aircraft is concerned, that may take a little more time, at least I hope to enjoy that segment for a while before we see competition.”
Bombardier’s promise of lower emissions and fuel consumption, coupled with less noise, makes the company hopeful it can capture half the market for 100- to 149-seaters over 20 years, aerospace division head Guy Hachey said.
In Russia, state-run OAO Irkut Corp. is planning a 150- to 160-seat jet for 2016, promising 15 percent fuel efficiency over existing models. Irkut will display a mock-up of the plane’s cabin and cockpit in Farnborough and provide updates on its development.
The Chinese jet has support from local carriers. China Southern Airlines Co. and Air China Ltd., two of the nation’s major three airlines, said they’re prepared to buy the aircraft. Economic growth means the world’s most populous nation will account for about a third of Asia-Pacific aircraft orders over the next 20 years, Airbus says.
Comac has said it aims to sell more than 2,000 C919s over 20 years, with entry into service planned for 2016.
“I think they are definitely going to be a force in the industry, it’s inevitable,” said British Airways Chief Executive Willie Walsh in a July 8 interview. The timetable set by Comac is “ambitious,” said Walsh, who will seek an update on progress at the air show next week.
Airbus and Boeing have sought to blunt the upstarts’ momentum by telling airlines they may put new, more-efficient engines on current models. Failure so far to upgrade or replace them as oil prices tripled over the last 10 years has left the door open for new challengers. So far, neither planemaker has committed. The Airbus A320 entered service in 1988, while Boeing’s 737 entered fleets in 1967 and has been upgraded since.
Leahy said it may take until 2027 before Airbus can offer an all-new narrow-body. Boeing has said it won’t do so until at least 2020, without being more specific.
“Duopolies don’t get broken by a new player being aggressive,” says Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based aerospace advisory firm. “They get broken because the incumbents become complacent.”