Boeing’s Air-Show Revival Leaves Airbus Nursing Neo Hangover

Boeing’s Air-Show Revival Leaves Airbus Nursing A320neo Hangover
A scale model of an Airbus A320neo. Photographer: A Doumenjou/Airbus S.A.S. 2012

Boeing Co., bruised at the annual air show last year by the success of the Airbus SAS A320neo, is punching back with its 737 Max as the competing plane fails to win major contracts.

Boeing picked up an order for 75 aircraft valued at $7.2 billion from Steven Udvar-Hazy’s Air Lease Corp. on the first day of the Farnborough air show, while Airbus won one accord for four aircraft valued at about $453 million. The U.S. manufacturer is set to sweep the event, with one deal already done today and more to come.

The reversal of fortunes highlights how Boeing regained its footing after the defeat in Paris, where Airbus outmaneuvered its U.S. competitor with a product that Boeing couldn’t match at the time. While Airbus remains ahead with the A320neo by total orders to date, Boeing Commercial Aircraft President Ray Conner said he’s hopeful of closing the gap again.

“Boeing rescued a bad situation,” said Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based aviation advisory firm. “The Paris air show was a heart-attack moment and thankfully they got out the defibrillator and have come back to life. But this remains a game of catch-up.”

Godfather’s Endorsement

At the Farnborough show near London, the 737 Max won the endorsement of Udvar-Hazy, the self-proclaimed godfather of the jet leasing industry. Udvar-Hazy credited Boeing with advancing the aircraft to a point that it became an attractive proposition for his company. He bought 36 A320neos in Paris last year.

Airbus Chief Executive Officer Fabrice Bregier predicted a “good show” for his company, and that Airbus would achieve its annual target for about 650 additional orders, according to an interview at the Farnborough show.

Boeing is set to secure an order this week from United Continental Holdings Inc. for 100 of the 737 jets in a transaction valued at about $8.4 billion, people familiar with the matter said yesterday.

The company announced an agreement today with General Electric Co.’s jet-leasing unit for 100 737s, including 75 of the Max model. That commitment will be converted into a firm order once details are worked out, Boeing said.

And Grupo Aeromexico SAB is close to the purchase of about 70 mainly single-aisle jets, though that sale probably won’t be done during the expo, people familiar with those talks said. The carrier said yesterday that it’s in negotiations to acquire new narrow- and wide-body aircraft, without giving details.

A320 Success

The 737 Max seeks to replicate the success of the A320neo, which has become the fastest-selling plane in aviation history since Airbus introduced the model at the end of 2010. Still, Boeing may struggle to match the order intake for the Neo at last year’s show in Paris, as a flagging global economy is causing plane buyers to be more cautious.

“Last year’s plane environment was much more robust than this year’s,” said Carter Copeland, an analyst at Barclays Plc in New York. “If the show ends and all they have is the 75 from Air Lease, the perception will be that they’re trailing.”

The Max is winning over customers because of its ability to save fuel, Conner said yesterday in Farnborough. The plane will have a fuel-burn advantage of 13 percent over the current 737 aircraft, he said.

“We are very, very pleased with where we are on the Max,” Conner said. “The demand continues to grow.”

A350-1000 Order

Airbus rallied today with the first order for its A350-1000 wide-body jet since 2008, as Cathay Pacific Airways Ltd. agreed to convert 16 orders for the A350-900 model into the largest variant of the plane. Cathay Pacific also said it will add 10 A350-1000s.

The European planemaker’s lone first-day order was from Israeli carrier Arkia Israeli Airlines Ltd. for four A321neo aircraft, which have a list price of $113.3 million. Carriers typically get discounts.

That performance is reminiscent of last year’s debut in Paris. Airbus opened the show by racking up 90 single-aisle orders, while Boeing didn’t secure any firm orders for the 737, other than a two-plane deal from Mongolian Airlines announced in Washington.

The tally at the show also mirrors the ranking in orders this year. Airbus’s 230 net orders trail Chicago-based Boeing’s 287 in the first half.

“This is clearly the year of the Max,” said David Baxt, head of global aerospace and defense investment banking at Jefferies & Co., who attended the show. “This will be the first year since 2006 that Boeing has won more orders.”

First Move

Airbus had the advantage of first move on its plane, while Boeing still pondered its response, meaning the U.S. company didn’t have a new single-aisle plane to market in Paris.

The rout that ensued, coupled with Airbus winning over all-Boeing customer American Airlines for the A320neo, led Boeing to unveil the Max even before directors had signed off on building it. The plane is set for first flight in 2016 and first delivery in 2017, almost two years later than the A320neo.

“This time of waiting a year gave them the opportunity to optimise the airplane, so I think we’ll have a very competitive product between the 737 Max and the A320neo,” Udvar-Hazy said in an interview with Bloomberg Television in Farnborough. “I think both will do very well.”

Healthier Portfolio

Airbus isn’t sitting still. The company said it plans to set up a final assembly line in Alabama, ending Boeing’s monopoly of building large commercial aircraft in North America. The line would build mainly A320neo aircraft from 2015 as Airbus seeks to gain a greater foothold in North America.

“The U.S. market is the largest one, we have around 20 to 25 percent market share, and there is no reason why we will not reach 50 percent, thanks to this industrial manufacturing capacity,” Bregier said at the show yesterday.

Boeing’s portfolio at this year’s show is healthier than a year ago in Paris, when it had no upgraded 737, and neither the 787 Dreamliner nor the 747-8 had entered commercial service. Airbus, by contrast, has had to grapple with manufacturing faults on its A380 super jumbo and customers criticizing the design of the A350-1000 as insufficient to battle Boeing’s 777.

Even if Airbus leaves Farnborough with only few a deals for the A320neo, the manufacturer has more than 3,000 orders still pending delivery, giving the company years of work. Both airframe makers are increasing output to work through the backlog, with Airbus targeting 42 a month by the end of the year, a target that Boeing is also seeking to attain by 2013.

“The battle in the duopoly continues, and with both these aircraft a significant improvement on their predecessor, I think we’ll continue to see significant orders,” said Jefferies’s Baxt. “Fuel costs have risen from 14 percent of the total to 31 percent in nine years and that gives a tremendous impetus to take delivery of more fuel-efficient planes.”

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