Airbus Just May Win This Dogfight

The Farnborough International Airshow marked the midpoint in a year filled with doom and gloom for the commercial-aviation industry. Airbus Industrie has shed contract workers and shelved plans to jack up production by 50%. Sounds bad--until you consider the situation at archrival Boeing Co. It has slashed production by half and is axing nearly 30,000 jobs from its commercial-airplane division.

There's more. Airbus could surpass Boeing in airplane output--a milestone--by the end of next year. The Toulouse company plans to deliver about 300 airplanes in 2003, about the same as this year, while Boeing says its own output could fall to as low as 275 next year, from around 380 in 2002. Says Airbus President and CEO Noel Forgeard: "For the airlines that are financially strong, it's a good time to place orders." Forgeard's upbeat comments contrast sharply with those of Boeing Chairman and CEO Philip M. Condit, who calls the slump the "worst decline the industry has ever seen."

Times may be tough, but Airbus is still playing the role of spoiler. Chicago-based Boeing claims Airbus is relying on deep discounts to win orders--a charge its European competitor rejects. Whatever the case, the newer Airbus fleet, with standard cockpits and models, offers compelling operating efficiencies that airlines can't ignore. In mid-July, Airbus nabbed an order for 18 medium-haul A320s from Aeroflot. Boeing, which had spent a billion dollars trying to carve a Russian foothold, inked a deal for just nine twin-aisle 767s.

Airbus also has persuaded British discount carrier easyJet Airline Co. to reconsider buying 120 Boeing 737s, a $6 billion deal billed as this year's biggest. "We're fighting very hard to get this deal," says Airbus Chief Operating Officer Gustav Humbert. That would be a coup for Airbus, which lags in sales to low-cost carriers.

The real money is in big jets, though. Airbus is now making inroads into the lucrative 400-seat category. It has 98 orders and 50 options for its new 555-seat A380: Deliveries start in 2006. FedEx Corp. has firmed up an order for 10, making it the superjumbo's first U.S. customer.

It's not all clear skies, though. Airbus has more of its backlog tied up with leasing companies like International Leasing Finance Corp. and GE Capital--about 44%, compared with a third for Boeing. Since the leasing companies are such big customers, they get more leeway in their contracts to postpone delivery in bad times.

And even though Airbus' operating margin of 16.5% last year exceeded Boeing's 10.5%, that could change if the crisis festers. Airbus has budgeted $10.2 billion to develop the A380 and is now reaching the peak of that spending. Potential hazards, for sure. But in this latest round, the Europeans lead.

By Stanley Holmes in Farnborough

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