Boeing Is Choking on Airbus' Fumes

The U.S. jetmaker is losing ground in the sale of widebody jets

It doesn't take a rocket scientist to know that something is shaking the core of the commercial-airplane business. Sure, terrorism, regional conflict, the SARS epidemic, and the sluggish economy have walloped the airline industry. But behind this turmoil, one trend remains constant: Airbus is emerging as the world's leading maker of commercial airplanes.

This year's Paris Air Show could mark a turning point in the balance of power between Airbus and Boeing Co. Simply put: Boeing is no longer winning the widebody wars -- a key measure of financial strength for a jetmaker. That has to be worrisome for the leaders of the commercial-airplane unit in Seattle, who could always count on winning the lion's share of the big-jet orders even if Airbus, which is based in Toulouse, France, sold more smaller ones. After all, Boeing invented widebody airplanes. It bet the company on the 747 jumbo jet and won big. Later, it added two popular twin-engine widebodies, the 230-seat 767 and the 300-seat 777.

But this impressive record isn't giving Boeing a lead in its latest race against Airbus. Just look at the numbers. By mid-June, Airbus had won 64% of this year's airplane orders -- 161, vs. 92 for Boeing, including firm orders and memoranda of understanding. But in total value, where it counts the most, Airbus' share is 76% of this year's orders, with list prices totaling about $26.7 billion versus only $8.2 billion for Boeing. If this lead holds up, it would be the third year in a row Airbus won not only more orders, but also more of the lucrative widebody variety. Says Airbus CEO Noël Forgeard: "Airbus is taking the lead in a market [that] was considered the home ground of our competitor."

As if to underscore Forgeard's point, Airbus landed one of the biggest sales at the air show. Persian Gulf airline Emirates plans to buy 41 Airbus aircraft in a deal valued at $12.5 billion. All the planes are widebodies -- 21 superjumbo A380s, 18 A340-600s, and two A340-500s. "We like the go-anywhere flexibility of the A340," said Emirates Chairman Sheikh Ahmed bin Saeed Al-Maktoum. "We are excited by the economics and the ability to carry more passengers in the A380. In fact, we could use some right now."

Airbus enjoys several key advantages in widebodies. Its intermediate-size A330, which carries 200 to 250 passengers, has essentially killed off the Boeing 767 with its greater fuel efficiency and longer flying range. Another plus is Airbus' uniform cockpit design, which gives airlines greater scheduling flexibility as pilots shift easily from one model to another. "It lowers our operating costs," says CEO Richard Anderson of Northwest Airlines (NWAC ) Corp., which flies A320s and A330s.

Equally heartening for Airbus are its growing orders for the double-decker A380, set to begin flying in 2006. Airbus has booked 129 firm orders, about half the number it says it needs to sell to break even. By contrast, Boeing 747 sales have nearly dried up: The planes are now sold mainly to transport cargo.

Boeing thinks Airbus is discounting heavily. "Are we concerned about them getting orders? Yes," says Randy Baseler, Boeing's vice-president of marketing for commercial airplanes. "But we are more concerned about them overproducing and underpricing." But Airbus insists it makes money on every plane. No matter what, Boeing has to stay in the game, too. It persuaded Emirates to split its orders, giving Boeing lease and sales deals including the new long-range 777-300. At the Paris show, Korean Air also placed an order for nine Boeing widebodies. Boeing also is developing the superefficient, twin-aisle 7E7 Dreamliner, intended to grab back share from the A330 by cutting fuel and operating costs. "We're very positive about the 7E7," says Alan Mulally, CEO for Boeing Commercial Airplane Group in Seattle. "Economics are going to dominate the market."

But the 7E7 isn't expected to start flying until 2008. In the meantime, if Airbus pulls far ahead in widebodies, there's a risk Boeing's slip to No. 2 could become permanent. Airbus is sticking to its delivery forecast of 300 planes this year, more than Boeing's forecast 280. That would mark the first time Airbus has led Boeing in deliveries. Looks like Airbus is set to keep hogging the runway.

By Stanley Holmes, with Carol Matlack, in Paris

— With assistance by Carol Matlack

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