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BOEING SOARS AS AIRBUS HITS TURBULENCE
BY GEOFFREY CRAIG
It has been a turbulent few months for European
aviation giant Airbus. The world’s largest maker of commercial
aircraft has faced a top management shakeup, a losing battle in
the mid-size carrier division and a growing fiasco with its A380
super-jumbo jet, leaving many analysts wondering whether it will
cede the top spot to its archrival, US-based Boeing Company.
In October, Airbus announced the third production delay in a year
of the A380 due to electrical wiring problems. Airbus told airlines
to expect delays of more than two years beyond the dates they were
initially promised for deliveries, prompting threats of cancellations.
Airbus had taken 134 orders for passenger versions of the 560-ton
jet, which can seat up to 550 people, making it the world’s
largest passenger airliner. It has also received 25 orders for a
cargo version. But the fate of its cargo program now seems in peril
after FedEx, last month, became the first customer to scrap an order.
FedEx’s original commitment for 10 A380s was valued at $2.3
billion at the time they were ordered in 2001. Instead, the US cargo
carrier will purchase 15 Boeing 777 long-haul freighters, an order
worth $3.6 billion based on list prices. If Airbus’ two remaining
cargo customers, United Parcel Service (UPS) and International Finance
Lease Corp. decide to cancel, the future of the aircraft-maker’s
cargo program could be in jeopardy.
Analysts, however, say it is unlikely that passenger airlines will
drop their orders because Airbus has offered generous incentives
and because no other passenger aircraft can beat the A380 in terms
of capacity. Emirates Airlines, the biggest A380 customer, has not
canceled any of its 45 orders, but has said it would send engineers
to Airbus’ home base in Toulouse, France, to determine whether
the planes would indeed be delivered on their new schedule.
Virgin Atlantic Airways deferred delivery of its first A380s until
2013, allowing Airbus to give priority to customers including Singapore
Airlines, which owns 49 percent of Virgin Atlantic. Representatives
from Lufthansa and Air France-KLM, which also have large orders
for the A380 pending, have stated they have no plans to cancel their
orders.
Nonetheless, production woes have been a public relations nightmare
for the European aircraft-maker. In the midst of recent bad news,
Airbus’ chief executive resigned after three months on the
job.
The $10 billion effort to develop the A380 super-jumbo jet was a
cornerstone of Airbus’ strategy to break Boeing’s monopoly
in large commercial aircraft. But that strategy has come unglued
amid delays, which, Airbus admits, will slash about $3.6 billion
from earnings over the next four years. As a result, the company
has said it would need to sell 420 of the planes to break even,
up from its initial estimates of 250, and does not expect to post
a profit until after 2010.
The FedEx cancellation will help Boeing extend its lead over Airbus
in orders this year, as the US company seeks to finish ahead of
its European rival for the first time since 2000. Boeing has recaptured
the lead in orders by a 5-to-2 ratio this year, in large part because
of the hype surrounding its 250-seat 787 Dreamliner, a plane still
in development. Boeing promises that the wide-body jet will burn
20 percent less fuel than a jet of similar seating capacity. The
company claims to have more than 400 orders and commitments for
the airplane model, which is due to begin delivery in mid-2008.
Airbus has run into difficulties designing its competing mid-size
plane, the A350 XWB. Its parent company, European Aeronautic Defence
& Space Co. (EADS), announced it would not allow Airbus to launch
its A350 program until it proved that the financial and development
resources were available, and that it had a grip on the industrial
processes blamed for the A380 delay.
The A380’s delays have not directly impacted Egyptian carriers
because they have no demand for an aircraft of that size, say airline
representatives.
Boeing has managed to rebound in Egypt over the past year after
Airbus seemed poised to dominate the market for years to come. National
carrier EgyptAir had turned in recent years to Airbus for its fleet
renewal program. The airline ordered seven A330s in 2003 and five
A320s in early 2004, its only new planes since its Boeing deal in
1997. However, in August 2005 the state-owned airline ordered six
737-800s and the option to purchase six more.
In October, Boeing delivered the first 737-800 and EgyptAir exercised
its option for six additional planes. The total order of 12 airplanes
is valued at $850 million, according to list prices. In a press
release, EgyptAir Holding Company’s chairman and CEO, Atef
Abd El-Hamid, said the new aircraft “meets our needs to maximize
our operating efficiency and provide excellent service to our passengers.”
EgyptAir currently has four Boeing 737-500s and five 777-200s. The
airline sold its last remaining Boeing 767 in 2003; the other crashed
during a transatlantic flight in 1999, while its two aging Boeing
747s were recently decommissioned. With the addition of the 737-800s,
the fleet will consist of 20 Boeing and 25 Airbus, plus four Airbus
cargo planes.
In October, EgyptAir Express – a subsidiary of EgyptAir that
flies domestic routes – signed a $170 million contract with
Brazilian manufacturer Embraer to purchase six ERJ 170s, with options
for another six aircraft of the same type. Delivery of aircraft
will begin in April 2007 and continue for four months
Habib Fekih, president of Airbus’ Middle East operations,
says there are no pending orders with EgyptAir. Airbus is waiting
for the national carrier to finalize its five-year business strategy,
he says. “I believe there is room for competition. Then again,
we have to compete to show that we are the best and I hope that
we will succeed again.”Airbus did score a small victory when
Air Cairo, a charter airline in which EgyptAir holds a 40-percent
stake, took delivery last month of an A320, its first directly purchased
aircraft, at a ceremony held at Cairo International Airport. The
carrier has a contract to purchase four A320s to replace its two
leased A320s for charter routes between Europe and the Middle East.
One more will be delivered in December, and the other two will arrive
next year. The list price for a single A320 is about $150 million,
according to an Airbus official.
Additional orders may eventually follow. “Of course, we have
plans to expand beyond four [aircraft],” Kamal Zaki, chairman
of Air Cairo, told Business Monthly. “We have a strategy,
but in stages. First, we have to get the four aircraft, and then
we’ll increase the marketing and the number of flights.”
Boeing has also had some success wooing private Egyptian carriers.
AMC, Egypt’s largest charter airline, has phased out its Airbus
planes and no longer operates a mixed fleet. The airline received
two Boeing 737-800s this year and will receive two more as part
of its initial plans for upgrade and expansion. AMC also operates
one Boeing 737-200, and two McDonnell Douglas MD-83s.
AMC’s owner, Elsayed Saber, says he chose the Boeing 737-800s
“because they were more economical and cheaper due to better
fuel economy.”
However, Mohamed Adel, acting commercial manager of Lotus Air, argues
that the savings accrued from the Boeing 737-800’s fuel consumption
do not offset the higher monthly lease cost. “I would have
preferred leasing [a B737-800], but it was too expensive,”
he says. Instead, Lotus decided to lease its three A320s.
According to Adel, the quoted lease price on a Boeing 737-800 was
$350,000 per month, while the Airbus A320 was only $170,000, and
the monthly insurance premium was $10,000 more for a Boeing. “The
fuel consumption was better, but not by enough to justify the price
difference,” he says.
While the super-jumbo A380 continues to grab headlines, the Boeing-Airbus
rivalry is being played out by medium- and small-size aircraft in
Egypt. After scoring a big sale with EgyptAir, Boeing has put to
rest claims that Airbus will dominate. If anything, the latest developments
signal that, for the foreseeable future, it is unlikely one aircraft-maker
will dominate Egypt’s skies.
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