Boeing averts massive order loss

Boeing Co (BA) is taking a page from Airbus SAS's playbook seven months after the European aircraft maker began reaping record sales by upgrading its workhorse jet. The US planemaker won an order for 200 single-aisle jets on Wednesday from American Airlines, with half of its jets updated variants of its latest 737 airliner to follow Airbus down the route of new engines. Airbus took home 260 orders, in the biggest-ever industry deal. Boeing's decision ends months of speculation about whether it would upgrade its 737 or pick the more expensive option of a complete redesign that can cost more than $10 billion (Dh36.7 billion). Airbus unveiled its A320neo in December, and has won more than 1,000 orders or commitments to make it the fastest selling jet ever. "This could have been a catastrophe for Boeing," said Richard Abu Lafia, vice president of the Teal Group, a Fairfax, Virginia-based aviation consulting firm. "Boeing recognised this as the heart-attack moment that it was." Article continues below The A320neo is slated for delivery in 2015. Boeing said its re-engined jet will enter service in "mid-decade" and reach American in 2018. Directors will vote on the matter next month, and sales will start "this fall," Boeing said. Joint venture Like the current 737, the new variant will have one engine option only, the Leap-X power plant built by CFM International, a joint venture between General Electric Co (GE) and Safran SA (SAF) of France. The neo, which stands for "new engine option," offers an alternative engine made by Pratt & Whitney. Boeing rose $1.54, or 2.2 percent, to $72.07, while European Aeronautic Defence & Space Co, the parent of Airbus, rose 86 cents, or 3.6 per cent, to €24.79(Dh130) in Paris trading. With American poised to rejuvenate its fleet, Chicago-based Boeing managed to avert an upset by a carrier that had bought only US jets since 1987. Boeing decided to revamp the 737 after hitting a "stumbling block" in the effort to build an all-new jet, its preferred choice, Jim Albaugh, the commercial airplanes chief, said. While the technology for a new jet is available, it wasn't clear that Boeing could achieve high-volume output to permit the 2020 launch that carriers were demanding, he said. Immediate action "It came down to talking to customers, and when we talked to them about the prospect of a new airplane pushing out to the right, it became pretty apparent there was a bias to do something now, to do the new engine," Albaugh said. As recently as last month, Albaugh said at the Paris Air Show that customers were willing to wait for "something more revolutionary." Boeing had plenty of time to decide, Albaugh said at the time, echoing repeated comments by executives that they favoured an all-new jet ready by decade's end. He said that the new plane now will shift "well into the next decade." Airbus also spent months studying the feasibility of re-engining. Both companies have struggled to maintain multiple programs, with Airbus still working to improve output of its A380 superjumbo and keeping its A350 wide-body jet on target for a 2013 introduction. Boeing is more than three years late on its 787 Dreamliner, and its latest 747 is also behind schedule. "We love competition, and the fact that we have the neo on the market and they have their re-engining means that the competition will continue without dramatic differences," Airbus sales chief, John Leahy, said in a telephone interview. "An all-new plane offer would not be stabilising." Narrow-body jet Airbus has said it doesn't expect to have the technology for an all-new narrow-body jet until the middle of next decade. Boeing's overhaul concept had earlier envisioned engines with 70-inch fans, up from 61 inches on the newest 737, and would have forced the planemaker to raise the landing gear and strengthen the wing. Engineers went back to work with engine makers to study 65- to 66-inch fans that would be more efficient and prompt fewer changes to the plane. The A320 sits further off the ground, making larger engines easier to fit. Success in the single-aisle market is essential for both manufacturers because the segment represents the largest portion of the civil aviation industry."something more revolutionary." Boeing estimates that narrow-body planes, which typically seat between 110 and 200 passengers, will make up as much as 70 percent of the market in two decades. Airbus introduced its A320 in the late 1980s and built its success on the jet, becoming industry leader in 2003. Both companies are increasing production of single-aisle jets to meet demand, and Airbus and Boeing are sold out for several years. The 737 costs about $80 million, and an A320 is about $5 million more, though customers typically get discounts. American's order will help retire some of the oldest jets in US fleets. In 2010, its planes averaged 15 years of age, tied with Delta Air Lines Inc (Dal) for the oldest among the six biggest US carriers. The new jets would be 45 per cent more fuel efficient than Boeing's MD-80s for each seat flown a mile, American said. The MD-80s average more than 20 years of age. "To the great credit of both of these manufacturers, when we approached them about not doing a split deal, but both deals, they both saw the merits in it and were extremely cooperative, great partners in getting it done," said Vasu Raja, American's managing director for corporate planning. The appeal of new engines that promise efficiency gains of as much as 15 percent became evident at the Paris Air Show, the world's biggest industry exhibition. Airbus won more than 600 orders or commitments for its A320neo, all from existing buyers. The order inflow eclipsed Boeing, which managed to sign up only a fraction of that number for its 737. ‘Neo dominance' "What is regrettable is that it took an established Boeing customer to convince them that a response to the neo was needed in the near term," said Michel Merluzeau, managing partner at Seattle-based consultant G2 Solutions. "Boeing might have been able to put a dent in the neo dominance in the first half of this year had it committed to a competing solution." Delta Air Lines Inc is shopping for as many as 200 more fuel-efficient aircraft to replace its aging fleet. United Continental Holdings Inc may also be looking for new jets. "This will help Boeing get the momentum back as the battleground opens for these mega-US airline orders," said Paul Sheridan, head of risk analysis at London-based aviation consultant Ascend. "It's great for airlines. They can negotiate pretty good deals."