Emirates in Elephant Airliner Deal, Win for Airbus [Updated]
Boeing Gets a little slice
By blackhedd Posted in Airbus | Airlines | Boeing | Congress | Dubai | Economy | Emirates — Comments (8) / Email this page » / Leave a comment »
Story here. The United Arab Emirates hosted their own airshow this weekend, and they announced a deal to buy Airbus products with a nominal value over $30 billion.
Our hometown team, the Boeing Commercial Airplanes division, got a much smaller order from Emirates. This story is noteworthy for several reasons.
Update: The central bank governor of the United Arab Emirates was quoted as saying that several Gulf states (also including Kuwait) may abandon their domestic currency pegs to the US dollar. Since these countries get paid for oil in dollars but import goods mostly from Europe, the weak dollar is generating big inflation for them.
More...
Why are people obsessed with airliners and purchases of airliners? Partly because air travel is one of the key indicators of the economic dynamism of any nation. Partly because large-airframe manufacturing is a high-tech business that creates lots of great jobs.
And partly because airlines, airliners, and air travel are just so darned glamorous.
(Of course, if you live in the United States, commercial air travel will strike you as pretty far from glamorous. In fact, it's probably close to the last thing you'd ever want to do. The total broken-ness of civil aviation in the US is part of the story.)
First let's look at Airbus. This is a company that has had no end of trouble in the last couple of years, and on nearly every front. They had engineering and production problems that delayed their A350 and A380 platforms. The A350 is critical because it will compete against Boeing's new 787 product. It's hoped that the A380, a four-engine superjumbo, will open up new markets in Asia over the next few decades that Boeing will not be competitive in.
Airbus' execution problems have inevitably led to financial difficulties and layoffs, several reorgs and the departure of a CEO. This year, they claim they have been hurt badly by the sharp appreciation of the euro, which gives Boeing a cost advantage, all else equal. Of course all else is not equal, as French and German taxpayers are known to have subsidized the financing of Airbus planes.
If you perked up your eyebrows when you heard French President Nicolas Sarkozy speak of "economic war" in Congress last week, now you know what he was talking about.
And more recently, senior Airbus executives have gotten themselves messed up with accusations of insider-trading. Tsk, tsk. Execution and currency problems are one thing. But malfeasance by management is just shooting yourself in the foot.
Nevertheless, the biggest thing about the airliner business is your strategic marketing. That's because your product cycles are measured in decades so there's no margin for error. And Airbus' large-load/long-haul strategy just got a huge vote of confidence with the enormous order from Emirates. They have committed to buy enough of the A350 to firmly launch that product, and a few more A380s in addition to their previous orders for the superjumbo.
Boeing came up short as their new airframes and General Electric's engine offerings didn't match Emirates' requirements. This isn't good news for the hometown team, which has now lost its position as the world's number-one airplane manufacturer. They will get some market share back when their new 787 versions come on line late next year, but they'll have to scramble.
Now what's the story with the United Arab Emirates? They're among the few oil-states with the ambition to use their resource wealth to actually create real economies. Their drive to become a global transport hub is part of the rationale for a huge, all-new fleet of long-haul airliners.
You really have to admire the way that Dubai has risen from desert sand as a soon-to-be world-class city. They're doing a lot of things right. They're well-integrated into the coming global economy. They're still pro-American even though Congress insists on kicking them in the teeth periodically.
And they will be one of the key behind-the-scenes players in the ongoing War on Terror. Like Saudi Arabia, Emirates have a pretty good thing going with the whole energy-export thing. The very last thing they need is a bunch of hard-core weirdos in Iran to go nuclear, promote terrorism, destabilize Arab populations, and fart in everyone's airlocks.
But the Saudis are just trying to keep a lid on things as they are. The Emirates are going at it in a much healthier way.
Where does that leave Boeing Commercial Airplanes? Hey, wait a minute. Didn't Congress, in their infinite wisdom, put the kibosh on a bid by Dubai World Ports to manage harbor facilities in the United States? Do you suppose that had anything to do with Emirates' decision to favor Airbus over Boeing?
Naaaaaaaah, couldn't be. Could it?
« Boeing v. Airbus — Comments (7)
Emirates in Elephant Airliner Deal, Win for Airbus [Updated] 8 Comments (0 topical, 8 editorial, 0 hidden) Post a comment »
I don't know that much about aviation economics, all I can do is hope that Boeing is right about smaller, more customer-friendly, more efficient air travel. I like the idea, more than cramming into one of Airbus's jubmo jets.
The one thing Boeing should have working for it, is quantity, as the A380 is limited in the number of airports it can actually land at (at least, this was the case last year).
R.J.
;-)
The A380 isn't going to have airport problems. (I know about the gate-capacity and the chewing-up-tarmac problems, but they're overdone.) Singapore Airlines are flying the first A380 with revenue passengers now, and so far it's a hit. It's a beautiful airplane.
Boeing's strategy may turn out to be a better fit for North America than for Asia. If so, they will have two counts against them. First, Asia is where the growth is in the next few decades. And second, air-traffic control in the US is in an impossibly over-extended state, meaning we can't really handle many more airplanes. And I've seen no indications whatsoever that this problem will get fixed.
be seen.
While the Asian market will grow faster, the replacement market in the US is huge. The existing fleets of B757/B767 will have to be replaced, and it may be possible to consolidate some B737 flying (the 737 is the biggest selling jetliner in the world) with larger aircraft, but not quite as large as the A380.
Fuel and load factors are wild cards, because airline long-term financial plans (guesstimates) have been based on crude in the $50-$60 range, not current prices. In the 1970's, the 747 nearly bankrupted carriers because it was simply not an economical plain after the oil shocks- increased ticket sales lagged the higher fuel bills.
Our existing ATC system is one step ahead of the Stone Ages. It could handle many more aircraft if the government replaced the 1960'ish technology with modern systems.
...in North America. I'd say that Boeing is well-positioned with the 777 to replace the 767s, and the Dreamliner to replace the 757s. But Airbus also has been doing very well with the A31x and A320 in markets served by the 737.
Airline economics in the US depends increasingly on the hub-spoke model, and I'd guess this trend will accelerate as demographic trends continue to push our populations south and west. Big beneficiaries of this are Canada's Bombardier and Brazil's Embraer.
It would take an expert (which I'm not) to tell you whether the move to regional jets (on flight-legs between small cities and hub cities) will add to or subtract from the market for larger planes on legs between hub cities.
ATC: there is no shortage of great ideas for fixing this system, which is just incredibly bad and getting worse every day. Unfortunately, this has been known for decades. Huge dollars have been spent on attempts to fix the system, and they have gone nowhere.
Of course, it's the A340, not the A380, but it's close enough for emirate, I mean government, work!
http://www.aintv.com/home.asp?CATEGORY_ID=54&ID=203&FMT=WM
While this is a big order for Airbus, firm orders are one thing and options are another! Actually paying for planes is a third, and making money is a fourth.
The 787 is a real airplane, as is the A380. The A350 is, um, being developed. :>)
This year, Airbus and Boeing are neck-and-neck. Ever since Phil Condit got the axe (I blame him for its major production snafus and other ailments in years past), Boeing's been doing pretty well, although it hurt to lose Mullaly to Ford Motors.