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Airbus wins lion’s share of huge American Airlines order Add to ...

European aerospace giant Airbus SAS has broken U.S. rival Boeing Co. long-standing stranglehold on key customer American Airlines by winning a share of a blockbuster order of 460 planes – the biggest in aviation history – that ratchets up the stakes over the lucrative single-aisle jet market.

American, a unit of AMR Corp. , said it plans to order 260 Airbus aircraft from the manufacturer’s A320 family, as well as 200 Boeing 737s in a deal estimated at being worth more than $38-billion (U.S.).

In a surprise move, Chicago-based Boeing said it is now committed to developing a variant of its best-selling workhorse 737 to meet current market demand, instead of opting to design and build an all-new plane to be launched much later.

Half of the 200 737s ordered will be a new version of the plane with upgraded, more fuel-efficient engines, and half of the 260 A320s will be re-engined models.

Industry experts say Boeing’s decision to proceed with a re-engined 737 is clearly defensive in light of the success Airbus has been having – more than 1,000 orders so far – with the re-engined A320, known as the A320neo.

The development intensifies the battle between the two giants as airlines around the world seek to renew their aging fleets and secure low-cost, fuel-efficient planes in the 110- to 180-seat category to counter the effect of rising fuel costs and heightened competition as well as to better prepare for the next downturn.

Montreal-based Bombardier Inc. is vying to crack the narrow-body market with its all-new C Series single-aisle jet at the lower end of the market – 110 to 145 seats. Boeing’s decision to go with the lower-cost re-engining strategy provides an opportunity for Bombardier as it seeks more customers for the $3.4-billion C Series program, said National Bank Financial analyst Cameron Doerksen.

A re-engined 737 faces the same challenges as Airbus’ revamped A320neo, he said in a research note. Both models will be much heavier than the C Series and thus not as cost-efficient to operate, he said. The C Series will be the only all-new narrow body on the market until either Airbus or Boeing develop their own completely new planes, likely not until after 2020, he said.

On the other hand, RBC Dominion Securities Inc. analyst Walter Spracklin said “this is a mild negative for Bombardier. The response from Airbus and Boeing will result in the C Series being not as unique and not as differentiated from a fuel-efficiency standpoint.”

Benoit Poirier of Desjardins Securities said in a note that Boeing’s move is a “short-term negative for [Bombardier], given the increased competition from the re-engined B737 (not a huge surprise); however, we believe Boeing’s decision could accelerate C Series orders, as we believe that some airlines were waiting for Boeing’s decision before committing to aircraft purchases.”

“Given the pressure to retain AMR as a customer, they [Boeing] had little choice but to offer a new engine,” said Howard Wheeldon, a senior strategist at London brokerage BGC Partners.

“The AMR order is not only significant in that it sees Boeing finally provide commitment to further upgrade the 737 family but also that this order comes from a large U.S. legacy carrier.”

Boeing felt the pressure to re-engine its 737, given the growing popularity of the A320neo, say observers, who add that Boeing had to act because if Airbus could crack American Airlines, other airlines would be tempted to order the A320neo too.

Richard Aboulafia, vice-president of analysis for Teal Group Corp, said Boeing “avoided a disaster” in finally mobilizing its forces and offering a 737 variant in the face of continued inroads made by Airbus.

“There was a real feeling in the market that Boeing was a far cry from coming up with an effective response” to the threat from Airbus, he said.

For Fort Worth, Tex.-based American Airlines, a loyal Boeing customers for decades, the split order marks the first time it opts for Airbus product since 1987.

“This is significant because of the size of the order for Airbus, which had been shut out before,” said Robert Kokonis, president of airline consulting firm AirTrav Inc. “There had been some concerns in Boeing circles that the entire order was going to go to Airbus.”

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