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Airbus Loosens Boeing’s U.S. Grip on Japan’s Market Airbus Loosens Boeing’s U.S. Grip on Japan’s Market
(about 5 hours later)
TOKYO — In selling planes to airlines, Boeing has long counted on the United States as its local market. Its big rival, Airbus, holds the home-field advantage in Europe. And the two compete head to head virtually everywhere else in the world. Stung by all the problems with its new 787 Dreamliner over the past decade, Boeing waited too long to start updating its larger 777 jets, giving Airbus an opening to break into the Japanese market that Boeing had dominated for decades, aviation analysts said Monday.
Except for Japan. It is Asia’s second-biggest airline market, and for reasons tracing to World War II had been all but a captive buyer of American airplanes. And the European company rushed through that opening, announcing a $9.5 billion order from Japan Airlines earlier Monday for 31 A350 wide-body jets.
On Monday, that changed. The planes are expected to replace Boeing 777s in the carrier’s long-haul lineup. But the deal could also have broader implications, signaling a weakness in Boeing’s marketing plans and potentially threatening some of Boeing’s relationships in a country that has invested billions of dollars in helping develop its planes.
As beaming European diplomats looked on here, Airbus announced a $9.5 billion order from Japan Airlines, finally breaking through Boeing’s market fortress. “This was their market to lose, and they lost it,” said Richard L. Aboulafia, an analyst at the Teal Group in Fairfax, Va.
For JAL, as the airline is known, the contract is partly about diversifying its suppliers — and the need for a class of new planes that Airbus can deliver sooner than Boeing. And as the world’s airlines are demanding new generations of fuel-efficient planes, both Boeing and Airbus are likely to continue receiving orders that will take them years to fill. That may be why Boeing’s stock price barely budged through midday trading in New York on Monday, while the shares of Airbus’s parent, the European consortium EADS, were up 1.7 percent in Europe. Even with the highly publicized battery problems and other frustrating delays on the 787, “if Boeing had aken a far more aggressive tack in launching new programs like the 777X,” he added, “it probably could have kept this market.”
Analysts nonetheless saw it as a blow to Boeing, which has stumbled of late over problems with its 787 Dreamliner, most notably in Japan. Boeing has said it had simply been trying to get the designs right for the new planes, and its sales force started pitching airlines and jet leasing companies last spring on the 777X, its name for more fuel-efficient versions of its popular 777 jet. The twin-engine planes now carry more than 300 passengers over long distances, making them economical workhorses for many airlines, and the new versions could carry 350 to 400 people.
Boeing’s board has not yet granted formal approval or money to start work on the 777X, while Airbus has already conducted the first test flight of the A350. Analysts now expect the board to approve the 777X this month, and the airline Emirates has said it might follow that approval with an order for 100 to 175 of the planes, worth perhaps $30 billion to $50 billion at list prices.
Support from Emirates and other large carriers will undoubtedly make the 777X a success over all, the analysts said, especially since the global demand for new fuel-saving planes far outstrips the ability of Boeing and Airbus, the main manufacturers of large airliners, to build them.
But Boeing’s strategy calls for it to be dominant in the sales of midsize and larger jetliners because Airbus has pulled ahead in sales of the newest single-aisle planes, with the A320 neo tallying more advance sales than Boeing’s 737 MAX.
“Boeing management has focused recently on its plans to dominate the wide-body market,” Ronald J. Epstein, an aviation analyst for Bank of America Merrill Lynch, wrote in a note to clients. But if Japan Airlines’ order for the A350s “is any indication,” he added, “this may not be playing out as planned.”
Two other longtime Boeing customers, Cathay Pacific Airways and the International Airlines Group, which runs British Airways, also have ordered A350s.
Boeing hopes to capture most of the wide-body sales by offering three different sized versions of the 787 and two models of the new 777, which will have a giant wing made of carbon composites. The lightweight materials have helped the first version of the 787 cut fuel costs by 20 percent compared to older planes, and the A350 is expected to offer similar savings.
Over the decades, Japanese companies have come to play an important role as Boeing suppliers, culminating with the 787, 35 percent of whose parts are made in Japan.
The government has provided generous subsidies to the suppliers, helping them to win crucial contracts with Boeing and reducing Boeing’s upfront costs. Japanese companies are responsible for 12 percent of the A350’s production, and now Airbus could offer the Japanese more work to win more sales.
Before Monday’s deal, Boeing and Airbus had competed head-to-head virtually everywhere in the world except for Japan. It is Asia’s second-biggest airline market, and for political reasons since the reconstruction after World War II, it had been all but a captive buyer of American airplanes.
For JAL, as the airline is known, the contract is partly about diversifying its suppliers, along with quicker delivery times. Airbus has promised to deliver the planes by 2019. Boeing does not expect to sell its first 777X until 2020, and many analysts doubt it can meet that deadline, given all the problems in other new planes.
“Certainly this is the big order Airbus was hoping for, the big foot in the door that could lead to new orders,” said Will Horton, an analyst at the CAPA Center for Aviation in Hong Kong.“Certainly this is the big order Airbus was hoping for, the big foot in the door that could lead to new orders,” said Will Horton, an analyst at the CAPA Center for Aviation in Hong Kong.
JAL and Airbus said the airline would buy 31 A350 wide-body long-distance jets, which are expected to replace Boeing 777s. Airbus is set to begin deliveries of the A350, a new plane that made its first test flight in June, to the airline in 2019. JAL, one of the early buyers of the 787, was frustrated this year after battery problems grounded the Dreamliners for several months; at the time, JAL indicated a need for a second aircraft supplier. But JAL’s president, Yoshiharu Ueki, said on Monday that the decision to buy the A350 had “nothing to do with that situation” and was focused more on low operating costs.
Boeing has its own replacement planned for the 777, which it refers to as the 777X, but that aircraft is not as far along in development at the Airbus A350. And after battery problems grounded Boeing Dreamliners for months this year, JAL indicated a need for a second aircraft supplier. Still, Scott Hamilton, managing director of the Leeham Company, an aviation consulting firm in Issaquah, Wash., said the airline’s earlier statements indicated that “there was some recognition that maybe you do need to have dual-sourcing.” He added: “The fact that Airbus could deliver the A350 before the 777X is part of it.” And given that sales of commercial jets often come with large discounts off the list price, he said, “I’m sure JAL got a hell of a deal.”
“I think that there was some recognition that maybe you do need to have dual-sourcing,” Scott Hamilton, managing director of the Leeham Company, an aviation consulting firm in Issaquah, Wash., said on Monday. Boeing declined to comment, other than issuing a statement that read in part: “Although we are disappointed with the selection, we will continue to provide the most efficient and innovative products and services that meet longer-term fleet requirements for Japan Airlines.” ”
“I think the fact that Airbus could deliver the A350 before the 777X is part of it,” he said. “And I’m sure JAL got a hell of a deal.”
Boeing declined to comment, other than issuing a statement that read in part: “Although we are disappointed with the selection, we will continue to provide the most efficient and innovative products and services that meet longer-term fleet requirements for Japan Airlines. We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward.”
European governments went out of their way to acknowledge the symbolism of Airbus’s Japanese breakthrough. Diplomats from France, Germany, Britain and the European Union were on hand as the purchase agreement was signed by Fabrice Brégier, the Airbus chief executive, and Yoshiharu Ueki, JAL’s president, at a news conference in Tokyo.
Laurent Fabius, the French foreign minister, noted that the deal was sealed after many months of high-level lobbying by European officials, including President François Hollande of France during his visit to Tokyo in June.
“This is a success for Europe’s aeronautic industry as well as for economic diplomacy,” Mr. Fabius said in a statement.
Airbus and Boeing have been jousting for global leadership for years, with Boeing regaining the top spot in orders last year for the first time in a decade.Airbus and Boeing have been jousting for global leadership for years, with Boeing regaining the top spot in orders last year for the first time in a decade.
Airbus long ago pushed into other Asian markets like China. But Japan, where Boeing has been firmly entrenched since the end of World War II, has remained unusually loyal to the American company. JAL had never bought a plane from Airbus, and JAL’s main domestic rival, All Nippon Airways, operates mostly Boeing jets. Airbus long ago pushed into faster-growing Asian markets like China. But JAL had never bought a plane from Airbus, and JAL’s main domestic rival, All Nippon Airways, operates mostly Boeing jets.
After World War II, when B-29 bombers made by Boeing played a large part in Japan’s surrender, firebombing Tokyo and dropping the atomic bombs on Hiroshima and Nagasaki, the occupation force banned Japan from making its own airplanes. So Japan’s retooled peacetime industry soon focused instead on becoming a supplier to the largest plane maker at the time, Boeing. Fabrice Brégier said he had been courting JAL executives intently since taking over as chief executive of Airbus last year. “I think in the past Airbus did not work closely enough with potential customers in Japan,” he said.
Over the decades, Japanese companies have come to play an ever-larger role as Boeing suppliers, culminating with the 787, 35 percent of whose parts are made in Japan. The government has provided generous subsidies to the suppliers, helping them to win crucial contracts with Boeing. JAL, which was once owned by the government, was privatized in 1987, only to be bailed out repeatedly with public money.
Japanese companies are also responsible for 12 percent of the A350’s production, if suppliers to the plane’s Rolls-Royce engines are included. “Now they are trying to express their independence and trying to run the business for shareholders and customers, not politicians,” said Ryota Himeno, an analyst at Barclays Capital.
In the postwar years Boeing was not the only American plane maker in Japan; JAL also bought planes from Douglas, one of the precursors to McDonnell Douglas. But in subsequent decades, mergers and consolidation of the American airplane industry left Boeing as the last big manufacturer standing. And so the desire by Japanese carriers to diversify predated this year’s Dreamliner problems.

Nicola Clark and Hisako Ueno contributed reporting.

Mr. Brégier said he had been courting JAL executives intently since taking over as chief executive of Airbus last year. Mr. Brégier, who worked in Japan early in his career for Pechiney, the former French metals company, spoke a few words in halting Japanese at a news conference in Tokyo before switching to English.
“I have tried to give the best of Airbus to convince JAL that it was a no-brainer to select Airbus,” he said. “I think in the past Airbus did not work closely enough with potential customers in Japan.”
The Japanese air travel market is the second largest in Asia, behind China’s, though China’s is growing faster. Worldwide, Japan ranks sixth in number of passengers carried annually, after the United States, China, Britain, Spain and Germany.
Boeing has 428 passenger and cargo planes in service in Japan, compared with 61 for Airbus, according to Ascend, an aviation consulting firm. In China, by contrast, the two manufacturers are neck and neck, with more than 950 planes each in operation.
The longstanding ties between the Japanese carriers and Boeing have also been subject to new tensions over problems with the 787 Dreamliner, one of Boeing’s newest planes. Not only have All Nippon and JAL bought 787s, but also a substantial portion of the planes’ manufacturing takes place in Japan. Mitsubishi Heavy Industries, for example, makes the wings.
The introduction of the 787 was delayed several times, with the first delivery, to All Nippon, coming in 2011. Then, this year, Dreamliners worldwide were grounded for months by problems with batteries, causing scheduling and logistical difficulties for the Japanese carriers and other 787 customers.
“I think it played a significant role in this decision,” said Geoffrey Tudor, a former JAL executive who is an analyst at Japan Aviation Management Research in Tokyo, referring to the grounding of the 787.
JAL’s president, Mr. Ueki, said, however, that the decision to buy the A350 had “nothing to do with that situation.” He said JAL had chosen the A350 for other reasons, including an expectation of low operating costs. Like the 787, the A350 uses a substantial amount of lightweight composite material in its structure, lowering the weight and the fuel consumption.
JAL, which was once owned by the government, was privatized in 1987, only to be bailed out repeatedly with public money. In its latest and biggest crisis, the company filed for bankruptcy protection in 2010 and later received a capital injection of 350 billion yen, or $3.6 billion, from a government-supported fund. JAL sold $8.5 billion worth of stock to the public last year.
In the past, “JAL always followed what the government or powerful politicians said, and eventually they went under,” said Ryota Himeno, an analyst at Barclays Capital. “Now they are trying to express their independence and trying to run the business for shareholders and customers, not politicians.”

Nicola Clark reported from Paris. Hisako Ueno contributed reporting from Tokyo, and Christopher Drew from New York.