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| Japan Airlines Deal With Airbus Is Blow In Boeing Stronghold | |
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| 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. | 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. |
| 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. | 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. |
| 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. | 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. |
| “This was their market to lose, and they lost it,” said Richard L. Aboulafia, an analyst at the Teal Group in Fairfax, Va. | “This was their market to lose, and they lost it,” said Richard L. Aboulafia, an analyst at the Teal Group in Fairfax, Va. |
| Even with the highly publicized battery problems and other frustrating delays on the 787, “if Boeing had taken a far more aggressive tack in launching new programs like the 777X,” he added, “it probably could have kept this market.” | |
| 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 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. | 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. | 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. | 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.” | “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. | 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 with 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. | 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. | 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. | 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. | 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, 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. | 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. |
| 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.” | |
| 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.” | |
| 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 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. | 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. |
| 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. | 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. |
| JAL, which was once owned by the government, was privatized in 1987, only to be bailed out repeatedly with public money. | JAL, which was once owned by the government, was privatized in 1987, only to be bailed out repeatedly with public money. |
| “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. | “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. |
Nicola Clark and Hisako Ueno contributed reporting. | Nicola Clark and Hisako Ueno contributed reporting. |