Karen Walker/WASHINGTON DC
The question no longer seems to be whether Airbus Industrie will go ahead with the A3XX, but when. With each new letter of interest from a potential airline customer, the chances of the Airbus supervisory board granting final go-ahead by the end of the year seem more certain.
But it now also seems likely that the A3XX will not be out there alone. Boeing appears ready to be able to launch its 747X contender within the next nine months. The A3XX is a $12 billion programme; the 747X will require around $4 billion. While the two manufacturers continue to argue about the exact size of the very large aircraft market, and about how it will break down between 400 seats plus and 500 seats plus, the total market over the next 20 years is estimated at between 900 and 1,200 aircraft. A nice market for a single supplier, for sure. But can both manufacturers recapture their investments and make money on just half that market?
In many ways, it could be argued that the airlines have got both manufacturers right where they want them. A senior manager at one flagship carrier says that what his airline most wants to see is competition at the top end of the market. "We never want to be dealing with a monopoly again, whether it's Airbus or Boeing," he says.
So the airlines are wise to play one manufacturer off against the other. The hype is likely to continue through the Farnborough air show, with perhaps one or the other side scoring a coup. Airbus might be able to turn one of its nineletters of interest into some harder commitment if and when the board moves from a "commercial" to a full programme launch. And Boeing could devalue the credibility of all those letters of interest if it could strike a similar deal with one of the Airbus "customers".
As one industry chief puts it: "These letters of interest are cheap to buy." There is a recent example of the fickleness of a letter of interest. When Fairchild Dornier wanted to get its 70- and 90-seater regional jets off the ground, it announced letters of interest from Lufthansa Cityline and from Crossair. Lufthansa eventually did commit to the aircraft, but Crossair changed its mind and signed a firm deal with rival regional jet manufacturer Embraer.
Until each aircraft is launched and firm orders announced, the same uncertainties apply. But the risks are much higher in this sector because of the huge development costs. If two aircraft are on offer, each manufacturer will have to show a lot of discipline to avoid getting into a potentially disastrous price war. Without such discipline, it is hard to believe the claim of Airbus commercial director John Leahy that the A3XX programme "will be the most profitable in our history", accounting for 10% of aircraft sales, but 25% of value.
For now, however, Airbus is seeing its massive marketing push behind the A3XX pay off. Expressions of interest have been garnered from Air France, Emirates, International Lease Finance (ILFC), Qantas, Singapore Airlines and Virgin Atlantic, as well as three unnamed carriers. That adds up to interest in more than 60 aircraft, although it is assumed these will all be at a special discount price off the $215 million basic list price for being an early sign-up.
Others remain sceptical, however. There is a notable lack of US major carriers in the line-up and no cargo carriers have yet made their intentions public. While ILFC has expressed interest, General Electric Aviation Capital Services (GECAS) is yet to be convinced. GECAS president Henry Hubschman says: "We like to hear from our customers what they are thinking about this aircraft. It is a step forward from anything anyone has done in the past and generally I think it still too early to tell. With the exception of someone signing a real contract, any airline evaluating this market is evaluating both assets and will continue to do so." As an outleasing aircraft, says Hubschman, the A3XX "does not look perfect", but he says his company may provide financial services to an airline for the A3XX.
Between now and the end of the year Airbus and Boeing are likely to reveal more technical details of their aircraft, leading to firm launches by early 2001. "This has turned into an exciting battle," says one industry observer. Perhaps a little too exciting.
Source: Airline Business
