After years of undignified acrimony it seems that the feuding could finally be over. As the aerospace world gathered for the Farnborough air show, most were ready for the bitter exchanges over market share between Airbus and Boeing. It did not happen. Neither side could quite bring itself to admit as much but a truce appears to have broken out.
Boeing came to the show with the announcement that it planned to raise its price list by 5% above inflation. It is the first time in 20 years or more that such a rise has been pushed through and is as sure a sign as any that it is ready to call a halt to the days of cut throat market share battles. Airbus responded in kind by adding 3% to its list. Even the regional aircraft manufacturers have begun to talk of room for a bit of price "readjustment".
While airline customers may have less to cheer, it may still do more good than harm if it results in a more orderly flow of aircraft capacity onto the world market. And there is evidence that it may.
The backdrop to this outbreak of peace is that both companies find themselves with other more pressing worries. Boeing is still struggling with the McDonnell Douglas acquisition, not to mention the aftermath of its botched production ramp-up. That has wiped out profits and left it with some embarrassing explaining to do to shareholders at a time when output is hitting new records.
Instead of the usual Boeing bravura, president Harry Stonecipher, who arrived with last year's MDC merger, kicked off Farnborough with what amounted to an unqualified apology for the group's "arrogance", pledging that "things must change".
Airbus too has its preoccupations of its own. The consortium is still at a delicate stage in the negotiations to turn itself into a fully-fledged commercial company. Its new chief executive Nöel Forgeard talked earnestly of shareholder value and margins. A stark contrast to the expansive performances of predecessor Jean Pierson.
Airbus commercial director John Leahy was visibly relaxed, as well he might be with a near record string of orders signed up this year, including a long-sought deal with Boeing stalwart British Airways. Yet while he stresses that Airbus has made money every year since 1990, he admits that the market share war has left manufacturers without a "sufficient rate of return".
The start of the battle dates back to another Farnborough air show four years ago. Airbus, on its own calculations, had drawn level with Boeing on order intake for the first time and was at pains to stress that it was only a matter of time before it achieved its goal of half the market.
Boeing's then commercial aircraft president Ron Woodard, to the glee of the media, came as close as is legal to calling Airbus liars. Boeing drew a line in the sand, setting a goal of retaining close to 65% of the jet airliner business. With MDC a spent force even before its takeover, that would have left Airbus as a credible but plainly junior competitor stuck on little over a third.
The logical extension of keping its lead was that Boeing had to produce aircraft faster and cheaper. An aggressive plan was put in place, aimed at slashing production costs by 25%, giving the slack to offer good prices on future deliveries. At the same time, Seattle embarked on its most ambitious production ramp-up in its history. From little over 200 deliveries at the depth of the cycle three years ago, and with two new families coming on line, output is due to hit 500 this year.
It is in attempting both to cut costs and to ramp up rates that Boeing came unstuck, believes Leahy. He appears to have been proven right. Woodard has now gone and the talk is of raising profits not defending market share. Pressure from investors should help keep management focused on the task.
"Airbus is now established with about half the market and I believe that Boeing have come to grips with that internally," says Leahy. The figures tell their own story. The order intake is running roughly even - in terms of units if not value. The best guess at a post-Farnborough share of the order backlog would put Airbus breaking the 40% barrier for the first time.
Airbus meanwhile continues its own steady production ramp-up. Ouput is due to reach around 235 aircraft this year and on course to hit the 350 mark in around 2002. By then Leahy believes that Boeing production will be on its way down to a similar level. Leahy argues that with this balance in place, the manufacturing cycle should get less racy. "We don't need to chase over some of those peaks and troughs," he says.
Already there is tangible shift away from reliance on purchase price. Airbus is quick to address the "misunderstanding" that the BA A320 family deal was won on lowest price. Rather, it offered the best "value" stresses Leahy . "I don't think that the market is as sensitive as people think," he says, and on the evidence of its Farnborough air show briefing, Boeing too is keen to lay the emphasis on trip cost rather than price tag.
Leahy cautions that the apparent respite in share wars should not be taken too far. The sales battles will continue, although without the wilder discounts of the early 1990s. "There will be deals done in future, but as long as we don't cross the line to where they are uneconomic," says Leahy.
Despite its uncharacteristic recent loss of balance, Boeing still remains in a commanding position and with the lucrative 747 market to itself. Airbus has yet to get its $10 billion A3XX challenger off the ground, although a full launch is promised by the end of next year - provided that customers are in place and the economics makes sense. That challenge alone, if it goes ahead, should ensure that neither manufacturer is safe resting on their laurels.
Source: Airline Business
