MOST MANUFACTURERS must dream of having exclusive supply deals with prestige customers. Most prestige customers probably do not dream of such deals - and they certainly should not. In the long term, these agreements (while undoubtedly attractive for both sides in the short term) could be seriously damaging to the interests of both sides.
Deals such as those struck between Boeing and American Airlines and Delta Airlines (and perhaps to be struck with Continental) are immediately attractive to the manufacturer. They give (as much as anything in a cyclical business like air transport can) a sense of security in forward planning. As long as a customer stays in business and roughly on its planned course, the manufacturer can plan its forward production rates with greater certainty.
For that "exclusive" manufacturer, there may not appear to be much of an immediate downside to such deals, but there almost certainly is, especially if it reaches only a small number of them. In that case, other existing or potential customers may be put off by the feeling that the manufacturer will be more interested in looking after the interests of the "exclusive" customers than those of the rest. In spite of Boeing's massive, and growing financial strength, potential customers outside these agreements may also find themselves paying a further price - substanially higher purchase costs for aircraft than their under-contract rivals.
If that leads - or is perceived to lead - to excessive influence by one or more customers on the manufacturer, then both parties should beware. Those unconvinced on that point need look no further for evidence than the disastrous outcome of British European Airways' undue influence on the design of the Hawker Siddeley Trident. Conventional wisdom says that no manufacturer would allow itself now to get into that sort of trap again - but the aerospace industry has not always let conventional wisdom get in the way of a bad decision.
For the customer, the immediate attraction is, presumably, reduced costs - ranging from lower purchase prices to all the savings which should come from commonality. Most of those potential cost-savings are anyway available to an airline without it having to make a long-term commitment to a single manufacturer.
Indeed, it could be argued that, if an airline is really interested in getting the lowest-possible purchase price, it could do worse than be as capricious and unpredictable as possible in its fleet purchases, in order to squeeze the best deals from the competing manufacturers. It can also be argued that commonality loses some of its attraction over a very long time-span.
More serious for an airline, however, is the danger inherent in the assumption that the exclusive manufacturer selected now will retain whatever is the current perceived or actual advantage over its competitors for the next 20 years. How rigidly would an airline chief executive expect to adhere (or be held) to an exclusive-supply contract if he saw his competitors reaping the benefits of a major technical advance introduced by one of that supplier's competitors? Soviet-bloc airlines learned, to their cost, the dangers of having to purchase aircraft from one supplier regardless of what was happening elsewhere in the industry.
Commercial prudence alone would dictate that any airline signing up to an exclusive-supply deal would insist on break-clauses which would release it from the agreement in such circumstances. In that case, the question must be asked: what is the point of the deal for the manufacturer, if the customer can extract itself from the deal when it turns to the airline's disadvantage?
Airbus Industrie is said to be irked by Boeing's exclusive deals with American and Delta: it should not be. If it is doing its own sums right, and listening to what the market as a whole wants, it should be in a position to continue to build and sell aircraft to the widest-possible market without the need to embrace such deals.There is a danger for it, in that it will not know at what point an apparently "lost" customer may decide it does, after all, need a choice, but that danger exists at the moment anyway as, for instance, long-term dedicated McDonnell Douglas customers face decisions of having to choose Boeing or Airbus in the future.
Source: Flight International
