Airbus Edges Boeing in Paris Air Show Orders

Stretch jumbos make their debut

   

Flyovers are business as usual at the Paris Air Show, the commercial and military aerospace sector’s biggest event of the year.

But EADS’ (EADSY) Airbus A350’s well-choreographed sky dance — swooping low over the main runway at the Le Bourget airfield just one week after its maiden flight — is a clear sign that the battle for dominance in the next-generation wide-body jet market has risen to the next level. That’s particularly true since Airbus is positioning the A350 as a head-to-head competitor with Boeing’s (BA) 787 Dreamliner and the smaller versions of its 777.

Don’t dismiss Boeing, though — it brought its “A” game to Paris as well, taking advantage of the show’s 50th anniversary to launch its new 787-10, a stretch version of the Dreamliner that can seat 300 to 330 passengers. The Dreamliner aircraft family — just like the A350 — boasts a carbon-composite fuselage, a lighter material that plays a significant role in boosting fuel efficiency by at least 20%.

The Paris Air Show proved two things to investors. First, the competition between Boeing and Airbus has now reached a fever pitch — and airlines are certain to play the two manufacturers against each other to secure the sweetest deals on advanced, fuel-efficient aircraft.

Second, while there is a huge global market for single-aisle, narrow-body jets like the Boeing 737MAX and the Airbus A320neo, this year’s dogfight is hottest in the so-called “mini-jumbo” space — twin-engine aircraft that can seat around 350 passengers and travel long distances.

The A350-1000, which has 350 seats, is expected to enter service in 2017; the first delivery of the 323-seat 787-10 is expected in 2018. United Airlines (UAL) inked a deal for 10 new A350-1000s at the show and converted 25 existing A350 orders to the 1000 model. Boeing’s new, 400-seat successor to the 777 “mini-jumbo,” dubbed the 777X, reportedly will enter service around 2019.

All told, Airbus racked up orders for 466 aircraft at a list price of $69 billion — including 59 orders for the A350 from Singapore Airlines (SINGY) and Air France-KLM. Boeing booked orders for 442 aircraft valued at some $66 billion, including 102 orders for the 787-10. United will be the North American launch customer for the stretch Dreamliner; other launch customers include British Airways (BAIRY) and Singapore Airlines (SINGY).

Boeing’s strong orders — particularly for the 787-10 — are a bright spot in what has been a challenging year so far. Although BA stock has defied gravity in 2013, its Dreamliner only recently returned to service after being grounded by the FAA for nearly four months over lithium-ion battery problems. While the battery problem was addressed, unrelated glitches have continued to dog Boeing’s flagship aircraft.

Earlier this month, All Nippon Airways cancelled a flight when cockpit sensors indicated an engine problem. The next day, a Japan Airlines flight bound for Singapore returned to Tokyo’s Haneda airport after instruments suggested there was a problem with the aircraft’s de-icing system. The day after that, an ANA flight had to be cancelled after one of the 787’s two Rolls Royce engines failed to start.

While Boeing senior executives were promoting the Dreamliner in Paris, the glitches kept coming. On Tuesday, a United 787 bound for Tokyo from Denver was diverted to Seattle because of an oil filter issue. On Thursday, another 787 flying from London to Houston was diverted to Newark after a low-oil warning.

The Dreamliner’s troubles are one reason Boeing downplayed the likelihood of major announcements at the Paris Air Show. At last year’s Farnborough Air Show (the annual show is held in France and the U.K. in alternate years), BA snagged $72.2 billion in orders, compared to $16.9 billion for Airbus.

Bottom Line

The Paris Air Show proves that the battle for supremacy in the global commercial aircraft market is heating up — and Airbus’ A350 orders dramatically raise the stakes for both manufacturers. Boeing and Airbus are both racing do the impossible: produce top-quality, low-priced jets that are delivered to market fast — and ready for prime time.

Although the new Dreamliner glitches are likely to be little more than minor idiot lights over the aircraft’s service life, they are a big distraction that BA doesn’t need right now. The perception issues are potentially a bigger challenge — particularly if airlines view the prospects of delivering new jets like the 737MAX and the 777X through the prism of the Dreamliner’s delays and difficulties.

If airline customers who are counting on these jets to reduce fuel costs and move more passengers more efficiently and profitably doubt that BA can deliver its next-generation jets on time and ready for prime time, Airbus is positioning itself to steal that business. From an investor’s standpoint, the big winners of this battle are airlines like United, who will be able to play Boeing and Airbus off each other, securing hot, new aircraft at bargain prices.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities. 


Article printed from InvestorPlace Media, http://investorplace.com/2013/06/airbus-edges-boeing-in-paris-air-show-orders/.

©2014 InvestorPlace Media, LLC

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