Advantage Airbus (in Asia, at least)

Guillaume Faury is taking on the role of Airbus’s new CEO at a time when the European consortium’s rival Boeing is sapped by a series of negative events recently.

Will it make Monsieur Faury’s job any easier?

Nothing is easy in the aviation business, a dog-eat-dog world marked often by many unpredictable, unforeseen occurrences.

The latest problem bugging Boeing is one example.

If a week is a long time in politics, the past month must have been an eternity for Boeing.

On 10 March an Ethiopian Airlines flight ET302, a B737 MAX 8 with 157 people on board, crashed six minutes after takeoff from Addis Ababa. There were no survivors.

Five months before, at the end of October 2018, a Lion Air flight JT610, also a B787 MAX 8, crashed into the Java Sea 12 minutes after takeoff from Soekarno-Hatta Airport. All 189 people aboard the plane perished.

There are uncanny similarities between the two accidents.

Following preliminary findings by regulators, including the FAA in the US, over 350 B737 MAX planes (-8 and -9 variants) were grounded globally between 10 March and 14 March.

With the exception of Cambodia, Laos, Myanmar and the Philippines, all Southeast Asian countries have suspended the B737 MAX from flying.

The B737 MAX is an extremely popular plane in Southeast Asia, particularly with discount carriers: Lion Air has ordered 201 while VietJet placed an order for 200 in May 2016.

The MAX is also popular with flag carriers – Garuda Indonesia ordered 50 in 2014 in a deal valued at USD5 billion but became the first airline to scrap the B737 MAX 8, claiming its “passengers have lost confidence to fly with the MAX 8.”

Malaysia Airlines (MAB) placed an order for 25 B737 MAX jets in 2016 but the government has urged the carrier to review its agreement with Boeing.

MAB currently operates a fleet of 48 B737-800s and the order for the 25 MAX was to have replaced some of the existing B737s.

Other major purchasers of the MAX in Asia Pacific include Air China (15), China Eastern (14), China Southern (50), China Development Bank (78), BOC Aviation (87), Jeju Air (40), Korean Air (30), SpiceJet (136), SMBC Aviation (91) and SilkAir (37).

It is unlikely any of these orders would be scrapped outright despite allegations Boeing had blundered in its initial response to the Lion Air and Ethiopian Air tragedies.

That’s because the airlines and leasing companies that have acquired the MAX will be unable to immediately replace the orders with another aircraft type, and it would also be unwise of them to do so, in any case.

Why? Because when its safety has been ensured, the B737 MAX will start flying again and will compete once more with the incredibly popular Airbus A320neo.

The industry is healthier in a duopoly rather than a monopoly.

There’s no doubt Boeing will (sooner, rather than later) fix the issues with the Maneuvering Characteristics Augmentation System (MCAS) although the damage has been extensively felt by airlines whose MAX planes are currently not flying and therefore, not making money.

(Negative) impact more apparent in Asia Pacific

It’s been estimated the cost of grounding the MAX planes would cost anything between USD1 billion and USD5 billion based on the assumption the aircraft are idle for three months.

It’s small change for Boeing, which registered USD101 billion in revenue in 2018 and almost USD11 billion in profit.

The damage, at least in Southeast Asia, is more reputational and that’s leading to a trust deficit at many airlines, particularly the low-cost carriers (LCCs) that were ill advised in operating a dual type fleet to begin with.

Both Lion Air and VietJet fall into this category.

A dual fleet strategy (for instance, running both A320 and B737) raises the cost of operations and maintenance, not to mention additional tools in stock, diversified training and separate flight crew group.

The most successful LCCs are those that use a single aircraft type, such as Southwest in the US and Ryanair in Europe (B737), and the wildly thriving AirAsia (A320) in Asia.

Single manufacturer discount carriers also have the advantage of receiving substantial discounts when they place big orders for planes.

Apart from AirAsia, other Asian carriers that have prospered using a single type aircraft include Cebu Pacific in the Philippines and Indigo in India. Both fly the Airbus A320 family of planes.

It remains to be seen if Lion Air, whose upset owner had threatened to drop an order for USD22 billion worth of B737 MAX aircraft, would actually do it in favour of Airbus.

Lion Air has already suspended delivery of four MAX jets due for delivery in 2019.


A schaden-Faury time at Airbus?

Is there a sense of schadenfreude in Toulouse?

From what we gather, none whatsoever. Notwithstanding their intense rivalry, neither Airbus nor Boeing has ever reveled in each other’s misfortune.

On the contrary, aircraft manufacturers learn from each other’s shortcomings.

Never mind if John Leahy, the ex-chief salesman at Airbus, famously scoffed at the B737 MAX, calling it the “Mad MAX” in 2016.

In his first public comments as CEO of Airbus on 10 April, Faury was succinct in his speech. He said he was “privilege to take over” (from Tom Enders) and vowed to shape “the Airbus of tomorrow”.

He has his work cut out for him.

There is the small issue of tariffs the US has threatened to impose on the EU, including Airbus aircraft and helicopters.

On the positive side, production of the A320neo, the company’s current top seller, is being ramped up to 63 a month in 2020 (from 60 today).

And Airbus needs to sell more, a lot more, of the A220 family of aircraft, the regional jet it acquired following the integration with Bombardier’s C-series programme.

It does appear Airbus’s push in the regional jet market, especially in Southeast Asia (where there is a sizeable potential), has waned.

The company does have a first mover advantage over Boeing (whose tie-up with Embraer will not be completed until year-end), but unless it can score a major deal, there is a risk it might lose the edge.

China will continue to be a huge source of business for Airbus, padded or otherwise.

China’s continuing trade spat with the US will only continue to benefit the Europeans.

Leave a Reply

Your email address will not be published. Required fields are marked *