Bloomberg
The ceremony at the Elysee palace in Paris exuded the full pomp of the French state.
Under gilded ceilings dripping with chandeliers, executives of Airbus SE
and the agency that buys planes for China’s airlines signed an order
worth Sh3.5 trillion ($35 billion) as French President Emmanuel Macron
and his China’s Xi Jinping, looked on.
Normally, such an event would be full of gloating. In commercial
aviation — a zero-sum industry with just two global players, Airbus and
Boeing Company — the rivalry is intense and victories are savoured and
celebrated.
SEE ALSO :Airbus to stop A380 superjumbo production
But
these aren’t normal times, and the ceremony marking Airbus’s biggest
deal in several years was unusually muted. Guillaume Faury, soon to be
Airbus’s chief executive officer, was subdued, calling the massive order
“a sign of confidence between us and our Chinese partners.”
Boeing is mired in a painful investigation following two fatal crashes
in five months of its popular new 737 Max jet, which has since been
grounded worldwide.
The catastrophes, which claimed the lives of everyone on board the two
planes, have tested the faith in the US Federal Aviation Administration,
which certified the jet, and raised a chorus of criticism about
Boeing’s slow response.
The crisis has shifted the playing field in favour of Airbus at a time
that it needs a victory. In February, the company cancelled its A380
double-decker after just a dozen years in service.
And its sales force, mired in an investigation into allegations of
corruption, has suffered the worst start to the year in at least a
decade.
SEE ALSO :Airbus A380: World’s largest airliner runs out of runway
Yet
Airbus has made it clear it has no intention of taking advantage of the
tragedies, and sales staff were told on a conference call that they
shouldn’t mention them in their pitches to customers, according to a
person who participated. At the Paris signing, Faury declined to comment
on what the Boeing grounding might mean for Airbus.
And CEO Tom Enders has stressed that this isn’t the time to go after the wounded rival’s business.
“When something like that happens, we’re all one big family,” he said at
an industry event on March 15. “Safety is not a competition item.”
That makes sense, says Michael Hewson, an analyst at CMC Markets, a brokerage in London.
For both manufacturers, safety is the bedrock of their business, and
without it, they would struggle to make sales. “It’s a bad look if you
try to capitalise on anything like that,” Hewson said.
SEE ALSO :Airbus can borrow a leaf from matatus on survival
“It’ll
come back and bite you.” Some airlines that had bought the single-aisle
Boeing have said they will reconsider or even cancel their orders,
creating an opening for Airbus to pick up business.
On March 28, flag carrier Garuda Indonesia said it planned to call off
deliveries of 49 Max 8s, though it said it would most likely buy other
Boeing aircraft.
Indonesia’s Lion Air, the owner of the plane involved in the first
crash, has also hinted that it will scrap a deal to buy almost 200
Boeing 737 Max.
So far, it’s been a slow year for Airbus. In January and February, the
company booked just four new sales and had 103 cancellations, including a
$2.8 billion dollar deal for A320 aircraft that had been destined for
now-defunct Germania.
Last year the company’s order backlog fell even as its output grew to
its highest level ever. “It was a difficult year for our sales team,”
Enders said at the company’s annual results conference in February.
SEE ALSO :KQ mulls cancelling Boeing order after Ethiopia air crash
Against
that backdrop, Airbus’s sales force could do with some decisive wins.
The windfall in Paris was a nice get but was the fruit of a campaign
that had been in the works for more than a year.
The task of bringing home additional deals has fallen to Christian
Scherer, who took over as chief commercial officer about six months ago
after a short-lived stint by Eric Schulz, a company outsider who
struggled to adapt to the Airbus culture.
Practical limitations
During a tour of Asia, Scherer insisted the crashes won’t have any
measurable effect on sales and that his firm wouldn’t seek to benefit
from them.
“Boeing, just like we would do, if they have a solution, a fix to find,
they will find it very diligently and very quickly,” Scherer said in a
March 19 interview in Taipei. The tragedy with the Boeing jets will have
“no bearing” on demand for his aircraft, he said.
Beyond the moral restraint keeping Airbus from trying to capitalise on
the crisis, the company faces hard practical limitations. For the past
several years, fraud agencies in the UK, France, and the US have been
looking into allegations of bribery and corruption in the Airbus sales
force. The investigations have thrown the sales team and top management
into turmoil.
At the same time, it’s not easy for carriers to switch manufacturers.
Many airlines have made substantial down payments on their orders, which
they risk losing if they cancel. Their fleets are often planned around
families of jets, allowing them greater flexibility in assigning pilots
and maintenance staff. And there are only two manufacturers in the
business since a potential Chinese entrant has yet to prove itself.
Both of today’s players have order backlogs on their planes that are
years long, so any airline that cancels would join the back of the queue
at the rival manufacturer. That means the effect of the crashes on
either company’s order book won’t be dramatic, says Nick Cunningham, an
analyst at Agency Partners, a London equity research firm.
He does, however, say that Boeing will likely feel compelled to
accelerate the introduction of a new model that’s not tarnished by the
two tragedies. And that, in turn, will spur Airbus to build a new plane
to compete with it.
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