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Airbus clinches landmark order for 31 jets with Japan Airlines

Source : REUTERS
Last Updated: Mon, Oct 07, 2013 10:32 hrs
Japan Airlines<br>

Airbus announced its first jet order from Japan Airlines Co Ltd on Monday, breaking open the last big aviation market dominated by Boeing Co in a move that suggests the U.S. company may pay for the 787 Dreamliner's troubled debut.

The landmark deal for 31 wide-body A350 jets with a combined $9.5 billion list price follows an intense battle between the planemakers as JAL and domestic rival ANA Holdings Inc seek dozens of new long-haul jets over the next decade.

The agreement, also a potential blow to a Japanese aerospace industry that builds large portions of Boeing's jets, includes options for another 25 of the A350s.



"This is a huge win for Airbus and a big loss for Boeing," said aerospace analyst Scott Hamilton, managing director of Seattle-based Leeham Co.

"Airbus has been trying to break the wide-body monopoly of Boeing for decades and likewise Boeing has been wanting to keep Airbus out of JAL and ANA."

Boeing has for decades seen off attempts by the European planemaker to secure an order with JAL, benefiting from links with Japanese suppliers and deep political ties between Tokyo and Washington to maintain a market share of more than 80 percent.

Delays to its 787 Dreamliner and its subsequent grounding after its batteries overheated have, however, tarnished its image and cast doubt on Boeing's ability to deliver aircraft on time, industry experts said. Both JAL and ANA are major Dreamliner buyers.

At the same time, bureaucratic and political influence over fleet purchases by JAL, which the government bailed out in 2010, has waned since it went public again a year ago and the Democratic Party government that rescued it lost power.

In a sign of how JAL's once cosy government ties have become strained, the carrier on Friday complained that it was unfairly treated over landing rights at Tokyo's Haneda airport after ANA received twice as many new slots.

FLYING THE FLAG

Airbus also showed its readiness to move in on Boeing's turf in the Japanese aerospace industry, including cooperation in research and development.

"With this order, it gives us more momentum to look for potential joint R&D efforts for the future generation of aircraft," Fabrice Bregier, chief executive of Airbus, a subsidiary of EADS (EAD.PA), told a joint news conference in Tokyo with JAL President Yoshiharu Ueki.

Ambassadors from Britain, Germany and France and the European Union representative attended the briefing, each with their flags displayed in front of them.

Ueki did not say what JAL would actually pay for the A350s, which vied with Boeing's yet-to-be-launched 777X, but industry analysts said it would be typical to secure generous discounts in such a groundbreaking deal.

"This is seriously bad for Boeing. They need to do a little soul searching," said Richard Aboulafia, airline analyst with the Virginia-based Teal Group. "(The 787 issues) inevitably led to doubts about execution, resources and time."

Ueki denied problems with the 787 were a factor in the decision, even as he repeated JAL's apologies for disruptions to service caused by the plane's grounding in January.

He attributed Airbus's successful wooing of his company in part to timing: delivery for the A350, due to begin flying passengers next year, will ensure it is available when JAL needs it at the end of the decade while the 777X debut is further out and less certain.

JAL's new Airbus aircraft, powered by Roll-Royce Holdings Plc engines, will begin entering service in 2019, the companies said.

As part of Airbus's sales pitch, the aircraft maker invited Ueki to its base in the French city of Toulouse and gave the former pilot - whose career was limited to Boeing jets - a go in one of its A380 simulators. Ueki said he found the joystick control, which differs from the traditional stick found in Boeing jets, easy to use.

The deal and its impact on wide-body competition are likely to dominate a major aviation industry gathering in Barcelona this week.

AGING FLEET

The battle between the two aircraft makers will now shift to ANA, which is looking for around 25 new jets to replace its aging fleet of long-haul Boeing 777s from 2020.

ANA is still gathering information on the 777X and the A350, Ryosei Nomura, a spokesman for the airline, said.

"This is Airbus's largest order for the A350 so far this year and is the largest ever order we have received from a Japanese airline," Bregier said on a separate conference call.

Boeing, whose ties to Japan date back to the country's post-war reconstruction, said it was disappointed but respected JAL's decision.

"We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward," a company spokesman said via email.

If they chose Boeing's 777X, both JAL and ANA would have to commit to being a launch customer again for a new Boeing jet.

Delays to the 787, which is one-third built in Japan, and its subsequent grounding may have made JAL wary of buying an aircraft that Boeing has yet to officially commit to building. That gave Airbus a rare opening in Boeing's best market.

"It's the price to be paid for passivity, by not launching this plane one year ago," said Aboulafia, referring to the 777X.

ANA's boss, Shinichiro Ito, told Reuters last month that his airline would consider possible delivery delay risks when choosing replacements for its older long-haul 777 jets.

With the world's biggest fleet of Dreamliners and the first to fly the innovative carbon composite plane, ANA has been most affected by delays and the aircraft's grounding this year resulting in millions of dollars of losses.

Japanese suppliers including Mitsubishi Heavy Industries Ltd and Kawasaki Heavy Industries Ltd are expected to join the 777X programme, although Boeing has yet to say how much work they will get.

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