Sun, Dec 12, 2004 page12

• Airbus heats up jumbo jet war with Boeing

  COMPETITION The European jet company's decision to start taking orders for its super-size A350 jet ups the stakes in its battle against Boeing's new 7E7 Dreamliner

  • AP
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  News that Europe's Airbus SAS received the green light to take orders for a new airplane to compete with Boeing Co's 7E7 Dreamliner could spell more trouble for Boeing's Seattle-based commercial airplanes division.

  But analysts say it's too early to tell whether the new Airbus A350 will turn into a formidable long-term threat to the jetmaker, which badly needs a success with the 7E7.

  "It cranks up the pressure on the 7E7 business case a notch," said Richard Aboulafia, an analyst with the Teal Group.

  Boeing, which is already losing ground to its European rival in jetliner deliveries, has said it intends to log 200 orders for the 7E7 by the end of the year. That's a goal some say has been stymied by Airbus' move to offer a more direct rival model in the A350, although Boeing says it's not the key factor.

  On a larger scale, Boeing is counting on the 7E7, its first all-new airplane model in nearly 15 years, to be a key driver for its future growth. That plan could be thwarted if Boeing loses substantial business to the A350.

  Analysts say because Airbus has chosen to offer the A350, instead of just competing against the Dreamliner with its existing mid-sized A330, shows that Airbus fears the 7E7 will steal customers away.

  "Airbus is panicked about Boeing," said aerospace consultant Mike Boyd. "They would not go with this A350 unless they were absolutely panicked."

  For now, analysts say Airbus is proving successful at throwing a wrench in Boeing's plans, using the A350 to at least distract potential 7E7 customers from making a decision.

  It could be an embarrassment for Boeing if it doesn't make the goal of 200 orders by the end of the year. But analyst Joe Campbell with Lehman Brothers said the timing of those orders isn't that important since the plane isn't scheduled to enter service until 2008. The A350 is to enter service in 2010.

  Analysts say Boeing could still win in the long-term battle, because its airplane is built on entirely new technology and promises vast efficiency gains.

  Airbus is proposing a "sister" airplane to its existing mid-sized A330. The new airplane will be lighter and take advantage of engines being developed for the 7E7, while requiring a minimum of retraining for pilots who fly A330s.

  Still, Boyd said if Airbus is able to squeeze efficiency gains out of the A350 that even approximate those promised with the 7E7, Boeing will face a more formidable threat. And Aboulafia warned that Airbus could easily morph the A350 from an A330 derivative into a brand new airplane, a move that would create real problems for Boeing.

  A major concern for Boeing will be whether Airbus can undercut the 7E7 on price. Many analysts believe one reason Boeing has been losing orders for its narrow-body 737s to Airbus' rival models is because the European company is willing to lose money to gain market share, while Boeing is not. A week ago, Boeing replaced its top commercial airplane sales executive in a move some analysts said was motivated by Airbus' recent successes.

  Airbus said Friday that it would offer the A350 for around US$150 million, well above the US$120 million price tag Boeing has put on the 7E7. But airlines typically negotiate steep discounts, and analysts said Boeing should still be worried that a massive price war would evolve.

  "Airbus will be throwing those airplanes around like free candy to children," Boyd said.

  Another issue is finding the billions of dollars needed to develop the new airplane. European Aeronautic Defence & Space Co., which owns a majority stake in Airbus, declined to say whether it planned to apply for development aid from the European Union for the new plane. Airbus and Boeing have filed claims with the World Trade Organization over what each says is unfair government subsidies for the other.

  If Airbus does ask for government aid, Aboulafia said it will make it more likely that US politicians will go to bat for Boeing.

  Richard Mills, a spokesman for US Trade Representative Robert Zoellick, declined to comment on the Airbus announcement specifically. But Mills implied that government officials would be unhappy if Airbus sought new government subsidies.

  "We've made our position quite clear: We want to see an end to subsidies," Mills said. "Efforts to provide subsidies to a new Airbus plane, if undertaken, would undermine efforts to reach a solution."
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