WallStreet Journal
Airbus Faces Wide Gap in A350 Orders
Wednesday June 13, 2007 3:02 am ET
By Daniel Michaels and J. Lynn Lunsford

With the Paris Air Show less than a week away, Airbus has so far been unable to lure crucial customers to its proposed A350 jetliner despite making sweeping changes to the plane a year ago, giving rival Co. a major opportunity to cement its market dominance for the next decade.

Airbus had hoped to shore up its credibility with customers before the industry's most closely watched trade show of the year. Five years behind Boeing in developing a new midsize long-haul jetliner, Airbus has booked only 13 firm orders for the A350, compared with nearly 600 for Boeing's 787 Dreamliner.

The European plane maker must move quickly. Customers are racing to secure delivery spots in the Dreamliner order book, making it difficult for Airbus to catch up. In recent weeks, Airbus has offered steep discounts and other incentives for A350, said one airline and others familiar with the matter.

Officials at Airbus, a unit of Co., say they are on the right track, though they acknowledge they are facing an uphill battle in closing deals. "It's moving more slowly than some might have expected," said , Airbus's chief operating officer for customers, in an interview. "But nobody's informed me they want to cancel."

The marketing offensive comes nearly a year after Airbus agreed to redesign the A350 amid customer complaints that the jetliner wouldn't be as fuel-efficient, as easy to maintain or as comfortable as the 787. While Airbus is likely to announce some A350 orders at the show, it isn't likely to make the big splash it had hoped.

"We sent the first A350 to the cemetery, and many months later, Airbus still hasn't provided the kind of details that would make us rush to place an order," said , chairman of aircraft-leasing titan International Lease Finance Corp., a unit of Inc.

Mr. Udvar-Hazy is expected to announce a deal with Boeing for at least 50 of the 787s, according to people familiar with the matter. The deal is valued at about $10 billion at list prices, although such orders usually carry big discounts. Mr. Udvar-Hazy confirmed that ILFC is in "advanced negotiations with Boeing."

The expected ILFC deal would push Boeing's order book for the 787 past 600. It is scheduled to enter service in May 2008. So far, in addition to its 13 firm orders, Airbus has 148 less-firm commitments for the A350. It hasn't managed to persuade customers to convert an additional 91 orders and 22 commitments for a previous version of the A350 into orders for the revamped model.

Airbus has battled to convince airlines that it has turned a page on the management misjudgments and turmoil that have thwarted development of the A350 and led to major delays on production of the larger A380 superjumbo. Its efforts show how difficult it can be for companies to regain lost customer faith. Saving face is crucial for Airbus if it wants to keep up with Boeing in the high-volume, high-margin long-haul segment of the market, which is expected to dominate airline sales in coming years amid an expected surge in international travel.

Airbus unveiled the A350 three years ago but sent plans back to the drawing board three times. Last year, airlines said they wanted it to be faster and more fuel-efficient to allow them to be more responsive to shocks like fuel-price increases or the threat of terrorist attacks.

Mr. Udvar-Hazy said in an interview that he is concerned that Airbus doesn't yet have a deal in place with Co. to provide a second engine choice for the plane. PLC is offering engines, but airlines prefer having choices because that creates price competition, and some carriers already have agreements with one engine maker or the other. A GE spokesman said officials plan to meet with Airbus executives during the air show but a deal is unlikely before later this summer. Mr. Leahy said engine selection is important but rarely critical.

Airbus also has yet to adequately explain how it will deal with engineering challenges posed by plans to mount the airplane's carbon-fiber composite skin panels on an aluminum skeleton. Futuristic composites can be lighter and more durable than traditional materials like aluminum. But aluminum expands and contracts at a different rate than composites, making them difficult to combine.

Airbus remains hopeful that the A350 will catch on. Officials at Dubai's Emirates Airline, which typically relishes big air-show announcements, say that they are still deciding between the A350 and the Dreamliner.

Among the incentives Airbus is offering are steep discounts to the airplane's sticker price of around $230 million as well as promises that Airbus will cut prices on existing orders that some airlines have for other Airbus models, according to people familiar with the matter.

"Of course we took full advantage of that," said , chief executive of Ireland's PLC, which recently ordered six A350s. Mr. Manion said that while "there's some work to be done" on the A350's design, "we'll keep Airbus's feet to the fire to meet performance guarantees."

Mr. Leahy has been scrambling to persuade Inc. to announce a deal at the show for between 20 and 30 A350s, but airline officials are still balking. According to people familiar with the situation, Airbus has offered to pay US Airways steep penalties if it fails to deliver the A350 on time. The airline's board is scheduled to meet today, but a person familiar with the airline's deliberations say there is no guarantee it will agree to a deal.

"They still have to convince people they can build an aircraft that competes with the Boeing aircraft," said Air France President in an interview. SA, the airline's parent, plans next year to select between the A350 and the Dreamliner.

Write to Daniel Michaels at daniel.michaels@wsj.com and J. Lynn Lunsford at lynn.lunsford@wsj.com



Mail to Friend Email Story
Alerts Set News Alert
Printer
Version  Print Story 

WallStreet
·The Next Audit Scare
·How to Use Hard Assets to Hedge Your Bets
·The Growing Clout of Online Patient Groups


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
© 2014, WallStreet Journal