Airbus blinks in wide-body contest

Airbus is losing the staring contest with Boeing Co. The European planemaker may have to rework its A350-1000 wide-body jet as cancellations mount and airlines criticise the design of Airbus's alternative to Boeing's 777. That gives Boeing some breathing room before it commits to a successor to the world's top-selling twin-aisle airliner. The pending decisions on the 777 and the A350-1000 show the risks in an industry whose products cost billions of dollars to develop and typically stay in production for decades. While Airbus and Boeing share a duopoly for single-aisle jets, the US company holds the advantage in wide-body planes, which offer higher margins because they cost three times as much. "Airplane development is one of the best real-life case studies in game theory," said Carter Copeland, a Barclays Plc analyst in New York. "These are big bets with long-life paybacks. Decisions about components, technology, production systems, all have an important bearing on the long-term profit profile of these programmes." The A350-1000 was initially scheduled for delivery in 2015, before Airbus announced a delay in late 2011, saying it needed another 18 months to boost the performance of the largest member of the A350 line. Qatar Airways and Emirates, the biggest A350 buyers, have said they still aren't content with the design, adding pressure on Airbus as Boeing plots what comes after its 777-300ER. Second-Mover Benefit Boeing said it stands to benefit from Airbus moving first, because the rival product would help the Chicago-based company hone its response. The next plane probably will come at the turn of the decade and have a new engine, said Randy Tinseth, Boeing's vice-president for marketing. "We're in no rush to address that market," Tinseth told journalists in Paris yesterday. "It's better to have everything lined up for what we can do and when we can do it, understand what the competition will do and then move forward." Airbus Chief Executive Officer Tom Enders hands off the A350-1000 challenge tomorrow to Chief Operating Officer Fabrice Bregier, who becomes CEO as Enders ascends to lead parent European Aeronautic, Defence and Space Co. The transition will occur at EADS's annual general meeting in Amsterdam. The twin-engine 777 entered service in 1995, and has since been upgraded with the 777-300ER variant. That plane lists for $298.3 million and has a maximum range of 7,930 nautical miles (14,685 kilometers). No A350s are flying yet. The first version, the mid-sized A350-900, is undergoing final assembly, with entry into service scheduled for the first half of 2014. The A350-1000 lists for $320.6 million. Airlines typically buy at a discount. Chicago (Bloomberg) The A320 was pivotal to the success of Toulouse-based Airbus in leapfrogging Boeing in 2003 for the top spot in global commercial sales, a position it has defended since. The wide-body market has been tougher to crack, leaving Airbus with an open flank in an area where Boeing earns its highest margins. In the last five years, Boeing's commercial airplane business has earned a profit margin of 6.5 per cent on average, compared with 1.9 per cent for Airbus, according to data compiled by Bloomberg. Boeing's superior margins rest partly with its success in wide-bodies, which comprise half of all commercial plane sales in dollars. "There's a significant difference in pricing and profitability between wide-bodies and narrow-bodies," said Richard Aboulafia, vice-president of Fairfax, Virginia-based forecaster Teal Group. "The difference between Boeing and Airbus in commercial margins reflects that." Airbus suffered a setback in April on the A350-1000 when Etihad cancelled seven jets, after already paring its order book in December. That left the Abu Dhabi airline with 12 A350s, less than half the number it originally planned. While Boeing celebrated the delivery of the 1,000th 777 in March, the A350-1000 has only 62 orders, compared with 368 for the smaller A350-900.