BA contract ‘dogfight’ intensifies as Boeing chief meets Walsh.

Jim McNerney, the chairman and chief executive of Boeing, met Willie Walsh, the head of British Airways, yesterday to press the American company’s case in BA’s $15 billion (£7.8 billion) fleet replacement programme.

Boeing and Airbus are hoping to win the prestigious contract and Mr McNerney described the competition between the two aircraft manufacturers as a “dogfight”.

BA will announce during the summer which company has won the right to supply it with up to 100 aircraft over the next 10 to 15 years in a deal worth an estimated $1 billion a year.

BA flies only Boeing aircraft on its long-haul routes, but it will consider a switch to Airbus if the European manufacturer can offer a sufficiently attractive deal.

Mr McNerney admitted that as the incumbent, Boeing had an advantage, but Airbus was pushing hard. “I think it is going to be a terrific competition,” he said.

“Our view is let’s go at it and it will be a dogfight. As the incumbent we have an advantage, maybe, but we are treating this as a new customer and we think it will be a real competition. But obviously, I think our stuff is a little bit better.”

BA is planning to start replacing its ageing fleet early in the next decade, which will allow it to pick from the next generation of aircraft being designed by Boeing and Airbus.

On the Boeing side these include the 787 Dreamliner and the 747-8. Airbus is offering the A380 and the A350. All these aircraft are substantially more fuel-efficient than earlier aircraft, which will help BA to cut its fuel bill and its carbon dioxide emissions.

Mr McNerney said: “This order is about new technology and the ability to provide on promises. BA is looking at a step-change in the range and functioning and environmental footprint of their aircraft.”

Last month BA made an interim order for eight Boeing 777s as part of a growth plan to increase its capacity, but BA insisted that this would not affect the much larger replacement programme.

Mr McNerney also spoke of Boeing’s ambitions in the UK defence sector. He said that the company was looking to expand its operations in the UK, potentially tripling its workforce to 2,000.

Boeing expected to achieve this through internal growth, but Mr McNerney would not rule out making acquisitions. “We sift through all the potential deals, we keep our finger on the pulse of what is out there,” he said.

A number of US-based defence contractors are looking to improve their positions in the UK and buying mid-tier companies such as Meggitt and Cobham could provide a short-cut.

In its domestic market, Mr McNerney said that Boeing’s defence business would be largely flat going forward but commercial aerospace is set to continue its boom.

Orders for Boeing’s 787 Dreamliner are worth more than $80 billion and Mr McNerney reiterated his determination to see the aircraft enter service next year.

The defence business could be squeezed by lower US defence spending in coming years, but Mr McNerney said that higher spending in the sector in India, Japan, South Korea and the Middle East offered opportunities for Boeing.

I suspect they are very bloody. Boeing has the product but Airbus needs some orders. So I imagine Airbus is offering some very "cut rate pricing" to try to stay in the game and if not injure Boeing by cutting their profit to the bone.

OTOH, since Boeing has the goodies maybe they will sit tight and demand a decent ROI hoping the operators will lock in their orders for a real product rather than bet their company on the still undefined A350XLC (extra late coming). I was looking at the Boyd Group (www.aviation planning.com) the other day and IIRC the period from 2010 to 2013 will see the heaviest replacement of mid-sized wide bodies across the industry. This is when Boeing has few 787 slots but before the A350 is supposed to be available in 2014. (For the pilots out there, this is a bit like Vr being greater than Vd!) So there are a lot of circles inside of circles driving the decisions being made today by the airlines. Should be interesting to see how it plays out.

I don't know which company will get the deal, but I know which one can deliver. Boeing is run for profit by capitalists and produces an excellent product. Errbus is run by 4 gummints and is a jobs program. On those facts alone, which company has the best prospects for long term success? Errbus has produced some good planes, but like all business situations when change is required, capitalists respond to the challenge and gummints study, procrastinate and diddle.

This is going to be a very bloody negotiation. On the one hand, Boeing has the 787, but all production slots are already sold until about 2012. On the other hand, Airbus has the A50XWB, but won't be delivered until about 2012.

Either way, BA is going to get new planes in 2012, so they can play each manufacturer off the other. Look for Airbus to offer deep discounts on A330s as part of an A350 deal, while Boeing will not discount the 777 to get more 787 orders.

I thought the A350XWB was now slated to come into service in 2014.

So if the 787 production is filled through 2012 and there really is a need for heavy replacements of mid-size wide bodies then Boeing owns the field from 2012 to 2014 unless Airbus gives away a bunch of A330 or A340 to stay in the game.

However, I understand that Boeing is toying with the idea of increasing production of the 787 to 10 per month. So given all this it will be interesting to see what develops.

Airbus has been playing with the expected in-service date for the A350 and has said everything from 2012 to 2014.

I really hope Boeing doesn't go overboard trying to increase production of the 787 too quickly. Back during the last aircraft boom cycle of the 1990's, Boeing way oversold it's production capacities thinking that they could ramp up production, but couldn't. They ended up selling loads of aircraft, but not making any money from them (sound familiar?)

787 ramp up depends on all of the outsourcing partners increasing their capacities for baking carbon fiber parts. Not all of the partners are willing to front those costs until they see some positive cash flow from their current investments.

However, once the demand for the 787 levels off, that increased production capacity would fit rather well with the next generation composite 737 replacement. Unfortunately, it would also fit in with Airbus' planned outsourcing strategy for their A350.

We are living in interesting times.

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