Strategically speaking, why American Airlines?
Update, 11:30am PDT July 25: The Ft. Worth Star-Telegram summarizes the delivery schedule of the huge AA order. Of particular note: AA doesn’t receive its first 737RE until 2018. This raises the question: is the EIS of the 737RE not until 2018? Or is AA truly not the “launch operator” of the 737RE (we wonder what a certain UK person would have to say about this)?
Wells Fargo issued a note today in which one small segment said:
“One curiosity about Airbus’s and Boeing’s aggressive marketing campaigns to replace AA’s narrow-bodies is the extent to which the manufacturers appear to have cut deals for one of the least profitable airlines in the world.
“We understand the “strategic” importance of AA, but according to consensus estimates AA is not expected to generate any profit until after 2013. Meanwhile, healthier airlines (see Delta, Ryanair, and Southwest above) are also looking at major re-fleeting plans and no doubt will pursue comparably attractive pricing and financing terms.”
The conventional wisdom is that Airbus wanted to penetrate American and brake the Boeing exclusivity, and this is certainly true. We have a broader take.
A key strategic objective was, in our view, forcing Boeing to re-engine rather than go with a new airplane.
Key Boeing personnel had earlier this year told investors’ days and Wall Street analysts that one of their objectives was to wait long enough for Airbus to be irrevocably committed to the NEO program and then spring a trap with the New Small Airplane that would dramatically eclipse the NEO.
It did not, of course, take very long for this to leak out inasmuch as analysts like to write about these things. We reported the reporting, so Airbus clearly understood Boeing’s thinking.
How real the thinking was, or whether it was just bravado, is something that only Boeing could say. But if Boeing could pull off the NSA, Airbus might very well have been in danger of having an obsolete product before it ever flew.
Reuters had this story in which it touched on this very point.
So Airbus had to do what it could to force Boeing’s hand.
John Leahy, COO-Customers for Airbus, predicted all along Boeing’s NSA would not be built and that if a US Boeing operator defected to the NEO, Boeing would re-engine the 737. Re-engining the 737 would make the NSA stillborn, for now.
And this is exactly what happened. Boeing Commercial Airplanes CEO Jim Albaugh says the NSA has now been pushed out to the second half of the next decade, and Airbus officials were strutting that they had forced Boeing into the RE–a view largely held by the aerospace analysts and other observers.
Or is that what’s happened? One source close to the situation says it’s not beyond the realm of possibility that Boeing could pull a rabbit out of the hat and forego the RE in favor of the NSA for American. We think Heaven and Earth would have to move, but stranger things have happened.
Two sources with direct knowledge of the competition tell us Boeing was offering the NSA right up until Tuesday night when time ran out and the RE became the default. Albaugh said the next day at the press conference that Boeing could not figure out how to build a composite NSA at the rate of 40-60 a month, and indeed the lack of composite production capacity is something we wrote about months and months ago–not the technological challenges of the NSA itself.
But getting back to the point of this post, strategically forcing Boeing into the RE was probably more important than the AA order. And for this, Airbus’ Leahy probably is going to be the most influential person in commercial aviation this year.