During 2017, Boeing (NYSE: BA) smoked its European rival Airbus (NASDAQOTH: EADSY) in terms of orders for wide-body planes. Boeing received 167 net orders for wide-bodies last year, compared to just 55 for Airbus.
The U.S. aerospace giant’s momentum has continued in early 2018. Boeing booked 21 net firm wide-body ordersOpens a New Window. in January and February, versus eight for Airbus. Boeing has also finalized at least one major wide-body deal this month.
Recent reports suggest that Boeing is set to further extend its dominance in the wide-body market. American Airlines (NASDAQ: AAL) is poised to place an order for 25-30 additional 787 Dreamliners, while canceling its existing order for 22 Airbus A350s.
American Airlines’ Airbus order has been up in the air
Way back in 2005, US Airways ordered 20 A350s. Two years later, in conjunction with major design changes for the Airbus A350 family, the carrier increased its order to 22 units. American Airlines inherited this order in 2013 when it merged with US Airways.
The A350s were initially scheduled for delivery beginning in 2014. But due to a combination of production delays and two deferrals by American Airlines in the past two years, the first A350s are now supposed to arrive in late 2020. During the past year, American’s management has openly acknowledged that the company is rethinking the A350 order.
The merger is the main reason for this change of heart. US Airways was about a third the size of the current merged airline, so it would have been reasonable to operate 22 aircraft of a particular type. However, it’s not efficient for an airline the size of American to operate such a small subfleet, according to the carrier’s president, Robert Isom.
Indeed, American Airlines aims to simplify its fleet from 52 subfleets in 2016 (including different configurations of the same aircraft) to just 30 by the end of 2022. In keeping with this goal, management decided that it needed to increase the size of the A350 order or cancel it outright.
Another victory for Boeing
American Airlines is set to dump its A350 order in favor of buying 25-30 additional Boeing 787-9 Dreamliners, according to ReutersOpens a New Window.. The airline had been in talks with Airbus about switching the order to the slightly smaller (and cheaper) A330-900neo, but Airbus isn’t willing to match the price that Boeing offered for the 787-9.
American’s preference for the 787-9 makes sense — especially if it’s the cheapest option. As of the end of 2017, American Airlines operated 34 Dreamliners, including 14 787-9s. It also has another eight 787-9s set to arrive in 2018 and 2019. By contrast, it doesn’t have any A350s or A330-900neos. Thus, of the options that American considered, buying more 787-9s was most consistent with its fleet simplification goals.
To be fair, American Airlines claims that it hasn’t made any final decision on its fleet. However, Hawaiian Holdings said almost exactly the same thing last month, following reports that it planned to dump an order for A330neos in favor of the 787-9. Just a few weeks later, it confirmed its intention to order the DreamlinerOpens a New Window..
Does Airbus have an answer?
Assuming the recent reports are accurate, it’s another big blow to Airbus: especially its A330neo wide-body program. Airbus began selling this upgraded version of its A330 jet family in mid-2014, but it has accumulated just 214 firm orders. Furthermore, Airbus has captured just 10 firm orders for the A330-900neo since the beginning of 2017 — while the smaller A330-800neo model has lost all of its 10 orders during that period.
To make matters worse, 44% of the A330neo order backlog comes from two airlines: Iran Air and AirAsia X. Iran Air’s order for 28 aircraft could easily be disrupted by renewed U.S. sanctions, while AirAsia X may be reconsidering its massive order for 66 A330-900neos. More than 60 additional A330neo orders come from several aircraft leasing companies, which prefer aircraft that have a large base of operators.
In short, getting American Airlines to switch from the A350 to the A330neo would have gone a long way toward solidifying the latter’s position in the marketplace. Instead, Boeing could soon be one step closer to dominating the market for small to medium-size wide-bodies.
Airbus’ current strategy is predicated on the idea that it can discount the A330neo enough to steal sales from Boeing’s Dreamliner. If Boeing is willing to match or even beat Airbus’ prices for the A330neo, then Airbus may need a completely new approach to compete in this market segment.