from Follow the Money

Some good news

April 25, 2005

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Boeing seems to be making a bit of a comeback on the back of a new small, light plane (the 787). Airbus is left hawking a heavier, lumbering giant (the A380) in the face of rising fuel prices.

That kind of sounds like GM.

I don’t know all that much about planes, and to be fair, I suspect that if you can fill up the A380, it can transport a large number of people at quite a low cost. But filling up that big of a plane is something of a challenge. It will be interesting to see if the success of the 787 will deter Airbus from launching the A350 (an updated A330), and if the presence of the A380 will deter Boeing from ever launching an advanced 747. Duopolistic competition gives rise to lots of strategic games.

To quote the FT:

Heidi Wood, analyst at Morgan Stanley, said: "With Northwest, Air Canada and today’s Air India, Boeing’s announced 787 orders stand at a fairly breathtaking 244, which makes this plane inarguably the most successful aircraft launch ever."

The momentum behind the 787, which has so far secured 217 firm orders and commitments, according to Boeing, raises questions about the future of the Airbus A350.

... it has not yet attracted any big orders from established airlines and the recent snubs from Air Canada and Northwest - strong candidates for the aircraft as they already have a fleet of wide bodied aircraft dominated by Airbus - will damage it further. The A350 has just one order to date for 10 aircraft from Air Europa.

According to one executive involved in a recent order, Boeing’s success also reflects that under Scott Carson, Boeing’s new head of sales, it has become more aggressive on pricing in an effort to prevent the A350 from being launched.

I’ll also be interested to see if Boeing’s success in India is eventually offset in part by large Chinese orders for Airbuses. China has been a huge market for Boeing, in part because the Chinese government buys Boeings to offset its huge bilateral deficit with the US. Airbus has a very low share of the Chinese fleet. But in the geo-aircraft game, it sort of seems like the commercial and political relationship between the US and India is warming even as the economic and political relationship between the US and China is cooling.

Geoeconomics aside, Boeing’s turn of fortune also has something to do with the dollar’s weakness, and the euro’s strength. Too bad other US (or for that matter foreign) firms do not seem to be investing in new US made products that can capitalize on what is likely to be an extended period of dollar weakness. I don’t think it is a mystery why the euro has stayed relatively strong despite a string of bad news out of Europe: it is hard to bet on the appreciation of the currency of a country with a 6.5% of GDP (to be 7% of GDP) current account deficit.

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