Airbus recently welcomed United CEO, Scott Kirby, to its headquarters in an attempt to lure its business from Boeing. This could change aircraft orders for all airlines.
Airbus Seizes The Moment
Following Alaska Airlines flight 1282 to Portland International Airport in which a door plug was improperly secured and came free during flight, the Federal Aviation Administration initially grounded all Boeing 737 Max 9 aircraft. Before approving a return to service, Max 9s had to undergo an inspection process and it was found that more aircraft had similar issues including some operated by United Airlines. The FAA grounding added further scrutiny of Max production lines. Both Boeing and the FAA were fortunate to avoid a fatal crash. Max deliveries were stopped previously when two 737 Max aircraft were crashed resulting in the deaths of 346 people between October of 2018, and March of 2019.
Airbus seized the moment and arranged a semi-secret meeting with United CEO, Scott Kirby, at its French headquarters. United ordered more than 530 737 Max aircraft of which it’s the largest 737 Max 9 operator in the world. More than 370 Max aircraft remain undelivered. The carrier’s Airbus order book includes 220 aircraft is split across 125 A321-neos, 25 A321XLRs, and 45 A350-900s though the wide bodies in this order have been pushed out by United.
The A321, especially Neo and XLRs are highly coveted at the moment because expansion is tough for carriers and access to new aircraft is key to growth. The XLR in particular has just shy of 10% longer range than the best equipped 737 Max and will replace aged out 757 aircraft on long thin routes from the US East Coast to Europe.
Matthew speculated this week in the above post, that Airbus might be willing to work with other customers in order to deliver aircraft sooner in exchange for a firmer commitment on the A350 deal and replacing the Boeing 777 in United’s fleet. This is of particular importance as Boeing has an extensive market position in the long-haul wide body space and this would be a chance to replace the type for which United was the launch customer. United also has 150 Boeing 787 Dreamliners on order.
Airbus saw a moment to capture the attention of one of the largest operators in the world who potentially have cause to quit its contract with Boeing. Initially, it appears that Airbus was unsuccessful, but time will tell whether the decision is permanent.
If United Were To Convert Orders
Should United and its board ultimately decide to take some form of a deal with Airbus and leave Boeing either partially or entirely in the cold remains to be seen. However, if United wants to keep up its current schedule of receiving just shy of three new planes every week in 2024, Airbus would have a difficult time moving enough customers to make that possible. And even if Airbus could pull that off, it’s next to impossible that aircraft engine manufacturers would be able to deliver power plants on time.
“As reported by Reuters, Airbus has already begun notifying airline customers about delivery delays in 2024 for its best-selling A320neo family of aircraft. The delay will mean that deliveries of several hundred single-aisle planes will be postponed by up to three months.
Airbus has confirmed that while it expects unspecified delays for A320neo aircraft in 2024, the delays do not reflect any worsening of the supply chain problems that have plagued the manufacturer since it revised its production plans for its best-selling range of jets earlier [in 2023].” – Simple Flying
What does that mean for other customers of Airbus? It means that while the manufacturer might be willing to provide an incentive to give up a delivery position, it says “your business is not as valuable to us as United’s.” It says that for customers it wants to capture, it will move heaven and earth to make it happen, but for less significant customers, they simply have to wait.
For Boeing, losing part or all of the United order would not be a death blow, but it would put the manufacturer in a compromised position. It’s not just the orders but the message it sends throughout the rest of the market. It would indicate that an airline with 700 orders, the launch customer for the 737 Max and the 777 – has lost faith.
Even If United Never Even Considered Moving Its Business To Airbus
Scott Kirby, in what could be his best move in management for an airline, took that meeting with Airbus. Though United may have never had the intent to move its business to Airbus, its negotiating power with United just increased dramatically. The ability to secure better terms and pricing in the future, and a favorable remedy on its current manufacturing concerns.
It also demonstrates to Airbus – and for that matter, other manufacturers – that even with a commitment as large as United has made to Boeing, it can be swayed by the right circumstance. That makes every order up for grabs, not only at United and not only due to the 737 Max situation but every order at every manufacturer. Commitments for the A220 might switch to Embraer or Boeing, Egyptair just abandoned the type. Airbus engine delivery issues could have some clients switching too, or A350 paint issues as Qatar Airways encountered.
Boeing also has to consider the situation for what it is. Spirit AeroSystems (the 737 Max 9 fuselage manufacturer) has some culpability in the issue. But if United were even considering a cancellation of its order, they won’t just cancel the fuselage. United doesn’t cancel a part, they cancel the whole plane and everyone in the supply chain loses equally. That also has a dramatic effect on its vendor relationships.
Boeing can’t apologize and comply, it needs to prove to the market that quality is of the highest importance and that a Boeing aircraft is a well-made, safe, and reliable. It needs to prove to customers that their business is also protected.
Airbus may have thrown its own delivery schedule up in the air, and while United doesn’t appear to have accepted the deal offered it could change how all manufacturers and airlines interact going forward. No sale is safe. For Boeing this should be the last, final, most serious warning that its business could be in jeopardy if its response is not well received by regulators and airline customers alike.
What do you think?