Airbus gets a push,but still it can’t soar

K Giriprakash Bengaluru | Updated on March 12, 2020

In a duopolistic market, both the players benefit more or less equally. But what happens if one of them fails to turn up. It should ideally create a monopoly, but that hasn’t been the case for Airbus.

The European aircraft-maker, which directly competes with its US counterpart Boeing, is realising, much to its frustration, that it is not able to capitalise on the year-long grounding of the Boeing 737 MAX aircraft. This was a once-in-a-lifetime opportunity to leave the competition far behind — but Airbus just cannot take in more orders.

‘A paradox’

At a recent press conference to announce the 2019 annual results, Airbus CEO Guillaume Faury was forthcoming about how difficult it has been to gain from the situation. “It might look like a paradox, but in the short term, we don’t benefit from the situation with our competitor,” he said, as per media reports. According to Airbus, its most popular jet, A320, is sold out through 2025, which might make it difficult for airlines such as SpiceJet to place orders for them, replacing Boeing. Despite such a scenario, Airbus is doing well for itself. It delivered 863 jets and won 768 new orders in 2019, while Boeing delivered only 380 aircraft.

According to various estimates, Airbus’ total jet deliveries were worth about $60 billion compared with Boeing’s $42 billion. What this means is that Airbus, which commanded a 56 per cent market share, has now gone past 62 per cent. Not bad for a company which was established over half a century after Boeing.

This should make Airbus happy, but the managers at the Toulouse-headquartered company are a worried lot. One, they have to build in more capacity quickly but can’t. Two, pouring in more cash to get the aircraft off the ground will only make them costlier. Three, they don’t want to end up where Boeing finds itself today — nothing in terms of quality can ever be compromised. Pushing its vendors to ramp up production might turn out to be completely counter-productive.

“There can be no quick solutions for this problem and nobody should try, too,” says Aravind Melligeri, Chairman and CEO of aircraft parts’ manufacturer Aequs. “It will not be a short-term benefit for Airbus, though the long term seems a more likely scenario.”

Airbus A320 is in direct competition with 737 MAX. Orders for the Boeing aircraft are down to zero; the company has not been able to deliver the 400 MAX aircraft produced since its grounding.

Melligeri sees a different scenario playing out. “What is happening now is that the aftermarket is seeing a sudden boom. Already, about 600 of used aircraft are still in the system. More of them are being inducted into fleets. Fuel-guzzling retired aircraft are now being given a fresh paint to fly again. With oil prices sliding, airlines are reviving them to add capacity — in the short term, it will work fine.”

Oldies but goldies?

But there are issues that cannot be ignored. When the ban gets lifted, newer MAX 737s will start getting manufactured. But the number of MAX aircraft made could be lower, and if some start-up airlines collapse around that time, both the aircraft manufacturers will be impacted. “We need to realise that the aerospace industry is running on a 17-year boom cycle. Usually, a downturn happens every 6-7 years, but this has been skipped twice. But whenever it happens next, Boeing could get hit again,” points out Melligeri.

According to another analyst who did not want to be named, Airbus will benefit in the long term because a few loyal Boeing customers might look at Airbus seriously. “It will be a foot-in-the-door for Airbus. That will be a game-changer eventually,” he says.

Till then, the coronavirus pandemic might just trigger the beginning of a long period of slowdown for the entire aircraft-manufacturing industry.

Published on March 12, 2020

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