Airbus lands the profits for BAe

Trade and Industry Secretary Margaret Beckett. The DTI looked at seven key sectors; we take our own snapshot

For only the second time in its 28-year history, Airbus Industrie, the trans-European consortium in which BAe is a partner, is set to sell more planes this year than its arch rival Boeing.

The first time, in 1994, was a fluke, because it came in the industry's worst year for sales in decades. This time, with sales booming, an Airbus victory would be impossible to discredit.

With just six weeks left in 1997, new Airbus orders are outpacing those of Boeing by 425 to 415. That makes this year the best ever for the British- French-German-Spanish consortium. And it makes the Airbus goal of achieving a consistent 50 per cent market share by early in the next decade seem plausible for the first time.

"It's clearly been a great year for Airbus," said Keith McMullan, managing director of consultancy, Aviation Economics.

Airbus is reaping the benefit of an expanded range of planes. The group now offers a full range of models from the 125-seat A319 to its four-jet, long-range A340. The newest variants of that plane, the A340-500 and A340- 600, which can seat close to 400 and fly more than 8,000 nautical miles, should be formally launched at the Dubai Air Show this week. Airbus already has preliminary commitments from Virgin Atlantic Airlines, Eva Airways and Air Canada.

The plane maker has also been expanding its geographic reach. In the Latin American market, for example, where Boeing reigns, the European consortium last month broke a 15-year sales drought in Brazil, selling 10 planes to Transportes Aeros Meridionais.

Airbus has also been making inroads into Boeing's hold on the Chinese market. In May, it won a $1.5bn (pounds 920m) order for 30 planes and is now working with the Chinese to develop a 100-seat plane.

A Boeing spokeswoman said the company did not want to discuss the possibility of Airbus winning this year's market fight. "Every airplane campaign is a battle. Wherever planes are to be sold, we're there, we're focusing on our business. We're not going to comment on how they run theirs."

Still, the Airbus victory in the 1997 order contest, if it happens, will carry psychological weight. It will be especially important, because Airbus is stigmatised among conservative airlines as a parvenu. British Airways, for example, has never ordered an Airbus plane.

Strengthening its credibility is also important for Airbus as it loses government financing and relies increasingly on capital markets to fund new projects.

Moreover, the victor in the 1997 order contest will be positioned to get a better return on capital in 1998, according to Nick Cunningham, an aerospace analyst a Salomon Brothers. "The leader can drive the market," he says.

Thus, as the year end approaches, industry executives say both Boeing and Airbus are negotiating furiously to sign deals that will make them number one. Some think each company is "stockpiling" orders, so as to leapfrog its rival at the last minute.

The Airbus success comes at a time of embarrassing and costly reduction delays for its Seattle-based rival. Boeing is having trouble replacing and training workers it laid off during the industry's doldrums in the early 1990s. Its suppliers are also having a hard time boosting output.

Assembly lines at the Airbus partner companies, including BAe, are by contrast humming along smoothly. The European consortium is now reaping the benefits of a seasoned workforce.

But the European maker can ill-afford to feel smug. Even with its strong record for 1997, the Airbus backlog - or total number of planes on order - remains at around 30 per cent to almost 70 per cent for Boeing, which acquired McDonnell Douglas last August.

And the world's leading plane maker has 20-year commitments from American Airlines, Delta Air Lines and Continental Airlines, giving it a firm grip on the US market, the world's largest.

Moreover, the Airbus partners also face some daunting trials from within. Jean Pierson, 57, managing director of Toulouse-based Airbus, is set to retire in March. This hulking, outspoken executive, known as the "bear of the Pyrenees", has led Airbus through its rapid build-up over the last decade.

A search is now underway for a successor who can steer Airbus successfully through the growth period that lies ahead.

Traditionally, the top job at Airbus is held by a Frenchman and the second post - that of supervisory board chairman - by a German. That is because Aerospatiale and Daimler Benz Aerospace own the biggest stakes, with 37.9 per cent each. BAe has 20 per cent and Construcciones Aeronauticas 4.2 per cent.

This time, however, France seems to have few suitable candidates. Many analysts are hoping the top job could go to BAe's 54-year-old financial director, Richard Lapthorne.

Copyright: IOS & Bloomberg