JAL denies Boeing 777-8/9 order goes with Airbus A350 $9.5b order

By ERIC PFANNER

Published: October 7, 2013


TOKYO — Airbus announced a $9.5 billion order from Japan Airlines on Monday, giving the European aircraft builder its biggest breakthrough to date in Japan, where Boeing has been the main supplier of jetliners for decades.

JAL and Airbus said the Japanese carrier would buy 31 A350 wide-body jets, which are expected to replace Boeing 777 jetliners in the carrier’s long-haul lineup. Deliveries will begin in 2019, and the order also included options for 25 more aircraft.

The A350 order breaks down to 18 of Airbus’s latest 314-seat wide-body, the A350-900, as well as 13 of its larger, 350-seat A350-1000s, a person with knowledge of the deal said.

While Boeing and Airbus have been battling each other for global market share for years, things have been different in Japan. JAL has never bought a plane from Airbus, and its main rival, All Nippon Airways, also mostly operates Boeing jets.

Although it is the first Airbus purchase for JAL, the airline acquired Japan Air Systems a few years ago and inherited some Airbus jets in that transaction.

“Certainly this is the big order Airbus was hoping for, the big foot in the door that could lead to new orders,” said Will Horton, an analyst at the CAPA Center for Aviation in Hong Kong.

Analysts say Airbus may have offered substantial discounts to alter the airline’s all-Boeing policy.

The longstanding ties between the Japanese carriers and Boeing also have been subject to new tensions over a series of problems with Boeing’s new 787 jet. Both All Nippon and JAL have bought 787s, and substantial portions of the work on the planes is done in Japan.

But the introduction of the 787 was delayed several times, and then the plane was grounded by problems with batteries, causing scheduling and logistical difficulties for the Japanese carriers and other 787 customers.

JAL’s decision to go with Airbus comes amid other signs of change in the cozy relationships that long held sway in the Japanese aviation business. The government, which used to own JAL, is increasingly distancing itself from the carrier.

Last week the Ministry of Land, Infrastructure, Transport and Tourism announced that it was awarding 11 of 16 new international takeoff and landing slots at Haneda Airport in Tokyo to All Nippon, the biggest domestic rival to JAL, leaving only five for JAL.

All Nippon and JAL have an equal number of slots at Haneda, which are coveted because of the airport’s proximity to central Tokyo. Haneda is only about 15 kilometers, or 9.3 miles, from the city’s major business districts, about a quarter of the distance to Narita, the other main airport serving the Tokyo area.

The government described the decision as a way to promote fairness in the industry, after JAL benefited from several bailouts. Most recently, after JAL filed for bankruptcy protection in 2010, the airline received a capital injection of ¥350 billion, or about $3.6 billion, from a fund supported with taxpayer money.

But JAL has protested the decision on Haneda, saying it was a flawed way to try to level the playing field. The move also has ramifications for partner airlines of JAL and All Nippon; JAL operates flights in cooperation with carriers in the OneWorld alliance, including British Airways and American Airlines, while All Nippon has a deal with United Continental Holdings and other members of the Star Alliance.

Having secured its first contract with JAL, Airbus is eyeing the airline’s rival. All Nippon has a handful of single-aisle Airbus planes, and executives have said it is considering the A350 or a new version of the 777 for a pending order.

Some Japanese low-cost carriers also operate Airbus planes, but the JAL deal was the first purchase of wide-body jets, which carry higher prices and profit margins, by either of the two major Japanese carriers.

Nicola Clark contributed reporting from Paris.

 

That has a lot to do with it, but it's also getting to a point that they don't want (as do others) rely on a sole source supplier model. A lot of airlines are going this way.

 

Actually I don't think your statement is correct.

Airbus (EADS) is actually a PUBLICLY traded company (~73% of its stock is traded publicly on stock exchanges), and I'm sorry to say, the governments of France (SOGEPA), Germany (GZBV), and Spain (SEPI) still own approximately 26% of the private shares. In other words, the governments have not divested themselves in Airbus. This doesn't change the goal of being run as a for-profit company, as being a for-profit company and having government ownership are completely separate. You can even see on Airbus website that my statement is correct:

http://www.eads.com/eads/int/en/investor-relations/share-information/shareholder-structure.html

Subsidies vs. government guaranteed loans are two different things altogether. While the governments that have financial stakes in Airbus **may** no longer provide guaranteed loans, the fact is they still do. What has changed is Airbus as a company **may** seek better financing elsewhere, especially in the event that the governments wish to not provide loans. All of this is covered in the corporate governance and investor information documents. Basically, Airbus is saying "we have access to government loans, but no guarantee they will always be available, and we may have to go outside to find other money."

It used to be Airbus would take the entire cost of the development program and get government backed guaranteed loans. Now it seems while they are still getting loans (Airbus A350 received over $5b in government guaranteed loans), the amounts are being reduced since Airbus is technically a profitable company.

Boeing on the other hand has to finance all their aircraft R&D with their own money. Period. However, the tax breaks received are viewed by Airbus as a subsidy. So Boeing doesn't have to pay (e.g.) $30m in state taxes (to keep the jobs there), Boeing now has $30m it can put towards R&D. But the tax breaks Boeing gets pale in comparison to the government backed loans Airbus has received since Day 1 that gave it a grossly unfair advantage in the commercial aerospace segment.

Just want clarification on what the situation is, even if my explanations are overly simplified.

 

I'm sure we can debate this all day, but this doesn't make sense per se. If Airbus can get better finance rates on the open market for development loans, then why do they take the state provided loans instead?

I have my opinion why this is, but all it does is further extend the debate.