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Advantage Airbus as a Boeing Loyalist May Choose A321s


Sep. 25 2019, Updated 1:09 p.m. ET

In what could be a notable setback for embattled Boeing (BA), SpiceJet, one of its key customers in India, may order at least 100 Airbus (EASDY) A321s as the 737 MAX 8 fiasco drags on. SpiceJet is India’s second-largest airline by market share. The airline has been expanding aggressively to garner a larger share of one of the world’s fastest-growing aviation markets.

SpiceJet has ordered up to 205 Boeing 737 MAX 8 planes and has taken delivery of 13 aircraft. All 13 SpiceJet MAX 8 jets remain grounded due to safety and regulatory issues.

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Last month, SpiceJet CFO Kiran Koteshwar noted that the company would explore other options to its 737 MAX 8 aircraft if the issue isn’t resolved within six to eight months. Apart from its 737 MAX 8s, SpiceJet’s fleet includes 65 older 737s and Bombardier Q-400s turboprop planes. The older 737s are less efficient in terms of fuel consumption and economics.

SpiceJet is also waiting for the Boeing 797

On September 24, SpiceJet chairman Ajay Singh told Bloomberg that the decision to order the midrange A321 variants is contingent on Boeing building the 797. The 797 is a new midsize aircraft (or NMA) and would replace the out-of-production 757s and aging 767s.

Although SpiceJet doesn’t own any 757s, rising international ambitions have led it to look for midrange planes. The 757 went out of production in 2004, and the 767’s production is primarily focused on cargo customers such as FedEx and UPS.

Last week, Delta Air Lines (DAL) CEO Ed Bastian told Bloomberg that the carrier still hopes that Boeing will build the 797. Bastian said that Delta may need “almost 200 aircraft over the next decade” and discussed the demand for the Boeing 797 from his airline.

Most of Delta’s demand would come from the need to replace its aging 757 and 767 models. Delta Air Lines doesn’t have any 737 MAX planes in its fleet.

Boeing has diverted its engineers and resources to get the 737 MAX back in the skies. As a result, the decision to build the 797 remains on hold. The continued delay in the 737 MAX 8’s return means a delay in making a decision on the 797.

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Is Boeing running out of time?

The 737 MAX 8 has been grounded for over six months and may not return until the end of the year. While Boeing is losing billions of dollars in penalties to airlines, airline customers are facing cancellations.

American Airlines (AAL) stock has lost 13.5% since the grounding of the 737 MAX 8. American Airlines, which has 24 MAX jets in its fleet, canceled 7,800 flights in the second quarter alone.

United Airlines (UAL) has pushed the return of its 737 MAX 8 aircraft to December 19. By then, it’s expected to have canceled over 9,000 flights since the aircraft’s grounding in March.

Continued delays in 737 MAX 8 return is costing Boeing more than money. Firstly, the company faces a reputational risk that could prompt airlines to look at Airbus. The Airbus A320neo competes with the 737 MAX 8.

Secondly, a delay in the 737 MAX’s return means a delay in the decision on the 797. This delay could push airlines to order the Airbus A321XLR instead. American Airlines has already opted for 50 A321XLRs.

JetBlue (JBLU) has also chosen A321XLRs for its transatlantic flights. JetBlue is a loyal Airbus customer and doesn’t have any Boeings in its fleet.

Boeing is also battling delays in rolling out its long-haul 777X planes due to General Electric’s GE9X engine issues and load test failures. As a result, Boeing is troubled on all three fronts—short-haul, midrange, and long-haul aircraft.

Boeing noted that it had 57% of the low-cost carrier, short-haul market share in South Asia. The defection of a major airline customer like SpiceJet could hamper Boeing’s dominance.

Other major Indian carriers

India’s largest airline by market share, IndiGo, has over 200 Airbus planes and no Boeings in its fleet. IndiGo made headlines in June when the carrier placed a $20 billion order for General Electric’s (GE) LEAP engines to power its A320neos and A321neos.

Air India relies on Airbus for its 128 narrow-body planes and on Boeing for its 49 widebody planes. The country’s fourth-largest airline, GoAir, operates 51 Airbus planes.

Whatever happens, GE could be the winner

General Electric engines power both Boeing and Airbus aircraft. While the Airbus A320neo offers Pratt & Whitney engines as an option, the P&W 1100G engine has experienced excessive vibration.

Referring to the mitigation process for the affected 1100G engines, LiveMint reported, “The engines are removed and sent for maintenance or modification. Those with gear box issues are immediately sent for a software update. This has been done on all such engines in India.”

In instances where airlines have a choice between GE engines and the Pratt & Whitney 1100G engines, GE may have an advantage with Boeing and Airbus in that particular race.


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