Tuesday, June 10, 2014

The A330 Gamesmen$hip And Game Board Tatics

Airbus is playing Boeing just like Boeing has played Airbus. Wait for the other to make its move then make the counter move on the opponent. A very good article outlining this tactic:

Airbus A330 Upgrade May Pressure Jet Prices 


Reference: Air Wise June 10,2014
"Critics say Airbus has flip-flopped over strategy after initially rejecting an A330 redesign in favor of its new A350.
But some in the industry say Boeing also erred by over-engineering the 787, leaving the door open to more sales of a wide-body aircraft suited to shorter trips such as fast-growing routes within Asia.
Airbus has already begun promoting the "A330neo" as the most affordable wide-body jet catering to this new regional niche.
Comparing the A330neo to the Boeing 787-9, the most popular version of the Dreamliner, Airbus sales chief John Leahy said it would have the same "cash operating costs" and significantly lower capital costs, making it "an unbeatable plane in that category".
Boeing disputes these claims as well as Airbus's forecasts of more than 1,000 potential sales for the A330neo. But that has not prevented its sales chief stepping up the market battle."

The point was made through Ryan Air, that you can buy a boat load of 737 NG's like its recent #176, 737's on one order, and fly it competitively against the NEO or Max. Because operational margins are close enough comparing the Max and NEO against the NG, where it can risk buying a lower cost airplane and leverage acquisition savings through its operations making extra cash available for buying additional fuel and service of its higher overhead operation. The lower capitalization also achieves lower interests amount, and effective depreciation benefits for the tax calculation of the company. The bottom line improves when Ryan Air can buy the cheaper older design, and beat the bottom line of its competitor's "bottom line", during head to head operations of competing airlines that have ordered the A320 NEO. 

That is what Airbus is saying that it can do with an A330 Neo against the 787 capitalization margins.  Airbus claims they will  sell you an A330 NEO with lower purchase price, lower interest payments on acquisitions, that will supersede the 787 higher purchase cost and better fuel performance beating the 787. The A330 NEO would compete on the bottom line in head to head profitability with airlines that have the 787. The A330 doesn't have to use less fuel to beat the 787 because cash savings just mentioned will catch-up the A-330 NEO on its operational cash flows against the higher purchase price 787. Thus, affording more fuel for years to come. That is the argument in short hand. They can buy an tremendous amount of fuel from purchase savings and lower interest cost as part of the head to head Airbus analysis.

This short sighted Airbus scheme fails on its assumptions, where all things Boeing will be a constant factor and never adjust. As the article link suggests, Boeing has several options available to knock the Airbus scheme off the table. The fuel price is the wild card. If fuel price raises significantly in an operational year, then Boeing would have orders tip to its favor.

"Comparing the A330neo to the Boeing 787-9, the most popular version of the Dreamliner, Airbus sales chief John Leahy said it would have the same "cash operating costs" and significantly lower capital costs, making it "an unbeatable plane in that category".
Boeing disputes these claims as well as Airbus's forecasts of more than 1,000 potential sales for the A330neo. But that has not prevented its sales chief stepping up the market battle.
"Clearly our competitor is pursuing this product and thinks it is a great way to compete against the 787-8 and 787-9, which is an interesting change in their strategy because we thought they were building the A350-800 and A350-900 to compete against those airplanes," said Boeing senior vice president John Wojick.
"Airbus is saying 'my airplane isn’t as efficient as Boeing's, so maybe Boeing won't react'. Well, we are going to react," he told Reuters in Doha. Boeing declined to elaborate.
Analysts say Boeing has three main options: do nothing, fine-tune the 787's design or retaliate with lower prices".
  • Assigning a lower thrust engines on a 787-8 for regional airport hoping as China is leaning towards. 
  • Add special performance tweaking on a 787-8 regional for under 5,000 mile routes.
  • Passenger configuration standards on a regional market maximizing efficiency.
  • Weight reductions from eliminating long range system currently installed on all 787.
  • Boeing has the ability to sell a 787-8R (Regional) configuration that would kill the A330 NEO.    

Boeing blinked and didn't build the regional 787-3. The A330 NEO concept is trying to grab China's attention and sell 1000 units in the next ten years over the 787-8, 787-9
and 787-10 models. China could purchase a block of A330 NEO's as a place holder for its airplane growth until later when the 787 order book shrinks and production cost improves making the Boeing sales team aggressive at that time, out selling the A330 bargain beater. 

Whether the A330 Neo is launched, is the roll of the dice at this time. The A350-800 is a lost leader. The A350-900 can't hold up to all competing models. The A350-1000 is just a dream not a liner, Since Boeing has four brand new models each filling slots that brackets the Airbus line into a take down.