Boeing vs. Airbus: It's Getting Ugly

The two planemakers are raising the volume of their spat over subsidies. Will the dispute go to the WTO?

Business Week 09/20/04
author: Carol Matlack
author: Stanley Holmes
author: Paul Magnusson
(Copyright 2004 McGraw-Hill, Inc.)

What's Airbus up to now? On Sept. 6, Chief Executive Noel Forgeard hinted that the European planemaker may soon unveil plans for yet another new aircraft even before the doubledecker A380 takes its first test flight early next year. Studies on a new plane could start within weeks, Forgeard said, with industrial agreements signed by early 2006. "Airbus is bubbling over with new projects," he said.

Forgeard's comments followed weeks of rumors that Airbus is set to revamp its A330, a midsize widebody jet, to counter Boeing Co.'s (BA ) superefficient 7E7 Dreamliner, a brand new 215-seater that's scheduled to get airborne in 2008. Boeing is banking on the 7E7, its first new model since the Boeing 777's launch in 1990, to help regain the lead from Airbus in the global commercial-jet duopoly. A revamped A330 would probably use lighter-weight composite materials and next-generation engines developed by Rolls-Royce PLC (RYCEY ) and General Electric Co. (GE ) for the 7E7. Most analysts reckon such a plane could get onto the market before the 7E7's scheduled debut. And the startup would probably cost no more than $2 billion, which Airbus could pay out of cash flow even as it wraps up the $13 billion A380 project.

But will this idea ever fly? A reworked A330 might cost a little less than the 7E7's $120 million list price, but almost certainly couldn't match the fuel savings and operating efficiencies that are the Boeing plane's key selling points. Airbus could still opt to develop a new aircraft, but it wouldn't be ready for the market until at least three years after the 7E7 makes its debut.

You might think Airbus would want to clear up the confusion -- but you'd be wrong. The more Airbus can get airlines wondering what its next move will be, the more the airlines are likely to delay a decision on ordering the 7E7, says Richard Aboulafia, an aerospace consultant with Teal Group in Fairfax, Va. "Their objective isn't to build a plane, it's to undermine the 7E7 business case," he says.