How plane giants descended into global "price war"

Mon Jul 9, 2012 3:57am EDT
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By Tim Hepher

FARNBOROUGH, England (Reuters) - Airbus and Boeing head into this week's Farnborough Airshow locked in their fiercest market share battle for up to a decade, slashing prices to win key orders for their latest narrowbody jets and storing up potential trouble for future profit margins.

From Australia to Indonesia, the United States to Norway - and most recently, Reuters has learned, Turkey - the marauding plane giants have spent months taking or defending market share, with world No.1 Airbus aiming deep inside Boeing's territory and its rival publicly vowing to defend a traditional 50-50 split.

While Airbus unveiled an assembly plant in Boeing's backyard this week, the battle behind the scenes - described as "hand-to-hand fighting" from airline to airline by one participant - has implications for the business case of the A320 jets to be built on U.S. soil as well as the profitability of Boeing's rival 737.

Its outcome could shape the leadership of new bosses at both jetmakers: Frenchman Fabrice Bregier of Airbus and Boeing's Ray Conner, cautious and publicity-shy insiders who reach the July 9-15 pageant facing pressure to draw a line under a period of risk and give investors a sober ride with predictable margins.

The latest firefight involves a back-and-forth battle for 40-50 jets worth $4-5 billion sought by Istanbul-based budget carrier Pegasus Airlines, with Boeing resisting Airbus efforts to poach one of its customers in a duel known as a "flip fight," according to several sources familiar with the matter.

The airline is one of many looking to jump on a 15 percent improvement in fuel burn and therefore a significant reduction in costs offered by the latest revamped models of jets offered by Europe's Airbus EAD.PA and its U.S. rival Boeing (BA.N: Quote).

As with a series of other duels in the last year, according to multiple sources who spoke on condition of anonymity, Boeing has been fighting back after seeing one of its clients targeted by its competitor. Airbus maintains this is normal competition.

Contacted by Reuters, Ali Sabanci, Pegasus chief executive, said: "we are negotiating; no decision has been taken."   Continued...

A worker prepares the Boeing chalet ahead of the Farnborough Airshow 2012 in southern England July 8, 2012. REUTERS/Luke MacGregor