(Updates with closing stock price in ninth paragraph.)
Oct. 7 (Bloomberg) -- Boeing Co.’s decades-long dominance in jetliner sales to Japan cracked as Airbus SAS won its first order from Japan Airlines Co., a deal for wide-body planes with a list value of $9.5 billion.
Airbus will supply 18 A350-900 aircraft and 13 larger A350- 1000s, plus options for 25 more jets, Chief Executive Officer Fabrice Bregier said today at a press conference in Tokyo. Shares of Airbus parent European Aeronautic Defence & Space Co. rose to a record in Paris.
The deal is doubly painful to Chicago-based Boeing because the Japanese carrier selected the Airbus counterpart to its new 777 replacement, “suggesting that JAL will not be buying the 777-9X,” Douglas Harned, an aerospace analyst with Bernstein Research in New York, wrote today in a report. He has an outperform rating on Boeing shares.
The deal increases the stakes for Boeing as it mends fences with Japan’s two largest carriers following a three-month grounding of the 787 Dreamliner earlier this year. ANA Holdings Inc. and JAL, the first and second airlines to fly Dreamliners, owned the planes whose battery meltdowns spurred regulators worldwide to order 787s parked.
“It’s hard not to imagine that the 787 grounding hasn’t played its part” in JAL’s decision, said Bertrand Grabowski, managing director for aviation at DVB Bank, one of Europe’s biggest aircraft financiers. “Japan Airlines finally realized dependence on one manufacturer isn’t perhaps the best policy for a world-class airline.”
The A350 order boosts Airbus’s share of the Japanese market to 20 percent from 13 percent and will provide momentum for further deals, according to Bregier.
The Toulouse, France-based planemaker could gain more ground as it competes with Boeing for a wide-body order from ANA for about 25 twin-aisle planes, with the A350 and 777X in contention, Harned said.
“They’ll probably do the same thing” as JAL, said Richard Aboulafia, an aerospace analyst with Teal Group, a consulting firm in Fairfax, Virginia. “I would bet on exactly that,” he said in a phone interview.
Boeing fell 0.4 percent to $116.69 at the New York close as broader U.S. stock indexes slumped amid the U.S. government shutdown. EADS rose 2.2 percent to 50.30 euros at the close in Paris, extending the shares’ year-to-date gain to 71 percent. JAL closed 3 percent higher at 5,810 yen in Tokyo.
Boeing is disappointed about losing out to Airbus though it respects JAL’s decision, Randy Tinseth, a Boeing vice president for marketing, said in an interview.
“There’s no question that JAL has been a great partner of ours,” Tinseth said. “We have a lot of airplanes to deliver for them, a lot of opportunities for aircraft purchases in the future.”
The A350 order is unrelated to issues with the 787, JAL President Yoshiharu Ueki said in Tokyo, adding that the Airbus model offers better fuel consumption than its current fleet.
The fire on a JAL 787 occurred Jan. 7 while the plane was parked at the Boston airport. Nine days later, a Dreamliner operated by ANA made an emergency landing after a lithium-ion battery began smoking.
Today’s order “doesn’t really alter the outlook for the 787,” Robert Stallard, an RBC Capital Markets analyst, said in a note to investors. “JAL is still flying the aircraft, and Boeing has racked up 927 orders for the 787 to date.” He has an outperform rating on Boeing.
ANA, Japan’s largest airline, said last month that it also was evaluating the latest Boeing and Airbus models and will reach a decision soon. The planes ordered by JAL today will enter service from 2019, according to Airbus.
“This is the nature of a low-margin industry,” said Aboulafia, the aviation consultant. “If the other guy gets something with a double-digit better fuel burn four years before you, you’re in trouble.”
JAL probably saw the A350 as the speedier alternative to Boeing’s 777X aircraft, which still haven’t been approved by its board and won’t begin commercial service until decade’s end, Peter Arment, an analyst with Sterne Agee & Leach Inc. in New York, said in a phone interview.
“I don’t think the 777X is being blocked out from future evaluations,” said Arment, who has a buy rating on Boeing. “This deal was probably very compelling from an economic standpoint and one that meets their immediate replacement needs.”
The A350 had its maiden flight earlier this year and the first variant, the midsize -900, is slated to enter service in 2014, followed by the smaller -800 model in 2016 and the larger -1000 stretch in late 2017.
The A350-1000 has a list price of $332.1 million and offers 25 percent better operating economics than Boeing’s best-selling 777-300ER, Airbus says. The -900, with a price tag of $287.7 million, and the -800 both compete with the Dreamliner. The A350 has logged more than 300 test-flight hours so far, Bregier said.
Bregier said today’s deal is a breakthrough order and marks the attainment of a personal goal, adding: “I am very proud to be leading the team who has accomplished this great success.”
Japan has been an anomaly for Airbus, proving tougher to crack than even the U.S., where it won orders for 40 jets worth $5.6 billion from Delta Air Lines Inc. last month and sold 260 narrow-body planes to AMR Corp.’s American Airlines in 2011, building on previous deals with carriers including Northwest Airlines.
John Leahy, Airbus’s sales chief, has referred to its shortcomings in the world’s No. 3 economy as his “only failure,” and EADS CEO Tom Enders said in 2011 that he was “frustrated” with the challenges of doing business in the country.
Japanese carriers operated 43 Airbus jets at the end of last year, versus 409 Boeing planes, excluding MD-90s, according to the Japan Aircraft Development Corp.
JAL had 166 Boeing jets at the end of June, equivalent to 78 percent of the 214-aircraft fleet. The carrier also had 25 planes from Bombardier Inc., 12 from Empresa Brasileira de Aeronautica SA, and 11 made by Saab AB -- yet no Airbuses. ANA has also favored U.S.-made planes, with its 199 Boeings equating to 84 percent of a 238-strong fleet as of Sept. 20.
Before today, Airbus gains in Japan had come mainly from low-cost carriers leasing its planes, with both Peach Aviation Ltd. -- an ANA affiliate -- and Jetstar Japan Co. using single- aisle A320s. Skymark Airlines Inc., Japan’s top discount player, had been the only operator to order Airbus wide-bodies, with the first of six A380 superjumbos due to enter service next year.
Shukor Yusof, an analyst at Standard & Poor’s in Singapore, said Airbus’s failures in Japan have been “mostly due to politics.” Boeing’s ties there stretch back to post-World War II reconstruction, and local contractors have traditionally been given significant work-share on the U.S. manufacturer’s models.
Japanese companies designed and made 35 percent of the 787’s structure, with Mitsubishi Heavy Industries Ltd. supplying the wings and Kawasaki Heavy Industries Ltd. and Fuji Heavy Industries Ltd. part of the fuselage and center wing boxes. The record level of work coincided with Japan’s airlines being among the biggest 787 buyers, with ANA also the first customer.
The A350s that JAL ordered today will be 12 percent built in the Asian country, when the engines are included.
Today’s deal represents a “significant blow” to Boeing and the 787 and suggests the A350 will be a “game-changer” in the twin-aisle market, with ANA likely to be tempted to buy the A350 plane and even the A380, Yusof said.
--With assistance from Kiyotaka Matsuda in Tokyo and Kyunghee Park in Singapore. Editors: Chris Jasper, Anand Krishnamoorthy, Stephen West