Gulf takes aviation by storm with $200 billion of orders

DUBAI Thu Nov 21, 2013 1:33pm EST

An Airbus A380, the world's largest passenger jet, flies during the Dubai Airshow November 18, 2013. REUTERS/Caren Firouz

An Airbus A380, the world's largest passenger jet, flies during the Dubai Airshow November 18, 2013.

Credit: Reuters/Caren Firouz

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DUBAI (Reuters) - Planemakers left Dubai with a record $200 billion in deals after a desert rainstorm forced organizers to cancel the last day of its air show - an event that demonstrated their growing reliance on the Gulf to secure support for big jets.

A flurry of dealmaking gave Boeing the momentum it needed to launch its latest aircraft, known as the 777X, with some 250 orders worth $100 billion, as reported by Reuters last week.

Rival Airbus secured a much-needed boost for the A380 superjumbo after Emirates ordered 50 more and brought its share of orders for the world's largest airliner to almost half.

Fighters and jetliners fled the oncoming storm, which flooded exhibition halls at Dubai's brand-new Al Maktoum airport. To reach it, delegates had driven through sand dunes earmarked for rapid development into an aviation metropolis.

"This is the land of possibilities," said aerospace analyst Richard Aboulafia, drawing a contrast with disputes over the development of a new runway at London's Heathrow Airport.

"Everywhere else seems stagnant, relying on derivatives and cost-cutting measures," he added.

The payback highlighted at the Nov 17-21 air show is that some Gulf states such as Abu Dhabi expect industrial investments in their own aerospace industries, heating up competition with Western suppliers while reducing the cost of new parts.

And Gulf airlines, which also increased orders for Airbus A350s, increased their leverage over planemakers as they seek to avoid past delays in developments of new jets. That could weigh on a labor debate over where the new 777X should be built.

"I did speak to (Boeing Commercial Airplanes CEO) Ray Conner and said 'in my humble opinion, please do not do to the (777)X what you did to the 787'," said Emirates airline president Tim Clark, referring to delays in Boeing's outsourced Dreamliner.

"In my opinion it would be better produced in the U.S. in the areas where you have a dynastic skillset."

Boeing secured the largest number of orders for a jet launch from Germany's Lufthansa and three Gulf airlines - Emirates, Qatar Airways and Etihad Airways - but quietly dropped plans to include a fifth airline from Asia, another fast-growing market.

Industry sources say it remains in talks with Hong Kong's Cathay Pacific (0293.HK), which could yet decide to order around 20 of the 777X jets, designed to carry up to 400 people.

As they leave the Gulf to embark on a global chase for new deals, Airbus will be trying to dent Boeing's claim that what is good for Gulf carriers works equally well for other airlines.

"We are starting here but we see broad worldwide demand for the 777," Boeing Chairman and CEO Jim McNerney said.

The plane's launch follows two years of discussions over how it should be optimized, with European buyers that fly shorter routes in less extreme conditions pushing for a slightly leaner design without the extras needed for severe Gulf conditions.

Gulf airlines schedule some flights at night partly to avoid summer daytime temperatures that limit performance, but increasingly want flexibility to fly by day in all weathers.

DESIGNING THE BOX

The debate over where to put the baseline is comparable to deciding whether to tune a car for the thinner air of the Alps or the valley, and affects how marketable a jet is globally.

At stake are deliveries for the 777X and its competitor, the A350-1000, that could stretch well towards mid-century.

"This is going to be a great machine and will do the job for a lot of carriers and there will eventually be 1,000-plus orders at least, in my view," Clark said of the 777X.

Aircraft designs usually involve some form of compromise. Lufthansa, which was first to order the plane, said it was happy with the "box" of characteristics it had signed for.

Airbus won new orders for its 350-seat A350-1000 that competes with the 777X and is due three years earlier in 2017.

Airbus has left the industry wondering about its intentions after suggesting it might add a bigger version of its A350-1000 if the market votes en masse for 400-seat two-engined planes.

Sales chief John Leahy told Reuters it would in any case build the existing A350-1000 version as planned. Any change would involve a new version but there were no such plans now.

Some analysts are nervous about a move that, even in its simplest form of 2-3 extra seat rows, could cost $1 billion.

At this stage, most industry sources say Airbus is probably more interested in signaling to airlines which have not yet made their choice that the Boeing 777X will not go unopposed.

Both firms also sent clear signals that they would defend their positions in production of smaller jets like the Boeing 737 and Airbus A320 that provide cash for other developments.

Airbus got a mostly cool reception after using the show to advance a campaign for a seat width of 18 inches on long trips, something it says the 777X will lack. Boeing officials say Airbus fails to meet this standard on some of its planes.

Airlines jealously guard control of their cabins which affect their brand, but the row is also about hard economics.

"It is completely an issue for airlines. We want to be able to address our markets in the way we are best positioned in each segment," said senior Lufthansa executive Nico Buchholz.

"They should leave it to us," H.H. Sun, chairman of China Airlines, told Reuters at an industry event in Hong Kong.

Armed with a tape measure, Reuters discovered that seat widths in military aircraft displayed at the show were barely different from the economy seats on a wide range of jetliners.

An Apache helicopter pilot seat and V-22 tilt-rotor Osprey troop seat were 17-18 inches across. Unsurprisingly, the widest seat was on a luxury jet - a sofa measuring 82 inches wide.

(Adds dropped word Boeing in paragraph 14)

(Additional reporting by Praveen Menon, Andrea Shalal-Esa, Nadia Saleem in Dubai, Siva Govindasamy in Hong Kong, Alwyn Scott in New York; Editing by Mark Potter)

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