* After Dreamliner and A350, planemakers focus on derivative
* Debate over number of engine choices holds key to A330
* Airbus also seen looking at A380 engine upgrade for
* Renewed trade tensions mask struggle for financial
By Tim Hepher
BERLIN, May 21 Drained by their contest to
create the carbon-fibre wonder jet, Airbus and Boeing
are observing a truce in futuristic new developments
while they refill their coffers with makeovers of older but
reliably profitable models.
The two companies have gone head-to-head with their costly
carbon-fibre experiments - the wide-body Boeing 787 Dreamliner
and Airbus A350 - but are now recognising the need to take
Airbus Group Chief Executive Tom Enders showcased the A350
to Chancellor Angela Merkel at the Berlin Airshow this week, but
has warned the industry can no longer afford to "bet its shirt"
on game-changing projects that "lead to a crazy game of chicken
with the competition and leave nothing to pay the bills".
U.S. rival Boeing is also trying to juggle the
blistering pace of technology that gave birth to the world's
first carbon-fibre jetliner with a sober message for investors.
Investors have responded positively, pushing shares to
record levels after both planemakers successfully applied a
similar revamp strategy to their top-selling narrowbody jets.
"The pendulum is swinging back from high science to return
on investment, and nothing provides almost guaranteed returns
like derivatives of successful jets," said Richard Aboulafia,
vice president of analysis at Virginia-based Teal Group.
Airbus is fine-tuning plans to put new engines on the A330
long-haul jet - its second main cash cow after the A320.
A surge in A330 orders triggered by delays to the 787 has
slowed down, threatening a drop in deliveries from 2016 if
Airbus takes no action to improve fuel efficiency.
Its cash pipeline has already been squeezed by the
$15-billion A350 and heavy overspending on earlier programmes
such as the A380 and military A400M.
Airbus is expected to make a decision later this year,
though there is a slim chance it will come as early as July's
Farnborough Airshow. The "A330neo" could enter service in 2018.
Complicating the decision is an unresolved internal debate
on whether to offer one choice of engine or two, with
Rolls-Royce and General Electric in the race.
A single choice of engine is cheaper and easier to produce,
since the engine maker will take more of the risk, but it is
less popular with airlines. Negotiations between Airbus and
engine makers are expected to intensify in coming weeks.
The head of the Airbus planemaker division, Fabrice Bregier,
is seen as cautious about authorising new R&D spending that
might hamper a broader drive for improved margins, but said on
Monday he was warming to the idea of overhauling the A330.
Less advanced, but starting to gather pace, are proposals to
place new engines on the 525-seat A380 superjumbo to boost the
economics of the world's largest passenger jet from 2020-2021 -
a timetable that would need a decision within one to two years.
An executive at leading A380 customer Emirates said it would
place more orders if Airbus made such a move, which could be
carried out in conjunction with Rolls-Royce.
The two proposals are designed to prolong a vital source of
cash in the case of the A330 and prevent the A380, Europe's
iconic but slow-selling superjumbo, from hampering profits.
"On our estimates, almost half of the profitable dollars at
Airbus are represented by the A330, and more than half when
adjusting for A350 losses and R&D," said Nick Cunningham,
managing partner at UK-based research firm Agency Partners.
On the U.S. side, Boeing recently launched a more detailed
revamp of its cash-generating 777 mini-jumbo. The 406-seat 777X
will combine new engines with carbon-fibre wings and is due to
enter service in mid-2020.
The proliferation of makeovers has led to a change in tone.
"Disruptive" technology has gone from the PR lexicon, judging by
this week's Berlin event, to be replaced by "incremental".
That doesn't signal any let-up in the companies' fierce
rivalry, however, as what is 'cash positive' for one is often
'cash negative' for the other, in the duopoly between the
world's largest planemakers.
The more an A330neo generates cash for Airbus, the more harm
it could do to the 787 by forcing Boeing to discount, analysts
say. And the 777X poses the same threat to the A350 and A380.
It appears no accident, therefore, that Berlin also saw
another burst of rhetoric in the world's largest trade row, with
Bregier slamming Washington state tax credits for the U.S.
aerospace industry on the eve of the show.
Airbus says the "unacceptable" $8.7 billion package would
alone cover the costs of the 777X. Boeing denies this and says
Airbus benefits from unfair government loans in Europe.
Senior industry strategists say the planemakers' decade-old
and ill-tempered World Trade Organization dispute over mutual
allegations of illegal government subsidies is not just about
politics but is just another leg of their battle to restrict the
other's funding. Both companies insist it is purely about
restoring a 'level playing field' for competition.
(Additional reporting by Victoria Bryan, Cyril Altmeyer;
Editing by Will Waterman)