When giants collide

There are all sorts of ways to think about a map of the world. Britons of a certain age grew up in classrooms with maps showing much of the globe satisfyingly covered in empire pink. Children of the Cold War saw a world divided between red communist nations and the rest. To an executive of Airbus, the European aircraft maker, countries on the map have meanwhile come to look much the same except for one that has long been disconcertingly different.

It is Japan — which, alone among the world's wealthiest nations, is a Boeing country. Airbus now has 54 per cent of the world's aircraft orders. In Japan it has less than 5 per cent.

Japan's biggest airline, the recently bankrupted JAL, has never bought a new Airbus jet. The handful it has were inherited in a merger. JAL and All Nippon Airways, the next biggest carrier, have barely 50 Airbus jets between them and more than 340 Boeings. "It's an unnatural situation," says Tom Enders, Airbus Chief Executive. "Japan is one of the largest markets in the world and there is almost no Airbus."

Concerted push

But Enders, a forthright former paratrooper, is trying to tackle that. He headed to Japan last week for the second time this year, as part of a concerted push into one of Boeing's last bastions.

If successful, it could open up a new chapter in the story of one of the world's greatest commercial rivalries. Some in Airbus hope it could even help reconfigure the global commercial aircraft industry by putting the European group permanently on top.

Japan is not merely the world's second largest economy; it sits in the Asia-Pacific, which both Airbus and Boeing expect to become a bigger market than either the US or Europe over the next 20 years, accounting for about one-third of their deliveries.

China has already become the world's fastest-growing aviation market. Airbus has more than 500 of its jets flying there, about half the number it has in the US. Ending Boeing's pre-eminence in Japan would give the European group an important boost in the great game to be played out in this dynamic region.

Struggle

As with anything to do with Airbus and Boeing, however, nothing will happen without an intense and gripping struggle. Few other corporate opponents compete as ferociously as the world's two biggest makers of passenger aircraft. Unlike other global duopolists — Coca-Cola and PepsiCo, Microsoft and Apple, Visa and MasterCard — it is not the case that the two are both American. With one of the rivals based in France, a frisson of geopolitics overlays the commercial tensions.

Moreover, Boeing spent decades thinking of itself as the natural superior in the arrangement. It dominated much of the market from the dawn of the jet age and built the 747 jumbo that became one of the icons of the era. Airbus did not even exist when the jumbo had its first test flight, in February 1969. The European company dates its birth to May of that year, when French and German ministers signed an agreement jointly to build a passenger jet.

The move was a conscious effort to end US rule. But few gave the awkwardly conceived European group much chance of beating Boeing, even when it started producing aircraft to rival the trusty output of Boeing's Seattle assembly plant.

One senior executive from a leading aircraft leasing firm remembers taking a flight across the US just after Northwest Airlines bought some Airbuses. "I got chatting to the guy next to me who turned out to be a pilot at Northwest and he said, ‘Those French guys should stick to making wines because they sure as hell can't make airplanes'."

As it turned out, Airbus had more staying power than Northwest, which was taken over by Delta in 2008. By then, Airbus had been delivering more aircraft than Boeing for five years in a row, a feat it repeated last year. But Boeing has still beaten Airbus in terms of the value of deliveries for seven out of the last 10 years, according to the Virginia-based Teal Group, an aerospace consultancy. And the value of each company's order backlog — an important indicator of future relative strength —remained almost identical in 2009 at just under $258 billion (Dh947.4 billion).

Allegations

But Airbus's ascent has stung its older rival and driven the contest between the two to fresh heights: in 2004 each filed a case against the other with the World Trade Organisation alleging illegal subsidies. Neither of those has yet been resolved.

The political dimension to the competition has also been felt over the years by various customer airlines.

A little more than 10 years ago, Airbus thought it had finally clinched a deal with Israel's El Al, long a loyal Boeing customer. But when in 1999 it announced it was going to buy some of the European group's jets, the move did not go down well in Washington. Officials in the administration of Bill Clinton made it clear that Americans and Congress would not understand why El Al was not buying Boeing planes. To this day, El Al only has Boeings.

Airbus also benefited from political help over the years, says Doug McVitie, an aerospace analyst who was director of sales intelligence at Airbus in the 1990s. European airlines that resisted exhortations to buy its products, such as British Airways, a Boeing stalwart for many years, were resented at its Toulouse headquarters.

"Airbus executives would have their expenses questioned if they flew on BA, they hated each other so much," says McVitie. "If they couldn't find another way of flying, the expenses would be paid but it was seriously frowned on."

Politics

Airbus did crack BA, but not until 1998. And politics, says McVitie, is a large part of the reason Airbus is "hardly likely" to break into Japan, where Boeing's strength has been evident ever since the US occupation that followed the Second World War.

But nearly five decades of almost uninterrupted rule by the Liberal Democratic party ended with last year's general election, which brought a Democratic party-led government to power. Airbus is hoping this will create opportunities that previously did not exist. As Enders diplomatically puts it: "I think the political environment is changing."

Boeing insists politics is largely irrelevant, at least compared with the commercial relationships it has carefully moulded in Japan. "We've been in Japan for more than 50 years and we have a very strong relationship with suppliers as well as customers and partners," says Charlie Miller, a Boeing vice-president. "We estimate Boeing-related work in Japan supports nearly 13,000 jobs, which is more than 20 per cent of Japan's total aerospace industry."

Boeing's latest aircraft, the 787 Dreamliner, underlines the point: Japanese companies are making its wing boxes among other components. ANA is the aircraft's launch customer.

Airbus executives concede that Boeing's deep web of relationships have made it a formidable presence in Japan. But it claims to have another weapon: its A380 superjumbo, the world's largest passenger jet.

Big bets

The intense rivalry between Airbus and Boeing has seen each take big bets on aircraft they hope will pull them ahead. In Boeing's case, it is the 787 Dreamliner, the first passenger jet to be built mostly of carbon fibre composites and the fastest selling jetliner ever built, with 876 orders from 57 customers around the world. For Airbus, it is the A380. Both were hit by delays, but the 787 has just had its first test flight and the A380 has been in service for more than two years.

Airbus has long proclaimed the enormous A380 would put it on a whole new footing against Boeing. Finally, the company had a full range of aircraft to sell right across the market, from its 108-seat A318 to a superjumbo capable of carrying more than 800 people, more than Boeing's 747.

Japan, Airbus claims, is a country in need of the A380. Toulouse executives have drawn up charts showing how the A380 has helped Singapore Airlines, the first carrier to fly it, gain market share from JAL and ANA.

On one chart, Airbus says SIA's passenger volumes on the Singapore-Tokyo route rose 8 per cent between May and December 2008 compared with the same period the previous year, which was before the A380 entered service. Volumes on the same route sank 13 per cent for ANA, the chart says, and 19 per cent for JAL.

John Leahy, Airbus's top salesman, insists the "A380 effect" is even more pronounced when it comes to the premium traffic of business and first class passengers that are a significant source of international airlines' revenue.

"Singapore [Airlines] went from Singapore to Narita with the A380 and JAL lost almost all of their premium traffic going down to Singapore, because given a choice, people would take the 380," he says. "And it takes an A380 to compete with an A380."

Not everyone agrees. Richard Aboulafia at Teal Group thinks Airbus will have a difficult time persuading the Japanese, or many other carriers, to sign up. "The A380 is not a plane people want to buy," he says, noting more than half the 202 orders Airbus has had for the superjumbo came in the first three years since it started marketing it in 2001. The market clearly prefers the smaller and lighter A350 XWB jet that Airbus is now developing, he says, an aircraft that has attracted more than twice as many orders as the A380.

Tone deaf

"There's something completely tone deaf about pitching the A380 in a market such as Japan, where the national flag carrier just went bankrupt because it was unable to cut capacity fast enough," he adds.

As for whether Airbus can permanently replace Boeing as the world's leading aircraft maker, Aboulafia says it comes down to the 787.

"If the 787 works out as planned, or close to it, then Airbus will be lucky to regain 50 per cent of the market — and that would only happen if the A350XWB works out too," he says. "But if something goes wrong with the 787 in terms of its operating economics and performance, then Airbus would certainly overtake Boeing."

So far, therefore, the jury is out. Enders did not leave Tokyo last week with a bunch of orders for the A380, or for any other aircraft. A lot of people have underestimated his company over the years. But only the brave would count Boeing out just yet.

— Financial Times