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Airbus Wins First Order From Japan Air in Blow to Boeing

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Airbus SAS won its first order from Japan Airlines Co., securing a commitment for as many as 56 wide-body planes in a market that Boeing Co. has almost monopolized for decades.

The order consists of 18 A350-900 aircraft and 13 larger A350-1000s, Airbus Chief Executive Officer Fabrice Bregier said on a conference call today. The firm commitment has a value of $9.5 billion at list price, while customers typically secure rebates. Japan Air has an option to purchase 25 more.

Airbus’s biggest A350 order so far this year gives the European manufacturer a break into Japan, where the fleets of ANA Holdings Inc. (9202) and Japan Air, the country’s two biggest carriers, are dominated by Boeing. Japan Air choosing Airbus comes after the Boeing 787 Dreamliner was delayed by years and grounded globally early in 2013 after battery malfunctions.

“This is the blue-chip order Airbus was hoping for,” said Will Horton, an analyst at CAPA Centre for Aviation in Hong Kong. “The order certainly opens the door for follow-up orders at Japan Airlines. If ANA orders Boeing, it will have to stress why the Boeing deal was better — the market will now be sensitive to who you order from.”

Airbus was negotiating with ANA and Japan Air, also known as JAL, to sell its A350-1000, three people familiar with the talks told Bloomberg News in May. The order announced today is the largest yet from a Japanese carrier for Airbus, and entry into service will commence in 2019, according to Airbus.

‘Personal Goal’

The Airbus orders are unrelated to the 787 issues, Yoshiharu Ueki, JAL’s president, told reporters at a press conference in Tokyo.

“Achieving this breakthrough order and entering a traditional competitor market, was one of my personal goals and I am very proud to be leading the team who has accomplished this great success,” Bregier said.

Boeing is “disappointed,” while it “respects” JAL’s decision, the planemaker said in an e-mailed statement.

“We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward,” Boeing said in the e-mail.

ANA, Japan’s largest airline, said last month it’s pitting the new jets of Toulouse, France-based Airbus and the U.S. planemaker against each other, and will make a decision on an order soon.

Airbus’s A350 had its maiden flight earlier this year and the first variant is set to enter service by in 2014, with the largest model slated for late 2017. The planemaker has said the A350-1000 will offer 25 percent better operating economics than Boeing’s 777-300ER. The aircraft has logged more than 300 test flight hours to date, Bregier said.

‘Landmark Deal’

The A350-1000 has a list price of $332.1 million and the -900 has a price tag of $287.7 million. Airbus also offers a smaller variant, the A350-800, which together with the -900 version is targeted at the 787 Dreamliner, while the largest type is a competitor to Boeing’s successful 777 wide-body.

Airbus has been gaining market share in Japan recently as low-cost carriers lease its planes. Both Peach Aviation Ltd. and Jetstar Japan Co. use Airbus planes.

Japan Air rose 3 percent to 5,810 yen in Tokyo trading today, extending gains this year to 57 percent.

JAL had 166 of the Chicago-based company’s jets, or 78 percent, of its fleet of 214 planes, as of the end of June. The carrier also had 25 Bombardier Inc. (BBD/B) aircraft, 12 jets from Empresa Brasileira de Aeronautica SA, and 11 made by Saab AB. ANA, whose fleet is also dominated by U.S.-made planes, had 199 Boeing jets, or 84 percent of its fleet of 238 planes, as of Sept. 20, according to the company.

Japan remains an anomaly for Airbus. Sales Chief John Leahy called Airbus’s shortcomings in Japan “my only failure,” and Chief Executive Officer Tom Enders also said in 2011 he’s been “frustrated” with business in the country.

Boeing Dominance

“It’s a landmark deal if Leahy pulls it off as Japan is one of the least-penetrated markets for Airbus, mostly due to politics than airline economics,” Shukor Yusof, a Singapore-based analyst at Standard & Poor’s said in an e-mail. “It’s a significant blow to Boeing and the 787 and reinforces our view that the A350 will be a gamechanger. I expect ANA will be tempted to get the A350s and possibly even A380s.”

Japanese carriers flew 43 Airbus jets at the end of 2012, up from 36 a year earlier, according to the Japan Aircraft Development Corp. ANA and its affiliate Peach Aviation Ltd. are the main carriers using the European planemaker’s aircraft. In comparison, domestic carriers had 409 Boeing planes, excluding MD-90s, up from 397.

Historical Ties

Skymark Airlines Inc., Japan’s biggest discount carrier, is the only Japanese airline that has agreed to buy Airbus wide-body planes, with an order for six A380s. The airline is due to start operation of its first double-decker next year.

Boeing’s stumbles on its 787 Dreamliner jet will drive Japanese customers to Airbus and help win the endorsement of local subcontractors that traditionally shunned Airbus as the risky upstart, Stephane Ginoux, Airbus’s head of Japan, said in 2011.

Boeing’s ties to Japan stretch back to the country’s post-World War II reconstruction, and local manufacturers have traditionally played a major role on aircraft for the U.S. planemaker.

Japanese companies designed and supplied 35 percent of the structure of the 787, with Mitsubishi Heavy Industries Ltd. supplying the wings and Kawasaki Heavy Industries Ltd and Fuji Heavy Industries Ltd. building part of the front fuselage section and center wing boxes.

The record level of work for Japanese suppliers coincided with Japan’s airlines being among the Dreamliner’s top clients. ANA was the first customer for the 787.

“The order may be a new stepping stone for Airbus in Japan,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc., which manages the equivalent of $19 billion. “Buying U.S.-made planes has been a kind of pillar for the Japanese government and the Japanese airline industry. Japan has tended to buy American planes since 1945.”

(Source: Bloomberg)