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Easyjet plane decision poses questions for manufacturers
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| 28 October 2002 |
The decision by low-cost airline Easyjet to acquire aircraft from European plane maker Airbus poses a number of significant issues. Boeing had been expected to win the order as Easyjet and its newly acquired former rival Go both operate a combined fleet of 64 B-737s, including 15 B-737-700s.
However, the deal may signify Boeing's willingness to sacrifice market share rather than sell planes at a loss. Boeing is in a different position than Airbus, with the latter having the government of France as a shareholder. While Boeing announced last week in an analyst conference call that the company will reduce its workforce by an as-yet undetermined number of jobs through attrition and layoffs – in addition to the already announced 30,000 job reductions – Airbus is in a different situation. For the French government, loss of the Easyjet order could have resulted in job losses – a sensitive issue in light of its equity stake in the European plane maker.
The UK-based airline has opted for a firm order for 120 A319 narrowbodies with an option for an additional 120 A320s and A321s. Firm orders are slated to be delivered over a five-year period beginning September 2003, with exercised options to be delivered until 2012.
List price for the firm orders is about $6.2 billion. However, discounts were not disclosed. Airbus has 45 days to wrap up the order, which is predicated on Easyjet shareholder approval.
Estimates of discounts range from 30% to 45% off list prices.
Easyjet is expected to operate a combination of Airbus and Boeing aircraft until at least 2007. By that time, Easyjet will have acquired 120 A319s, which probably will drive the carrier to rationalise to a single-model fleet, a strategy which has proved most effective for low-fare operators in Europe and the US.
Easyjet said it had decided the benefits of the discounted deal with Airbus outweighed the challenges of having to integrate the new planes into its existing all-Boeing fleet.
Industry insiders still are concerned that the costs of mixing the new planes with Easyjet's uniform fleet of B-737s could hurt the airline's performance.
The order has produced divergent statements from the manufacturers. Boeing's top commercial jet salesman, Toby Bright, said: "From what we can tell, the difference was upwards of $500 million. We've said in the past that we are not going to do bad business." Airbus officials maintain that the transaction is immediately cash positive, a contention disputed by some market watchers, who maintain that Airbus was more interested in cracking the low-cost market than in turning a profit.
Sources are quick to suggest that if Airbus is being candid about making money on the Easyjet deal, it means that the European plane maker can continually beat Boeing's prices because it costs Airbus less to design, build and market each plane. As a consequence, Airbus should have a larger market share and be in a position to develop more products to further challenge arch-rival Boeing.
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