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Lufthansa gives Airbus, Boeing a splitting headache with jet order

Lufthansa A320s all in a line at Munich: Wikipedia Commons

Airbus and Boeing have a big problem if unconfirmed reports that Lufthansa has split an order for $14 billion worth of new twin-engined widebody jets between them are true.

The first of those reports appeared on Bloomberg earlier this morning Australian time.

It implies that the German giant’s future needs for 50 jets in the high 300-low 400 passenger sized range in multi-class formats will be satisfied by 25 Airbus A350-900s and 25 Boeing 777X series jets.

And it would add to what has in just a few years become the new normal for large value airliner purchases, which is to divide the spoils between the two airliner makers and eschew their emphasis on negotiating bargain prices per jet conditional on winner-takes-all decisions.

This new dilemma for A and B is exemplified by huge split orders for single aisle jets by American Airlines, Norwegian Air Shuttle and Lion Air of Indonesia divided between current and future versions of the Airbus A320 and Boeing 737 lines, and Air France KLM and Singapore Airlines dividing up the spoils of medium sized wide body orders between the A350s and Boeing 787 Dreamliners.

That doesn’t ever make for two winners for each contest, because as any bean counter will argue, they really mean two losers looking at ‘lost’ orders running into the billions. The engine makers are more fortunate, since it is possible for a split order to give all of the necessary powerplants to Rolls-Royce, GE or CFM.

Nor are these split orders being decided between two precisely identical offerings.  The 777-X family will be upsized compared to the earlier A350s, and the A350 models are all larger than the smallest version of the 787 and so forth.

But if the report concerning the Lufthansa decision is correct, Airbus and Boeing will have to do something to break the new brand independent attitude of their biggest buyers.

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  • 1
    David Lloyd
    Posted September 14, 2013 at 8:39 am | Permalink

    In the old days airlines looked at the expertise/training and spare part inventory as a major impediment to having two types of plane. However, Ansett and TAA then went on to split between 727s and DC9s and later between 767 and the A300s. So I guess its not a new phenomenon this split order.

  • 2
    Aidan Stanger
    Posted September 14, 2013 at 10:32 am | Permalink

    Far from it being a new dilemma, Airbus and Boeing must be rejoicing now! They’ve finally escaped the pressure of an all or nothing order situation forcing thrm to slash their prices.

  • 3
    Mark Skinner
    Posted September 14, 2013 at 11:56 am | Permalink

    The strategy of splitting orders is a hedge against one of the makers not being able to supply on time. So perhaps if the plane makers don’t want splitting, then maybe they should get their on-time delivery acts together.

    I would also suspect (but am not in any position to know) that both Boeing and Airbus are not getting cheap liability insurance any more after Boeing’s payouts for late delivery of the 787. Therefore, were that the case, one would assume that the amounts of liquidated damages that airlines would agree to in their contracts is much less than in previous ones.

    As for Aidan’s point, it would really depend on their profit margins, and how much less per unit Lufthansa could have paid for a larger order compared to the unit cost reduction the makers would have received for a larger order. Hard to say.

    I suspect that if Aidan is right, then the makers will not work too hard to address the problem.

  • 4
    Ben Sandilands
    Posted September 14, 2013 at 1:11 pm | Permalink

    In briefings both makers present a 60:40 split in their favour as being realistic or even ideal goals.

    They express differing views as to how much of those orders they actually want to see controlled by leasing groups, which is a very contentious topic, since they don’t want to offend such large customers, but are mindful of the possibilities that lessors may successfully market recently churned shorter term leases to the deteriment of new sales and so forth.

    A comfortable duopoly always invites disruptive competition but both Airbus and Boeing would know that on their side, the lead time for such competition to become serious could be as long as the 20 years or so that it took Airbus to become a threat to the then Boeing and McDonnell Douglas incumbents.

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