Airbus’s low-cost route to profits

Airbus is hoping low-cost airlines may offer a route out of the crisis facing the civil aerospace sector, as the company competes with Boeing for an EasyJet order of up to 75 aircraft.

But the budget carriers are exploiting the downturn in the rest of the aviation industry to squeeze price cuts out of aircraft makers.

EasyJet announced this week that it is in discussions with both Airbus and Boeing for delivery of up to 75 aircraft over the next five years. The airline saw passenger numbers jump by 36.5 per cent last month compared with December 2000.

Taking advantage

Ray Webster, chief executive of EasyJet, said that the airline was taking advantage of the current crisis in the aerospace sector: ‘Given the state that parts of the global aviation industry are in at the moment, this is potentially a very good time to be addressing our long-term aircraft needs.’

Chris Partridge, aviation analyst at Deutsche Bank, said Airbus is keen to secure customers among the low-cost airlines as they are the ones making profits at a time when most conventional carriers have been struggling to attract passengers.

This puts budget airlines in a good bargaining position when ordering aircraft, he said. ‘They are able to exploit the counter-cyclical position in which they find themselves. Aerospace manufacturers will do virtually anything to sell aircraft so as to retain continuity on their production lines, so they will come down on price, offer freebies, or perhaps be willing to provide more support than they would usually be prepared to give.’

Airbus is keen to break Boeing’s monopoly over the budget airline market with its A319 – companies such as EasyJet, Ryanair and Go traditionally opt for 737s. But if Airbus is to secure the EasyJet deal, it may be forced to buy back all the planes in the airline’s existing fleet.

Low-cost airlines run single fleet types, to avoid having to double up on the number of crews, spare parts and support. Partridge said the deal would still be worthwhile for Airbus even if it had to buy EasyJet’s fleet of 737s, which could number 45 aircraft by 2004. He said the company would have little trouble in selling them on to other airlines.

Even so, Partridge questioned whether the deal would be as good as EasyJet has suggested it might be for Airbus or Boeing . The firm order is more likely to be for a much smaller number of aircraft than the headline figure of 75, with options for more, he said.

And while the aerospace manufacturers are likely to be suffering for the next 18 months, by the time the first aircraft are due for delivery in 2004 they would hope to have picked up more orders and brought their production schedules into line with market demand.

Right plane for the job

A spokesman for Airbus said most low-cost airlines originally bought Boeing 737s as they were older aircraft and therefore available quite cheaply second-hand, while the A319s were only introduced in 1996.

‘Low-cost carriers were launched at a time when demand for aircraft in general was very high and Airbus aircraft were not available. But we are now confident we have the right aircraft for the low-cost airlines – and that they will buy more Airbus products in the future,’ said the spokesman.

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