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Friday, August 1, 2003

Editor's Note: An Ongoing Rivalry

David Jensen

The Airbus-vs.-Boeing rivalry appears to be the ongoing prime focus at major air shows. It is a bit reminiscent of the Ford-vs.-Chevy dispute long debated by young American car lovers until Japanese and European automobile imports entered the U.S. market and muddied the argument.

The rivalry between the two major airline manufacturers was readily apparent at this year’s Paris Air Show. Airbus generated the most news with its announcement that Emirates had ordered 18 A340-600s and 21 A380s worth a total of $19 billion. Boeing’s counterattack came days after the show, when it announced the sale of 155 aircraft: 45 B737 NGs to All Nippon Airways and 100 B737 NGs and 10 B717s to the low-cost carrier, AirTran.

The nature of the two orders–widebodies from Airbus and narrowbodies from Boeing–is indicative of the directions the two manufacturers have chosen to take. And this reaches to the heart of the Airbus-vs.-Boeing debate. Airbus has bet its future on the jumbo A380. Meanwhile, Boeing, which has been losing market share to its European rival, hopes to regain aircraft sales momentum with a new, more efficient 200- to 250-passenger aircraft, dubbed the B7E7, which is not a narrowbody but still is much smaller than the 500- to 600-passenger A380.

The U.S. manufacturer cites passenger preference for more direct, point-to-point travel, both domestically and internationally. For example, it foresees scheduled routes that bypass the current hub-and-spoke system and link, say, San Jose, Calif., with Tokyo or Sacramento with Honolulu. Conversely, Airbus anticipates expanded use of major international hubs for its A380. The giant A380 will no doubt reach some level of success; Airbus holds orders for 116 aircraft from eight customers.

Does the success of either manufacturer over the other impact the avionics industry? Between the two, Boeing’s vision of the air transport industry’s future would mean more aircraft in operation, and that in turn would mean more avionics, more in-flight entertainment systems, more electronic security devices–presumably more of all systems in airliners, though perhaps in smaller packages. Dominance of one manufacturer over another could also alter the market share among the three major avionics providers: Honeywell, Rockwell Collins and Thales. For example, consider that Thales is a prime provider to Airbus but not to Boeing.

A recent study of the commercial avionics market, conducted by industry analysts Frost & Sullivan (F&S), indicates that Boeing may hold a more accurate vision of the future. According to the study, Airbus’ market projections for the A380 are "over-optimistic." F&S forecasts the delivery of hundreds of A380s, not thousands. The survey also claims that Boeing’s replacement for the B757 and B767, the 7E7, is scheduled to be introduced at a time when replacement needs "will begin to grow." F&S predicts the sale of at least 2,000 B7E7s. As the chart below shows, Boeing maintains a lead in aircraft deliveries through 2007 and even begins to pull ahead slightly in its delivery numbers toward the end of the survey period.

Avionics Magazine will provide an aviation industry-wide report of the F&S study in our September issue. Focusing here on the air transport market, we find that the research and analysis firm predicts renewed growth, primarily after another year or more delay in acquisition, upgrades and overall revenue. During the forecast period, 2002 to 2007, the study expects that revenues from avionics sold to the air transport market will grow at an annual rate of between 7 and 20 percent. Annual revenues therefore will climb from $3.79 billion in 2002 to $4.46 billion in 2007.

F&S also lists some challenges facing manufacturers of avionics for air transport aircraft. Perhaps foremost is the prediction that a cost-consciousness among airlines probably will not subside, even when economic conditions improve. Nevertheless, the study indicates an emergence from the devastation of the 9/11 terrorist attacks during the survey period.

As we will report next month, the F&S study predicts various levels of growth in all commercial aviation sectors: general aviation, executive aircraft, regional airline and air transport. But, according to the study, air transport represents 66 percent of the commercial avionics market in terms of revenue, more than twice the market sizes of the other sectors–which is why the avionics industry has good reason to hope the directions both Airbus and Boeing have taken meet with success.

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