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Jet makers seek price truce
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June 14, 1999: 10:59 a.m. ET
Boeing, Airbus say market calmer, but losses suggest price war continues
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PARIS (CNNfn) - The dominant players in the commercial aircraft market, Boeing and the European Airbus Industrie consortium, will wine and dine airline executives in their lavish chalets at the Paris Air Show with fixed smiles on their faces.
Publicly, the aircraft builders maintain that the vicious price battle of the mid-1990s is over, despite evidence that discounts actually climbed last year despite a boom in orders.
"There was a price war in 1995 [but] value is what really wins out," John Leahy, senior vice-president of sales at Airbus, told CNNfn.com at the Paris Air Show Sunday.
Pricing has become more "realistic" in recent months, Alan Mulally, president of Boeing's commercial arm, insisted at the show opening.
Privately, the two companies continue a titanic battle for market share as airlines play one off against the other and demand ever-steeper discounts. These can reach 20 percent or more off the sticker price for the largest customers.
Ed Greenslet, a respected former Wall Street airline analyst and independent consultant, estimates Boeing's average discount climbed to 22.9 percent last year from the 15 percent to 17 percent range which has prevailed since the 1991.
Airbus had been prepared to discount by 19 percent last year, reckons Greenslet, compared with the 12 percent to 15 percent range earlier.
Investigation
The dominance of Boeing and Airbus, who hold 98 percent of the market for aircraft over 100 seats, has attracted the attention of U.S. antitrust officials and their counterparts at the European Commission after the two companies raised their list prices within weeks of each other last October.
Mulally told CNNfn that the EC and U.S. officials have yet to report their findings.
Antitrust officials in Brussels already have slapped down Boeing's bid to tie U.S. carriers including American Airlines (AMR) and Delta Air Lines (DAL) to exclusive 20-year contracts that would have offered steep discounts and huge flexibility over the type of aircraft they ordered.
However, given that the price war helped push Boeing to its first corporate loss last year while Airbus has never made a net profit, some executives believe competition officials are unlikely to change the terms of the market battle.
"[An investigation] is little short of laughable given the sort of return on capital we are both getting," said Tony Rice, managing director of commercial aircraft at British Aerospace, which has a 20 percent stake in the Airbus consortium. "Neither of us is covering our costs of capital."
Airbus and Boeing have been engaged in a war of words over pricing as the European company has chipped away at Boeing's dominance of the commercial aircraft market.
Since its launch in 1974, Airbus now claims 43 percent of the market for single-aisle aircraft (such as the A320 and Boeing 737) by value and has targeted a 50 percent market share. Boeing has a 54 percent share of that market as well as 61 percent of the widebody (Boeing 747 and 777 and Airbus A340) market.
Boeing has seen its own margins eroded and suffered an embarrassing series of production difficulties after boosting production and failing to meet cost-cutting targets, a development that saw the departure of chief executive Ron Woodard last summer.
The Seattle-based company accuses Airbus of virtually giving aircraft away to reach its market share target. Airbus responds that Boeing is clinging to a past where it had 75 percent of the market and is selling aircraft cheap to try to regain its lead.
Regional conflict
The war of words isn't limited to the large jets. The fastest-growing market has been in smaller regional jets with 30 to 70 seats. These are quickly replacing turboprop aircraft on shorter routes, much to the pleasure of passengers who still prefer to travel by jet.
The market leaders in this sector -- Canada's Bombardier and Brazil's Embraer --- have taken their battle to the World Trade Organization.
Bombardier, which was first to market with its popular Canadair RJ, accused its rival of illegal state subsidies, a challenge upheld by the WTO. The support shaved $2 billion off Embraer's EMB-145, which already undercut the Canadian aircraft with a list price of $20 million. 
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