Pontifications: Airbus, Boeing and Qatar; and more on the WTO

Hamilton ATR

By Scott Hamilton

Oct. 10, 2016, © Leeham Co.: Last week ended with an order from Qatar Airways for 30 Boeing 787-9s and 10 777-300ERs. Qatar also signed a letter of intent (LOI) for 60 737-8 MAXes.

But that wasn’t the only news in what turned out to be a busy week.

The British American Business Council Pacific Northwest chapter’s annual conference was Tuesday. Airbus Americas president Barry Eccleston discussed the company’s reorganization and recent WTO loss in an exclusive interview with LNC. This was initially behind our paywall; we’ve now opened it to all readers.

He also discussed product development. This post is coming later this week.

Consultant Michel Merluzeau provided his forecast for the next 15 years at the same event.

The Aerospace Futures Alliance held its annual conference two days later. Boeing’s Mike Sinnett, VP of Product Development, gave a rare look into Boeing’s future product thinking. This post is also coming later this week.

Also on Friday, I toured the Boeing 737 factory in Renton with a group of suppliers. I’ll shortly be writing about this as well.

Let’s visit the Qatar order and the WTO issue.

Qatar

There are two parts of this announcement that stand out to me.

Qatar Airways CEO Akbar Al-Baker. Is he playing more games, or is his LOI for Boeing 737s his real intent?

Qatar Airways CEO Akbar Al-Baker. Is he playing more games, or is his LOI for Boeing 737s his real intent?

First is the 777-300ER order, a highly welcome development for Boeing. Officials said they need 40-50 net new orders this year to maintain production rates at current levels. Boeing had eight. Assuming this contract is inked this year—and there’s no reason to think it won’t be—this brings the number to 18.

Except lessor Intrepid Aviation canceled two -300ERs, so now this figure is back down to 16. There’s still some time to get another 24 orders this year to meet the lower threshold, but this is a task that is challenging, to say the least.

Equally important is what is the delivery stream of the Qatar deal? Boeing didn’t say. So any suggestion that this fills the production gap is simply off base.

The other aspect of this announcement is the LOI for up to 60 737s. This is seen as following through on the threat by CEO Akbar Al-Baker to drop the Airbus A320neo in favor of the 737 MAX and as a “blow” to Airbus.

Well, maybe not.

Al-Baker’s displeasure with performance and delays of the Pratt & Whitney-powered A320neos is well known. His long history of erratic behavior and changing positions is well known. He doesn’t have the moniker “U-Turn Al” for nothing.

But is this truly an impending change? The MAX portion is, after all, only an LOI. It doesn’t even rise to the level of a Memorandum of Understanding. And except for a couple of early A320neos that have been canceled, the Airbus and PW contracts remain intact. Al-Baker said at the press conference Friday he won’t be canceling the contract. These 737s are for growth, he said. But there is skepticism over this, too.

It’s been suggested to me that Al-Baker’s airplane acquisition plan is a case of his eyes being too big for his stomach and he really doesn’t want the A320s now. Thus, the highly public trashing by Al-Baker to find reasons to not take the airplanes.

Furthermore, no delivery stream of the MAX was announced, either, though he also said the first airplane would be delivered in 2018. Almost simultaneously, Turkish Airlines said it will defer the 737-8 MAX because of its country’s internal turmoil and terrorist activities.

LNC’s article here details the delivery stream of Qatar’s A320neos and Turkish’s 737-8s.

So is this a negotiating tactic by Al-Baker? Or is this real?

It will be interesting to see how this evolves over the next few months.

WTO

As readers know, the WTO upheld the US appeal over whether the European Union cured the violations of WTO rules for subsidies to Airbus.

The interest rate calculations are at the heart of the case against Airbus at this stage. Launch aid, per se, was found not to be prohibited.

The US Trade Representative and Boeing crowed with vindication.

But the other shoe has yet to drop. And from what I’m hearing, it could be a big one.

The EU’s appeal that the US and Washington State haven’t cured their violations will be ruled on after the first of the year.

I’m getting indications that the Washington State tax breaks will again be ruled illegal, which is different than a “violation” under WTO rules.

It may seem a fine point, but there is a distinction. “Illegal” is worse than a “violation.” If the outcome is as hinted to me, the EU and Airbus will have their own reasons to crow.

But then what? As I’ve cynically noted many times, most recently here, nothing will happen. Be that as it may, Boeing and Washington State have a clause in their tax break agreement that if the Business and Occupation tax (a key element to the tax breaks) goes away, Washington has to come up with something to provide equivalent savings.

The entire WTO thing continues to be one of the stupidest international trade agreements even created. If Donald Trump actually had any idea what he was talking about, this would be the one to vitiate. But, of course, I’ve already clarified my own statement.

3 Comments on “Pontifications: Airbus, Boeing and Qatar; and more on the WTO

  1. Re Qatar the lack of speed at which they are taking the A350 is something I have noted before. Is it a case that AAB has a wider integration issue that pervades the Airbus relationship. It would be in keeping with his way of business to filibuster to hide wider issues and maybe the Boeing order is just that. There certainly seems to be a reticence on Qatar’s side of the relationship. Alternatively have Airbus given up on pandering excessively to the petulant demands of AAB and are downgrading the degree of special attention that they seem to have to give to a single airline.

    • Didnt he have a tantrum over the Cseries as well, but then changes his tune .

      Qatar Airways still looking at CSeries order
      Qatar Airways CEO Akbar Al Baker confirmed the carrier is still interested in acquiring Bombardier Cseries arcraft, and is looking at an order for 15-25 of the larger CS300 variant (The Canadian Press, 30-Jun-201)

      So now its ‘looking closer at the 737max as well”

      It baffles me why this airline is even let near deliveries in the first 3 years of a new product. Wouldnt surprise me in the least if there are ‘eruptions’ over the 777-300ER when the time comes, and he says he wants the 777X instead.

  2. Scott, I need to respectfully disagree on your overall opinion of the WTO. WTO (and its predecessor GATT) have freed global trade by a huge amount since GATT’s founding in 1948; without GATT/WTO, protectionism would be rampant and neither Boeing or Airbus could sell aircraft barrier-free around the world.

    The real problem, in my opinion, is taxpayer subsidies to successful corporations (such as the two above, but omnipresent in many other industries). WTO’s rulings are an attempt to manage that problem, but unfortunately WTO itself has no teeth, so it cannot impose a penalty or forbid a subsidy.

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