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Why British Airways’ Parent Company Is Betting on Boeing 737 Max – Skift

When Ray Conner retired as head of Boeing Co.’s commercial aircraft business in 2017, the company threw a farewell party for its lifelong employee. Among the speakers: Willie Walsh, who runs the IAG SA airline group and had built a close rapport over the years both with Conner and Boeing, having spent almost two decades piloting 737 planes himself.

Walsh’s message: Relationships matter, both between individuals and companies. Now, with Boeing in crisis after its all-important 737 Max model was grounded in the wake of two deadly crashes, the company was able to call on the robustness of that partnership. In a stunning move at this week’s Paris Air Show, Walsh ordered 200 of the Max, a huge commercial bet on a plane whose return to service remains undecided, and a resounding endorsement at a time when Boeing needs all the support it can get.

While Walsh no doubt secured a healthy discount on the $24 billion list price, it wasn’t commercial opportunism alone that drove the executive. Walsh had long lamented that the airline group he oversees — including flag carrier British Airways, Iberia, and Vueling from Spain, as well as Ireland’s Aer Lingus — risked becoming too dependent on Airbus SE, whose A320 model almost entirely makes up its short-haul fleet. As Walsh looked to refresh the Vueling and Level discount units as well as BA, the Max became an attractive option.

Just days before the announcement, Walsh gave a thinly veiled hint that he was interested in diversifying. In an interview on June 11 in trade publication Aero Telegraph, the CEO said that “given the scale of our operations, I see no reason why we should confine ourselves to Airbus. That is not healthy. There has to be competition between aircraft manufacturers.”

Christopher Jasper, Benjamin Katz and Julie Johnsson, ©2019 Bloomberg L.P.

Humble Pie

Boeing confirmed that it had been in talks with IAG for some time. But any commercial aspirations were thrown into disarray after the chaotic global grounding of the aircraft following two deadly crashes, the last in Ethiopia on March 10, killing everyone on board. Heading into the Paris Air Show, Boeing said it was attending the event with a tone of humility rather than usual animal spirit on display to fight for orders. Indeed, on the first day, the Chicago-based company drew a blank, watching Airbus rake in massive sales.

But even with the plane grounded, Walsh hadn’t aborted his pursuit of a deal. The Irishman has shown before that he’s willing to stand by Boeing in a time of crisis. In 2013, with Boeing’s 787 Dreamliner grounded because of problems with lithium batteries, Walsh doubled down and ordered 18 additional jets, topping up an earlier purchase of the model in 2007.

Flight Simulator

This time with the Max, Walsh personally got involved in the aircraft review, testing the proposed upgrades in a flight simulator near London’s Gatwick airport about four weeks ago and approving of the changes he experienced first hand. After the deal was announced, he heaped praise on Boeing and said he’d get on a Max the next day if it were in operation.

“There is a lot of work that goes into these campaigns and these discussions,” Ihssane Mounir, the head of sales at Boeing, said in an interview in Paris. “I came to the show knowing that it could happen and that we could do it. We plan these things.”

Still, when the deal — a letter of intent rather than a firm order that gives IAG considerable wiggle room on price and timing — was announced on the second day of the show, one party at least was caught off guard: Airbus. With no official so-called request for proposal out on the order, Airbus was apparently left unaware of IAG’s requirement and only found out about the talks after the deal was let out of the bag. The company called the move “unprecedented” because there had not been a competitive process prior to the announcement, which is customary on that scale.

Taken by Surprise

”It is highly unusual that we’d be taken by surprise like that,” said Airbus Executive Vice President Chris Buckley.

It’s a crushing defeat for Airbus on several levels. Paris is where Airbus likes to celebrate its biggest sale breakthroughs, and it’s where the manufacturer dramatically cornered Boeing in 2011 with massive orders for its A320neo that forced its rival to hastily respond with the Max. Airbus had so far been the backbone of IAG’s short-haul fleet and is now forced to share a key customer with its arch rival. That’s an uncomfortable co-existence in a global duopoly where airlines are increasingly relying on one or the other company to make their fleets easier to operate and maintain.

Airbus also likes to bask in the bragging rights that an air show provides. The maneuvers by longtime sales supremo John Leahy are the stuff of legend. Routinely, he would pull out a final score-changing announcement just when Boeing looked poised to win the order tally and relish the winner-takes-it-all triumph. But the Toulouse, France-based company has undergone a massive overhaul of its senior management, including Leahy’s retirement, that threw the awesome sales force he built over decades into disarray. His successor lasted little over a year before he was unceremoniously replaced by a longtime Airbus loyalist.

Fighting Back

Boeing, for its part, likes to emphasize that it doesn’t save up deals for the cheap fireworks of unveiling them at an air show. This time however, with the company and senior management under the microscope from wary customers and a jittery public, the stakes were higher to make a splashy announcement in Paris.

“We discuss with the customer when they would like to do it and when is the right time to make announcement, and it happened that we both agreed that this was the right time,” Mounir said.

While it may have been caught off guard, Airbus still isn’t prepared to go down without a fight. On Thursday, as Airbus wrapped up the show and touted its sales achievements, CEO Guillaume Faury said he’d be “very happy” to compete for a firm order, given that IAG has so far only signed a letter of intent with Boeing.

“We are quite sure we will have an opportunity to apply to win this situation a bit later with our product and make sure that in the end the best solution prevails for IAG,” Faury said.

©2019 Bloomberg L.P.

This article was written by Julie Johnsson, Christopher Jasper and Benjamin Katz from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Photo Credit: It has been a rough year for Boeing. But recently International Airlines Group signed a letter of intent for 200 Boeing 737 Max aircraft. David Ryder / Bloomberg

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