More Boeing 787 Woes as Qantas Drops Order

A delay in Airbus' competitive design, the A350, now looks fortunate as Boeing scrambles with its latest delay

By Carol Matlack

Three years ago, Airbus looked like a fumbling laggard. While Boeing racked up order after order for the 787 Dreamliner, its European rival had to go back to the drawing board twice, before settling, in mid-2006, on a competing design that airlines wanted to buy.

But in hindsight, that delay may have been a stroke of good luck for Airbus and its forthcoming A350 aircraft.

Boeing (BA) has seen a raft of 787 orders evaporate in the past few months, as financially strapped airlines have canceled more than 70 orders and deferred dozens more. The latest blow came on June 26, when Australia's Qantas announced it was canceling an order for 15 of the planes and putting off delivery of 15 others from 2010 until 2013. "The operating environment for the world's airlines has clearly changed dramatically" since Qantas (QAN.AX) initially placed its order in 2005, CEO Alan Joyce said in a statement.

Airbus (EAD.PA) has been spared that scenario because the A350 isn't scheduled to enter service until 2013, when most analysts figure the aviation business will be well on its way to recovery.

The lag has also given Airbus time to study missteps made by Boeing on the 787—and there have been plenty. Already two years behind schedule because of supply-chain glitches, the Dreamliner suffered another delay on June 23, when Boeing said a planned initial test flight had to be scrapped after structural weakness was detected in a fuselage section.

Trying Not to Repeat A380 Mistakes

Most worrisome for Boeing, its European rival used the extra time to rethink the A350's competitive positioning. Early designs would have seated 250 to 300 passengers, roughly the same capacity as the three planned versions of the Boeing plane. But the design that Airbus eventually settled on, known as the A350 XWB, or Extra Wide Body, is bigger. It now competes directly against only the largest of the three Dreamliner versions, the so-called 787-1000. And it takes direct aim at one of Boeing's most profitable planes, the 777. Sales of the 777, which entered service in 1995, have slowed since Airbus began marketing the A350. Boeing officials acknowledged at the Paris Air Show this month that they might need to revamp or even replace the 777—a costly proposition, especially when Boeing has no revenues coming in from the Dreamliner.

Of course, Airbus could still blow its advantage by messing up on the A350. Just look at the two-year delay on its A380 mega-jet, a monumental and easily avoidable blunder resulting from incompatible software in its French and German design centers.

But Airbus is moving cautiously this time. Like the 787, the new Airbus plane will be built mainly of lightweight, plastic-based composites. However, while the 787 features a new fuselage design, with barrel-shaped sections fastened together, Airbus is sticking with the more traditional method of attaching composite panels to a frame.

Bob Smith, vice-president for advanced technology at Honeywell (HON), the biggest contractor on the A350, says the Airbus plane has a "lower risk profile" than the 787. Smith reckons the A350 will be slightly less fuel-efficient than the Boeing plane, but that Airbus will price it at a slight discount to the comparable 787 model.

Can Boeing regain its footing after the recent stumbles? "Despite the issues with the development program, we expect the 787 to still be a highly attractive airplane for airline customers," says Douglas Harned, an aerospace analyst with Sanford C. Bernstein in New York. "But ongoing delays open opportunities for Airbus and are likely to degrade program profitability."

Matlack is BusinessWeek's Paris bureau chief.

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