Airbus Cuts Prices; Boeing Pressured

16 May 2012

Boeing Co. pledged to cut expenses to maintain profit margins on the latest version of the top-selling 737 jet, countering "predatory pricing" on the new A320neo from Airbus SAS.

Pressure from Airbus means Boeing will have to offer terms that "are responsive to our customers" to regain market share in single-aisle planes, Commercial Airplanes President Jim Albaugh told investors at a presentation today. Paring production costs will preserve profit margins, he said.

The new 737 MAX is due to enter service in 2017, featuring upgraded engines to boost fuel economy, after Chicago-based Boeing unveiled plans for the jet in July. That was more than seven months after Airbus announced the neo, a lag that helped the European planemaker book record narrow-body orders in 2011.

"There is some predatory pricing out there," Albaugh said. "We understand that launch pricing is something we have to deal with."

Airbus and Boeing, the world's two biggest commercial-plane makers, typically sell at a discount to their published prices, while never disclosing the terms they offer customers. American Airlines, a traditionally all-Boeing customer, split a 460-plane order last year between the A320 and the 737, including new versions of both planes.

"It hasn't been lost on us that we need to go play in their sandbox, too," Albaugh said. "And we're talking to a few of those airlines."

Airbus doesn't adjust prices on the basis of competition, Mary Anne Greczyn, an Airbus spokeswoman in Herndon, Virginia, said in an e-mail.

A large gain in market share would give Airbus pricing power and eventually allow the company to erode the more fuel- efficient 737's price premium, Albaugh said. Airbus now has about 52 percent of the single-aisle airplane market and Boeing has 48 percent, he said. Over the past 10 years, the market has been split at about an even 50-50, he said.

"We understand what game they're playing and it is a market-share game," Albaugh said. "It's a slippery slope for us to be on. We are working very hard that the deals we put together are responsive to our customers."

Airbus has said the neo is expected to save 15 percent more fuel than the A320 while Boeing's 737 MAX will burn 13 percent less fuel than the current 737. Albaugh said today there's a possibility for that fuel efficiency to rise above 13 percent.