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Thursday 22 August 2019

Big bet on 737 Max a sign of Willie Walsh's loyalty

THE BIG PICTURE

High fliers: Boeing CEO Kevin McAllister and IAG boss Willie Walsh pose with Boeing 737 MAX 8 purchase certificates in Paris. Photo: Reuters
High fliers: Boeing CEO Kevin McAllister and IAG boss Willie Walsh pose with Boeing 737 MAX 8 purchase certificates in Paris. Photo: Reuters

Christopher Jasper, Benjamin Katz and Julie Johnsson

When Ray Conner retired as head of Boeing'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 airline group and had built a close rapport over the years with both Mr Conner and Boeing, having spent almost two decades piloting 737 planes himself.

Mr Walsh's message was that relationships matter, both between individuals and companies.

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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, Mr 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 he no doubt secured a healthy discount on the $24bn (€21bn) list price, it wasn't commercial opportunism alone that drove the executive. Mr 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 he looked to refresh the Vueling and Level discount units as well as BA, the Max became an attractive option. Just days before the announcement, Mr Walsh told in trade publication Aero Telegraph 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."

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.

Hence on the first day in Paris, the Chicago-based company drew a blank, watching Airbus rake in massive sales.

But even with the plane grounded, Mr Walsh hadn't relented in his pursuit of a deal. The Dubliner 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, Mr Walsh doubled down and ordered 18 additional jets, topping up an earlier purchase of the model in 2007.

This time with the Max, Mr 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.

Still, when the deal - a letter of intent rather than a firm order that gives IAG plenty of wriggle 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.

"It is highly unusual that we'd be taken by surprise like that," admitted Airbus Executive Vice President Chris Buckley.

It is a crushing defeat for Airbus on several levels. Paris is where Airbus likes to celebrate its biggest sale breakthroughs, and it is also where the manufacturer cornered Boeing in 2011 with such 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 duopoly in an industry where airlines tend to rely on either one manufacturer or the other to supply their fleets.

But 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 declared that 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," Mr Faury said.

Bloomberg

Irish Independent

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