Aerial combat

A global battle for air supremacy is being played out in New Zealand skies. Aviation writer CHRIS DANIELS explains the combatants' strategies.

AUDI, BMW, Peugeot and VW are not the only European manufacturers impressing New Zealanders.

Our national flag carrier, Air New Zealand, will soon be taking delivery of a gleaming new European aircraft, the Airbus A320, due to enter service in October.

Along with the new plane, its accompanying training simulator and spare parts will come a small share of a big fight - our skies are set to become the latest theatre in the global battle between Airbus and Boeing as they struggle for the lion's share of the US$1.8 trillion ($3.2 trillion) due to be spent on new planes over the next 20 years.

Air New Zealand's decision last year to buy Airbus planes was a blow for Boeing because it was the first time the airline had selected the European company.

The A320s, which carry around 160 passengers, will progressively replace the Boeing 767s and 737s that fly across the Tasman and to the Pacific Islands.

Both Airbus and Boeing had marketing executives in Auckland this week to brief the media and Air New Zealand about their products.

They spar seriously, as you would expect from two contenders in a trillion-dollar prize fight. Boeing says Airbus is propped up by soft loans from European Governments; Airbus says Boeing is sheltered by the billions it receives every year from the US Government for fighter jets, missiles and rockets.

Airbus claims its rival's planes are based on old ideas - the flagship Boeing 747, the original Jumbo Jet, is based on an airframe designed in the 1960s by engineers using slide-rules.

And it is here, at the jumbo end of the aviation business, that we find the subject of their most recent fight.

The question is how big planes must become to accommodate the predicted growth in air travel.

Airbus has begun building the A380 - a 500-seat superjumbo with two passenger decks along its entire length, worth at least $500 million apiece.

The company hopes this behemoth, due to fly in 2005, will revolutionise air travel in the same way the Boeing 747 did in the early 1970s.

Qantas, which hopes soon to be in a close alliance with Air New Zealand, has been welcomed into the Airbus family with open arms. It has ordered 12 A380s and 19 other Airbus planes, for delivery between 2006 and 2011, to handle growth on long-haul routes. The total cost, including start-up expenses, infrastructure and parts, is about $11 billion.

The latest version of Boeing's 747 carries 400 to 420 people and the company says it is quite happy to leave the 500-passenger market to Airbus.

Boeing believes there are too few airlines willing and able to spend the billions needed for superjumbos.

Airbus points to data showing it slowly pulling ahead in the battle to win orders from airlines: last year it won orders for 300 new planes, or 54 per cent of all orders. And it also delivered more new planes than Boeing, for the first time.

It has staked billions on the expected demand for its superjumbo. Boeing says Airbus has got it all wrong.

RANDY Baseler, vice-president of marketing for Boeing, told an Auckland audience that despite the enormous growth in air travel over the past 20 years the average aircraft size had shrunk, not increased.

This, he says, points to more frequent flights by smaller planes. Instead of flying a 400-seat Boeing 747 once a day, the airline might have two flights with a smaller aircraft, perhaps one first thing in the morning for the business travellers, another later in the day for the tourists.

The growing liberalisation of the aviation industry, where countries open up their airports to foreign carriers, has accelerated this move.

Baseler uses traffic between the US and Japan to illustrate his point. In 1997, before a bilateral agreement opened up the route, more than 80 per cent of flights between the two countries were on Boeing 747s. Four years later this had dropped to 60 per cent.

"We don't see hubs growing, the growth will be in point-to-point," says Baseler.

This means that fewer passengers will be flying through the big hubs of the world - London, Chicago, Singapore or Hong Kong. Rather they will fly on smaller aircraft between, for instance Manchester and Boston, or Palmerston North and Melbourne. Both Boeing and Airbus were both dealt a nasty shock when the September 11 terrorist attacks brought a slump in air travel, dragging back growth projections by two years.

This is the year that air travel recovers from the shocks of September 11, says Boeing. The world's airlines begin returning to profitability this year or early next.

Then the aircraft industry starts getting orders for planes to be delivered in 2005.

Airbus and Boeing both expect airlines to want between 15,000 and 18,000 jets in the next 20 years. Airbus thinks that 8 per cent - around 1200 planes - will be superjumbos. Boeing disagrees, saying demand for the superjumbos will be more like 350 planes, around 2 per cent.

Only now is Airbus entering this market with the A320, which Boeing claims it is selling at huge discounts to get a foot in the door.

The next Boeing product will be what it calls a "super-efficient, fast, middle-of-the-market airplane". Its new plane will replace its 757 and 767 offerings, carrying between 200 and 250 passengers. They say it will fly 15 to 20 per cent faster than existing commercial aircraft, with the same fuel efficiency.

Operating costs drive these decisions, and Air NZ says the A320 will save it 10 to 15 per cent a year.

While Airbus might appear to be winning the war for the new planes, Boeing is by no means in trouble: its 737 workhorses dominate the rapidly expanding budget airline sector.

VIRGIN Blue, which is expected to fly into New Zealand soon, has just ordered 10 737s and taken options on 40 more, a deal worth US$3 billion.

Airlines will be paying billions to Airbus and Boeing but there is unlikely to be a clear winner in the battle between the giant manufacturers.

Customers will never let either get too big because they want the competitive edge to drive down prices.

Boeing claims Airbus is dumping planes at bargain basement prices simply to keep its production lines open.

Both plane-makers hope the present downturn ends quickly, although the prospect of war in Iraq is causing concern.

Assuming a steady recovery from the events of the past two years, Airbus and Boeing should know within five years who made the right call - many billions to develop the biggest plane in the world or a safer play in the middle of the market.

Airbus and its bankers will be hoping they got it right.