Xkorpyoh
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Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sat Dec 11, 2004 7:52 am

It is logical and understandable that Boeing wants to close a deal only when it is profitable, but considering the fact that they have been loosing traditional Boeing customers to Airbus, like AirBerlin and EasyJet, wouldn’t it make sense for them to sell at cost to AirAsia in order to keep them on the boeing side?
Considering that AirAsia is a fast growing airline in the most populous continent, it should be very important for Boeing to retain them with a boeing fleet. This will guarantee more sales in the future with AirAsia’s continuous grow. (They just started AirAsia in Indonesia with a subsidiary airline). Loosing AirBerlin to Airbus in Europe was bad enough, but they are in Germany (Airbus’s home turf). Loosing AirAsia’s big order would be catastrophic for Boeing since they are counting on Asia for support and future growth. Isn’t it time for Boeing to take a risk like airbus did with jetblue? They are being too conservative and not competitive enough, and it is showing.
 
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sat Dec 11, 2004 7:58 am

If Boeing wants to keep their customers then they need to become more competitive.
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Xkorpyoh
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sat Dec 11, 2004 8:45 am

yes, we know they need to be more competitive. Is selling those 80 737ng at cost (to closely match the airbus offer) the first step of being more competitive?
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 11:49 am

The problem is the their competitor will sell and is selling below cost (no matter what they say) which is the real reason they keep gaining marketshare. How do you compete with a company that sells below cost and sticks its supporting governments with the bill? You can never win that game unless your own government is willing to support you in the same way.
 
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N328KF
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Shar

Sun Dec 12, 2004 12:01 pm

Xkorpyoh:

Boeing exists to make a profit building aircraft. Airbus exists to build aircraft as part of a jobs program.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
FriendlySkies
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 12:03 pm

Honestly, they need to get rid of any subsidies on BOTH sides. BOTH sides have around 50% of the market and BOTH sides can support themselves with their own profits (at least they should be able to if they sell their planes above break even point). So why keep the subsidies? Airbus should stop getting any money from the gov't, Boeing shouldn't be able to outsource a large portion of its r & d costs overseas. If the companies want to use military profits for commercial use, I don't see a problem with that. Airbus could build up their military division, but they choose not to (the A400 is one airplane, not a division). Afterall, why is Airbus afraid to jack up the prices a bit? To me, that is like Airbus admitting their product is inferior, so in order to sell it, they have to do so at a loss. That is how I read it, if Boeing did it I'd say the same thing. Neither company should be allowed to sell their planes at a loss. Of course, when you get the US gov't AND the EU in there, all hell breaks loose...
 
CRPilot
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 12:18 pm

FriendlySkies,

Honestly, how many times is this issue going to keep coming up?

The question is whether or not selling at cost will improve Boeing's customer loyalty? The answers is as my meteorology teacher said..."it depends!"

Boeing makes an excellent product, said it before and I'll say it again, but companies are looking for the most for their money. As long as the A320's performance numbers and price tag stay where they're at; Boeing has no alternative but to provide incentive to buy their product beyond fuel efficiency and unit cost or match the price. Basic rule of operating a business, particularly one as sensitive as ours...cost control.




[Edited 2004-12-12 04:20:06]
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N328KF
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Shar

Sun Dec 12, 2004 12:20 pm

FriendlySkies

Airbus is, in essence, the civil division of the otherwise milspace-oriented EADS.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
cedarjet
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 1:37 pm

PVG (and friends): where have you heard Airbus don't make (lots of) money? There are plenty of industries that government could subsidise if they wanted to create jobs. However, Airbus make money. Think how much profit they make from the jetBlue fleet, even if it was sold at cost - you sell spares to maintain a 100-strong fleet over two decades, you're going to make A LOT OF CASH. And why not - Europeans contributed just as much to the development of aviation as the USA. Just look at the beginning of the jet age: the first jetliner (Comet 1), the first jet service across the Atlantic (Comet 4), the first (and second and third) rear-engined short haul twin jet (Tu104, Caravelle, BAC111), the first rear-engined short / medium haul tri jet (Trident), the only supersonic transports (Conc, perhaps the Tu144 deserves mention as well) etc. Some people here (Americans mostly, for obvious reasons) seem to take offence at the idea of European dominance, but when you think about it, the more surprising thing is how long it's taken Europe to get it's act together.

Once again: Airbus make money. Government loans are repaid. Europeans know how to make good aeroplanes, and have done for a century now.
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ba319-131
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 1:53 pm

Cedarjet makes a good point.

Over a planes lifespan it will need new parts etc,just like a car does,regardless of cost price, which again we have no idea about as we are not privy to this information,everyone makes money out of spare parts.
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Xkorpyoh
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 1:56 pm

so Cedar, you are saying that airbus sold the a320s at cost to jetblue and it is still making money with the spares and additional planes. In that case, Boeing could be doing the same with AirAsia.
 
ba319-131
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 2:00 pm

There is also another point to make regarding production lines.

It is cheaper to produce more aircraft than fewer,the higher the production the lower each unit cost is,so with Airbus winning almost all of the latest orders in the narrowbody section,they can afford to sell them cheaper as their unit costs are lower.
111,732,3,4,5,7,8,BBJ,741,742,743,744,752,762,763,764,772,77L,773,77W,L15,D10,30,40,AB3,AB6,A312.313,319,320,321,332,333
 
cedarjet
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 2:05 pm

I don't know if that was the specific plan with jetBlue but I do believe a manufacturer would stand to make a profit on a sale even if the planes are handed over for less than cost price. The planes don't even need to stay with their original owner - JetBlue can sink beneath the waves but the planes will be flown by someone somewhere for the next twenty years, and they'll need a lot of parts replaced over their lifetime.

At risk of muddying the point, it should be remembered that no airline will buy crappy planes, no matter what the purchase price. If an Airbus is free to buy but burns 10% more fuel than a Boeing (bought at full list price), Boeing will win every time. Continental would replace it's 737NGs and United it's A320s with Tu154s (second hand purchase price $200,000) in a flash if acquisition cost meant much.
fly Saha Air 707s daily from Tehran's downtown Mehrabad to Mashhad, Kish Island and Ahwaz
 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 5:13 pm

Cedarjet,

You normally have some fairly reasonable ideas but your ideas about economics are completely insane. Let's work backwards.

Acquisition costs do mean a lot in aircraft selection. Those costs have to be amortized during the life of the airplane and present a component of costs that must be recovered in ticket prices. The Boeing 777-series generally outperforms the A340 series and outsells it despite the higher price tag. Yet the A340 continues to generate incremental sales for Airbus. Why?

You state that Airbus is profitable and cite that they pay back loans as evidence. There is a difference between an "economic" profit and an "accounting" profit. In the long term Airbus may generate accounting profits but not economic profits.

Remember that professional investors and traditional lending institutions are not willing to finance Airbus projects in full. That indicates that a disconnect between risk and return on Airbus projects. That is why the EU steps in offers what are truly not loans at rates below commericial levels.

A real loan must be paid back whether a project is profitable or not. The fact that Airbus pays back funds borrowed at sub-market rates does not prove that Airbus generates a sufficient return on the capital it uses.
 
Lufthansa
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 7:20 pm

Its really really simple.

The A320 first flew way back in 1988. Back then, it was far ahead of its time, not unlike the Fokker F-27 was (meaning a long life). Anyway, although the A320 has been updated a little bit here and there, it has been streached, and shortened, the basic high development costs were incurred way back in the 1980s.

So, many many many airframes later and that those costs are basically already well and truely recovered. So here is the thing. By increasing output, the any remaining costs to be recovered, are devided by an ever increasing number of airframes. Also, in this process, there are is an ever increasing number of parts from individual suppliers who also benefit in much the same way.

So by increasing its output, its unit costs fall. If you guys don't believe it, why have the Japanese, with some of the worlds highest labour costs, been able to maintain a competitive manufacturing sector? Things like cars, for example? They employed the concept of TQM, got their efficiency up, and divided it by an extremely large output. Hence the Toyota motor corp is one of the most important global players today.

The other thing is the way airbus have designed their aircraft usuing moduar omponents. This often means, you'll see the same, lav for instance, on an A330 as in an A320. This leads once again to lower unit costs. Something which boeing doesn't do all that often.

N79969..... im sorry but your comments about economics aren't exactly complete.

It isn't in society's interest to have company's making huge profits. It's in society's interest to have company's a cut throat competition, making only just enough profit for their existance to be sustainable. Why? its simple.... it basically leads to an increase in the spending power of our money, through greater efficieny, which in turn improves living standards for all. A great example is the American Automotive industry. Do you think, it would be helping the average american if GM could charge an extra $5000 bucks on each car?

Whether airbus makes a sufficient return on capital is really only of importance to investors, and private insitutions seeking to make large amounts of money. The fact that such institutions get wealthy doesn't necessairly make things good for the economy as a whole, nor the living standards of those in it any higher(on average). The only real question here that society needs to be concerned with, is, if by extending any loans to airbus, we are diverting resources that could be used for more profitable ventures to airbus? For example...lets say there was a huge computer industry (hypothetical example so nobody get worked up about it)... and we ended up putting resources into airbus instead of the computer industry which would lead to a much higher output. Then, instead of training in IT, we'd have ppl training in aerospace, we'd have a building being used for aerospace, etc ... and our limited resources not being allocated to their best use. That is the question for the european governments to be concerned with..... because that is gonna have a significant impact on living standards. An Individual company's profit has very little to do with it.... rather the value of these exports for trade purposes, and hence the level of economic activity the generate (as well as their ability to in turn purchase imported goods for use in that particular economic zone) are really the focus of the government.

In airbuses case.... I think the jury is still out.
 
Leskova
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 7:58 pm

PVG, the reason Boeing isn't using the same sales concept as Airbus is - at least not any more - is that Boeing is quite focused on "shareholder value", which, unfortunately, usually leads to short-term thinking...

Dozens of examples, in all kinds of industries, have shown that (and this is just one example of hundreds) companies can sometimes push up their own stock price by announcing large amounts of layoffs: the fact that quite a number of companies suffer from the knowledge-drain that often goes with this only becomes apparent a few years down the line, at which time a new idea for holding up the "shareholder value" will have to be found.

Look at the number of people that Boeing has hired and fired in the last 10 year - and compare those with the numbers at Airbus...

Airbus does look at making a profit, they're just not out to make a huge profit with the sale itself, but they - seem to - much more consider the sale in terms of the lifespan of the deal: yes, this probably does lower the profit made on each deal on it's own, but since they're not really unsuccessul at closing deals these days...

There's no doubt that Boeing makes brilliant airplanes, but so does Airbus - but, as always, the technical advantages of one product over the other have to be worth it: if an airline, based on it's own parameters, decides that the technical advantages will not pay for themselves, they'll go for the other option.

Regards,
Frank
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trex8
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Shar

Sun Dec 12, 2004 10:20 pm

Even if Boeing only sold planes with a substantial "profit per unit", they can still lose money big time as the late 90s demonstrated amply!
Airbus and GE have taken the HP/Epson printer model of marketing. Almost give the product away and then kill the customer on parts/expendables.Same reason Pratt has gone to heck, GEs pricing is almost predatory.
 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 10:52 pm

Lufthansa,

I understand the concept of "perfect competion" and the allocative efficiency that it would produce for society. However since it is basically inconceivable that such a market will exist for transport category airplanes, I stand by my comments 100%

Despite by having a duopoly, Airbus and Boeing do not enjoy the profits that would ordinarily be seen firms that ordinarily have a duopoly. There are too few consumers for commercial airplanes. Although I have never bothered constructing an econometric model, I do not think it is difficult to conclude that buyers of commerical airplanes have substantial power in swaying pricing.

I think the case of Airbus is fairly clear cut. Boeing and Airbus force one another to innovate and that is good. But Airbus fundamentally exists as an EU program to transfer jobs away from the United States to Europe. The fact that major shareholders are government institutions rather than ordinary investors adds credence to this argument. The governments of France and Germany are not going to care very much about bumping up returns very much so long as Airbus maintains certain employment levels in their countries. Return on capital used is almost a non-factor in that environment

Leskova,

If Airbus gouge on spare parts to account for their cheaper prices, don't you think operators would pick up on this fact and incorporate it into their decision? Or do you think it is enough of a deferred expense that they will pursue a lower acquistion expense instead?



[Edited 2004-12-12 14:53:52]

[Edited 2004-12-12 14:56:25]
 
Leskova
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 11:03 pm

N79969, I guess it's more of a question whether Airbus' spare-prices are just higher than Boeing's, or if they indeed gouge their customers on them...

I don't think there are too many airlines out there that are dumb enough to fall for a ploy like "we'll sell the plane cheap and make twice as much on the spares - it just seems to me that Airbus' focus is more on making money with the whole deal (over the lifespan of the aircraft being sold), while Boeing seems to be focussing on making money with the sale itself...

And the fact that some deferring of expenses is involved probably helps as well - too bad that no-one here seems to have access to real numbers (or at least no-one seems to be able/allowed to give the numbers out)... I'd really love to see calculations for the respective competing models based on a lifespan of 10 or 20 years...

Regards,
Frank
Smile - it confuses people!
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 11:08 pm

I understand the concept of maximizing efficiency and reducing unit costs by expanding output. I also agree that US companies tend to focus too much on shareholder return and too little on the larger benefit to society. It is something that has occurred in the past twenty five years since the Reagan/Thatcher revolution. At the time it was necessary as the economy was becoming stagnant. However, the pendulum now seems to have swung too far.

Getting back to the point. TREX8 talks about GE and predatory pricing, which is what Airbus does as well. GE can afford it by using their finance unit to subsidize their losses or non-profits on engine sales. Airbus uses government subsidies and profits from the A330 to subsidizes losses on their other products. Notice how quickly Airbus reacted to the 7E7? The A330 is obviously their cash cow and only truly superior product offering and it seems that they will do anything to defend. However, again, how can they afford to invest over 5 billion dollars at a time when they are launching the A380 (with apparent cost overruns) and their military product? I understand the need to think about society, but at some point profits need to take precedence. Do you think that they could raise the money to fund all of these projects at the same time if they were truly a profit driven private enterprise? I doubt it.

I'm tired of this. AIRBUS has bought their market share whether you believe it or not.
 
Leskova
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Sun Dec 12, 2004 11:19 pm

Airbus uses government subsidies and profits from the A330 to subsidizes losses on their other products. Notice how quickly Airbus reacted to the 7E7? The A330 is obviously their cash cow and only truly superior product offering and it seems that they will do anything to defend.

Should they have said (to use your words) "well, the A330 is our cash cow, so let's give that market to our competitor"? And, by the way: which losses on other programs?

As for the only truly superior product - Boeing and Airbus both don't seem to be having problems getting profits from their almost-equal products... the A320 series and the B737NG...

However, again, how can they afford to invest over 5 billion dollars at a time when they are launching the A380 (with apparent cost overruns) and their military product?

Regarding the A380, the cost overruns are not really too much of a surprise, and I doubt that too many people are losing sleep over them - and Airbus does seem to be getting to the end of the spending on the A380, since they already know in which margin the overrun will be...

As for the A400M - that's being financed by the governments buying the plane... with South Africa a new candidate that has just annouced its interest in joining.

Do you think that they could raise the money to fund all of these projects at the same time if they were truly a profit driven private enterprise? I doubt it.

Do you honestly think they could raise the money if they were just throwing it down the drain? In case you've missed it - while Europe's budget deficit is not quite near the awe-inspiring numbers the US produces these days, the days when European governments could simply go out and spend money without anyone asking questions about it are long, long, long gone.

AIRBUS has bought their market share whether you believe it or not.

... by offering a product that the airlines want, at a price they can afford and by using sales teams that listens to what their prospective customers say...

Regards,
Frank
Smile - it confuses people!
 
whitehatter
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Shar

Sun Dec 12, 2004 11:55 pm

More laughable nonsense.

Airbus is an evil Government program which is State owned even though the company is owned by EADS which is quoted on the Amsterdam stock exchange and also by BAE which is totally private....

Airbus doesn't make money on sales even though it does generate profits...real profits which are apparently an accounting trick...

Airbus is subsidised even though these subsidies are actually loans which get repaid and are not for 100% of the development costs...

Airbus is dishonestly factoring in longterm revenues into the sales price of aircraft which is scadalous, even though HP and Lexmark are extreme examples of just that policy....

and the golden one

But Airbus fundamentally exists as an EU program to transfer jobs away from the United States to Europe

I don't think I have read such arrogant crap in years. Since when was airliner manufacturing the God-given right of the USA?
Lead me not into temptation, I can find my own way there...
 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:11 am

Leskova,

I think the point is that Airbus should finance a 7E7 rival out of pocket (with cash from fat A330 sales) rather than turning to the EU yet again for another round of "loans" at sub-markets rates that do not necessarily require repayment.

Considering all the whining from Europe that is heard about alleged "indirect subsidies" to Boeing, the A400M is the grand-daddy of all indirect subsidy programs if one thinks about. If Europe is going to spend money on military technology, why not spend it on a new and innovative weapons/intelligence platform that will complement existing NATO capabilities? Why another transport when Europe agonizes over deploying troops or metal even to its own backyard? Further, European strategic thinkers know well that the US will never let a future threat from the east really harm Europe. I think the real reason behind the A400M is to lower the amortized costs of light bulbs and electricity in Tolouse for Airbus as a whole.

As far as the "life of the deal" argument goes, I think Airbus made a conscious decision to forego profits in order capture market share in the low-cost market beginning with EasyJet. When you have malleable shareholders such as elected European governments, you can pursue such market-distorting strategies.
 
widebody
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:34 am

This 'only selling for a profit' line is marketing talk, not sales talk. Read why Boeing replaced their top salesman a week or two ago. The airlines has stated over and over to Boeing that they were not at all listening to the airlines; they were hearing, but nobody was listening. And forget this line of selling below cost, those that use it clearly no nothing about aircraft pricing. Aircraft price is based on your competitors price. And nothing more. The better your aircraft; the better your margins. Aircraft purchasing boils down to price. If you've a good aircraft, you don't need to fund operational cost targets etc. to meet guaranteed reliability targets. If you've a bad aircraft, it's going to cost you a fortune. This is why Boeing are making a fortune on the 777; and is why they made a fortune on the 747 i.e. no competition.

 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:35 am

"Since when was airliner manufacturing the God-given right of the USA? "

I never said that. But the EU has certainly adopted a position that it is entitled (I emphasize the word "entitled") as a matter of near-birthright to have 50-percent or more of the market. Perhaps you should put that question to Brussels before you ask an American.

Unlike Airbus, Lexmark and HP have to make decisions based on the full brunt of the risks they undertake. You seem to imply that Airbus has adopted this model of low upfront costs and expensive spares. If so, that has been only made possibly by advantegous financing from the EU not available to Boeing.
 
Lufthansa
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:53 am

Welll then...why not make it available to Boeing?

Why doesn't the american governement offer to help boeing this way (maybe they could redirect funds from the Import - Export bank, which does a lot of "helping boeing" indirectly. Just look at the history of sales of aircraft to Japan.)

Seriously, the American government flew to brussels, and signed a deal which authorised this kind of thing. Thats right. YOU GUYS (us gov) agreed to up to 1/3 of direct research costs etc etc etc.....

Furthermore, the US government knew the current Airbus activities were withing the convention agreed to. Which is why they recently requested both parties drop it. So..... the question remains? Why doesn't the US simply offer boeing a similar deal?

The US really has a couple of options.
(1) offer boeing a similar deal
(2) impose an import tariff on non-US aircraft. I imagine this wouldn't affected Canadair etc due to the North American Free Trade Agreement.
(3) Go to the world Trade Organisaton. - lengthy, may result in counteraction against boeing and military programs being investigated.

Obviously... the most logical option here would be to offer boeing a similar deal...maybe put a limit on it timewise and see if their prospects improve. If not..withdraw support.

ps - a tariff on non-US aircraft would no doubt lead to counter measures within the EU.... which is likely to hurt boeing. Air France and BA are very good and important widebody Boeing Customers.... and they can still afford to take delivery of New 777s...unlike some other airlines

[Edited 2004-12-12 16:57:43]
 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:55 am

"And forget this line of selling below cost, those that use it clearly no nothing about aircraft pricing."

Widebody,

After reading your post riddled with half-truths, I think you ought to take your own advice and learn about the difference between the pricing of commodities and value pricing. Boeing consistently prices higher than Airbus and, though it may surprise you, is aware that they charge higher prices.

 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 1:07 am

Lufthansa,

I think you know the answers to the questions you posed. To put it simply, the US does not have an industrial policy. If we offer the deal to Boeing, then the slope gets real slippery, real fast and soon every manufacturing firm in the country is in the bread line. Europe was and is well aware of this when they showed us the dotted line and where to sign on the 1992 agreement.

The 1992 agreement indicated a mutual intent that there would be a gradual end to subsidies. The US side never offered direct aid to develop specific airplane types and saw no need to start particularly since we (mistakenly) expected Europe to reduce and eventually eliminate subsidies when Airbus reached maturity. That did not happen and the EU now hides behind the terms of the binding terms of the agreement and blithely ignornes the overarching intent of the 1992 agreement.

If the EU continues such bad-faith behavior, then I would drop my personal objection to having my tax dollars going to Boeing to compete directly against Airbus on one condition: that Boeing recover its 1992 market share against Airbus. The EU decided to capture 50%+ of the market to the detriment of American workers and investors. That arrangment has not worked out too well for us on our side of the pond.

I think we should return the favor to Europe should the intransigence continue.
 
Leskova
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 1:22 am

Hmm... we're once again quite far away from the actual topic of the thread, but - nonetheless - I think I'll post these quotes from the EU's website regarding the agreement:

Disciplines on EU and US support

  • On the one hand, the agreement puts a ceiling on the amount of direct government support (33% of the total development costs) for new aircraft programmes. It establishes that such support (granted in the form of launch investments, which are repayable royalty-based loans) will be repaid at an interest rate no less than the government cost of borrowing and within no more than 17 years. Basically, this discipline applies to the form of government support mainly in use in Europe.

  • On the other hand, the agreement establishes that indirect support ( e.g. benefits provided for aeronautical applications of NASA or military programmes) should be limited to a 3% of the nation's LCA industry turnover. This discipline is primarily targeted at the support system in use in the US. In contrast to the European system of repayable launch investment there is no requirement for indirect support to be reimbursed and the generous ceiling of 3% is calculated on the larger basis of the turnover of the LCA industry and applies per individual year.


And then, there's this...

European governments provide repayable launch investment – not grants - to Airbus at the time of program launch. European government investments support the European technology research & development sector, just as US government R&D schemes have sought to do, through NASA, FAA, Department of Defence (DoD) and export tax relief programs. However, the EU governments spend three times less on aerospace R&D than the US government.

All European government loans for Airbus programs have been made entirely within the letter and the spirit of the 1992 US-EU Agreement on Trade in Large Civil Aircraft since its entry into force and this will continue to be the case for all future Airbus programs. The US have not disputed this fact.

Of the eight Airbus aircraft launched since 1990, only three programs have been launched with government investment.
Airbus pays royalties to governments over the entire life of the aircraft programs. Interest and principal is repaid on deliveries, even before the programs break-even and irrespective of the sale price


The whole text can be read here: http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/04/232&format=HTML&aged=0&language=EN&guiLanguage=en

I just thought that the actual, not the alleged, views of the EU should be mentioned in discussions for once...  Big grin

Regards,
Frank
Smile - it confuses people!
 
Lufthansa
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 1:24 am

Boeing is never going to recover its 1992 marketshare against airbus unless there is a significant shakeup of the global players...ie...we'd need a new aerospace manufacturer and that would probably be in Asia..... although there are places with the ability to do that now like down at good old Lockheed.

Thinking that is dreaming. In 1992...we had the A300/A320 family, and A few A320s rolling off the line going to Lufthansa, Air france, and Ansett.

Thats dreaming...the world has changed too much. You mosel well ask for Douglas jets, again...or even convair ones. As far as the US not having an industrial policy.... well thats your choice remember.
I personally wouldn't want my country to adopt an industrial policy either...id much rather that money spent on university's and letting the market work it out.

However... I think as far as commercial aerospace is concerned, I may add this. How did the US develop much of its "comparitive advantage" in Aerospace manufacturing for so many years?

Simple.... it all goes back to WWII...and the decision, (before the United states entered WWII) for the British to manufacture aircraft engines/components etc on the west coast of the USA. They did this to keep them as far out of reach of hitler as they could. Smart move as far as the war was concerned.... In the process... it helped the US gain a leading advantage it sustain for so long its not funny. Think about it guys? Why were early US jet engines so similar to the engines pioneered by Rolls Royce? In fact the 727 was almost spey powered. What it ment was the best conway, rolls royce, De Havilland transfered there skills from the UK to the USA. So you got an aero of "aerospace execellence" particularly a knowledge and skill base happening on the west coast of the USA...much like the Silicon Valley has advantages. Obviously this wasn't soley due to the British... But a very big british wartime effort did give it a very strong boost. After the war, obviously those skills remained there, and gave that area an advantage.

Given that.... maybe...its not so unfair after all. I don't think governments should be in the business of picking loosers and winners...but this industry has already been long interfered with so its a bit late now.
 
trex8
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Shar

Mon Dec 13, 2004 6:15 am

I said it before and I'll say it again, if its ok for Washington to subsidize farmers in producing a product, why can't they at least subsidize the R & D of a high tech product to ensure employment and retention of a manufacturing base. I guess aersopace workers don't vote but farmers do!
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 11:45 am

Lufthansa: You seem to forget to mention the amount of American blood that was shed on European soil in exchange for some aircraft technology, a 20 year free-ride/advantage on business, and a free UK/Western Europe. I'd rather take the blood back and let the UK keep the RR engines.

With regard to airplane pricing and cost: The only people who really know the truth are the bean counters on the inside. Anything written in the press is what they want you to know. Whether it's true or not, I don't know.

What I do know is that every time Boeing losses a direct competition with Airbus for any product other than the A330, the comment from the customer is always: "Boeing has a great product, but Airbus kicked their butt on price so we had no choice but to buy the lower cost product." You can reach any conclusion that you want from that. My conclusion is that they sell for a loss and get government support to cover it. Whether it's true or not, I don't know? But I do not believe that they have such a competitive advantage on cost that they can consistently sell cheaper than Boeing and still line their pockets with money/profits legitimately. I don't buy it!

If the A400M is being totally funded by the European Military, that means that Airbus is getting the same indirect subsidies that Boeing gets. So, why do they need additional "loans" to fund product development?

"The days when European governments can just finance their way out of trouble are over": Why was it so easy for France to bail out Alstom then? Why did the EU impose import tariffs on Japanese cars? How is it that a small player like Renault can swallow Nissan and absorb Billion in debt?

Seems to me that we are all spinning our wheels here!
 
Planesmart
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:14 pm

Here we go again........

For all u armchair experts, there is far more to selling aircraft than the upfront cost.

The cost of an aircraft is acquisition costs plus lifetime ownership costs minus disposal value.

Historically B were focussed on the unit price. And because B, the manufacturer mkt leader, was focussed on unit price, so were their customers.

Then A entered the mkt. A had no mkt share, unknown product, unknown company. In the early days, they could have just abt offered aircraft for free (other than to their state airlines, still govt owned at the time), and still had no takers.

So they had to be innovative with the way they packaged the whole deal.

A had to be different. They formed strategic alliances with suppliers, including those that airlines traditionally dealt with directly. And so u could buy an A300 with a standard fitout, training, ground equipment, engineering equip, guaranteed buyback price (based on age, hours, cycles and condition), maintenance, upgrades, insurance, parts, fuel hedge, interest swaps, the whole shooting match.

At the same time, B & McD were saying we design & build great aircraft. U want a simulator - these people build simulators - talk to them.

B has changed it's selling techniques and customer relationship style greatly in the last 30yrs, but so has A.

Even if the airframes are being sold below cost, it does not mean B will make a loss on the sale. How is this? Well if B are offering a complete package, including finance, insurance, training, etc, the overall package may be sold above cost.

And of course, they will make a profit out of Air Asia's ongoing ownership.
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:24 pm

There is far more to selling any major capital intensive long-term industrial use product/technology, not just planes. Again, people keep bringing up how Airbus started 30 years ago with special supplier relationships etc... and how that gave them an advantage. And I repeat, so Boeing has been sitting around watching this with their thumb up their butts for 30 years?

I'll just drop it!
 
Planesmart
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 12:40 pm

PVG
And I repeat, so Boeing has been sitting around watching this with their thumb up their butts for 30 years?

No they haven't, and neither have Airbus.

And while Boeing have closed the gap, thats only occurred in the last 15years. Airbus still leads.

When u are historically the World's biggest, and u don't see any prospect of that changing, u don't change.
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 1:14 pm

PS, OK noted. I don't believe it, but I could be wrong.

Yes, it's true that the market leader tends to lose sight of the ball until they have a competitor that forces them to do so. We've seen the same pattern in the auto and technology sectors (think GM/FORD and IBM). However, what's different here is that a government organization has made it their business to take market share at all costs. Whereas, with say Toyota v. Ford, Toyota clearly makes a superior product and is able to charge a premium for that product. They initially bought their way into the market, but once they established themselves, they were able to win strictly on product. I do not see that Airbus does that with the exception of the A330. Again, since I do not have access to the inside numbers, I could be wrong. But, that's the way that I see it.
 
lutfi
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 3:03 pm

There was an interesting editorial in ATW on this - talking about RR/GE/PW as well.

RR is "happy" to make less money than GE/PW, and it's share price has only increased 40% in last ten years vs GE/UTC up about 300-400% (of course, they are conglomorates, whereas RR is just an engine maker) Is it fair that RR is happy with investments that only just about cover cost of capital? (so their share price stays about constant) So RR are on every widebody they can be, as stand alone, but PW look to be giving up. Even Jack Welsh said something once about the GE90 being uneconomic - huge investment for only 6-8% improvement over CF6 - but if they didn't, they would be where PW are

RR are haunted by the idea that u can't skip a generation in engines. (as PW found out with PW6000, and RR found out with original RB211) So, their strategy is for the Trent line to always be cutting edge/ in every competition, even if now and again that means a losing investment (e.g. their proposal for 764ERX, and will be surprised if T500 is ever going to be cash cow) Because if you sit out a round of the engine game, you can't catch up next round... - your knowledge base erodes, your best engineers leave to more exciting jobs. Extremely difficult to then turn around, and restart R&D

Complicated by fact that RR pays good dividends, if you include them, return to shareholders has been about 100%, but still much less than GE/PW.
 
Lufthansa
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 3:19 pm

Lufti

Thats very true. Just look at the airlines that have now got a very good relationship with RR, that certainly looks set to continue. AA's 777s, SQ's 777s, SAS's and LH's A330s (I thought sas was going to be PW and LH GE for certain before their order) Thai's 777s, plus the overwhelming number of A380s that have selected RR engines. It is impressive by all standards, particularly on A330s, where no doubt, the RR engine rules, and long time Airbus engine provider GE doesn't do quite so well. Not to mention RR is now pretty much exclusive to growth carriers like Emirates, its gonna be the engine of choice for VS, and possibly even LH as the take more and more A340-600s.

Yes Lufti...very interesting point.... and it is interesting to note the ever growing choice of RR and Airbus...both using this same stratergy.
 
widebody
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 9:20 pm

N79969,

And that's one of fundamental differences between Airbus and Boeing in their definition of pricing. PlaneSmart has it about right, Airbus pricing simply does not take into account unit cost. What Airbus set out to do is to show that over the life-time of the aircraft, owning an Airbus is the cheaper option. They can do this on many models, but not for example on an A340-300. Whether the unit price of an A340-300 is 900mUSD or 100mUSD, the re-sale value within 6 months will be roughly in the same ball park. And this is where Airbus is being crucified in campaigns, because they must contribute heaviliy to performance tagets, ops interruptions targets, maintenance cost targets etc. to show that over the life of the aircraft, it will be cheaper to operate.

And FYI Boeing has not always priced higher than Airbus, 2 1/2 years ago the A320 was more expensive than the 737NG series for a period of about 12 months. But forget list price, its only a very small contribution to the overall 'cost'. Therefore, when speaking of Airbus deals, you will have to wait many many years to see if they sold under cost. It all depends on their performance targets and so on. This structure also helps to spread the cost of the deal over many years.
 
N79969
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 10:22 pm

Leskova,

The language below is from the 1992 agreement and is the part that EU has wantonly chosen to disregard. The EU has no interest whatsoever in reducing the role of government. They may consider it if Boeing were actually forced out of the market though.


"RECOGNIZING that the disciplines in the GATT Agreement on Trade in Civil
Aircraft should be strengthened with a view to progressively reducing the
role of government support;"


Lufthansa,

I realize that Boeing will never have their 1992 market share back again. For a number of reasons, it is unrealistic and impossible.

But I think if the U.S. were to start an industrial policy in the field of commercial aviation, then we ought not to screw around. (I personally hope and believe that can be avoided) But if we go down that road then ought to pursue what is optimal for the United States free trade and market forces be damned. If that results in a 20% market share Airbus we can shrug it off just like the EU shrugs off it today.

You correctly point out the source of the U.S. comparative advantage in aerospace. But you give the British too much credit for jet engine technology and neglect to mention the Germans. We took some German know-how off of the Nazi-designed Me-262 and packed up Werner Von Braun for good measure. I know how Europe likes to complain about Airbus underprivileged child status since the U.S. got to have all the fun during the Cold War defending Western Europe and other places from the USSR while building 1,000s of cool airplanes in the process. While Europe got shafted with the boring job of creating itself placid society with universal health care and cheap universitiy educations and was cruelly deceived into doing all of this so we could sneak suitcases of money to Boeing via DoD and NASA while their back was turned.

After losing a consecutive string of orders to Airbus, it might be time draw the line and push back at Airbus. Maybe Boeing should do another Ryanair deal this time. Or better yet ask EasyJet for a photo copy of their A319 deal and match the terms including free training for pilots, pick up some operating costs, and so on.
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Mon Dec 13, 2004 10:58 pm

Well, at least we have Widebody admitting that there is a possibility in 20 years time that Airbus will have lost money on a deal because they over-promised to make the initial sale and had to give something back or absorb some additional costs. So, when the bill comes, who is going to pay it? Do they think that there will be less competition in the airline manufacturing business then so they'll be able to make more money and cover the additional costs from cash-flow? Seems unlikely as I can see Brazil, China, India, and Russia being much bigger players in 20 years than they are now. But, again, I could be wrong. Or, maybe they are trying to put Boeing out of business or make them insignificant so that they'll have the market to themselves for a few years before having to deal with the low-cost producers.

I'll guess that we'll have to see how it plays out.
 
widebody
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Tue Dec 14, 2004 1:23 am

PVG,

As with all manufacturers, the cost and exposure will already have been calculated and allocated. Don't forget that the longer an aircraft is in service, the more valuable it is to manufacturers in terms of spares and add-on optional modifications. Manufacturers aren't brainless.
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Tue Dec 14, 2004 11:48 am

Yes, it's called accounting! So, like I said, without being able to see how costs and expenditures are accounted for, we will never know if and/or how profitable Airbus's business is or whether they make losses to keep their sales up. However, my suspicion is that they are hiding losses in the accounting knowing they will be bailed-out if their numbers don't add up at some point in the future.
 
Planesmart
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Tue Dec 14, 2004 12:26 pm

Quite an entertaining thread, with A v B battle lines not drawn as sharply as usual.

For those too young to remember, let me summarise the A / B history.

For the first decade of A's existance, B largely ignored them. B sales people consoled themselves with the thought that any sales made by A were to the partners national/state airlines, thru political pressure or giveaway pricing.

In the next decade, B really started to sit up. They took on board packaging upfront and lifetime ownership costs, but not with the same enthusiasm, and some would say skill, as A.

Towards the end of the 2nd decade B got excited at the possibility of removing a competitor, and potential A ally, in McD. This was an unfortunate distraction, and customers experienced again we are biggest / we are best syndrome. In reality, this mean't B were listening to their 3-4 historically biggest customers, when events have shown were not going to be the biggest buyers in the 3rd decade.

Meanwhile A was listening to everyone else, including all the aviation cinderellas of the future - both airlines and managers. And when u listen, and have a propensity to act, sales are certain (almost) to follow.

So when B woke up to the A family (and there are strong common features, and i'm not just referring to side sticks), packaging and sales team, there wasn't a lot left in the arsenal, other than to buy time with claims of foul play.

B have in fact been playing a supporting sales role for A. If u keep repeating A aircraft are subsidised, and the A package is for arguments sake the same price as the B package, then if it's subsidised, it must be the better product (a Mercedes for the price of a Ford). U are actually talking up the opposition.

In hindsight, if A had acquired McD, B would have received an almighty wake up call, and merging McD would have pre-occupied and distracted A for years.

Now it's the 4th decade. The end of year report card for B would say the outlook is improving. They have the excellent 777, and on paper, 7e7. Areas to work on in the next decade are designing and building inter-connected families, improved packaging and customer contact.

The same report card for A would say well done. Avoid the temptation to become complacent or arrogant. Keep doing what u have been doing, and don't under-estimate B.

P.S. The 737 will have to be priced lower than the A32 when selling to first-time operators, not because it is inferior, but because it is an orphan line, with no family commonality with the 777 or 7e7.

 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Tue Dec 14, 2004 12:54 pm

PS: Everything that you say is 100% correct. I never said that Airbuses are inferior or bad. I said that they buy market share and hide the losses in the accounting! Their advantage today is not so great that they should be winning the way that they do.

Ok, I think that it's time to drop this. Thanks for the education!
 
PVG
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Tue Dec 14, 2004 3:42 pm

http://www.airliners.net/discussions/general_aviation/read.main/1860998/

Looks like it's going to take less than 20 years for the pyramid scheme to unravel!
 
User avatar
ODwyerPW
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Wed Dec 15, 2004 2:12 am

Miscellaneous Musings.

Boeing 737-800 has a list price between $61.5mil - $69.5mil.
Factor that most carriers receive a 25% to 45% (RyanAir deal?) discount, then 737-800s may have sold for as low as $33.8mil on occassion. That's based on least expensive configuration at a max discount sold in large numbers.

Airbus A320-100/200 has a list price between $50mil - $55mil.
It was rumored that AirAsia received a price of $30mil a piece for the 40 planes on firm order. That's about a 40% discount on the least expensive configuration.

From a percentage of list price basis, Airbus didn't have to discount as much as Boeing to come in at a lower price. Boeing would have needed a discount of at least 51% of list price to get < $30mil.

How low do you go? How much do airlines value the A320's extra 4" of interior cabin width? How much do airlines value the 737-800's additional 300nm range? How important is an acquistion savings of $3.8mil (my figures) over decreased operational costs for the life of an airframe? How much value do manufactures place on market share?

Tough business.
learning never stops.
 
Ruscoe
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Wed Dec 15, 2004 2:14 am

Word is that Air Asia is going Airbus at under 30 million per craft.

Pricing sems impossible to me.

Ruscoe
 
BestWestern
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Wed Dec 15, 2004 2:46 am

Guys - Dont forget that Boeing went very low with Ryanair - so low that the FR CEO stated that "we raped them".

Have we ever thought that Airbus can charge less because they have lower costs and a product of equal quality.

UA may have a better product than JetBlue, but Jet Blue can charge less and still be much more profitable.

You are 100 times more likely to catch a cold on a flight than an average person!
 
Planesmart
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RE: Boeing To AirAsia: Sell 737 At Cost 4 Mkt Share?

Wed Dec 15, 2004 2:47 am

Where is the 'word' coming from? Both A & B insert strict confidentiality clauses, so customers talking before all the i's are dotted and t's crossed rarely happens.

What does sometimes happen, is negotiators representing the airline will release info thru a snr airline stf member. This is intended for the ears of one supplier. But what they say is controlled, and it's designed to extract a better offer from that supplier.

The devil is in the detail with purchases like ships, aircraft and vehicles. I can assure u a contract to buy new commercial aircraft runs to a lot more than a couple of pages, and does not have single price, or in fact just an airframe price. Was the price plus deposit paid, engines, training, spares package, finance, insurance? Is there a buyback clause, and if yes, is that set correspondingly low?