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Boeing Vs Airbus-A Business Perspective

Fri Jan 10, 2003 4:34 pm

I am very interested in the decision making process in regards to purchasing new, large aircraft and the selection of engines. I've always been curious why one airline will purchase one model over another model of airliner. A good example would be a Boeing 767-300ER vs an Airbus A330-200, or a 757-200 vs an A321-200. I hope these are "Apple to Apple" comparisons. I am not an airline professional, but very much an aviation enthusiast whose interest goes beyond the actual hardware. Weird, I know.

Anyway, it seems to me what is good business for Delta Airlines would be good for Air France on identical routes (as an example).

Lastly, one often sees identical models of aircraft with different engines flying similar routes.

I realize there must be a million economic factors affecting all of the above, but if someone could shed a little light, I would appreciate it.

Thanks! Zach

p.s. Is the "chemtrail" option available on all aircraft types?  Big grin
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RE: Boeing Vs Airbus-A Business Perspective

Sat Jan 11, 2003 2:56 am

You've asked an excellent question, however it has so many variables, that the best you could probably do is make a list of possible factors, feed it into a good data mining program and let it tell you which are key Smile

Seriously, outside of the obvious (route, cargo/pax, previous purchases, etc)
there are so many interdependent variables that there is always a significant amount of guesswork involved and any decision a large carrier makes can shift everything. A great example would be Boeing with the 247- Because they were fully committed to United, TWA and others had to go elsewhere and caused the DC2/3 to be invented by Douglas. So United got in first with a modern passenger ac, but everyone else reaped the benefits from passenger only profitable ac.

A similar question was raised in the 707 vs. DC8 era, where the 707 was first to market and remained market leader, while the 8 was such a workhorse that it still is a significant player for cargo, long after the 707s were retired form the front line- Imagine a cargo carrier factoring this in 40 years ago and still getting payoff.

I look at this from the marketing side, so I'm no where near the final word. But from all I have talked to, the key is make a reasonable good choice, and continue to reinforce it. In other words, work in as many variables as possible, but recognize that you can't possibly get them all and that the long term differences between number 1 and 2 are likely to be small.

Of course there are significant exceptions (unpredictable issues with the DC10 come to mind), but this is the part of the risk that has to be accepted upfront.
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RE: Boeing Vs Airbus-A Business Perspective

Sat Jan 11, 2003 7:25 am

There are many reasons why an airline select the aircraft/engines they do. The decision is based on technical merits, training costs and operational costs. Then of course there is the cost of the aircraft. Who will give you the best price is probably the biggest determining factor. Then there are the political reasons. If you do a search of this forum you will see people saying that the US/EU will pressure foreign governments to buy their "hometown" aircraft manufacturers aircraft. The simple truth is that both the US and EU are guilty of this.

One reason I do not see discussed very often is who are your creditors. Example, one of Continentals biggest creditors is General Electric. Guess what, when Continental ordered the 767 and 777 they ordered GE engines with the aircraft. It's usually not wise to order your creditors competitors equipment. They tend to get a little upset. GE is also a creditor for US Airways. When US Air ordered the A320 they choose the CFM-56 which is a GE motor.
Never take financial advice from co-workers.
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RE: Boeing Vs Airbus-A Business Perspective

Sat Jan 11, 2003 3:07 pm

But US uses PW engines on their A330s, and I believe on their 762s.

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RE: Boeing Vs Airbus-A Business Perspective

Sun Jan 12, 2003 10:17 pm

Very interesting points. Thanks for the information guys! Zach
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RE: Boeing Vs Airbus-A Business Perspective

Fri Jan 17, 2003 11:30 pm


US 762 engines are GE's

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RE: Boeing Vs Airbus-A Business Perspective

Sat Jan 18, 2003 8:32 pm

I don´t think El Al will swap their all-Boeing fleet even if they wanted to.
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RE: Boeing Vs Airbus-A Business Perspective

Sun Jan 19, 2003 5:56 am

I may be totally off here, but would it be correct to assume that political reasons underly why EL AL wouldn't have an Airbus...probably ever?

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RE: Boeing Vs Airbus-A Business Perspective

Mon Jan 20, 2003 3:43 pm

Good for El Al. I drive a Chevy and don't see a Citron (sp?) in my future anytime soon. On a more serious note. I saw a short documentary last night on Discovery Wings Channel about the 747-400. Very cool, but the best part was when they showed the customer, Lufthansa in this case, taking delivery of their new aircraft: D-ABTK. Lufthansa and Boeing each had their team of MBA's doing the paperwork and making the conference calls. Apparently, a wire transfer of $200,000,000 is more involved than getting a "twenty" from the ATM. Boeing then, literally, gave Lufthansa the keys. Afterwards, the folks from Lufthansa climbed in their new 744 and flew off to Frankfurt. If anyone out there has put together or closed a $200M aircraft deal, I would love to hear about it.
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RE: Boeing Vs Airbus-A Business Perspective

Tue Jan 21, 2003 6:31 am

It's all the same as when you prefer a Chevy over a Ford, or visa versa. You collect a mountain of facts, get confused, then look into a crystal ball or flip a coin.

Or you simply order what you need with whom you trust from good experience from previous deals.

Or you switch since previous deals have dissatisfied you.

It may be slightly more serious than that since a lot of money is involved and a lot of persons are involved in the decision. But in principle it is almost true.
Always keep your number of landings equal to your number of take-offs
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RE: Boeing Vs Airbus-A Business Perspective

Thu Jan 23, 2003 11:06 am

I think SAS is a good example of how complex the decision of which aircraft to bus is. Today, SAS have a fleet of ca 160 planes flying. The fleet consist of:

-Airbus (321, 333, 343)
-Boeing (737, 767)
-MDD (80, 90)
-Fokker (50)
-DeHavilland (Q400)

Engines are produced by:

-RR (333)
-P&W (767,MD80, F-50, Q400)
-IAE (321, 90)
-CFM (343, 737)

SAS have stated that they would rather by aircraft for individual needs, instead of focus on fleet commonality.

Price is very important when airlines buy planes, and good offers is hard to say no to, something SAS has regretted with the little pig, 736. They got the planes really cheap, because Boeing wanted a launchcustomer. In a longer perspective, the 717 would probably served SAS better.
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RE: Boeing Vs Airbus-A Business Perspective

Thu Jan 23, 2003 6:46 pm

As said above there are probably too many factors to mention when making an aircraft and engine choice. In brief, the following (in no particular order) would need to be considered in an evaluation:

- Geography
- Weather
- Range
- Strip lengths and widths
- Passenger demand
- Cargo demand
- Cargo hold loading systems
- Gate size limitations
- Tarmac Strengths
- aircraft speed
- Aircraft economy levels
- Reliability
- Price
- maintenance Costs
- Turnaround time
- Fleet commonality
- Financing / Leasing / Ownership type
- Local regulator/authority certifications
- Public perception
- Life expectancy
- Crew availability
- maintenance facilities
- Spares inventory levels
- Political pressure (internally and externally)
- Delivery slots
- Future delivery options

A typical business case for the acquisition of aircraft would combine these factors into various "missions" that the aircraft must be able to complete. The business case would be looked at in stages, as touched on below.

For instance, in the Australian domestic market a benchmark mission for the range component would probably be the Sydney-Perth flight (SYD-PER), as this is the longest regularly flown domestic service with regards to flight time (east to west is into the prevailing high altitude winds - a percentile of maximum winds by month may be used to simulate seasonal fluctuation in range performance).

Over this, the expected total demand and daily demand distribution can be introduced to determine the aircraft sizes needed. As an example, the total determined or forecast daily demand may be for 500 pax per day. Using a 75% load factor (manageable level of demand v' supply) means that you would require roughly 670 seats per day to cater for demand. You will also have high cargo requirements over such a long distance, which will need to be taken into account.

It may be determined that the most demand is for early morning and around midday, with moderate demand for a mid-morning, afternoon and early evening flight. This could be broken into widebody and narrowbody aircraft requirements of around 200 and 100-150 seats respectively. The main players to evaluate would be the B767 and A330/340, and B737/B757/A319/320/321.

Some aircraft you would eliminate straight away. For instance, the A340 is a bit of overkill for this market type, so you would narrow it down to the A330 v' B767 for the widebody. As there are no problems with the range on these aircraft, the evaluation of the widebody would go to the next phase of the analysis (financial evaluation, airport infrastructure, fleet commonality, capacity, etc.).

In this instance the narrow body evaluation would provide more of a challenge. Load restrictions during maximum likely headwinds would be one of the first things looked at. From experience, the A321 and the B739 would both display problems with the range during certain times of year (Sep-Oct in Australia). The A319 and B73G may be determined as too small, leaving the A320, B738 and B757 as the only alternatives for this mission.

The B757 is an untested aircraft in Australia, so the evaluation is likely to stack against it. This is despite it having certain commonalities with the B767, and strong performance data in USA and European operations. So the decision comes down to the A320 and B738. Again, the financial performance (including with different engine types), infrastructure and fleet commonality issues would be evaluated.

If these characteristics are inseparable, then it comes down to manufacturer deals (financial and delivery slot times/options) and political influences (internally and externally). Once the decision is made, it is likely that the airline will use aircraft variants within the same family for other market requirements, capitalising on commonality benefits and/or existing production slots/options from the original order.

This then leads on to same markets operated by different airlines using different aircraft types. The evaluation may determine that the Austrailan based airline use B767's and B737's for its domestic ops, so it is only logical that these aircraft types would be front runners when expanding to international services. A carrier in SE Asia however may have found that they need A330's and A320's for their type of operations, leaving any markets that both carriers fly on being performed by different equipment types.

Fleet acquisition is a long and arduous process, with the above barely scratching the surface of what is required in the evaluation. having said that, it is a hell of a buzz being involved in decisions that may be worth billions of dollars.


P.S. If you read down this far without falling asleep or getting totally lost, you did bloody well  Smile
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RE: Boeing Vs Airbus-A Business Perspective

Fri Jan 24, 2003 9:25 am

has a great article and a bunch of arguments about why NW chose the A330 and not the B777.

You'll find it relevant.

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RE: Boeing Vs Airbus-A Business Perspective

Sat Jan 25, 2003 3:05 am

That´s right, politics are always present in a buy of Airbus or Boeing, especially when it comes to national airlines.

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RE: Boeing Vs Airbus-A Business Perspective

Mon Jan 27, 2003 2:29 am've posed and excellent question!

Gigneil... you've provided an excellent example (by way of the link)! Thanks.

In every technical evaluation, there are different requirements that have to be met and a number of available choices. Notice in the NW article (on how they chose the A330-300) the requirements are clearly and unambiguously defined at the beginning: ".....a new aircraft that would replace our DC-10-30s on dedicated transatlantic missions." Then the comparisons among the alternatives are weighed against the detailed requirements. Once the field is narrowed to a small number of "technically acceptable" alternatives, the final evaluations are made.

Ultimately, the final decision is based primarily on "cost of ownership". This cost is made up of a huge number of individual components, including the cost of acquisition, operating cost, maintenance cost, startup cost, etc. Secondary considerations include growth potential and other strategic factors.

Cost of ownership issues:

The cost of acquisition includes not only the actual purchase price but the financing costs throughout the life of the aircraft.

Startup costs include new infrastructure, tooling, training, provisioning of spare parts, and so on. Obviously, if the operator already has a similar aircraft type then these costs may be lower than if it is a brand new type.

The above costs are typically amortized over the projected life of the aircraft, taking into account the projected size of the fleet, using discounted cash flow analysis and expressed as $ per flight hour. (This analysis automatically factors in the operators' cost of capital.)

Operating cost includes the usual fuel, staffing, support, etc. It also includes factors such as assigning costs associated with dispatch reliability -- ie, the added cost impact of missing a departure schedule a certain % of the time. The total is expressed as direct operating cost (DOC) as $ per flight hour.

maintenance cost is pretty straight forward, includes the cost of the mechanics that service the aircraft and the cost of repairing the removed components at a depot, whether it be the operator's own facility or a third party. These factors are calculated for each component based on their anticipated failure rates and/or scheduled removal rates and costs to remove, replace, and repair, then totaled. Add to that the cost of the various maintenance checks, which are well known, as they are scheduled by flight-hours. The total is expressed as direct maintenance cost (DMC) as $ per flight hour.

Adding these together gives a total cost of ownership expressed as a cost per flight hour. Obviously, each operator has unique component costs that enter this analysis, so the final cost of ownership will differ from one to the other.

Growth potential and strategic issues:

These are also very important. Every airline has a "strategic plan" that defines where they want to be 5, 10, 15 years in the future -- where they want to fly, what % of market share they expect to generate, whether they want to be perceived as a low cost tourist airline or a premium business oriented airline, etc. Also, they may define what sort of technical factors are important to get to where they want to be.

For example, an operator may wish to standardize in the future on a particular family of aircraft, so they may make a sub-optimal selection now, with the idea that once their strategic plan is implemented, the cost of ownership will decrease. They may also have in mind a partnership that is expected to expand their business, and they may want to be prepared by buying a larger aircraft than they need at the moment.

Finally, there is of course the politics, not to mention the possible idiosyncrasies of an eccentric CEO.

The bottom line is, there is no single right answer for every operator, just as there is no single right car or TV set for everyone.


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