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bob75013
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Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 5:41 pm

Interesting Motley Fool article about the pricing problem Airbus may have created for itself when it gave AA it's 'most favored customer" clause when it placed an order for 260 A320neos. The clause means that if AB sells the same plane to some subset of airlines for say $1 million less than the price paid by AA, then AB would need to REFUND $260 million of AA. The clause refers to pricing to some group of airlines that are known only to AA and AB (and UA's Scott Kirby since he was at AA at the time), but not apparently all airlines.

The premise of the article is that the clause is preventing AB from competing with BA on narrow bodies to least some airlines. Why? Well lets say that DL wants to order 75 narrow bodies by the end of the year (it does) and BA prices the 737max low enough that AB needs to price A320neos for DL at $1 million/plane less than AA is paying to compete for the order, that AB would need to refund $260 million to AA If price is $2 million lower, then the refund would be $520 million. $3 million yields $780 million. - thus crushing AB profits.

https://finance.yahoo.com/news/boeing-s ... 00954.html



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Newbiepilot
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 5:49 pm

This topic came up before in the context of United, but I think this is a good article talking about the impact if the deal. It may push Delta in favor of the 737-10 even though many on this forum see Delta leaning towards Airbus.

In my opinion, Airbus probably never predicted the 737-10 being a viable A321 competitor in 2011 when this deal was done. Back then Airbus was out promoting how much better the A321 is than the 737-900ER. Smart move for AA to block its competitors from getting cheaper planes. AAs shrewdness is also helping Boeing.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 5:57 pm

Yeah, this is less of an advantage for Boeing rather than an unfortunate decision on Airbus's part. That said, it will help Boeing more than Airbus, and I don't know why Airbus would ever agree to this. The only time this kind of deal makes sense is if the purchase price is so ludicrously low that you are certain that there is no chance of undercutting it for at least the next decade or two.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:06 pm

FoxtrotSierra wrote:
I don't know why Airbus would ever agree to this. The only time this kind of deal makes sense is if the purchase price is so ludicrously low that you are certain that there is no chance of undercutting it for at least the next decade or two.


Signing AA as a major launch customer for the A320neo was a critical move for Airbus in that it effectively forced Boeing's hand into launching the MAX and that killed any chance of NSA coming before 2030, which was when Airbus would be comfortable in launching their own A320 family replacement (NRA).
 
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Dutchy
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:08 pm

What are you saying with this? Something is amiss here. Why would Airbus have such a clause while pricing the aircraft relatively expensive? Then you are almost guaranteed to pay them back.

I guess nobody really knows how the clause will work and people who do know surely can't tell.
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qf002
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:08 pm

bob75013 wrote:
The premise of the article is that the clause is preventing AB from competing with BA on narrow bodies to least some airlines. Why? Well lets say that DL wants to order 75 narrow bodies by the end of the year (it does) and BA prices the 737max low enough that AB needs to price A320neos for DL at $1 million/plane less than AA is paying to compete for the order, that AB would need to refund $260 million to AA If price is $2 million lower, then the refund would be $520 million. $3 million yields $780 million. - thus crushing AB profits.


At the end of the day though Airbus has booked a 260 frame order at a higher price per frame than Boeing's 75 frame order so isn't exactly worse-off as a result.

The only way Boeing can crush Airbus's profits is by first crushing their own by slashing prices. The only winners are the airlines.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:20 pm

FoxtrotSierra wrote:
Yeah, this is less of an advantage for Boeing rather than an unfortunate decision on Airbus's part. That said, it will help Boeing more than Airbus, and I don't know why Airbus would ever agree to this. The only time this kind of deal makes sense is if the purchase price ilo[threeid][/threeid]s so ludicrously low that you are certain that there is no chance of undercutting it for at least the next decade or two.


It could be that Airbus felt the A321 didnt have competition. Airbus may have been arrogant enough to think the A321 could outsell the 737-9 based on its performance capabilities and that airlines would be willing to pay a premium for it. I don't think they expected Boeing to find a way to make the 737 competitive. Airbus may have thought the A321 vs 737-9 competition may be like the 77W vs A346. The 737-10 early sales success came as a surprise to many.

I still think this deal may have been worth it for Airbus. They got strong pricing and broke into AA while forcing the MAX. It may cost them in campaigns for UA and DL.
 
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Dutchy
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:41 pm

They can still sell the A321 at a premium. And for Boeing, the production cost for a B737-10 must be higher as well as the development cost. And if we read all the available information the economics aren't at par with the A321NEO. So there is a bit more to it than simple price.

I would say this article overstates this perceived secret weapon.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 6:56 pm

Dutchy wrote:
They can still sell the A321 at a premium. And for Boeing, the production cost for a B737-10 must be higher as well as the development cost. And if we read all the available information the economics aren't at par with the A321NEO. So there is a bit more to it than simple price.

I would say this article overstates this perceived secret weapon.

This. Airbus is dining out on the A321 program. It has a huge backlog and even if this clause is actually as perceived, then they are still way WAY ahead on the deal. Losing one or two opportunities based on price? 'Twas ever thus.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:11 pm

I am not sure that Motley Fool can be considered a trusted source. I used to read them a lot and in my opinion they often confuse rumours and hearsay with facts. Anything for a good story. The article even says that the details are murky.

I cannot see Airbus doing a deal which would tie their hands like this. It is interesting to debate this, but I am not having any of it.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:22 pm

Newbiepilot wrote:
FoxtrotSierra wrote:
Yeah, this is less of an advantage for Boeing rather than an unfortunate decision on Airbus's part. That said, it will help Boeing more than Airbus, and I don't know why Airbus would ever agree to this. The only time this kind of deal makes sense is if the purchase price ilo[threeid][/threeid]s so ludicrously low that you are certain that there is no chance of undercutting it for at least the next decade or two.


It could be that Airbus felt the A321 didnt have competition. Airbus may have been arrogant enough to think the A321 could outsell the 737-9 based on its performance capabilities and that airlines would be willing to pay a premium for it. I don't think they expected Boeing to find a way to make the 737 competitive. Airbus may have thought the A321 vs 737-9 competition may be like the 77W vs A346. The 737-10 early sales success came as a surprise to many.

I still think this deal may have been worth it for Airbus. They got strong pricing and broke into AA while forcing the MAX. It may cost them in campaigns for UA and DL.

The arrogance was Boeing originally thinking the 737-9 could compete with the A321neo. Of course they later basically admitted it wasn’t much of an attractive buy so they are making the 737-10 to fix that problem. What it really does though is put them back to the place they were with the 737-900ER. It’s just good enough that it is convincing to buy instead of the A321neo if you don’t want to add a new type or can get a better price and don’t need the capabilities. For them I think that’s really all they ask of it. The 737-10’s orderbook is mostly conversions at this point which I completely expected, much of these are converted from 737-9 which is far from surpirsing, but the conversions from 737-8 to 737-10 really shows how pointless the 737-9 is for many airlines looking for a bigger narrowbody. It isn’t enough bigger or better than the 737-8 for most which is also why it is a bad matchup against the A321neo.

This AA deal has mostly broken the chances of UA ordering A321s because otherwise I think they wanted to, but I wouldn’t write DL off.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:29 pm

Secret weapon? How much do you all think Airbus managed to soak AA for on 321s?

Assuming Kirby’s talking point about preferred pricing at AA is completely true (and we have no proof that it is, just some excited conjecture), if the MAX10 has changed the dynamics, and Airbus needs a lower price now, they’d be silly not to give AA that difference on the old sale and move on to make whatever next huge deal is coming along. They’d have lost a hedge. This isnt a Boeing secret weapon.

Sure, it would be a one time drag on the bottom line. It would make that old AA deal less profitable, not unprofitable. The production costs on this product are well known to Airbus and have not radically changed. These planes aren’t being sold below cost today regardless of the MAX10. To suggest otherwise makes for amusing reading.

If the MAX10 can do everything UA needs, thats great. Good for them! Good for Boeing! It was sold to them quite cheaper than what AA paid for a larger plane with better range, CASM and payload. If thats not a “poor-mans A321” as the article put it, I don’t know what is.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:32 pm

BHXLOVER wrote:
I am not sure that Motley Fool can be considered a trusted source. .


I cant remember exactly where I read it, may have been here or Leeham, but this 'agreement' was also mentioned by a US airline exec recently, so there is truth to it
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:39 pm

Like others I'm a bit skeptical of the story. To me "most favoured customer" means you get the best price/conditions. Sure, in a way, if AB did promise not to sell any aircraft cheaper, then that's indeed the best price, but I wouldn't expect such a clause.

Then even if it existed, surely it must contain inflation increases, and end after 5 years or something like that.

But really it's not a way to launch an aircraft to tie your hands regarding future sales.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:40 pm

Two years ago, in autumn 2015 (when the once excellent site pdxlight had been last updated), the MAX9 had 217 firm orders. Now, according to wikipedia (OK, a lazy, quick and dirty source), the GRAND FINAL count for the MAX9 and the MAX10 COMBINED stands at just 337. That compares to the 321NEO's 1052+426=1478 change in the firm order log within the same two years, according to the same sources.

Boeing's secret weapon? Rather much ado about nothing, I dare say.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:41 pm

Apart from Uniteds conversion order, I'm not overly impresssed with the 737-10 order book yet. Hopefully some major profitable orders from leading airlines will follow soon and the aircraft/ engines perform as promised.


https://en.m.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries

Airbus might be very worried about the quick build up of 737-10 orders and commitments. Or not so much, if e.g. the leasing companies negotiated all kinds of conditional escapes and Boeing had to agree just before the Paris launch event.

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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:43 pm

bob75013 wrote:
Interesting Motley Fool article about the pricing problem Airbus may have created for itself when it gave AA it's 'most favored customer" clause when it placed an order for 260 A320neos. The clause means that if AB sells the same plane to some subset of airlines for say $1 million less than the price paid by AA, then AB would need to REFUND $260 million of AA. The clause refers to pricing to some group of airlines that are known only to AA and AB (and UA's Scott Kirby since he was at AA at the time), but not apparently all airlines.


According to the article, the details of the clause are not known. Originally AA ordered 130 A320neos (not 260), and at the moment the order is for 100 A320neos. The article suggests that the clause might only cover new engine option and US legacy carriers.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 7:54 pm

Its not a secret weapon for Boeing, more of a case where Airbus may had shot themselves in the foot. To be fair, Boeing did shoot themselves in the foot before, when they claimed that LCCs would stick to the 737s and nothing else back in the 2000s. That said, Boeing is now more opportunistic in covering customers' needs without changes to the product line.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 8:53 pm

Dutchy wrote:
Something is amiss here.

Agreed.

One thing that I still have yet to hear anyone give a cogent explanation of, is:
even if Airbus breached the alleged agreement, how would AA ever find out about that?

I mean, if DL or somebody received ultra favorable pricing, are they gonna run to AA and brag about it?
AA isn't privy to a 3rd party's confidential contracting info with Airbus, regardless of what AA signed.

So how would AA even know, in order to demand compensation from Airbus?
Last edited by LAX772LR on Sat Oct 28, 2017 8:55 pm, edited 1 time in total.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 8:54 pm

Aesma wrote:
Like others I'm a bit skeptical of the story. To me "most favoured customer" means you get the best price/conditions. Sure, in a way, if AB did promise not to sell any aircraft cheaper, then that's indeed the best price, but I wouldn't expect such a clause.

Then even if it existed, surely it must contain inflation increases, and end after 5 years or something like that.

But really it's not a way to launch an aircraft to tie your hands regarding future sales.

Prices are expressed as an hourly wage, so many tons of aluminum, titanium, steel, and nickel. I've seen most favored clauses. Delta, American, United, and Lufthansa often demand them. Same with Southwest. A 737-10 won't be in prior contracts. As prices increase of the inputs (labor is usually CPI), so does the aircraft price.


After delivery, there is a phase out. E.g., if a sales price triggers a $750k discount in labor and $250k in materials per airframe, usually the payment drops 10% per year after delivery. e.g., a 5 year old plane is paid back $500k, not $1million.

The payment is never cash. It is discounted parts. So Airbus would have to deliver for a $100 million penalty, Airbus would sell AA $200 million of parts for $100 million, only making about $20 million in profit off the parts.

Why yes, there is that much profit in parts. That is how Airbus cannot loose anything but future profits.

Not to you, but some of the comments here are from people who obviously don't do game theory and figure out how even orders described as a 'rape' result in tens of millions of profit per plane. (I'm referring to FR.)

For Airbus, producing 260 identical planes costs less than producing 200 in batches of 20. Airbus will make a profit. A good profit. Despite probably paying AA over a billion from this clause (eventually).

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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 9:00 pm

LAX772LR wrote:
Dutchy wrote:
Something is amiss here.

Agreed.

One thing that I still have yet to hear anyone give a cogent explanation of, is:
even if Airbus breached the alleged agreement, how would AA ever find out about that?

I mean, if DL or somebody received ultra favorable pricing, are they gonna run to AA and brag about it?
AA isn't privy to a 3rd party's confidential contracting info with Airbus, regardless of what AA signed.

So how would AA even know, in order to demand compensation from Airbus?

AA will get a list of deals via a 3rd party who will audit deals.

What AA won't be allowed to know is other compensation. e.g., Airbus could buy back CEOs at inflated prices while selling NEOs at or above AA's rate. Or Airbus will offer buyback terms not in AA's contract.

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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 9:01 pm

Ah well,if this contract ever (unlikely) gets difficult for Airbus then a quick small stretch (250 pax sardine class) and it becomes (322) irrelevant.Dont suppose the contract would effect the new LR model anyway.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 9:01 pm

Airbus making decisions from a point of arrogance??? Say it isn't so. Ahem...A380, A340-600 anyone? Wouldn't be the first time Airbus has shot itself in the foot and won't likely be the last. Boeing is no different. Its an incredibly high stakes game and decisions are made from the best assumptions derived from the best data available at the time the decision is made. Real life doesnt always trend with the projections and it never will. Situations change. The one's that can quickly adapt and adjust to those changes win and those that don't lose. I would never be one to ever discount Boeing in any situation. They have a decades long track record of pulling rabbits out of the hat just when you think you have them down.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 9:05 pm

lightsaber wrote:
AA will get a list of deals via a 3rd party who will audit deals.

Interesting.

How could I find out more about that? Would be very curious to see how it's done, to avoid legal issues surrounding confidentiality.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 9:26 pm

LAX772LR wrote:
lightsaber wrote:
AA will get a list of deals via a 3rd party who will audit deals.

Interesting.

How could I find out more about that? Would be very curious to see how it's done, to avoid legal issues surrounding confidentiality.


A lot of analysis from SEC filings of not only the airline, but also suppliers, etc.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 10:16 pm

LAX772LR wrote:
lightsaber wrote:
AA will get a list of deals via a 3rd party who will audit deals.

Interesting.

How could I find out more about that? Would be very curious to see how it's done, to avoid legal issues surrounding confidentiality.

I'm not sure. AA won't be told who or quantity.

My accountant actually does this for divorces. She screens details, of business deals to ensure payments are made. It cost on Fortune 500 company over $20 million for colluding with the CE0 to hide income.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 10:30 pm

Newbiepilot wrote:
It could be that Airbus felt the A321 didnt have competition. Airbus may have been arrogant enough to think the A321 could outsell the 737-9 based on its performance capabilities and that airlines would be willing to pay a premium for it. I don't think they expected Boeing to find a way to make the 737 competitive. Airbus may have thought the A321 vs 737-9 competition may be like the 77W vs A346. The 737-10 early sales success came as a surprise to many.

I still think this deal may have been worth it for Airbus. They got strong pricing and broke into AA while forcing the MAX. It may cost them in campaigns for UA and DL.


In fairness they may not have been far off on that one, up until the MAX 10 came along the A321neo was probably earning a very nice premium, and they had a solid 6 year period where the MAX 9 was the only competition, so they've got a lot of their premiums in already. At the end of the day the MAX 9 will die quite quickly like the A346 did.

I think you overestimate the MAX 10's sales a little, it's got a solid start, but nor is it anything special.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 11:10 pm

I think this personal blog entry (not actually a news story) has little basis. While an element of this may be based upon fact, it seems to me the main conclusions have been drawn out of thin air.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sat Oct 28, 2017 11:43 pm

BHXLOVER wrote:
I cannot see Airbus doing a deal which would tie their hands like this. It is interesting to debate this, but I am not having any of it.


I'm not so sure. There was a LOT more going on with the AA order that has never been made public (hopefully one day it will, as just the pieces that I do know are very interesting from an overall industry perspective). While I do not know for certain whether AA has such a clause, I would not be surprised by it, either. Keep in mind, what we are talking about is basically identical as the 'Gentleman's Agreement' UA, AA and DL had with Boeing back in the late '90's. So it is certainly not unheard of.


LAX772LR wrote:
Dutchy wrote:
Something is amiss here.

Agreed.

One thing that I still have yet to hear anyone give a cogent explanation of, is:
even if Airbus breached the alleged agreement, how would AA ever find out about that?

I mean, if DL or somebody received ultra favorable pricing, are they gonna run to AA and brag about it?
AA isn't privy to a 3rd party's confidential contracting info with Airbus, regardless of what AA signed.

So how would AA even know, in order to demand compensation from Airbus?


While we often talk in hushed tones about the "actual price paid" in airliner contracts and treat them as if they are akin to nuclear codes, they really are not that secret. It would not be too terribly difficult for AA to know how much every one else is paying. Lightsaber already brought up one way, which is probably the preferred method. But there are other ways. I can guarantee you that Boeing and Airbus each know what the other is selling all of their planes for.

There is also some easy ways around such a clause, too. For example, if DL chooses the A321neo in their RFP (which I strongly suspect they will, if they haven't already), they are clearly not going to want to pay more than AA. Solution? Take a further discount off the A350 and/or A330neo. In fact, I have a theory they already have such a clause in that contract, whereby further Airbus orders trigger the clause. There is certainly precedent for it. It's why I believe Boeing felt okay to go after Bombardier - they already knew they were not going to win DL's narrow body RFP.

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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 1:58 am

Hamlet69 wrote:
BHXLOVER wrote:
I cannot see Airbus doing a deal which would tie their hands like this. It is interesting to debate this, but I am not having any of it.


Keep in mind, what we are talking about is basically identical as the 'Gentleman's Agreement' UA, AA and DL had with Boeing back in the late '90's. So it is certainly not unheard of.


LAX772LR wrote:
Dutchy wrote:
Something is amiss here.

Agreed.

One thing that I still have yet to hear anyone give a cogent explanation of, is:
even if Airbus breached the alleged agreement, how would AA ever find out about that?

I mean, if DL or somebody received ultra favorable pricing, are they gonna run to AA and brag about it?
AA isn't privy to a 3rd party's confidential contracting info with Airbus, regardless of what AA signed.

So how would AA even know, in order to demand compensation from Airbus?


While we often talk in hushed tones about the "actual price paid" in airliner contracts and treat them as if they are akin to nuclear codes, they really are not that secret. It would not be too terribly difficult for AA to know how much every one else is paying. Lightsaber already brought up one way, which is probably the preferred method. But there are other ways. I can guarantee you that Boeing and Airbus each know what the other is selling all of their planes for.

There is also some easy ways around such a clause, too. For example, if DL chooses the A321neo in their RFP (which I strongly suspect they will, if they haven't already), they are clearly not going to want to pay more than AA. Solution? Take a further discount off the A350 and/or A330neo. In fact, I have a theory they already have such a clause in that contract, whereby further Airbus orders trigger the clause. There is certainly precedent for it. It's why I believe Boeing felt okay to go after Bombardier - they already knew they were not going to win DL's narrow body RFP.

Regards,

Hamlet69


It wasn’t a gentlemen’s agreement. It was a contractual agreement that was invalidated as a condition of the McDonnell Douglas merger. Also it was CO, DL, and AA.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 2:25 am

I don't understand what's the whole cahootle is? Contracts between aircraft manufacturers and airlines are usually quite secretive and non-disclosure. I remember numerous topics here about how much X paid for Y aircraft and multipage calculations and deductions. I don't think any airline will disclose this information to anyone, including their competitors. That's one point. Another point (consequently) is that we don't really know the AA contract price. Maybe Airbus gave them a REALLY big discount and this clause is their protection from the "if they can sell it for this money, maybe we can have it cheaper" way of thinking. Airbus can now say, this is how much we can discount and we can't do go any lower. For the past 50+ years of its existence Airbus has never made a mistake in their aircraft sales. We know absolutely nothing about this contract other than Boeing fanboys' dreams and fantasies. I don't think Airbus did something to jeopardize their future sales. I also think that this clause has the scope limitation for both model and geographic area.
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 2:38 am

Another sad thought for Boeing admirers is this. Boeing has only ONE weapon against A321 - PRICE. They can only win with huge discounts, sometimes way below the cost of production. I don't think it's a good strategy for the long run. What's worse, Boeing can't even afford to develop a new plane until they recoup the investments on their previous fiascos of which they had too many in the past decade. B748 ten times more money than they planned and failed. B787... okay, I won't go there, just this once. B737 is a mess with four variants, one of which they don't want to produce, two nobody wants to buy, and one that they had to make in a hurry at huge expense to somehow save the face. 777X doesn't seem to be a huge seller but will PROBABLY pay back what they spent on it. I wouldn't want to be Boeing right now. I WOULD want to be one of the Boeing's managers, though, with their huge salaries and options and bonuses for doing such a wonderful job of slowly pouring the company's century long heritage down the drain. Or is the McDonnell-Douglas managers? :D :duck:
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LAX772LR
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 3:08 am

BoeingGuy wrote:
It wasn’t a gentlemen’s agreement. It was a contractual agreement that was invalidated as a condition of the McDonnell Douglas merger. Also it was CO, DL, and AA.

Two things here:

1) For the love of heaven, please learn to selectively quote... it's not hard! :irked:

2) After 1997, all three airlines maintained a non-contractual "gentleman's agreement" with Boeing, that acted as a mirror to their previous MFN status. That's what's being referred to. The agreements were no longer effective following their respective mergers.



BREECH wrote:
I wouldn't want to be Boeing right now. I WOULD want to be one of the Boeing's managers, though, with their huge salaries and options and bonuses for doing such a wonderful job of slowly pouring the company's century long heritage down the drain. Or is the McDonnell-Douglas managers?

It's fairly droll when ignorance masquerades itself as feigned pity. Strange really.

That said, even a basic grasp of industry history, would show you that this is just the cyclical pendulum that swings between each OEM.

Go back not long ago, and Airbus was in the same situation that Boeing is now: two models basically holding up the entire fortress.

A318 - completely rejected by the market
A319 - not selling at its previous rates

A332 - once their greatest selling widebody, now seeing sales tank

A342 - defunct
A343 - not selling except for top-ups by extant customers
A345 - completely rejected by the market
A346 - absolutely annihilated by the 77W, in every quantifiable sales comparison

A350MK1 - cold market response and ultimately abandoned

A388 - disastrous launch, ~60% of sales tied to the whims of one anomaly airline

........which basically left the A32X and A333 keeping the lights on.
Not a pretty picture. But look how wonderfully they recovered. As will Boeing, as told by history-- because about a decade before the above scenario, Boeing was once again the one stuck with older technology against Airbus' fresh offerings and approach.

Hence the word "cycle."
I myself, suspect a more prosaic motive... ~Thranduil
 
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zckls04
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 4:39 am

LAX772LR wrote:
Not a pretty picture. But look how wonderfully they recovered. As will Boeing, as told by history-- because about a decade before the above scenario, Boeing was once again the one stuck with older technology against Airbus' fresh offerings and approach.

Hence the word "cycle."


Lofty stallions aside, if you want to advance, you have to make smart decisions, invest wisely, and out-maneuver your competition. The pendulum doesn't automatically swing back.

Airbus recovered because they made some superbly designed and engineered products, not because history decreed that it be so. Are Boeing making the right decisions now to facilitate that swing?
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oOfredOo
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 10:14 am

Something does not add up. List price of an A320 neo now is more than $11m higher than it was back then. Unless AA got a below market average discount for an 260 aircraft order, and Boeing is now dumping the Max 10 at 60% discounts, the math does not add up. I’d say it’s more wishful thinking than that the clause is actually hurting Airbus.
 
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keesje
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 11:59 am

zckls04 wrote:
LAX772LR wrote:
Not a pretty picture. But look how wonderfully they recovered. As will Boeing, as told by history-- because about a decade before the above scenario, Boeing was once again the one stuck with older technology against Airbus' fresh offerings and approach.

Hence the word "cycle."


Lofty stallions aside, if you want to advance, you have to make smart decisions, invest wisely, and out-maneuver your competition. The pendulum doesn't automatically swing back.
Iu
Airbus recovered because they made some superbly designed and engineered products, not because history decreed that it be so. Are Boeing making the right decisions now to facilitate that swing?



I think the general assumption is they will. What worries me sometimes is that short term results, as demanded by stock holders, combined with short term bonusstructure for management, leads to decision that are best for stock pricing short term. And sometimes it seems that developments written on the wall for years are somehow dismissed / pushed back too far, creating damage. E.g the A321 offering something the 737 can't was known but denied for many yrs and now a so so 737-10 should save the day.

http://www.boeingblogs.com/randy/archives/2010/08/sharks_and_jets.html
"Never mistake motion for action." Ernest Hemingway
 
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Finn350
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 12:23 pm

LAX772LR wrote:
One thing that I still have yet to hear anyone give a cogent explanation of, is:
even if Airbus breached the alleged agreement, how would AA ever find out about that?

I mean, if DL or somebody received ultra favorable pricing, are they gonna run to AA and brag about it?
AA isn't privy to a 3rd party's confidential contracting info with Airbus, regardless of what AA signed.

So how would AA even know, in order to demand compensation from Airbus?


Very good point. There are so many ways to construct a contract including maintenance etc. it would be basically impossible to discern if the planes themselves are overpriced and maintenance underpriced, for example.
 
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par13del
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 12:40 pm

So Airbus swung AA with a price comparison deal...and here we are on this site saying that AA management was smart and made a decision that was in the best interest of their shareholders when they selected the Airbus product?
If we here on this site can see an issue with AA not knowing what price their competitors receive and must rely on Airbus good intentions to keep them informed we don't think AA management was intelligent enough to see that loophole and include provisions to minimize?
I am somewhat shocked that our European members have not said that Airbus is a trust worthy OEM and there is no need for verification of competitors prices, AA is in good hands.
...or the Boeing fans who now decry the fact that the rest of the world which Europeans say is larger than the US market now have their price
for Airbus a/c set by or heavily influenced by a single USA carrier.
Hmmmm.....
 
MIflyer12
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 12:46 pm

I hate clickbait titles. It's not the OP's fault here - he just repeated the Motley Fool title.

It's not Boeing's weapon. Boeing doesn't control it. It's a burden on Airbus placed by Airbus itself. If you criticize it, you're arguing Airbus doesn't know how to price & sell aircraft. Think of the lifetime profit in AA's single 260-frame order.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 1:32 pm

zckls04 wrote:
Airbus recovered because they made some superbly designed and engineered products, not because history decreed that it be so. Are Boeing making the right decisions now to facilitate that swing?


Are the US3 are necessary customers for the A320neo, or prestigious customers? If airlines from Europe and China are willing to pay more then the US3, Airbus may feel that they would rather give big discounts to customers such as QF, rather than further discount airplanes they have already sold to AA? Im sure Airbus would prefer to have the NEO with all the US3, but if Boeing are willing to offer a deal like AC got, Airbus may think it just doesn't make sense.

In this cycle, I think Airbus used its advantages - and earlier failings- brilliantly.
I am worried that the C-Series might suffer a similar fate to the 717, not being a 'proper' Airbus, but hope that Airbus' history as a union of different aerospace manufacturers, from across Europe will help to avoid the "not made here" mentality at TLS. The arrival of the C-Series potentially gives Airbus free reign on an A320based MoM competitor. They don't need to worry about the sub 180 seat market, they've got the best-in-class aircraft for $1!
Re-engining the A320 with an engine/fan diameter that the 737 just cannot accommodate ensured the A320 would continue to generate large cash flow and orders for the foreseeable future.
Airbus can probably keep the current fuselage and wing box design for a re-wing, heavier A322/323/MoM type aircraft - if needs be they might have to dust off the double bogey from the 1980s.
The XWB eventually slotted into a nice place above the 787 and killed off the cash cow 77W - forcing the 77X
For customers whom the XWB was too much, they simply finished off the A350Mk1.
The A380 remains a slow seller, but they have re-purposed some FAL space to make even more A320neo.

The ball, to me, is very much in Boeings court. Do they have an appetite for the MoM, which will prematurely kill the larger 737s? Can Boeing contemplate retiring the 737, such an iconic aircraft, part of Boeings great history? How long would it take Airbus to have an A320-based counter offer for the MoM, potentially quicker to market with less risk and cheaper?
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 1:32 pm

MIflyer12 wrote:
I hate clickbait titles. It's not the OP's fault here - he just repeated the Motley Fool title.

It's not Boeing's weapon. Boeing doesn't control it. It's a burden on Airbus placed by Airbus itself. If you criticize it, you're arguing Airbus doesn't know how to price & sell aircraft. Think of the lifetime profit in AA's single 260-frame order.


I don't like the title either. It makes this about Boeing and we had some posters come in and bash Boeing (an example is bringing up management salaries/bonuses). Really this is about Airbus. It is about how they put a pricing claus in the deal with American that reduces their flexibility to compete on price with other airlines. That's the bottom line.
 
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par13del
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 1:59 pm

Well only Boeing had a gentleman's agreement that disadvantaged Airbus, so it is proper to ensure that such is not replicated elsewhere, so we have to somehow find a way to get the originator of this type agreement included, since it is their fault.

On a more serious note, if memory is failing, it would be interested to review the numerous threads when the AA purchase was made about how superior the CEO/NEO products were to the Boeing offering and that financing played only a minor part of the deal.
As time goes and more information is released, financing appears to be the major factor in most of these purchases, we just do not like to admit that something other than product performance is at play.
 
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Balerit
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 2:05 pm

MIflyer12 wrote:
I hate clickbait titles. It's not the OP's fault here - he just repeated the Motley Fool title.

It's not Boeing's weapon. Boeing doesn't control it. It's a burden on Airbus placed by Airbus itself. If you criticize it, you're arguing Airbus doesn't know how to price & sell aircraft. Think of the lifetime profit in AA's single 260-frame order.


The Motley Fool is a well known propaganda tool used by Americans to influence how people view overseas opposition companies. They consistently try and make Airbus look bad so influencing share prices - I wouldn't take anything they say as dinkum.
Licensed Aircraft Maintenance Engineer (retired).
 
Newbiepilot
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 3:47 pm

Balerit wrote:
MIflyer12 wrote:
I hate clickbait titles. It's not the OP's fault here - he just repeated the Motley Fool title.

It's not Boeing's weapon. Boeing doesn't control it. It's a burden on Airbus placed by Airbus itself. If you criticize it, you're arguing Airbus doesn't know how to price & sell aircraft. Think of the lifetime profit in AA's single 260-frame order.


The Motley Fool is a well known propaganda tool used by Americans to influence how people view overseas opposition companies. They consistently try and make Airbus look bad so influencing share prices - I wouldn't take anything they say as dinkum.


We had a whole thread about how Kirby essentially shared the deal with American and the A321 most favored customer pricing claus with UA employees and how it influenced UA ordering the 737-10

viewtopic.php?f=3&t=1375483

Even if you don't like Montley Fool or have anti/pro American bias, there is evidence that this is not just propaganda. Here is another source:

https://skift.com/2017/10/04/united-com ... ve-prices/
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 3:54 pm

Newbiepilot wrote:
This topic came up before in the context of United, but I think this is a good article talking about the impact if the deal. It may push Delta in favor of the 737-10 even though many on this forum see Delta leaning towards Airbus.

In my opinion, Airbus probably never predicted the 737-10 being a viable A321 competitor in 2011 when this deal was done. Back then Airbus was out promoting how much better the A321 is than the 737-900ER. Smart move for AA to block its competitors from getting cheaper planes. AAs shrewdness is also helping Boeing.


Cabin flex, however, has permitted a much greater seating capacity on the A321neo. One can easily do a 200-seat A21N with C, Y+, and Y using the new configuration (the A321LR is designed for optimization at 206 passengers in 2 classes, but I doubt that for 6 passengers, most airlines will add the 5th flight attendant, although AA does it for a 205-seat B763, hence why I say 200). The B3JM (if that's what the code for the MAX 10 will be) is designed for 226-232 in a high-density configuration, while the A21N has a max of 240 in a 1-class configuration, but the A21N will have longer range. Airbus still has the advantage of a higher-off-the-ground frame.
 
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 4:13 pm

Just to get it right. Airbus sold quite a while a go a big batch of A321neos to AA and promised AA that they would not sell the A321neo for a lower price to anybody else. And that is a secret weapon in the hands of Boeing helping to sell their 737-9 and 737-10 for ridiculous low prices. Must be a hell of a secret weapon locking at the combined sales numbers of the 737-9 and 737-10 compared to the A321neo. :sarcastic:
 
Flyglobal
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 5:24 pm

A question: when the AA Airbus decision was done, then quickly Boeing decided on the MAX and the NSA was gone, when this was there there have been Airbus, Boeing and AA on the table. Is it believable that AA got the clause and Boeing not?


Flyglobal
 
Newbiepilot
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 6:14 pm

mjoelnir wrote:
Just to get it right. Airbus sold quite a while a go a big batch of A321neos to AA and promised AA that they would not sell the A321neo for a lower price to anybody else. And that is a secret weapon in the hands of Boeing helping to sell their 737-9 and 737-10 for ridiculous low prices. Must be a hell of a secret weapon locking at the combined sales numbers of the 737-9 and 737-10 compared to the A321neo. :sarcastic:


I assume Americans deal only applies to North American customers. Since the American deal was made, I think only about 120 A321neos have been sold in North America. I think more MAX-9 and MAX-10s have been sold. Does anyone have the actual numbers?
 
aviationaware
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 6:28 pm

Calling Airbus AB and Boeing BA isn't a thing and is annoying to read, don't ever do that again.
 
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LAX772LR
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Re: Boeing Has a Secret Weapon for Competing With the Airbus A321

Sun Oct 29, 2017 6:43 pm

par13del wrote:
If we here on this site can see an issue with AA not knowing what price their competitors receive and must rely on Airbus good intentions to keep them informed we don't think AA management was intelligent enough to see that loophole and include provisions to minimize?

You clearly have never worked in high end mass sales, or had to dispute/arbitrate/litigate a contract involving such, if you AUTOMATICALLY give corporate management that much credit. Or think that an otherwise healthy provider would box itself in to THAT extent just to land a single deal.

Mass wholesale auto finance deals deals are notorious for this sorta thing.

Can't tell you how many times I've seen a vendor/OEM promise the moon in a deal, deliver a turd, and a giant corporation is none the wiser... or finds out only when there's an unrelated breach that triggers increased scrutiny into the deal, a proxy deal, or some other course of (in)action relative to a third party.

There's only so much a single entity can do within the law, to know what interactions a provider has with a competitor.


aviationaware wrote:
Calling Airbus AB and Boeing BA isn't a thing and is annoying to read, don't ever do that again.

Or... you could just apply basic context. That works too.
I myself, suspect a more prosaic motive... ~Thranduil

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