Airbus Lands Historic Deal with Japan AirlinesBy: Brian Powell - October 7, 2013
Boeing found itself losing its essential monopoly on the Japanese aerospace market Monday morning as Japan Airlines (JAL) signed a deal with Airbus worth $294.5 billion. The deal is for 31 wide-body A350 jets, with the future option to purchase 25 more at the same price.
The deal comes as a huge blow to Boeing, having dominated the market in Japan since it began its post-war reconstruction. Japan also manufactures part of Boeing planes, with production in Japan accounting for one-third of the manufacturing of the Boeing 787.
Many have suspected that Japan’s decision stems from the issues surrounding the launch of the Boeing 787 Dreamliner. During the development phase, Boeing’s Dreamliner was delayed for years. After its launch, the 787 had to be grounded for a period of 4 months due to issues with its battery overheating. Japan was directly affected by these issues, seeing as it is one of the largest Dreamliner operators.
Despite the delays and issues with the 787, JAL president Yoshiharu Ueki stated that this deal with Airbus is not due to those problems: “We are sorry for the troubles we have caused our customers with the 787, but the decision on the aircraft was considered separately from that issue.”
So why did JAL decided to jump plane with Boeing and switch to Airbus? One main reason may be the price. Because the deal was so large, Airbus most likely cut JAL a bulk-purchase deal. However, that bargain may be larger than most think: “They may have been sold at cost, or below cost,” said Will Horton, senior analyst at CAPA Centre for Aviation.
Horton bases this assumption on the fact that Airbus is fairly desperate to break into the Asian market. Japan represents the 3rd largest GDP in the world, and before this deal Airbus only had a 13% market-share; after the deal was signed, Airbus increased their presence to 20%.
The other reason JAL may have sided with Airbus is due to diversity. Just as ecosystems need biodiversity, markets need product-diversity. By having at least two different plane suppliers in its market, Japan ensures future stability and price-negotiations, something the monopoly by Boeing did not offer the country.
While this deal comes as a huge blow to Boeing, the company does not have any plans on shying away from the Japanese market: “Although we are disappointed with the selection, we will continue to provide the most efficient and innovative products and services that meet longer-term fleet requirements for Japan Airlines. We have built a strong relationship with Japan Airlines over the last 50 years and we look to continue our partnership going forward.”
This deal may be a symptom of a larger problem than just those of Boeing. JAL may be investing in Airbus to avoid investing in an American market during a government shutdown. While Boeing did have its fair share of issues with the 787 Dreamliner, Japan would have to have a large incentive to turn away from a company which provides hundreds of jobs to its own citizens. The on-going government shutdown, along with an unstable and unpredictable market, may have been that incentive.
Image via Twitter