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Business

Airbus cruises as emerging-market troubles hit Boeing

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Airbus is boosting production of narrow-body jets, while emerging-market slowdowns have hindered Boeing's new 737 Max.   © Reuters

NEW YORK/PARIS -- U.S. aircraft manufacturer Boeing is falling further behind rival Airbus as a strong dollar and slowdowns in emerging economies, where the European company is firmly established, throw a wrench in its plans to catch up.

Emerging-market turbulence

In late January, a green and white plane took off from Renton Municipal Airport near Seattle, Washington. This was the successful maiden flight of the Boeing 737 Max narrow-body passenger jet.

     The Max embodies Boeing's global strategy. The company forecasts demand for about 38,000 new planes over the next two decades, with single-aisle aircraft like the Max accounting for 70%. Though major airlines and low-cost carriers in emerging countries are ordering more aircraft, Airbus controls 60% of this market. The Max, which has 20% better fuel efficiency than a standard 737, is Boeing's trump card.

     But just as the Max was getting off the ground, turmoil in emerging economies raised the risk of a drop in orders. This is already affecting Boeing, which expects to deliver 740-745 commercial aircraft in 2016, down from 762 in 2015. The decline owes to a model changeover, the company said. But Philip Baggaley, an analyst at ratings agency Standard & Poor's, warned that deliveries to airlines with ties to Brazil or Russia could be delayed or canceled amid sinking commodities prices.

     Meanwhile, Airbus expects to deliver 650 jets this year, 15 more than in 2015. It plans to boost monthly output of narrow-body jets from 42 to 60 in three years. The company also is increasing production of the A350 XWB, which entered service last year. Airbus anticipates demand for both in emerging markets.

     Boeing is lagging partly due to the strong dollar. The company has made all of its planes in the U.S. to avoid technology leaks. But the dollar's appreciation has made exports less profitable. Airbus, which splits production among countries such as Germany, France, Spain and China, benefits from a weak euro and yuan.

     Boeing's commercial aircraft division will consider layoffs, starting with executives and management, Boeing Commercial Airplanes President Raymond Conner told a senior leadership meeting Feb. 10. The division is trying to cut fixed costs to weather the battle with Airbus, a source said.

     Involuntary layoffs may be needed, according to another source. This could be Boeing's first significant job cuts since 2009, when it reduced payrolls by 10,000 in the wake of the global financial crisis.

A surprise boost

Yet low crude oil prices are proving an unexpected boon to the two leaders. Airlines typically upgrade to new aircraft to improve fuel efficiency and hang on to their existing fleets when oil is cheap. But they expect the current oil slump to last for some time, spurring demand for lower-priced older models.

     Airbus will boost monthly output of the midsize A330 from six to seven in 2017. The company had planned to scale back production, encouraging customers to opt for the fuel-efficient A330neo or the new A350 XWB instead. The change of heart owed to unexpected demand from carriers.

     The A330, whose maiden flight was in 1992, is outdated. But switching to the more advanced A350 would require airlines to spend money on training crews and adapting to new systems. Similarly, Boeing's 737 is inefficient but cheap. United Airlines announced plans in January to order 40 737-700s.

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