Clash of the Titans

Competition is heating up between the world's two biggest aircraft manufacturers, Airbus and Boeing, for a larger slice of the estimated USD 4 billion in orders from South Asian airlines as they prepare to modernise their ageing fleets in the coming year or so.

Executives from both companies believe South Asian flag carriers and ministries of civil aviation will soon come out of their stupor to meet the needs of an expanding regional economy and growing demand for airline seats. Boeing's projection is that the number of air passengers in South Asia will soar to 23.6 million by the year 2010 from 7.6 million in 1996. Airbus predicts an increase in passenger traffic in India alone of 7 percent a year over the next 20 years, considerably higher than annual passenger growth figures of 4.3 percent in "mature markets" like North America.

Predictably, both manufacturers say they have the right planes for the job of flying around or in and out of the Subcontinent. In the medium-range/medium-capacity market, Boeing is offering various versions of its best-selling twinjet, the 737, while Airbus is putting forth its popular A320 and A319 models.

McDonnel Douglas, which has had virtually no sales in South Asia since the days of the Dakota (other than the four Dc-10s with Biman) is also offering its quiet rear-twin MD-95s to Indian Airlines as replacement for its vintage 737-200s. McDonnell is said to be interested in a license manufacture in India, along the lines of its high profile agreement to build the jets in China.

In the long-range class, both PIA and Air India need to phase out the two-decade-old Boeing 747-200s and replace them with Boeing 747-400s. Boeing is also offering attractive buyout packages for the older 747s if the airlines order the new 777 twinjets. Smarting from its recent losses to Boeing in East Asia, Airbus is said to be trying to outbid Boeing with even more attractive terms of payments for its A340s for Air India. "We feel the A340 is the ideal aircraft for Air India, in which the airline can make profits even with a load factor of around 70 percent," said Jean Pierson, Managing Director of Airbus Industrie, in India recently. Boeing, for its part, set up an Indian office in Bombay in 1995 in acknowledgement of the growing importance of the South Asian market. Besides the flag carriers, it hopes to cash in on the mushroom growth of private airlines, once they gain enough market momentum to buy new planes. "As India's economy grows at 5.3 percent a year over the next 20 years, faster than the world average, this will result in more air travel and the need for a large number of new aircraft," says Dinesh A. Keskar, President of Boeing India, who predicts a market for planes valued at USD 20 billion in the next 20 years.

Boeing spokesman Brij Bhardwaj says his company has a firm footing in South Asia, pointing out that the new private airlines in India almost exclusively use Boeing 737s. Some analysts, however, maintain that this is because of aircraft size limitations imposed on private airlines by the Indian government, rather than any intrinsic advantage of the airplane over its competition, the A320.

Overall, in India, Boeing holds 69.7 percent of the market share, says Mr Bhardwaj. For his part, the Managing Director of Airbus Industrie says that his company is aiming at "50 percent of the market share" worldwide as well as in South Asia.

Boeing says Air Lanka's purchase of A340s was sweetened by a European Union grant to the Sri Lankan government. "Airbus did not receive any order for a single A340 in all of 1995," Bhardwaj claims.

Airbus has had a rough flight so far in South Asia. Indian Airlines' mammoth puchase of 30 A320s went sour with the crash of one of the flyby- wire jets in Bangalore in 1992. All A320s were grounded for an incredible two years when IA pilots refused to fly the plane, leading to massive losses for the airline.

Since then, Airbus has tried to be more India-friendly by ordering 600 sets of forward passenger doors from Hindustan Aeronautics Limited (HAL) for the A320 assembly line at Toulouse. HAL also contributes parts for the A320 nose undercarriage.

Airbus, for the moment, seems to have the edge in the medium-haul range in the subcontinent, with its Airbus 320s flying with Indian Airlines and Air Lanka, A310s with PIA and Air India, and A300s with PIA and IA. The battle now is for the replacement of first-generation 737s and 747s in South Asian fleets.

Knowing that it is partly inertia and wrangling over kickbacks that is keeping the South Asian airlines from upgrading fleets that they desperately need, the manufacturers are seeking to prepare the ground with massive promos. The sweetening will be there, of course.