SINGF - Boeing: A Qatar Airways Loss?

2023-03-08 17:55:06 ET

Summary

• Airbus and Qatar Airways have settled their dispute regarding the paint issue on the  Airbus A350.
• Although suggested otherwise by a small group, no adverse impact is expected for Boeing.
• Qatar Airways remains a customer for the Boeing 737 MAX with the first deliveries expected soon.

Airbus ( EADSF ) and Qatar Airways have been engaged in high profile court battle regarding surface issues on the Airbus A350. Qatar Airways characterized the issues as a safety issue while Airbus and EASA analysis found that the issue is purely cosmetic. As a result, both parties clashed in court and Airbus ended up canceling the complete Airbus A350 order from Qatar Airways and as well as the Airbus A321neo aircraft that the Middle Eastern airline had on order. In a report published in August, I laid out that Boeing could benefit from the dispute between Airbus and Qatar Airways and at the same time pointed out that if the two parties reset their relationships. This happened in February this year and was somewhat expected. I have received some messages that this is a blow to Boeing ( BA ) and I would not quite agree with that assessment as I explain in this report.

The Implications Of The Airbus Qatar Airways Dispute

Initially the implications of the dispute were big. Airbus was infuriated with Qatar Airways and cancelled a total of 23 Airbus A350-1000 airplanes on order and that hurt the plane maker as the Airbus A350-1000 is not a fast seller and Qatar Airways is one of the biggest customers for the Airbus A350. The European jet maker also ended canceling 50 Airbus A321neo aircraft that it could sell at better prices to other customers. However, I also pointed at a possible reset of the relation:

It's not the case that Qatar Airways can no longer get Airbus aircraft. If Airbus and Qatar Airways reset their relationship, orders could be placed at new terms, and indirectly there are possibilities to lease Airbus aircraft, although there likely is a queue, as is the case for Boeing deliveries.

That's indeed what happened. With both jet makers facing delays, Qatar Airways also must have known that over the long term no longer doing business with Airbus would hurts its position at the negotiation table in Seattle when ordering Boeing airplanes. Furthermore, the continued delays at both manufacturers also shows the importance of hedging airplane orders.

Airbus News: Qatar Airways Reinstates Airplane Order

In the end, what we see in the evoX airplane orders monitor is that nearly little over a year after the dispute arose, Airbus and Qatar Airways have settled with no loss of orders for Airbus. It's plausible that as part of the reinstatement of the airplane order, Airbus and Qatar Airways have agreed on some sort of compensation package or said differently the airplane order is probably part of a compensation package.

Airbus Dealt The First Punch

Qatar Airways is a tough customer to please and I cannot blame them. If you pay $150 million for an airplane, you want it to look good in every aspect. One thing that, however, is often ignored is the fact that it was Airbus that threatened with legal action first. With the pandemic wrecking demand for air travel and subsequently commercial airplanes, Airbus simply threatened to sue airlines who would not adhere to their purchase contracts. I do understand that you want to deliver airplanes as agreed on per contract, but in those days Airbus showed extremely little understanding for its customers and Qatar Airways was negotiating aircraft deferrals at the time. The paint issue was not an isolated frustration, it was a frustration with the way Airbus dealt with its customers including one of the biggest operators of the Airbus A350.

I also do remember that John Leahy once touted its consistent growth in airplane deliveries as compared to competitor Boeing. That was before a delivery stop for the Boeing 737 MAX or the Boeing 787 and it failed to recognize one reality and that was that during times of financial downturns Boeing was accommodating deferral requests at a higher rate than Airbus. So, Airbus was touting its consistency and its market penetration while the reality was that they had little eye for their customers.

Boeing Had Limited Space To Win Airplane Orders

On the longer term, the dispute between Airbus and Boeing could result in additional sales for Boeing. The reality, however, was that in the near term the upside to airplane orders was somewhat limited. The reason for that was what sparked the dispute between Airbus and Qatar Airways is actually the desire to defer deliveries. So, Qatar Airways is not necessarily interested in ordering significantly more airplanes.

Besides that there could be interest in three aircraft programs, which are the Boeing 777X, Boeing 737 MAX and Boeing 787. Reality is that each of these programs is suffering from delays. The Boeing 737 MAX cannot be built fast enough while the Boeing 787 has been going through quality issues resulting in a delivery stop and the Boeing 777-9 passenger airplane is suffering years of delay. So, realistically the only chances did exist for the Boeing 737 MAX to replace the Airbus A321neo order but even then the Airbus A321neo product and the Boeing 737 MAX 10 product are not quite comparable. Furthermore, Qatar Airways had always shown interest in a freighter variant of the Boeing 777X. So, that's where the only two realistic opportunities manifested. The dispute helped Boeing securing the freighter order more easily as the Airbus A350F was out of the picture completely.

Qatar Airways ended up ordering up to 50 Boeing 777-8F airplanes, which include 34 firm orders plus 16 options. Out of the 34 firm orders, 20 orders came from conversations and 14 were new airplane orders. Qatar Airways is envisioning to become a significantly larger freight hub for years now and the Boeing 777-8F orders plus the two newly ordered Boeing 777Fs fit in that vision.

The airline also signed for 25 Boeing 737 MAX 10 airplanes plus options for another 25. The big question of course is whether Qatar Airways will walk away from its order for the Boeing 737 MAX now and I actually doubt that will be the case. If anything, the dispute with Airbus should have shown Qatar Airways that walking away from orders and putting your eggs in one basket is not beneficial. Qatar Airways ordered the Boeing 737 MAX years ago to feed its investment in Air Italy. That airline ceased operations and Qatar Airways walked away from the order only to end up in an dispute with Airbus which unilaterally cancelled an order unrelated to the dispute. It would be unwise for Qatar Airways to make the same mistake twice. Apart from that, the supply of airplanes is limited at this point and Airbus is sold out until 2028. Qatar Airways will receive its first jets at the earliest in 2026, three years later than anticipated.

The Boeing 737 MAX, however, is “only” sold out until 2026, giving Qatar Airways earlier availability of fuel efficient next generation airplanes and Qatar Airways has been able to secure some early slots as some airplanes initially destined for Russian airlines are now going to Qatar Airways. The introduction of the MAX 8 in the Qatar Airways fleet already is going to take place in the coming months. In order for a new sub fleet to be added to the fleet sensibly a significant number needs to be purchased so I don’t see why Qatar Airways would be willing to walk away from any of its Boeing airplane orders.

What should be kept in mind is that in the years prior to the pandemic, the delivery flow to Qatar Airways was pretty much balanced between Boeing and Airbus. The evoX Aircraft Sales Monitor shows that Airbus had a 52% share in the deliveries compared to 52% for Boeing. So, the aircraft purchasing practice that Qatar Airways has adopted is clear.

Who Owns The Most A350 Airplanes?

Currently Singapore Airlines ( SINGY ) operates most Airbus A350s with a total of 61 followed by Qatar Airways which owns 53 airplanes. Were it not for the dispute, chances are high Qatar Airways would have been the biggest operator of the Airbus A350.

Airbus vs. Boeing: Which Stock Performed Better?

Quite often we see that things are being put in an Airbus vs. Boeing context and that certain events are portrayed as being way bigger than they actually are. The stock performance of Airbus and Boeing since the dispute arose shows that you wouldn’t have lost with either jet maker and the Qatar Airways had no big negative impact on Airbus nor a big positive impact on Boeing stock prices. Boeing mostly underperformed due to the cost growth on defense programs.

Conclusion: No Boeing Blow, Airbus And Boeing Stock Remain A Buy

Although some are suggesting otherwise, I don’t see reason for Boeing to be losing orders now that the dispute between Airbus and Qatar Airways has been settled. In fact, if anything, the dispute shows the importance of diversifying orders between jet makers. Qatar Airways will be taking delivery of the first MAX airplane in the coming months, and with supply chain challenges for both airplane manufacturers it's important for a company such as Qatar Airways to have access to deliveries from both OEMs as has been its practice for years.

So, I don’t expect a negative effect for either jet maker and continue to believe that Boeing as well as Airbus shares remain a long-term buy.

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