by Industry Editor and Alan Tovey, The Telegraph, November 15, 2017
Airbus has landed its biggest-ever order with budget airline investor Indigo Partners signing a deal to buy 430 jets.
The agreement, for Airbus’s best-selling A320 family of small airliners, is worth a $49.5bn at list prices.
The deal was announced by Airbus at the Dubai airshow and takes some pressure off the company. It was expected to reveal a vital order for its slow-selling A380 "superjumbos" at the event.
Indigo Partners is a US-based private equity group that invests in airlines. The new jets will be divided among its Frontier Airlines, JetSMART, Volaris and Wizz Air carriers.
Landing such a massive deal is a coup for John Leahy, Airbus’s chief salesman who is due to retire in the next few months.
Industry veteran Mr Leahy called such a large order “remarkable”. The agreement - a memorandum of understanding (MoU) which is expected to be formalised over the next few months - puts pan-European Airbus ahead of US rival Boeing in the battle to sell the most aircraft at the Dubai event.
Although the order - for 273 A320neos and 157 A321neos - has a list value of almost $50bn, Indigo is unlikely to pay anywhere near as much. The A320neo is priced at $108m and the larger A321neo at $127m but manufacturers offer large discounts on jets. Such a massive order is likely to mean a bigger than normal price reduction.
As analysts digested the order - almost twice the size of the company's previous largest deal, a $26bn sale of 250 A320s to an Indian budget airline - Mr Leahy revealed another sales success. Dublin-based lease company CDB Aviation confirmed MoUs for 90 A320neos.
While the deals are a coup for Airbus, they highlight problems the company is facing as it ramps up production to meet demand for its smaller aircraft but struggles to find buyers for its largest jet, the double-decker A380.
The company, which builds the wings for its airliners in the UK, is racing to increase the rate it produces the A320 family of jets to 60 a month. However it is cutting production of the A380, with output set to fall to eight a year by 2019.
Airbus had been expected to use the Dubai show to reveal a long-awaited order from Emirates for more than 30 of the A380 jets. Confidence was so high that Airbus staff arrived at the Dubai-based carrier's press conference hoping to watch the deal that would throw a lifeline to the troubled superjumbo, only to see airline executives reveal they were instead buying 40 of rival Boeing's 787 aircraft.
As reporters gathered for the Indigo announcement, Mr Leahy quipped: “Just to clarify, this is not an A380 press conference."
The latest orders will pile on pressure to Airbus’s suppliers, with the company desperate to avoid any hold-ups that could knock production off track.
The aircraft ordered by Indigo are the “neo” version of the single-aisle jets which seat about 200 passengers and come with the latest fuel-efficient engines. These have proved troublesome to produce, causing delays.
Executives at Airbus have publicly called out suppliers for failing them in the past and dropped them from their production as a consequence of slowing down work.
The order takes Airbus’s backlog of work on the A320 family of jets to almost 6,000 - the equivalent of almost a decade's work. The company has delivered nearly 8,000 of the aircraft since they were introduced 30 years ago.
Some industry experts raised questions about the true nature of Airbus's "mega-order". One aviation analyst described the announcement as a “meaningless” stunt to divert attention from Airbus’s troubles.
“This is the worst sort of air show ‘puff’,” said the analyst, speaking on the condition on anonymity, and referring to the PR battle Airbus and Boeing regularly fight to claim they have sold the most aircraft at air shows.
“In essence Airbus has bundled up orders from four different airlines to give an impressive total. Separated out the market would be far more sceptical.
“Some of them are genuinely new but others are a repeat of existing orders and options from an investment group almost no one had heard from before today.”
The status of airlines slated to take the aircraft from the order also raises issues, the analyst added.
“If it is for an airline that is coming out of repeated bankruptcy, like Frontier, or a start-up, like JetSMART, you have to question whether these aircraft will ever be delivered.”
But independent airline analyst Alex Macheras said Indigo’s focus on low-cost carriers is successful, generating the requirement for more aircraft.
“Indigo’s airlines portfolio is mainly to fill gaps in aviation market by growing ultra-low cost carriers, and the strategy is a model that's working well in terms of passenger numbers and profit for each airline in the group.”
He described Indigo’s airlines as “big and loyal” Airbus customers already, meaning they would have been able to strike a good deal with Airbus.
Airbus said the 430 aircraft are not included in previous order figures, with a spokesman adding: "These are all new aircraft and none of them are included in existing orders. We hope to formalise the MoU by the end of the year."
Indigo Partners’ managing partner Bill Franke is seen as a pioneer of ultra-low cost airlines and an extremely savvy operator. He was pre-float investor in Ryanair and formerly was chief executive of America West, which was bought by US Airways in 2005, and a former chairman of Spirit.
John Strickland, of airline consultancy JLS, said: “Bill Franke and Indigo are very low key but incredibly powerful in the industry. “They have a real pedigree of making the right investments and the order is very credible and likely to be fulfilled.”
Mr Strickland also dismissed suggestions that the Indigo order was hastily constructed to allow Airbus to brand the Dubai show a triumph after the humiliation of the A380 order failing to materialise.
He said: "Bill Franke was there for the announcement along with a host of his airlines' chief executives. You won't have people of that calibre and business acumen on hand to come in and save the day."
During the course of the show, Boeing revealed orders and commitments for more than 200 aircraft totalling more than $45bn.
This article was written by Industry Editor and Alan Tovey from The Telegraph and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].