17 October 2013

Reasons of the JAL order. 787 delays, problems on the EIS and reliability issues. And 777X not-yet-launched.

Order by JAL for 31 A350 aircraft represents a fissure in the interlocking arrangement that previously brought the Japanese government, major airlines and the Japanese heavy-industrial companies all together in supporting Boeing.

While JAL will likely stick with Boeing 787s for its midsize twin-aisle fleet, its needs for bigger aircraft that have 300-plus seats may now be covered by Airbus.

The JAL defection follows a big win for Boeing last month when German flag carrier Lufthansa, the only major global carrier that had never ordered 777 passenger planes, committed to buy 34 Boeing 777-9Xs.

However, in that case, it was a split order. Lufthansa also ordered 25 Airbus A350-900s at the same time. In JAL’s case, it was winner take all.

Aboulafia said he still strongly believes Boeing’s offerings in the large widebody category — the 787 and 777X families — are clearly superior to Airbus’ single family of A350s .

He sees the JAL order as a terrible missed opportunity, caused by Boeing leadership’s stop-and-go approach to launching the 777X, which has been talked about for a couple of years and is now expected to formally launch next month.

“787 and 777X should have won Boeing unquestioned dominance of all the key customers,” Aboulafia said. “The problem is the management of Boeing. They have been incredibly passive about getting this program launched.”

Airbus previously won two key A350 orders from Cathay Pacific and IAG, parent company of British Airways and Iberia. Both were significant losses for Boeing.

“How many times do you hit the snooze button on the alarm?” Aboulafia said of Boeing’s management.

Shortly after the 787s were grounded due to problems with overheating batteries, the airline’s reliance on Boeing as a sole supplier was decried as “abnormal” by its former chairman, Kazuo Inamori.

Inamori is a revered business leader who had founded Japanese electronics company Kyocera and was brought in by the Japanese government to rescue JAL from bankruptcy, which he accomplished 18 months ago.

“In a normal market there is tremendous risk from relying on one vendor,” Inamori said in a February interview with CNBC. He added that to encourage competitive pricing and quality, “a dual vendor system is a must.”

Inamori, who transformed the airline’s thinking about costs and turned it around financially in just 3 years, retired at the age of 81 in March.

The airline’s first-ever Airbus order appears to be part of his legacy.

Another part of the reason for the defection may be JAL’s frustration with the 787 Dreamliner’s in-service problems.

JAL operated the Dreamliner that caught fire on the ground in Boston in early January, prompting the worldwide grounding of the fleet.

The airline resumed 787 flights in June, but since then has cataloged multiple reliability issues.
Boeing acknowledged it had paid a penalty for the mechanically troubled debut of its 787 Dreamliner. Delays to the 787 and its subsequent grounding after batteries overheated have, however, tarnished Boeing's image and cast doubt on its ability to deliver aircraft on time, industry experts said.

JAL maintains a tally of technical incidents with the 787. Since June, five JAL Dreamliners turned back while in the air, nine were forced to return to the gate before takeoff due to technical issues, and in two cases other aircraft had to be substituted at the last minute.
Technical problems on six other Dreamliners resulted in delays of more than two hours.

Analyst Hamilton said that litany of reliability issues may have weighed more heavily against Boeing in JAL’s boardroom than the grounding due to the batteries.

It’s possible that JAL executives decided, having suffered through these early Dreamliner glitches, that next time it didn’t want to be a launch customer for a new jet.

In February, Inamori said JAL should have been more wary of all the new technology on the jet.

“We should have been much, much more careful,” Inamori told CNBC. “It is unacceptable to jump at every new technological breakthrough.”

The A350-900 is due to enter service in 2015, and JAL won’t get its first one until 2019, providing time to iron out any wrinkles in the systems.

The 777X is due to enter service as a new airplane in 2019 or 2020.

Based on the article “Boeing’s lost JAL order to Airbus to have ripple effect” published in The Seattle Times.

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