Qatar Airways Ltd. said it jointly negotiated a deal for as many as 250 of Boeing Co. (BA)’s new 777 planes with Dubai-based Emirates, putting old rivalries aside to wring maximum value from the Persian Gulf’s growing dominance of the wide-body jet market.
The novel approach, which saw the pair share a stage for their order announcement at the Dubai Air Show, delivered extra economies of scale, Qatar Chief Executive Officer Akbar Al Baker said yesterday, 24 hours after the contracts were placed.
“We’re buying airplanes, we’re not going to the supermarket, so we’re not going to do this every time,” Al Baker said. “But when we do a similar program in the future then yes, I hope that we will be able to do it together.”
The two biggest Gulf carriers went on a buying spree on the Dubai expo’s first day, with Emirates placing an order for 150 of Boeing’s re-winged 777s worth $76 billion at list prices, plus an option for 50 more, and Qatar Airways purchasing 50 of the aircraft for $19 billion. The joint appearance at the signing ceremony accentuated the airlines’ status as the dominant force in global aviation, with unmatched buying power.
Some 86 percent of the new 777 backlog is with Gulf airlines, while Emirates accounts for almost half of bookings for Airbus SAS’s A380 super-jumbo, tipping the balance of global aviation toward the Mideast at the expense of other carriers. Minutes after Boeing exited the stage, Emirates announced another record deal with Airbus, for 50 A380 super-jumbos.
Working Together
Al Baker, whose airline is the second-largest among the three major carriers, wouldn’t say which of the two made the overture toward cooperation, while adding that the approach is good for employment and for the aviation industry and “shows the world that we’re competitors, but we also work together.” Emirates representatives weren’t available to comment on the cooperation with Qatar.
The joint approach let Qatar Airways and Emirates exchange information on technical aspects and performance of the aircraft, and take their findings back to Chicago-based Boeing, Al Baker said. The two carriers are known to be particularly demanding customers, with Emirates running its wide-body aircraft in high-frequency operations, while Qatar has put particular focus on the luxurious outfit of its cabins.
“It has been a very successful negotiation for both of us,” Al Baker said. “We always had leverage on aircraft manufacturers, we place such large orders and so often.”
Winning Traffic
Qatar Airways is building Doha into one of three major hubs for aviation in the Gulf, alongside the Emirates base in Dubai and Etihad Airways PJSC’s home airport of Abu Dhabi, stripping away traffic from traditional inter-continental crossroads such as Paris, Frankfurt and Amsterdam.
That has intensified competition between the three carriers, making cooperation seem unlikely. Qatar Airways has also become the first Gulf heavyweight to join a global alliance, signing up to the British Airways-led Oneworld partnership, and might have been expected to favor joint purchasing within that group.
Still, aircraft orders are not always spurred by a desire to heighten competition, according to Al Baker.
“We don’t order so often because we want to keep on growing, but because we want to keep our fleet young,” he said. Emirates said before placing the 777 order that the new planes were required chiefly to replace older variants.
Performance Guaranteed
Deutsche Lufthansa AG (LHA), which had been talking with Boeing about development of the 777 for two years, sought to offset the clout of the Gulf carriers by getting in with an order first, according to Nico Buchholz, its fleet planning chief.
Doing so locked in performance guarantees for the plane, he said. This ensured that its economics will work well for the Cologne, Germany-based company even if Boeing adapts other parameters to meet extreme operating demands of Gulf carriers flying long distances with full loads out of hot locations.
Etihad, the third-largest Middle Eastern airline, also bought 25 upgraded 777s, though wasn’t involved in the collective negotiations with Emirates and Qatar Airways.
“We would have been delighted to help them,” Al Baker said, while adding that Etihad hadn’t made any approach.
Etihad CEO James Hogan, who has assembled a global network of second-tier carriers through equity investments, said he would be prepared to share some of his purchases announced at the Dubai expo with partners. He’s already pooled resources with Air Berlin Plc, in which Etihad owns a 29 percent stake.
Boeing CEO Jim McNerney said in Dubai that the company had done what was necessary to ensure that some of its biggest customers could serve their desired markets, while acknowledging the impact Gulf carriers have had on the industry.
“From time to time people wonder whether the infrastructure built out here is sustainable,” McNerney said in an interview. “This region is for real.”
Source : bloomberg
