Airbus's biggest plane and its biggest gamble, the A380 wons rave reviews from customers and airlines. Its biggest support has come from Emirates Airline, which has 15 in operation and another 75 on order. Chris Ratcliffe / Bloomberg News
Airbus's biggest plane and its biggest gamble, the A380 wons rave reviews from customers and airlines. Its biggest support has come from Emirates Airline, which has 15 in operation and another 75 on oShow more

High stakes up in the skies



In the race between Airbus and Boeing for global dominance of the skies, the European giant has made the first move against its arch rival.

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Last Updated: May 11, 2011

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The big two will try to outsell each other and grab the lion's share of a US$1 trillion (Dh3.67tn) market for new aircraft.

An estimated 12,000 single-aisle jets, such as the Airbus A320Neo and the Boeing 737, will be bought by airlines worldwide by 2030, so the stakes are high.

Airbus has made an impressive start with a new version of an old favourite. Launched in December, the A320Neo short-haul jet has become the newest plane on the block.

The aircraft offers airlines new engines to produce a more fuel-efficient jet with its Pratt & Whitney geared turbofan or CFM International's Leap-X.

In response, major global airlines have handed Airbus more than 330 orders. Officials say they are on track to break the 500 mark in the first six months of sales, culminating in the Paris Air Show, where it traditionally showcases its latest deals.

One could be from a Middle East airline, with Qatar Airways announcing last week it is considering a Neo order at the show.

"The Neo is living up to expectations, and the expectations are pretty high," says Alan Pardoe, the head of marketing communications at Airbus. "By any reasonable measure selling 500 [aeroplanes] in the first six months is a success."

In the past week, ILFC, a major US aircraft leasing company, reported it would spend $9 billion on 100 Neo jets. Analysts say this will pile on the pressure for Boeing's 737, which last had a major upgrade in 1996.

Boeing is considering either following Airbus and putting a new engine on its 737s around 2015, or coming out with a new design to offer even more fuel savings and lower operating and maintenance costs in 2020.

"Common sense says this will put further pressure on Boeing to fast-forward their 737 update," says Howard Wheeldon, a senior strategist at BGC Partners in London.

To illustrate Boeing's dilemma, long-time 737 customer Southwest Airlines said recently 2020 was "too long to wait" for a replacement.

Against this backdrop, the Neo orders have helped Airbus in its annual slugfest with Boeing for all aircraft types, from the single-aisle jet up to the extra-large airliners such as the Boeing 747-8 jumbo and the Airbus A380 superjumbo.

Airbus sold 169 jets between January 1 and the end of last month, pushing it past Boeing's 153 gross orders.

But Boeing, the US giant, has hinted the Paris Air Show next month is when it will end months of fence-sitting and give major indications about its strategy to airlines and investors.

"If we bring a new [aeroplane] into the market, whether we re-engine or build a new [one], we have to get it right," says Randy Tinseth, the vice president of marketing at Boeing Commercial Airplanes. "So we are going to take our time to get it right."

At issue for Boeing is a choice between making more improvements to the 737, which first took to the skies in 1967, or embracing radical change, as it did when it created the 787 Dreamliner.

For both aircraft makers, the risks are huge. Airbus spent an estimated $25bn building the A380, even though the market for extra-large jets is just 5 per cent of overall sales.

As a result, the programme's profitability is uncertain. And analysts say Boeing may need to sell 1,500 Dreamliners before it can make a profit after three years of repeated production delays and heavy discounting in its opening sales drive.

With the Neo, Airbus has taken a more pragmatic approach, Mr Pardoe says, especially in light of the huge drain on resources the European company is devoting to its other aircraft programmes.

"We took a very long, hard look at resources, including our skilled engineers, and factory space," he says, noting the design work to add a new engine to the A320 family of jets will cost $1.44bn.

Mr Pardoe says the manufacturer expects to win about 6,000 of the 12,000 single-aisle jet orders during the next two decades.

But both Boeing and Airbus will be on the lookout for new entrants.

Canada's Bombardier is entering the narrow-body passenger market with its C-Series, offering new engines as well as lightweight yet durable carbon composite materials.

To date, the C-Series is yet to sign up a launch customer, although it has been in negotiations with Qatar Airways for nearly two years.

"The Neo has sold very much as we anticipated and it has handsomely outsold the S-Series, which has been in the market for the past three to four years," Mr Pardoe says.

* with Reuters

Company Profile

Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8

Company Profile

Company name: Cargoz
Date started: January 2022
Founders: Premlal Pullisserry and Lijo Antony
Based: Dubai
Number of staff: 30
Investment stage: Seed

The bio

Academics: Phd in strategic management in University of Wales

Number one caps: His best-seller caps are in shades of grey, blue, black and yellow

Reading: Is immersed in books on colours to understand more about the usage of different shades

Sport: Started playing polo two years ago. Helps him relax, plus he enjoys the speed and focus

Cars: Loves exotic cars and currently drives a Bentley Bentayga

Holiday: Favourite travel destinations are London and St Tropez

Founders: Abdulmajeed Alsukhan, Turki Bin Zarah and Abdulmohsen Albabtain.

Based: Riyadh

Offices: UAE, Vietnam and Germany

Founded: September, 2020

Number of employees: 70

Sector: FinTech, online payment solutions

Funding to date: $116m in two funding rounds  

Investors: Checkout.com, Impact46, Vision Ventures, Wealth Well, Seedra, Khwarizmi, Hala Ventures, Nama Ventures and family offices

How Tesla’s price correction has hit fund managers

Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.

It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.

The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.

Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.

Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.

He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.

AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”

A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.

Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.

Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.

Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.

By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.

Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.

In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”

Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.

She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.

Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.

ROUTE TO TITLE

Round 1: Beat Leolia Jeanjean 6-1, 6-2
Round 2: Beat Naomi Osaka 7-6, 1-6, 7-5
Round 3: Beat Marie Bouzkova 6-4, 6-2
Round 4: Beat Anastasia Potapova 6-0, 6-0
Quarter-final: Beat Marketa Vondrousova 6-0, 6-2
Semi-final: Beat Coco Gauff 6-2, 6-4
Final: Beat Jasmine Paolini 6-2, 6-2

COMPANY PROFILE

Company name: Nomad Homes
Started: 2020
Founders: Helen Chen, Damien Drap, and Dan Piehler
Based: UAE and Europe
Industry: PropTech
Funds raised so far: $44m
Investors: Acrew Capital, 01 Advisors, HighSage Ventures, Abstract Ventures, Partech, Precursor Ventures, Potluck Ventures, Knollwood and several undisclosed hedge funds


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