Why Boeing lost the latest Qantas order

The news yesterday that Qantas selected Airbus for the A321XLR and A220 should not be a surprise. The deal was Boeing's to lose and lose it they did. Let's explain how we see this. Qantas' requirements are the same as any other airline - they need tools that can handle multiple tasks. Replacing the 717 is easy because the options are excellent. The choices are the Embraer E2 and the Airbus A220. The performance of both aircraft makes them compelling choices for the "crossover" segment. When they compete one-on-one, the choice is tough in terms of tradeoffs. We have seen Embraer win important campaigns in Europe (KLM, Helvetic & Wideroe) where one would think Airbus had a "home turf" advantage. It is naive to dismiss Embraer's E2 as highly competitive. Looking at Qantas' middle-of-market requirements the competition isn't even a competition. The following chart explains why. Boeing's vacillation on replacing the 757-200 continues to cost them opportunities. At this writing, Airbus is 1,497 MoM single-aisle aircraft ahead in deliveries, and that lead is growing. The MAX 9 or MAX 10 have not proven to be attractive. But more importantly, the absence of a real 757-200 replacement has been obvious for some 20 years. How Boeing explains this logic to customers, lessors, and even Wall Street must be interesting to hear. The market has grown steadily and Airbus is now in a position where it lacks delivery slots - during a pandemic! Let's get back to Qantas. The deal was not unlike what happened at JetBlue. Where the customer is looking for crossover and MoM, Airbus will win every time. It has the equipment on offer. The wonderful financial tool called transfer pricing allows for flexibility to make the numbers sing. What could Boeing offer? The MAX and in terms of the MAX 7 vs the E2 or A220, there's no argument. The market has made that clear. Boeing would point to Southwest and reject our assessment. Our rejoinder is that Southwest's decision speaks more to fear of the new - their own internal analyses showed the A220 about 10% better than the MAX 7. There is another issue of course. Boeing's decision to drop the Embraer deal. Here we see the outcome of that decision - Boeing could not offer a family solution. Family here means one OEM offering an end-to-end solution. Really the loser here is Boeing. Embraer didn't lose the Qantas deal so much as Airbus is able to make an offer Qantas can't refuse. Just like at JetBlue. When the E2 is up against a combination deal, its chances of losing are much higher because of Boeing's myopia. Because Boeing lost, so did GE and CFM. Whereas Pratt & Whitney wins big. The Qantas deal highlights what shareholders and Wall Street should be asking Boeing about. And not accept the responses given to date. As the MoM segment continues to grow, and Boeing lags significantly, the duopoly is becoming more unstable. This is bad for Airbus, too. And really bad for airlines and lessors.

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