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The share price of aerospace giant Boeing (NYSE:BA) had been steadily climbing to record altitudes when, almost without warning, yesterday the airline manufacturer hit turbulence over Japan, losing a contract with Japan Airlines for 31 of its 777 aircraft to Airbus (EU:EAD).
With its first ever order from Japan Airlines, Airbus has landed a deal estimated at £5.9 billion for its A350, leaving Boeing somewhat dismayed at the loss of $9.5 billion worth of anticipated business with one of its decidedly most loyal customers and one of the Boeing’s biggest users of the famous (or infamous) 787 Dreamliner,
JAL President, Yoshi Ueki, cited the decision based on a “high level of operational efficiency and product competitiveness.” Airbus CEO Fabrice Bregier smugly called the deal “a no-brainer . . . because we have the best product.” He expressed his personal exuberance over the sale saying that “achieving this breakthrough order and entering a traditional competitor market was one of my personal goals.” This is the single largest sale of A350s this year and Airbus’ largest ever sale to a Japanese airliner.
Congratulations to Airbus on a great deal. Meanwhile, let check in back in Seattle, where the skies are cloudy all day and a few discouraging words have been heard today. Boeing’s share price, at least on the NYSE intraday, so far, is losing altitude in a nosedive that has currently brought it to 115.96. down 0.6% from 116.60, but more markedly off from the high that it reached shortly after the U.S. markets opened this morning. Though the free fall this morning appears dismal, it remains to be seen what the share price will be at the end of the day. It has been above 115.00 since 13 September, and it is 45.00 (64%) above 08 October 2012.
Boeing has had a rough ride this past year with the temporary grounding of its Dreamliner fleet. One might even wonder how much that grounding played into JAL’s buying decision. Lest we forget, JAL has one of the world’s largest fleets of 787’s. It seems likely that there must have been at least some discussion about how many eggs JAL should put in one basket after having its 787s grounded for four months.
The broader concern for Boeing may be in regard to how much its reputation and credibility has been damaged across the broader spectrum of carriers. If Airbus has been able to break through on one strongly held front, it has a strategy for doing it on another front, and yet another. And Boeing knows it.
An analyst from the Teal Group, which specializes in the airline industry, disclosed his thinking that Boeing has been focused on cost cutting measures, particularly in the area of engineering, in an effort to boost its share price. He suggests that the company needs to understand that it is dealing with a management problem and not with what may appear to the general public as a product problem.
This isn’t the first storm that Boeing has had to weather, and it certainly won’t be the last. The company is, however, going to have to maintain cruising altitude by doing everything in its power to fly above the clouds of stormy competition.
