MIAMI – Airbus CEO, Tom Enders, will be taking direct control of the European aircraft manufacturer’s commercial sales organization, bypassing commercial aircraft president and former CEO of Airbus (from the days of the EADS consortium) Fabrice Bregier.
The global commercial sales team at Airbus has long been the providence of American John Leahy, who has served as the lead pitchman at Airbus for more than 20 years (23 to be exact). Leahy is preparing to retire by the end of the year and hand over his leadership of the sales organization to his designated internal successor Kiran Rao.
Rao, who was previously Airbus’ Executive Vice President (EVP) of Sales and Marketing, will now report directly to Enders, bypassing the normal chain of command (under which he would report to Bregier). The move comes as part of a broader shake-up at Airbus under the leadership of Enders, who wants to flatten the company’s management structure.
According to a report from Reuters, there is significant internal tension between Bregier and Enders, relating to the recent internal merger to simplify Airbus’ business units. Bregier and Enders had been perched atop Airbus’ commercial division and the overall EADS (later Airbus) consortium respectively since 2012, but in early 2017, an internal streamlining elevated Enders above Bregier. Per the Reuters report, this was initially seen as a peace deal, but the latest move by Enders may ratchet up tensions and rivalry once more.
Airbus must deal with a resurgent Boeing amidst execution weakness
The timing of this executive shakeup and potential uncertainty is inopportune for Airbus, which faces the prospect of a resurgence from American rival Boeing. In the narrowbody space, Airbus’ dominance at the upper end of the segment took a big hit at the recently concluded Paris Air Show (PAS), where Boeing launched the stretched 737 MAX 10 as the largest member of its re-engined 737 MAX family and edged closer to launching a new aircraft for the so-called middle of the market (MoM) segment.
The 737 MAX 10 ended PAS with 361 orders and commitments, and if every remaining 737 MAX 9 order (including expected allocations of unspecified orders) is converted to the MAX 10, then Boeing will enjoy an order and commitment book of more than 700 aircraft.
This still lags behind the 1,400 plus for Airbus’ A321neo, but in one fell swoop Boeing recaptured more than ten percentage points worth of market share in the large narrowbody segment.
Moreover, our view is that on economics the MAX 10 and A321neo are functionally even (the A321neo is more capable regarding payload-range performance). This should position Boeing to enjoy close to 50% market share moving forward, eliminating the biggest edge that Airbus had over its Chicago-based rival
In the widebody segment, Airbus’ sales for the year to date have been incredibly anemic, with just 40 net firm widebody orders through the end of June (43 A350, -1 A330ceo/neo, -2 A380) as compared to 115 for Boeing (15 777 Classic, 20 777X, 64 787, 7 767, 1 747-8).
Boeing also won four additional 787 commitments in Paris while Airbus won 8 A330neos. All in all, Boeing is poised to beat Airbus in the annual orders battle for the first time since 2012 (the first full year of 737 MAX sales) and will likely do so in both the narrowbody and widebody segments.
Airbus also faces substantial challenges with its execution, through a combination of its own problems and those of suppliers. With the A320neo family, Airbus made a major bet on Pratt & Whitney and its geared turbofan (GTF) engine, building what was on paper far and away the best next-generation narrowbody platform (taking into account future performance).
But that potential has remained on paper as the A320neo with the GTF experienced substantial delivery delays before entry into service (EIS). Meanwhile, Boeing’s execution on the 737 MAX sparkled, and even a rumored issue with the CFM LEAP-1B’s fuel burn performance was quietly dealt with before that plane’s EIS earlier this year.
Amongst widebodies, Boeing is ahead of milestones on the 787-10 and 777X while Airbus struggles with supply chain issues on its A350 due in large part to seat manufacturer Zodiac.
There is real uncertainty about whether Airbus will hit its target of 80 A350 deliveries in 2017, and further slippage in ramping production rate will only exacerbate the A350’s acute availability problem (the only reason it is being outsold by the 787).
Boeing has been better at technical execution over the last 24-30 months than Airbus, and with the recent moves on the NMA and MAX 10, it’s strategy may be catching up.
Airbus will miss Leahy
It is not a stretch to say that Leahy was perhaps the greatest (or at least on the proverbial Mount Rushmore of) commercial aircraft salesman in history. Through a combination of pith, incredible technical acumen, and a preternatural ability for picking startup low-cost carriers that would develop into winning brands (AirAsia, JetBlue, and IndiGo amongst others), Leahy played a leading role in turning Airbus into the world’s number one commercial aircraft manufacturer (by backlog).
Rao may well end up living up to the standard set by Leahy, but only time will tell.
In the meantime, Boeing’s aggressive new marketing stance and resurgent technical execution loom large. Boeing’s lead pitchman Randy Tinseth now steps to the forefront. Boeing has quietly won a few battles (notably Singapore Airlines for the 777X, and Air Canada for the 737 MAX) head to head against Airbus customers for the previous generation of aircraft.
And we expect that Tinseth will look to press his advantage to close out 2017 as Airbus undergoes this complicated transition. Any sort of internal tension may only exacerbate the short-term outcome.