Re: Airbus on a roll

Date:         04 Dec 96 02:42:18 
From:         kls@ohare.Chicago.COM (Karl Swartz)
Organization: Chicago Software Works, Menlo Park, California
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>It is my understanding, perhaps incorrectly, that it is much more
>difficult for companies in France such as Aerospatiale to rapidly
>fluctuate the size of their workforces in response to product demand.

That's my understand as well.

My initial reaction to UA's A320 order a few years ago was that Airbus
once again was giving away planes to gain market share.  After some
reflection, though, I decided that it really seemed to be a good move
from a business standpoint, and not just in terms of getting UA to try
the A320.

At that time, several leasing companies were on the hook for large
A320 orders -- deals which soured after bankruptcies.  (Pan Am, then
Braniff.)  The airliner market was the pits, so the odds of leasing
all those planes out were small.  Forcing the leasing companies to
take the places they had committed to would merely risk killing some
of Airbus' biggest customers.

But Airbus couldn't afford to let them off the hook, either, since
they couldn't lay off all the workers rendered redundant given a much
smaller order book and hence production rate.

The UA deal kept the production going without bankrupting the leasing
companies, a sound business proposition even at prices that barely
covered costs -- but with three year, walkaway leases for half of the
planes, there's no way they could even cover costs if UA walked away
from the planes.

In fact, UA could walk away from the planes at right about the time
when everyone was expecting the market to be in a major upturn.  If
UA kept the planes, great.  If not, Airbus and its leasing partners
had a nice supply of nearly new A320s ready to meet the demand, at a
time when Boeing (they no doubt hoped) would be struggling to get its
production rates back up.

Despite the "yet another Airbus giveaway" appearance, it seems to me
like an excellent and financially sound deal for all parties.

> So weighed against all these far-reaching financial and political
> issues, perhaps the low selling price of the USAir planes is actually
> the best possible scenario for the governments and consortium
> members involved.

During a dry spell in the market, as at the time of the UA order, that
logic makes some sense.  But the USAir deal comes right in the midst
of a tremendous boom, when sellers don't need to work very hard to
generate all the orders they can handle.

--
Karl Swartz	|Home	kls@chicago.com
		|Work	kls@netapp.com
		|WWW	http://www.chicago.com/~kls/
Moderator of sci.aeronautics.airliners -- Unix/network work pays the bills