easyJet buys Airbus planes and slanders SW model

Aug 20, 2002
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Ayup, easyJet and Airbus know better than LUV and Boeing.
Anyone care to place a bet?
Airbus trumps Boeing on easyJet order
Dateline: Tuesday October 15, 2002
In what had been the most closely watched sales campaign since Ryanair''s mega-Boeing order earlier this year, easyJet announced yesterday that it has chosen Airbus as the preferred supplier for its fleet needs.
Under an agreement in principle that is subject to contract, easyJet ordered 120 A319s with options with price protection on a further 120. Engine selection was not announced. The options include a possible swap to A320s and A321s at fixed prices.
The A319s will be configured with 150 seats. Delivery of the first five will occur in the second half of 2003. They will be introduced initially via easyJet''s Geneva base from Aug. operating under the airline''s Swiss air operator''s license.
Boeing had been viewed as having the upper hand in the sales competition owing to the fact that easyJet and its newly acquired former rival Go both operate 737s with a combined fleet of 64, including 15 737-700s.
EasyJet declined to give any financial details of the transaction, but CEO Ray Webster said the airline “achieved a tremendous deal which will produce a step-change reduction in our cost base. We believe that the overall deal which they [Airbus] have offered us, together with their willingness to support the costs of introducing a new aircraft type to our fleet, far outweigh the costs of the complexity of running a dual fleet.â€￾
Chairman Stelios Haji-Ioannou, who will step down next month, said, “As easyJet''s largest single shareholder, I was faced with the dilemma of either following the conventional wisdom in the marketplace in order to keep shareholders happy in the short term or doing what''s right for all shareholders in the long run.
Among significant financial benefits expected by easyJet in the final contract are an estimated 10% improvement per aircraft over the existing 737 operating cost base measured per ASK, an Airbus-backed maintenance program with costs not higher than Boeing''s, assistance to reduce residual-value risk on easyJet''s remaining 10 owned 737-300s, and extensive support from Airbus so that the introduction of the A319 is no more expensive than the 737-700 in the first two years.
Haji-Ioannou said, “At the end of the day, ''low-cost'' companies remain ''low cost'' by not wasting money. Sticking to old-fashioned fads like ''low-cost airlines only fly Boeing'' does not reduce costs.â€￾ He also cited the great success JetBlue has experienced with the Airbus product in the US.
EasyJet said that “any final agreement will be subject to shareholder approval, adding that it has “granted Airbus exclusivity for 45 days to agree documentation.
 

AAG2000

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Aug 20, 2002
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I don't think the key issue here is easyJet's decision to go with Airbus. Rather, it is the decision to change horses in midstream and operate a mixed fleet. While we have all heard various arguments here and elsewhere about the long-term reliability of the A320 series, I still believe that it is theoretically possible to run a successful discount carrier with a uniform fleet of Airbuses--or any other reasonably efficient type of aircraft. However, adding A319's to a substantial fleet of 737's is an entirely different story (I distinguish this case from Frontier, which has a smaller fleet and plans to replace its Boeings entirely). Perhaps easyJet will prove me wrong, but for now I have serious doubts about their ability to control costs and maintain quality service while (a) introducing a new fleet type, and (B) simultaneously attempting to absorb Go and possibly the former Deutsche BA. What a mess! It will be interesting to see what happens.
 

yeogeo

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Aug 20, 2002
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AAG2000- a minor point Re: “maintaining quality serviceâ€.
My impression of Easyjet is not one of much in the way of service aside from getting the passenger to his destination inexpensively.
I agree with you about the risks involved in assimilation of the two new airline components, however.
But about introducing a new fleet type... IMO the most remarkable part of this deal was Airbus agreeing to “extensive support†for the dual fleet. Sounds expensive! As for what this means, exactly, I haven’t heard. (This support is apart from the buyback of some older 737’s & their likely reselling at a loss.)


Then there’s this quote from an analyst in the NY Times 10/14,
http://www.nytimes.com/2002/10/15/business/15JETS.html
“Airbus might be selling planes at a huge discount just to keep workers employed, to meet the political demands of the European governments that own shares in the European Aeronautic Defense and Space Company, which in turn owns 80 percent of Airbus. BAE Systems of Britain, Europe's largest military manufacturer, owns the other 20 percent.â€
Kinda gets to the meat of the matter, doesn't it?
yeo
 

AAG2000

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Aug 20, 2002
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When I said maintaining quality service, I meant safely operating a full schedule with reasonable on-time performance...not serving hot meals and fine wines. However, even though they are absolutely no-frills airlines, easyJet and Go have (or had) a somewhat better reputation among European travelers than Ryanair, which is known as a real cattlecar. This distinction is important in that easyJet, which serves major airports, caters to an increasing number of budget-conscious business travelers in addition to tourists. Ryanair, which flies mainly to secondary airports, carries mostly leisure travelers.

The reason I mentioned the issue in the first place is that, as you may know, easyJet was recently forced to reduce its schedule after its pilots complained that they were being overworked. That's the sort of thing I'm worried about--between the merger(s) and the new aircraft, I hope they haven't bitten off more than they can chew.

As for Airbus selling at a loss, you're absolutely right. I actually applaud Boeing for drawing the line somewhere. It is the duty of a corporation's managers and directors to maintain shareholder value. While selling more planes generally accomplishes this, there is a point beyond which fighting senseless battles for market share does not. I'd rather see Boeing selling fewer planes with a larger profit margin. There is no denying that this was a big victory for Airbus, but time will tell whether it was worth it.