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As the world is looking at how to battle the omicron variant and keep the impact on air travel minimal, Qatar Airways and Airbus have been battling each other in court. The disagreement between the Qatari airline and the European jet maker centers on the Airbus A350, but in a new turn of events Airbus has made the order for the Airbus A321neo part of the dispute and that could open up opportunities for Boeing.
Airbus A350 in Qatar Airways livery
This report is not a detailed report on the potential issues on the Airbus A350, but it's still meaningful to provide a little bit of background to the current dispute between Airbus and its high-profile customer. In large, the dispute centers on issues with blistering paint on the Airbus A350, but whereas Qatar Airways believes the issues go deeper, Airbus believes that Qatar Airways is mischaracterizing the issues as a safety issue. The Qatari aviation regulator has ordered the grounding of 21 Airbus A350 aircraft, which would suggest there indeed is a safety issue. However, Airbus backed by EASA seems to be questioning the reasoning behind the grounding as EASA found there was no impact on the airworthiness of the airplane. In other words, the issues are more cosmetic than they might have an impact on safety and that might significantly weaken the $618 million that Qatar Airways is looking for in compensation plus $4 million per day as long as the issues with the paint are not resolved and as long as the issues are not resolved the Qatari airline wants the court to order Airbus to not deliver any more Airbus A350 aircraft that the airline has on order.
The clash in court between the airline and the original equipment manufacturer is rare. However, it needs to be pointed out that Qatar Airways often gives Boeing and Airbus a run for their money and it's not always clear whether refusing to take delivery of aircraft is driven by actual issues with the aircraft or whether potential small issues are being inflated in an attempt to defer deliveries. In 2020, Qatar Airways threatened to stop doing business with Airbus and/or Boeing if the companies would not implement a revised delivery schedule as the pandemic sent demand for air travel steeply lower.
Boeing 777X in Qatar Airways livery
The big question, however, is whether there are chances for Boeing now. The TAF Airbus Backlog Monitor does show that Qatar Airways has 23 Airbus A350-1000 aircraft on order. Currently, I'm not expecting that even if either of the parties walks away from this order, it will result in additional orders for Boeing. That's because the recovery of international air traffic is expected to be slow and Qatar Airways currently already has orders for 60 Boeing 777X aircraft and 23 Boeing 787s with Boeing. So, currently, I do see extremely little reason to assume that there are chances for Boeing to book additional orders for passenger wide body jets. However, it's plausible that if the issue is not resolved in a satisfactory way that Qatar Airways will deprioritize the role of Airbus aircraft in its fleet.
Airbus A321neo in Qatar Airways livery
Qatar Airways is known for openly expressing displeasure with original equipment manufacturers, but I have never seen parties end up in court because of it and it now seems that Airbus is actually going a step further. The European jet maker has unilaterally cancelled an order for 50 Airbus A321neo jets and AirInsight reported that Airbus has also cancelled an order for one Airbus A350. It's not exactly known which contractual clause allows Airbus to cancel the order for the Airbus A321neo, but it might be related to Qatar Airways refusing to take delivery of the jet which could allow Airbus to cancel other contracts as it believes that the airline defaulted on its contractual obligations. That Airbus cancels the order for the Airbus A321neo is a bold move as the order represents $2.9 billion in base market value of the 50 jets. The first deliveries were scheduled to occur in 2023 and with that in mind, while surprising, it does make sense that Airbus has cancelled the order.
The order for 50 Airbus A321neo aircraft started out as an order for 50 Airbus A320neo aircraft years ago and the conversion likely occurred at attractive terms for the airline. Currently, Airbus does not have a lot of near-term production slots to sell. The recent order from KLM and Transavia for 100 Airbus A320neo family aircraft will start being filled in 2023. It's likely that Airbus wants to send an extremely strong signal to Qatar Airways, but also knows that the slots it has now cancelled are high in demand and Airbus can sell those at better prices than it had previously sold it for to Qatar Airways.
Boeing 737 MAX in Qatar Airways livery
The big question now is whether the dispute between Airbus and Qatar Airways opens opportunities for Boeing to sell the Boeing 737 MAX to Qatar Airways. In 2016, Qatar Airways announced an order for 30 Boeing 787-9s, 10 Boeing 777-300ERs and signed a letter of intent for up to 60 Boeing 737 MAX jets. At the time there were already questions on whether Qatar Airways would truly intend to operate the MAX aircraft it ordered as it had an Airbus single-aisle fleet and months later Al Baker, CEO of Qatar Airways, confirmed that Qatar Airways would not operate the Boeing 737 MAX aircraft and instead use those orders to rebuild the fleet of Air Italy in which it had a 49% stake.
A review of the order book data shows that Qatar Airways in total ended up ordering 20 Boeing 737 MAX that we can attribute with certainty to the airline. Of these 20 aircraft, five had been delivered to Air Italy. It’s not known whether the contracts for the remaining 15 aircraft have been cancelled, but there seems to be an opening for Boeing to pitch the MAX to Qatar Airways once again. Qatar Airways currently has a fleet of 29 Airbus A320ceo aircraft and three Airbus A321ceo aircraft. Earlier Qatar Airways intended to fully remove the current generation single-aisle aircraft from its fleet by 2024. If that still is the objective and absent of a purchase contract with Airbus, Boeing could be positioned well to book an order here. Qatar Airways could once again evaluate the Boeing 737 MAX 8, but this time for its own fleet, or consider the Boeing 737 MAX 10 as an alternative to the Airbus A321neo. With a fleet of 32 single-aisle aircraft and at possibly 15 aircraft that remain on order, there could be a possibility for Boeing to gain another 17 orders. Keeping in mind future growth requirements, this could grow to around 60 Boeing 737 MAX orders which also happens to be the number of aircraft that initially was covered in the letter of intent that Qatar Airways signed in 2016.
The dispute between Airbus and Qatar Airways is exceptional as it reached a point where both parties are facing each other in court and while Qatar Airways took Airbus to court over the surface adhesion issues, it's Airbus that escalated things by unilaterally revoking a purchase contract for 50 Airbus A321neo. It's likely that the European jet maker, which is in an oversold position for the Airbus A321neo, is convinced it will be able to sell these aircraft to other airlines at better prices.
For Boeing, there also are opportunities. Given the fallout between Airbus and Qatar Airways, it's possible that if a satisfactory solution is not found Qatar Airways will prioritize Boeing's wide body aircraft. Long-term fleet decisions should not be driven by short-term disagreements, but there's a chance that there will be a bigger role for the Boeing 777X and Boeing 787 in the future and Qatar Airways likely will be more inclined to order a next-generation freighter from Boeing instead of Airbus.
The cancellation of 50 orders for the Airbus A321neo that Airbus decided on might force Qatar Airways back to negotiations for those aircraft and obtain less steep discounts on the deal. Alternatively, Qatar Airways could look to lease Airbus A321neo aircraft though it's not known whether lessors can accommodate this. If Boeing is wise, it will try to use this opportunity to build on the letter of intent signed in 2016 and try to pitch the Boeing 737 MAX to Qatar Airways once again, preferably the MAX 10. This would mean that Boeing would get another Airbus customer on its side and provide further support to the jet maker’s intention to increase production rates on the Boeing 737 MAX program.
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This article was written by
His reports have been cited by CNBC, the Puget Sound Business Journal, the Wichita Business Journal and National Public Radio. His expertise is also leveraged in Luchtvaartnieuws Magazine, the biggest aviation magazine in the Benelux.
Disclosure: I/we have a beneficial long position in the shares of BA, EADSF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.