It's been three months since the Boeing (NYSE:BA) 737 MAX was grounded. During that time, Boeing has made progress in developing a fix for its most important model, but there's still no clear timetable for when the aerospace giant will get the 737 MAX back in the air. Even when it does, it could take months or years to convince air travelers that the plane is safe, posing risks for airlines that operate the troubled jet.
That will give Airbus (NASDAQOTH:EADSY) a huge advantage at next week's Paris Air Show, the most important sales event of the year for aircraft manufacturers. That said, there's no guarantee that Airbus will be able to cash in on its rival's current woes.
Boeing faces two big headwinds
The 737 MAX grounding represents the biggest obstacle to Boeing having a big Paris Air Show order haul. While most industry insiders believe the Boeing 737 MAX will be perfectly safe following the pending software, cockpit, and pilot-training changes, it will take a while to convince everyday travelers. Thus, even if airline executives aren't worried about the 737 MAX's safety, they may hesitate to place new orders right now for fear of a customer backlash.
One way around this conundrum would be for airlines to sign letters of intent for the Boeing 737 MAX as unidentified customers. This would give Boeing a modest PR win, while the airlines could wait a year or even longer to finalize and officially announce their 737 MAX orders.
The 737 MAX saga isn't the only thing standing in the way of a big order haul for Boeing next week. The growing trade tensions between the U.S. and China represent yet another hurdle.
Boeing has reportedly been negotiating the sale of 100 widebody jets to Chinese airlines. However, any deal would require the blessing of China's government, and aircraft orders are a key bargaining chip for China in trade negotiations with the U.S. As a result, the Chinese government is unlikely to approve any orders except in the context of a final trade deal.
Airbus may launch a longer-range A321neo
With Boeing still swimming against the tide, Airbus has a chance to make a splash at the Paris Air Show by launching the A321XLR: an ultra-long-range version of its A321neo jet. Airbus has already begun delivering a modified version of the A321neo with extra range, called the A321LR. But while the A321LR has enough range to fly between the Northeast U.S. and parts of Western Europe, an extra 500 to 1,000 miles of range would dramatically increase the number of feasible routes. The A321XLR would provide this additional range.
Several U.S. airlines have expressed interest in the A321XLR concept, including American Airlines, JetBlue Airways, and United Continental. A number of airlines in other regions are interested as well, including International Airlines Group (the parent of British Airways, Aer Lingus, and Iberia, among others), AirAsia, and IndiGo.
It seems clear that there is enough interest to justify proceeding with the A321XLR concept, and the Paris Air Show would be the perfect venue to officially launch this new model. Airbus could potentially book hundreds of A321XLR orders within a few days.
That said, many airlines have expressed interest in converting existing orders for other models to A321XLR orders. Thus, if Airbus does officially launch A321XLR sales next week, one thing to watch will be how many orders are truly incremental.
Can Airbus capitalize on Boeing's woes?
Aside from (potentially) launching the A321XLR, Airbus's main objective at the Paris Air Show will be to capitalize on Boeing's current weakness. However, selling lots of aircraft next week could be trickier than it may seem at first glance.
Most notably, while plenty of airlines might theoretically prefer to switch orders to the A320neo family from the Boeing 737 MAX, Airbus already has a backlog of nearly 5,800 orders for its popular jet family. Based on currently planned production rates, it would take eight years to fill all of those orders. Supply bottlenecks will limit Airbus' ability to expand production in the years ahead. Thus, the low availability of near-term delivery slots could constrain A320neo-family sales.
Airbus has better availability for its smaller A220 jet family. While the A220 doesn't compete directly with the most popular Boeing 737 MAX models, Airbus may still be able to capture some orders from airlines looking to add a smaller jet to serve routes that are less busy.
Another area where Airbus might have more luck is in selling widebody jets to China. With Boeing orders on hold indefinitely in the Middle Kingdom, airlines that are eager to grow will have to look to Airbus for now.
Of course, while conditions clearly favor Airbus right now, there's always the possibility of an unexpected outcome. Check back next week for highlights of Paris Air Show order activity.