ERJ Embraer SA

By Robert Wall 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 7, 2018).

LONDON -- Airbus SE vowed to use what it sees as its first-mover advantage to push ahead of arch rival Boeing Co. in the market for smaller passenger jets.

Boeing unveiled Thursday a deal to take control of Brazilian aircraft maker Embraer SA's commercial aviation business. That follows Airbus's own agreement, which closed on Sunday, to take over Bombardier Inc's. CSeries jet program, which has pumped out a series of smaller airliners.

The deal making has extended the rivalry between No. 1 plane maker Boeing and No. 2 Airbus to the market for smaller passenger planes. That comes when Chinese and Russian rivals are developing their own versions that -- someday -- could compete for sales in the rest of the world.

On Friday, Chief Executive Tom Enders said assuming the Boeing-Embraer deal is eventually approved by the Brazilian government and other regulators, it would still take time before it would represent a threat to Airbus's CSeries ambitions.

"We made the first move, and we're up and running," Mr. Enders told reporters in London. Airbus is expected to announce orders for the CSeries, a single-aisle jet that can be configured to seat between 100 and 140 passengers, during this month's Farnborough Air Show, the industry's biggest trade event, held every other year at an airfield outside of London.

"We can throw, and we do throw, all our weight behind the CSeries," Mr. Enders said.

Boeing Chief Executive Dennis Muilenburg, meanwhile, said the Embraer partnership would "enhance and accelerate our growth plans."

Boeing and Airbus have for years fought it out building the world's largest jetliners. Now they are going down market: to the smaller planes they have long shunned. In the past, that market just didn't seem big enough to fight over.

Today, though, both plane makers are struggling to boost output of their bigger planes amid record passenger numbers and booming orders from airlines. To keep costs in check, executives see the expansion into smaller aircraft as one more lever to pressure suppliers.

Boeing on Friday said the joint venture with Embraer would create about $150 million in annual pretax cost savings by its third year. Airbus commercial plane boss Guillaume Faury said Friday the company was still assessing its own cost savings from the CSeries deal.

Bombardier launched the CSeries a decade ago. It was its biggest plane, and since first taking to the skies has garnered critical praise. But sales haven't taken off. Airbus bet that by putting its marketing muscle behind the jet, it could fix that.

As Airbus joins the fight for smaller planes, it has hit headwinds delivering all of the bigger planes it has promised. On Friday, executives said it was sticking to its delivery guidance -- promising 800 jets by the end of this year. So far, it has only delivered 303, thanks to supplier bottlenecks, especially from engine makers.

Mr. Enders said hitting the full-year plane delivery target, which investors watch closely because it is linked to cash flow, will be "hard, " but "doable."

As many as 100 planes were stuck on the tarmac awaiting engines at one point this year, said Mr. Faury, though that number has started to fall. Engine maker CFM International, a joint venture between General Electric Co. and Safran SA, is still slightly behind on delivering engines, he said. Rival Pratt & Whitney, a unit of United Technologies Corp., is now delivering as promised. CFM said it plans to be back on schedule this summer.

Mr. Enders warned of much bigger supplier woes ahead, if the U.K. didn't come up with a deal with the European Union on the trade terms of its withdrawal from the bloc. Airbus makes components in Britain, including the wing assemblies for many of its biggest jets, but most of its manufacturing is in continental Europe.

Airbus said it may be forced to ask suppliers to stock parts on both sides of the English Channel to provide a buffer to mitigate against supply-chain disruptions. The U.K. is scheduled to leave the EU in March, leaving suppliers less than nine months to build such stocks.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

July 07, 2018 02:47 ET (06:47 GMT)

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