Qatar, Airbus Make Up And Sign USD$6 Bln Deal

November 16, 2011

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Qatar Airways placed a USD$6.5 billion order for Airbus jets hours after walking away and telling the European giant to go back to basics in a day of high theatrics at the Dubai Air Show.

A row over who would be first to receive the European plane maker's latest jet, a revamped version of its best-selling A320, nearly scuppered the deal which also included five more Airbus A380 superjumbos, people close to the matter said.

Timing is a serious issue as airlines rush to take advantage of 12-15 percent fuel savings offered by revamped models now being offered by Airbus and Boeing.

But the negotiations turned into a public drama, with Qatar Airways' chief executive first saying the deal was off, only to return hours later to announce the signing.

"Every deal sometimes gets stuck especially when the lawyers throw the spanner in the wheel. The price was not at all an issue, from the beginning," CEO Akbar Al Baker said.

The deal includes 50 orders for A320neo narrow-body jets worth USD$4.6 billion, plus options for another 30, and the five-plane A380 order which doubles Qatar's planned superjumbo fleet, together with options for a further three.

Pratt & Whitney won a key engine order for the deal.

Qatar is among a trio of Gulf airlines investing heavily in new aircraft to build up the region as a global hub, despite concerns over the economy and Europe's debt crisis.

It competes fiercely for attention with the other two, Dubai's Emirates and Etihad Airways of Abu Dhabi.

More than USD$30 billion in orders at this week's biennial air show reflect competition by Gulf carriers to capture traffic as economic activity shifts eastwards.

Although many airlines prepare deals in advance or ignore air shows altogether, the publicity value of such jamborees can lead to brinkmanship on either side, though only rarely are the media and competitors given such a field day.

In chaotic scenes, Tuesday's deal took place only after Airbus was forced to abandon an initial press conference.

Boeing was in the corridor ready to sign its own deal for two freighters with Al Baker, resulting in an awkward crush.

"Airbus is still learning how to make airplanes. We have cancelled the announcement. There is an impasse. If this is resolved, fine... If not, then bye-bye," he said in what was now a Boeing press conference.


Al Baker has overseen rapid expansion at the flag carrier but his 14-year tenure at the top of Qatar Airways has been been marked by several outspoken comments about plane makers. He once said Airbus's arch-rival Boeing was run by "bean-counters."

Both firms have suffered a string of development delays.

Neither Qatar Airways nor Airbus would say in any detail what nearly caused their USD$6 billion-plus deal to blow up.

But people familiar with the matter said there had been difficult negotiations over who should get the prestigious delivery of the first A320neo off the assembly line in 2015.

"It was a walkaway moment," a source close to the deal said.

Al Baker announced Qatar Airways would be first to receive variants of the more fuel-efficient passenger jet. It was not clear whether this decision would disappoint other airlines.

Virgin America was declared launch customer when Airbus sold the first A320neo in January, but planes do not always come in the order contracts are negotiated, a spokeswoman said.

The airline's first deliveries are due in early 2016, but since the deal was signed Airbus has opened some slots in 2015.

Al Baker also took the opportunity to vent his frustration over delays to Airbus's new A350 family of lightweight jets which aim to compete with Boeing's 787 Dreamliner.

"I will wait and see what they come up with. Either they prove us wrong about what we feel about their airplane or we prove them wrong about what they feel about it."

Canada's Bombardier, which is seeking to break into markets dominated by Airbus and Boeing, bagged a provisional deal to sell 10 CSeries aircraft to Turkey's Atlasjet Havacilik.

The aircraft industry has produced bullish forecasts for demand this week, despite the economic gloom and fears over how airlines will finance their fleets.

US lessor Aviation Capital Group ordered Airbus jets worth USD$2.7 billion. While it has access to investment grade funds, the Pacific Life unit said general conditions were tough.

"The bank market and the European bank market in particular, which has been a large supporter of the aviation sector, is undergoing a lot of stress right now," chief executive Stephen Hannahs said.

"I suspect for the next six months you're going to see banks in the euro zone sitting on the sidelines -- they won't be active participants until they sort out their capital structure. So there are going to be challenges."