The Boeing Company (BA), United Continental Holdings Inc (UAL) & Air Lease Corp (AL): One Big Win for Airbus Might Actually Be a Loss

At the Paris Air Show last week, Airbus took home the grand prize in terms of customer commitments, having sold airplanes worth tens of billions of dollars over the course of the week. The Boeing Company (NYSE:BA) also had a fairly good week, with orders from the likes of Air Lease Corp (NYSE:AL) and United Continental Holdings Inc (NYSE:UAL), but had to settle for the second spot in terms of total deal value.

Yet one big Airbus order — United Continental Holdings Inc (NYSE:UAL)’s decision to upgrade its 25 Airbus A350-900 orders to the larger A350-1000 model, while also adding 10 more firm orders — actually may have been a loss for Airbus. While United dumped its A350-900 orders last week, it placed 20 orders for The Boeing Company (NYSE:BA)’s similarly sized 787-10, a new stretched version of the Dreamliner.

Investors may see this as a win-win situation for The Boeing Company (NYSE:BA) and Airbus; at the end of the week, both had 10 more orders from United than before the show. Yet Boeing is now poised to dominate the high-volume segments of the widebody market at United, while Airbus is confined to the lower-volume “large widebody” market segment. This probably means that The Boeing Company (NYSE:BA) will get the vast majority of future widebody orders from United.

Market segmentation
Of all the major U.S. airlines, United has been the most aggressive in updating its widebody fleet. After last week’s 787-10 order, United is now slated to receive 65 Dreamliners, of which six are already in service. Furthermore, the company’s A350 order book now stands at 35 planes.

United has been very clear with investors that the company is investing in its fleet in order to replace older, less-efficient aircraft, not to grow. This means that Boeing and Airbus are fighting for a finite number of orders with United.

Initially, The Boeing Company (NYSE:BA) and Airbus were attacking different segments of the widebody market. The larger of the initial two Dreamliner variants (the 787-9) is comparable in size to the smallest A350 (the A350-800), but that is the only overlap. However, Boeing’s new 787-10 is similar in size to the A350-900, which is by far the best-selling version of the A350.