/ 27 March 1997

Lock-out deals threaten Airbus

Alex Brummer in London

BRUSSELS has been rightly concerned that the Boeing/McDonnell Douglas merger is anti-competitive and will work against the interests of Airbus Industrie. But now it has something potentially even more serious to worry about.

As Airbus chief Jean Pierson struggles to consummate his plan to bring Dasa of Germany, British Aerospace, Aerospatiale and Casa of Spain together by 1999 into a coherent and fleet-of-foot group, Boeing is engaging in some salesmanship that could effectively lock Airbus out of the world’s biggest airline market well into the next century.

In an exclusive deal, Boeing has agreed to supply Delta Air Lines, the United States’s third-largest carrier (behind American and United), with all the equipment it needs over the next 20 years: up to 644 airliners -across the Boeing range – to be bought at an undisclosed discount.

Airbus had hoped for a least a share of these orders, but has been squeezed out by the lock-up deal.

The arrangement would not be that worrying for Airbus were it not that AMR Corporation, the parent of US market leader American Airlines (AA), had not concluded a similar deal. Such transactions may be great news for job prospects and prosperity in what is currently the US’s most fashionable city, Seattle, but appear to ride roughshod over the anti-trust principles which have been a basic tenet of US commerce for much of this century.

While it may seem to Delta and American that signing such deals will reduce their capital spending costs, tying down orders in this way could be stifling and disadvantageous.

It will mean less innovation, less price competition over the long haul, and could disadvantage customers and shareholders of the airlines and airframe manufacturers. Moreover, it flies in the face of the liberalisation of trade and services which is being striven for by the World Trade Organisation.

The American Airlines supply deal could also affect the US carrier’s efforts to link with British Airways (BA). Over the decades BA has, for correct commercial reasons, frustrated successive UK governments by showing its independence and buying airframes and engines from a variety of suppliers, rather than just Britain or Europe. Indeed, it has just ordered three Boeing 757-200 airliners for its short-haul fleet, to be powered by Rolls-Royce RB211 engines.

However, what would be the implications if, as part of their alliance on marketing and code sharing, BA and AA decided they needed more engineering compatibility? After all, the post-industrial carrier needs nothing but a brand name.

These issues need to be explored by competition authorities on both sides of the Atlantic: by sewing up the larger US carriers, Boeing may have blocked Airbus from helping to develop the next generation of jumbo jets. US anti-trust law has been built around the notion that monopolies rarely work in the public interest: the lock-out deals might be considered justification enough for regulators to put an end to the BA/AA alliance without further ado.