Today's AZ Republic opinion page.
Boeing is big loser in America West deal
May. 21, 2005 12:00 AM
If the America West Airlines merger took place in France, hundreds of thousands of Parisians would take to the streets in protest. The American Embassy would be stormed. In Germany, leading politicians would denounce foreign capitalist "locusts" for interfering in the domestic economy.
Why? It's Airbus vs. Boeing.
Airbus, European competitor of Boeing, hasn't sold a single A350, against 160 Boeing 787s. Airbus is in a huge battle with Boeing, which no longer manufactures a complete fleet and developed the 787 to stay in the business.
To defeat Boeing, Airbus needs to have a hit with the A350. Desperate for a first sale, Airbus puts up $250 million for the merger, and GE some of the rest. GE makes the engines for the A350. A few other A350 parts are also made in the United States, including the escape chute and the thrust-reversers in Phoenix. The merged airline must order 20 A350s. No planes, no merger.
US Airways, known for old aircraft, lost baggage and poor service, could not survive much longer after two bankruptcies. Even after cutbacks, it is a higher-cost carrier.
AWA faces problems, too - it is too small, but it is a more attractive takeover candidate because of low-cost operations. Both lines decided to risk the merger. About 8,000 employees will have to go, hopefully by attrition.
The merged airline will have to grow routes and find new customers to succeed. AWA's management thinks that it can make the new airline a winner.
Here is where the Airbus/Boeing battle comes in. AWA flies Airbus, and already has ordered a bunch of A330s, without money to pay for them.
However, the only way it can finance the merger is also to buy A350s and then find routes for them. They will "become the launch airline for the A350," according to the official statement. Airbus isn't selling the 350, it's giving it away.
This is a new page in the competition between Airbus and Boeing. Will Boeing now fund a merger between Malev (Hungarian) Airlines and Alitalia (Italian) Airlines in order to sell the 787? Money provided, of course, by Washington? Will the EU allow that? Will the new US Airways, bolstered by its heavy funding package, survive?
It's America West CEO Doug Parker's gamble, and some employees will lose out in order for the rest to hold on.
Phoenix may win. Boeing loses.