By akademiotoelektronik, 17/02/2023

Saved by the French State, can Air France-KLM buy Boeing 737 MAX at the expense of the Airbus A320 Neo?

Will Air France-KLM buy Airbus A320 Neo family, Boeing 737 MAX or both types of aircraft? This is the question that has arisen since Ben Smith, the general manager of the Franco-Dutch group, recently announced the launch of a call for tenders from the two manufacturers for an order for 160 medium-haul aircraft, aircraft with a capacity ranging from 150 to 220 seats. A pharaonic order whose value exceeds 16 billion dollars at the list price. A record for the group since its creation in 2004 following the takeover of KLM by Air France.

Boeing a "natural" advantage?

The outcome of the tender is uncertain. The equation is indeed extremely complex. In a world "without influence", Boeing would have had a natural advantage insofar as the Air France-KLM call for tenders aims to replace the B737 NG, which entered service in the mid-1990s. Indeed, it is intended for KLM, its low-cost subsidiary Transavia Holland, and Transavia France, a subsidiary of Air France, three companies equipped only with Boeing 737. Air France, is not concerned by the call for tenders. Currently operating only aircraft from the A320 family, the French company has already made its medium-haul fleet choices in favor of the A220, a smaller aircraft than the A320 or the B737. However, for reasons of cost of training crews, optimization of maintenance, a company which renews its fleet often has an interest in keeping the model of aircraft it already uses. The B737 MAX being a derivative of the B737 NG, it would therefore be logical, on paper, for Air France-KLM to place an order with Boeing.

The choice of the Boeing 737 MAX is far from obvious

However, the choice of the 737 MAX is anything but obvious. Without even mentioning the deplorable image that sticks to this aircraft following the two fatal accidents which occurred in 2018 and 2019, in which the design of the aircraft was called into question, it seems difficult to imagine that Air France-KLM , a French group, saved from bankruptcy by the French State (which incidentally took the opportunity to raise up to 30% of the group's capital), snub the A320 Neo, Airbus' best seller that the earth whole struggle to buy an American plane for the largest order in its history. No one, in France at least, would understand that. Neither the opinion, nor the politicians, nor the employees of Airbus, while the strategy of the French government in terms of direct aid during the crisis was precisely to favor Airbus customers like Air France rather than the aircraft manufacturer himself. This is in order to allow them to continue to fulfill their orders and to in turn bring workload to the entire aeronautical sector. This was the case for the A350s, which entered the Air France fleet in force during the crisis.

Read also Air France receives a slew of new planes: how is this possible in the midst of a crisis?

By choosing the A220, Air France opted for a Canadian plane

An American choice would be all the more complicated to pass on in France if it were added to another choice, Air France this time, which also makes some people cringe in France: that of the order for 60 A220s, signed in 2019 to replace a large part of the French company's medium-haul fleet, which until now has consisted of classic A320s. A choice to the detriment of the A320 Neo. On paper, no problem: it is indeed two Airbuses. Except that the A220 does not bring any workload in France. For good reason, this device is Canadian. It is none other than the former Bombardier C-Series, assembled near Montreal with few French industrialists on board. Acquired by Airbus in 2017, it was renamed with an "airbusian" name. Passed under the radar two years ago thanks to the skill of Ben Smith, this choice for the Canadian plane would not fail to reappear. Because a purchase of B737 MAX would result in a total absence of Airbus from the A320 Neo family in the group's fleet. In other words, the plane that generates employment in France would be excluded from the renewal of the group's medium-haul fleet. Not easy to pass politically.

The Dutch are very attached to Boeing

However, it is difficult to say that Airbus has a good chance of winning the bet. Because if Air France-KLM is a French group, listed on the Paris Stock Exchange, with the French State as its main shareholder, the weight of Dutch influence is colossal within the group. And in view of the complex balances to be found between Air France and KLM, but also between the French and Dutch States, it will be necessary to deal with the Batavian side. However, the latter is very attached to Boeing, recalls an internal source. Transavia France is less so insofar as the group's strategy of having two types of aircraft for Air France and Transavia (to have a seal between the two companies), has been shattered since the arrival at the controls of Ben Smith. The latter negotiated several agreements with Air France pilots assuring them that they would lose nothing by developing a low-cost offer. Transavia pilots are those of Air France and therefore have dual qualification, Airbus and Boeing. Switching to an Airbus fleet for Transavia France would therefore not be a problem.

A mixed order between Airbus and Boeing?

In the end, some observers are betting on a mixed order between the two manufacturers: Airbuses of the A320 Neo family for Transavia France, and more precisely A321, the highest capacity version, and Boeing 737 MAX for KLM and Transavia France. From 50 devices, all the companies of the group generate economies of scale, explains an expert.

However, one last element complicates the equation. And not least, since it is the price of aircraft. Air France-KLM will logically want to obtain the best prices. However, in this game, Boeing will be the most likely to lower its own. After the setbacks of the 737 MAX, the American giant must indeed garner contracts, which-more-is with the Majors of the sector, to reassure the market. Since the return to flight of the MAX, Airbus has set itself a course of action: do not launch a tariff war so as not to hinder the commercial recovery of its rival, while its order book is overflowing. Because, more than anything, Airbus fears that Boeing's market share will collapse to such a level that the American aircraft manufacturer will be forced to launch a new aircraft in the medium-haul segment. A decision that would force us to fight back and launch a successor to the A320 Neo well before 2035 as planned so far. An aircraft which would therefore not have all the expected performance in terms of reducing CO2 emissions. From there it is enough for Airbus to let go of the Air France-KLM contract. In a competition, nobody likes to lose a game. Even less at home.

Read also 5 mnAirbus will not launch a price war against the Boeing 737 MAX so as not to complete it

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For the first time since the start of the crisis, the group no longer burns cash

Air France-KLM's operating loss was once again very heavy in the second quarter (-752 million euros). But, due to the progression of vaccination and the taking of reservations for the summer season, it is lower than that of the first quarter (-1.2 billion euros). The net loss is at the same level: 1.5 billion euros, but is negatively impacted by exceptional items, including a change in the pension plan at KLM.

Above all, the "first signs of recovery" since June have been noted by management, which expects to return to operational profitability in the third quarter. Management said it had seen the "first signs of recovery" since June and expects to return to operational profitability in the third quarter.

The group returned to positive free cash flow for the first time since the start of the crisis "thanks to very good ticket sales", explained chief financial officer Steven Zaat. With the lifting of certain travel restrictions, the adoption of the European health certificate and "strong demand" for holiday destinations, particularly in Southern Europe, Air France-KLM increased its seat supply in July to more than 60% of the same period of 2019. As a result, the group improved its traffic assumptions for the third quarter, between 60 and 70% of the levels of two years ago (compared to 55-65% previously), The group is on the other hand kept from communicating its ambitions for the fourth quarter, “due to the uncertainty over the reopening of the North Atlantic for European citizens and the uncertainty over the lifting of travel restrictions”.

Fabrice Gliszczynski

8 mins

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