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EDITIONS
Monday, 14 October, 2002, 17:00 GMT 18:00 UK
Easyjet ditches Boeing for Airbus
An airbus wing being unloaded from a transport plane.
Wings for Airbus planes are made in the UK
No-frills airline Easyjet has switched its allegiance from the US plane maker Boeing to Europe's Airbus, with an order for 120 planes.


Airbus has demonstrated an enthusiasm to do business with us which is unmatched in my experience

Ray Webster
Easyjet chief executive
The decision breaks Boeing's stranglehold on the European low-cost airlines market.

Although both Easyjet and Airbus trumpeted the agreement, investors were not convinced of its merits, so their share prices fell.

There was concern that Airbus might have agreed to too big a price reduction to secure the biggest order of the year. Shares in aerospace group EADS, which owns Airbus, fell 4.4%.

And there were worries that the cost of mixing Airbus planes into Easyjet's Boeing fleet would prove expensive for the airline, even though the airline insisted these costs would be absorbed by Airbus. The airline's stock fell nearly 5%.

Cost savings

Easyjet, which now owns rival budget airline Go, said it had chosen Airbus as its preferred supplier for 120 A319 aircraft with an option to buy 120 more planes at the same price.


(We would not) sell our aircraft at a price that is considerably less than the value of the product

Boeing

The airline did its best to convince investors that, by making the switch, it would save money.

The company said that it would achieve "substantial savings" by ordering the Airbus planes rather than buying more Boeing 737-700s.

And Easyjet said the deal would also mean a 10% saving on the cost of running its aircraft.

Calming investors

The value of the contract has not been made public, but Easyjet appears to have negotiated a considerable discount on the $6.2bn (4bn) listed price of the planes.

Stelios Haji-Ioannou, Easyjet chairman
Easyjet's chairman wants to cut costs

It is the extent of the price cut that has worried investors.

"We're hearing from analysts the offer has been made with attractive discounts, including benefits in terms of pilot training," said one dealer in Paris.

He said that although the order looked good on the books, it was not adding anything to Airbus' profits.

But in a statement designed to calm those sorts of fears, Airbus said the deal would help it to achieve targets for profits.

Staying low-cost

Easyjet's chief executive Ray Webster said it placed its order after several rounds of negotiations with both Airbus and Boeing.

Boeing's factory
Boeing says it will not sell at any price

He said one of the key elements of the deal was that Airbus was willing to support the costs of introducing its aircraft into the Easyjet fleet, so that it would not cost the airline any more to run a dual Boeing/Airbus fleet.

"Airbus has demonstrated an enthusiasm to do business with us which is unmatched in my experience," Mr Webster said.

Easyjet's chairman Stelios Haji-Ioannou said: "At the end of the day 'low cost' companies remain 'low cost' by not wasting money.

"Sticking to old-fashioned fads like 'low cost airlines only fly Boeing' does not reduce costs."

Taking a risk

But Boeing hit back by saying it would not "sell our aircraft at a price that is considerably less than the value of the product", hinting that Airbus had done so.

And it suggested that Easyjet was taking a gamble.

"To operate a mixed fleet would be a significant move away from the proven model and inevitably would introduce complexity and risk," Boeing said.

In New York, Boeing's shares were down more than 3% to $31 because it had failed to secure the Easyjet contract.

'Good news for the UK'

Airbus planes are assembled at Toulouse in France but the deal with Easyjet will also help to secure jobs in the UK.

Airbus is owned by a consortium which includes the UK's BAE Systems.

Wings for the planes are made at Broughton, in north Wales, while staff at Filton, near Bristol, manufacture key components.

A spokeswoman said: "As far as the UK is concerned, it's very good news. It sustains around 10,000 jobs at Airbus and throughout our supply chain."

 WATCH/LISTEN
 ON THIS STORY
The BBC's Rebecca Pike
"Airbus is believed to have offered concessions"
See also:

13 Sep 02 | Business
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