By Siva Govindasamy and Tim Kelly
SINGAPORE/TOKYO (Reuters) - Airbus appears to have been pushed back once again in landmark efforts to break Boeing Co's grip on Japan's two largest airlines, which need to buy billions of dollars worth of planes in the next decade.
In Japan, where buying American jets once helped take the sting out of trade deficit tensions, Boeing dominates with around an 80 percent market share. Flag carrier Japan Airlines Co Ltd has yet to buy an Airbus aircraft even though the political prodding to purchase Boeing jets partially built in Japan has lessened.
This year, Airbus finally spied a breach in Boeing's Japanese fortress.
Glitches with Boeing's 787s, which both JAL and rival All Nippon Airways have put at the center of their fleet planning, created an opening for it to offer its just-finished A350 to replace around 50 of the airlines' ageing Boeing 777s from 2020. Sticking with Made in America could make the Japanese carriers Boeing launch customer once again for an only-on-paper jet, the 777X, that it has yet to green light.
That window may, however, be closing as Boeing launches a charm counter-offensive to blunt Airbus and shore up its Japanese base. Boeing's order to its sales team from its Seattle commercial aircraft base is "do everything you can to win this order", a source familiar with the negotiations told Reuters.
Airbus got a foothold at ANA, which operates Airbus A320s on short-haul services, but hasn't scored an order there since 2005. ANA's medium and long-haul fleet consists only of Boeing planes, and it is the world's largest operator of the Dreamliner. Airbus's most notable success has been among Japan's emerging discount carriers, including an order by Skymark Airlines Inc in 2011 for six super-jumbo A380s.
High-profile problems with the Dreamliner, including a months-long grounding earlier this year due to problems with the aircraft's lithium-ion batteries, cost the two Japanese carriers millions of dollars.
More importantly, it led to a large degree of frustration with Boeing in Tokyo and this presented Airbus with a golden opportunity. It had pushed hard in the past, but its latest pitch to JAL and ANA included one key message that may finally resonate - the advantage of having an alternative supplier of aircraft.
Airbus is offering the first variant of its new A350, the -900, which is undergoing flight tests and scheduled to be delivered from 2016, to replace the 777-200s. It is also pushing the upcoming larger -1000 to replace the 777-300 family.
Boeing is offering the largest variant of the 787, the -10, as well as a proposed upgraded version of the 777, provisionally known as the 777X, that it says will have lower operating costs and longer range.
Boeing and Airbus declined to comment on the negotiations.
At the Paris Air Show in June, chief Airbus salesman John Leahy said: "It is just a matter of time before Japan Airlines or All Nippon Airways fly Airbus wide-body aircraft".
Indeed, that appeared imminent about two months ago, when industry sources said JAL was close to an agreement with Airbus. But the "deal appeared to slip away", according to a second source familiar with the negotiations, as Boeing executives redoubled their pitch in recent weeks.
TIMING IS EVERYTHING
Price, while important, is only part of the equation, given that the airlines will get substantial discounts off the list price. Timing may prove to be the deciding factor.
Within JAL, there is a division between those who want to stick with Boeing and those who prefer an alternative supplier. The 787's technical problems may have increased the frustration with Boeing, but a source close to JAL said that alone wouldn't tip the balance to Airbus.
"JAL still has confidence in Boeing's aircraft. The decision hinges on a larger strategic discussion about its aircraft procurement strategy," the source close to JAL said.
"The question before the management is if they should stick to a known and reliable supplier, or order Airbus aircraft in order to ensure they have the best options from two relatively equal companies. The answer to that will guide the decision."
JAL spokesman Jian Yang declined to provide details about the discussion. "Nothing has been decided yet," he said.
ANA spokesman Ryosei Nomura said the airline was considering both the 777X and the A350.
"At the moment we are gathering information and have not yet begun any formal assessment," Nomura said. "We don't yet know when we will reach a conclusion."
Airbus has won orders for its A350s from marquee customers such as Cathay Pacific Airways, Singapore Airlines, Qatar Airways and Emirates Airline. Their confidence in the plane means that Airbus has a much stronger case than before to make to JAL and ANA.
Its challenge is that it remains untested in regular operations and while its testing is on track, some in the industry worry that it could face delays and problems similar to those that have plagued 787 - the last new-generation airplane.
That perception may hinder the 787-10 as well, although United Airlines and SIA have signed up for the aircraft, which was launched in June.
The 777, on the other hand, has been in service for almost two decades. The 777-X is Boeing's answer to the A350-1000.
The question facing airlines considering the 777X is whether an upgraded version of an older aircraft design will be better than a new-generation aircraft like the A350.
"The Japanese carriers are facing a tough choice, go with Boeing and be a launch customer again for an aircraft that could slip beyond its 2019 start of delivery target, or pick Airbus, an unknown, but with a firmer delivery schedule," said a third source close to the negotiations.
If they delay a decision, they may not enjoy the benefits of being among the early customers for the 777X or miss out on the delivery slots for the A350-1000.
"This is an intense battle, and the pressure is on the airlines and the aircraft manufacturers. There are so many variables at stake here. Whatever the decision is, someone will be very unhappy," said one of the sources familiar with the negotiations.
(Editing by Emily Kaiser)