Boeing, Airbus and the great Emirates conjuring trick

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By Paul Betts  www.ft.com

A few years ago Christopher Nolan, whose current film Inception is turning into one of this summer’s blockbusters, directed a thriller about two rival magicians. Set in London at the beginning of the 20th century, The Prestige tells the story of how two magicians obsessed with creating the very best stage illusion engage in fiercely competitive one-upmanship. It all ends tragically.

Airbus A380
Airbus A380

In the corporate sector, Boeing and Airbus have been engaged in a ferocious game of one-upmanship for leadership in the global commercial aircraft market. Airbus came from nowhere, challenged its US rival, and ultimately overtook it. Boeing’s head of commercial aircraft, Jim Albaugh, now says he is “very confident about how we are positioned to regain – and retain – leadership in this business”.

Mr. Albaugh on Monday pulled a plump rabbit out of his hat on the opening day of the Farnborough Air Show. He announced that Boeing had won an impressive order for 30 of its 777 widebody airliners from Emirates, the Dubai-based carrier that is already the 777’s single largest customer.

Boeing’s European arch-rival Airbus pulled a similar rabbit out of its hat a month ago by announcing at the Berlin Air Show it had won an order for 32 of its A380 super jumbos from Emirates. Once again, the Dubai airline also happens to be the single largest customer for the A380.

All this of course is great news for the industry. It suggests, as both Boeing and Airbus have been saying at Farnborough, that the civil aircraft market is recovering and that airlines and indeed aircraft leasing companies are again placing orders.

Although the world economy is not yet out of the woods, especially in the case of Europe and the US, there are pockets of growth in Asia and the Middle East.

The problem is that these recent new blockbuster widebody aircraft orders from Emirates may not be all that they seem to be. For there is a widespread suspicion in the market that they are not so much brand new orders but a repackaging of earlier orders placed by DAE Capital, the leasing arm of the Dubai government backed aviation financing and engineering group Dubai Aerospace Enterprise (DAE).

Back in the salad days of 2006 and 2007, DAE Capital ordered nearly $29bn worth of aircraft roughly evenly split between Boeing and Airbus as part of its ambitious efforts to become a big player on the aircraft leasing market.

Then the global economic crisis came along, the Dubai property bubble burst and the emirate found itself with a mountain of debt. That by no means put an end to the country’s aviation ambitions, but it nonetheless forced it to focus on its priorities – continuing to develop Emirates into a leading global carrier and building the new Al-Maktoum international airport.

A senior Dubai government official recently confirmed that DAE was renegotiating its order for more than 200 Boeing and Airbus aircraft. The trouble was that the bulk of these orders appear to have been for narrowbody aircraft such as the Airbus A320 and the Boeing 737 and these are of little or no interest to Emirates.

So what appears to have happened is a classic sleight of hand where what seems to disappear into thin air on one side reappears – hey presto – on the other. Except this time the magicians also seem to have transformed narrowbody aircraft into plumb widebodies.

And what, God forbid, should happen were such a valued customer as the Dubai flag-carrier itself disappear into thin air? No doubt the two great magicians of the civil aircraft industry would have to dig deep into their bag of tricks.

Mestrallet’s merger saga

Gérard Mestrallet, the GDF Suez chairman, has traditionally pulled off a big merger or large acquisition every three years or so.

Back in 1997, he started the process of transforming the old Compagnie Financière de Suez conglomerate into a focused industrial group by merging with the Lyonnaise des Eaux water utility.

Three years later, Mr Mestrallet merged Suez and the Belgian Tractabel group’s international power activities.

In 2005, Mr Mestrallet spent €11.2bn to buy the 49.9 per cent stake in Belgium’s Electrabel electricity group he did not already own.

In 2008, Mr Mestrallet pulled off probably his most important deal with the merger of state-controlled Gaz de France (GDF), which became overnight the world’s largest utility, according to Forbes.

But the markets and Mr Mestrallet clearly consider that this is still not enough. So once again he is on the prowl and this time – after an earlier and unsuccessful approach – he is hoping to clinch a deal with the UK’s International Power.

european.view@ft.com

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