Airbus to fight Boeing for pounds 2bn BA fleet order

BRITISH AIRWAYS has asked Boeing and Airbus Industrie to come up with radically different ways of financing a pounds 2bn order for a fleet of up to 100 new aircraft for its regional European services.

The order, the biggest placed by BA for seven years, will be a contest between Boeing's "next generation" 737 and the Airbus A320 family of jets.

Bob Ayling, BA's chief executive, said he expected the two manufacturers to devise innovative ways of financing the new fleet to cut the costs of ownership for BA.

One option is for the manufacturers to finance the aircraft against their own balance sheets, allowing BA simply to rent the aircraft, paying a charge for every hour they are in the air. This would leave the manufacturer to take responsibility for everything from maintenance to residual values.

"We are open to ideas," said Mr Ayling. "Airlines are very asset-hungry businesses and anything we can do to lay off some of the exposure is good for our shareholders. All we want as an airline is the use of aircraft. Provided the supplier is secure, we are indifferent to ownership."

The BA fleet is dominated by Boeing aircraft and has never bought a single Airbus jet. The only Airbus aircraft it has in operation are 10 A320s inherited through the takeover of British Caledonian. Boeing accounts for about 80 per cent of BA's fleet of 300 aircraft, About half the fleet is owned by BA and half financed through operating leases.

Furthermore, the last time the two manufacturers were vying for a big BA order for wide-bodied jets in 1991, Airbus controversially lost out. BA selected the GE-powered Boeing 777 for the pounds 1bn order in preference to the Rolls-Royce powered Airbus A330.

However, Mr Ayling rebuffed suggestions that Airbus had simply been invited to take part this time in order to force down Boeing's final price. "I hope that Airbus sees it as an opportunity to sell some aircraft to an operator that has not bought from it before," he added.

BA has asked for initial tenders by 16 March and is expected to make a final selection this summer. It has ruled out splitting the order between the two manufacturers as this would reduce the costs savings available by, for instance, only needing to train pilots for one type of flightdeck.

The new aircraft will start entering service in 1999 and will replace ageing Boeing 737s, Fokker 28s and Fokker 100s, MD83s and British Aerospace Advanced Turbo Prop aircraft which are being phased out because of more stringent noise regulations.

Initially, BA requires 30 new jets worth pounds 400m-pounds 600m to enter service on regional routes from Birmingham and Manchester. But further orders for another 70 aircraft to update fleets at its subsidiary airlines Deutsche BA, Air Liberte and EuroGatwick could follow.

News of the invitation to tender helped lift British Aerospace, which has a 20 per cent stake in the four-nation Airbus consortium. Its shares rose 29p to 1909p. BAe also announced that the 29.5 per cent limit on foreign shareholdings had been passed for the first time. The Government is preparing to lift the limit to 49.5 per cent for both BAe and Rolls- Royce. BAe has also announced plans for a three-for-one share split.

Boeing said it would "aggressively promote" its next generation 737 for the order, adding that it offered significant commonality with the 737s already in BA's fleet. Since the launch of the programme in 1995, Boeing has received 811 orders from 38 airlines.

However, Airbus executives believe it is in with a good chance of scooping the order. When it lost out to Boeing in 1991, Lord King was still chairman of BA and the aircraft purchase was linked to a deal to sell its engine maintenance business in Cardiff to GE.