BA builds bridges with Brussels

News Analysis: The pounds 5.5bn Airbus deal might seem to be a politica l fix, but it will create jobs in Europe

THE DECISION by British Airways to break its commitment to Boeing and place its first-ever contract with Airbus Industrie has left sceptics wondering whether there was a political fix.

BA chief executive Bob Ayling strongly rejected this last night. He said: "The only thing that concerned us was getting the cheapest aircraft we could. If you buy for political reasons, you go bust."

The appearance of Tony Blair, Prime Minister, at the signing ceremony in Toulouse only fuelled this speculation yesterday. The official line was that Mr Blair happened to be on holiday in France and just wanted to join in the celebration.

However, the airline and aerospace sectors are intensely political. In December Mr Blair joined Chancellor Kohl in calling for European aerospace co-operation and consolidation ahead of a wider deal on the defence sector.

The pounds 5.5 billion contract for 188 airliners from Airbus by BA helps provide the European aircraft manufacturer with a good platform for proposed restructuring.

BA also needs to rebuild some bridges in Brussels. The European transport commission has criticised BA for the dismissive way it supposedly treated regulators over its proposed alliance with American Airlines. The EC has given the formal go-ahead to the tie-up, but attached tough conditions which Mr Ayling says are too harsh.

The BA boss denied yesterday he was currying favour with the EC by placing the order with Airbus. "Life is not that simple," he insisted.

But the Airbus contract - helping to secure the future of 130,000 jobs at Airbus and its suppliers around Europe - should certainly help BA relations with the Commission.

One leading industry analyst said: "I am sure there was an element of politics in this. The fact that Tony Blair was at Airbus on the day certainly suggests this."

The coincidence that the Airbus contract was announced alongside a smaller deal for 16 Boeing 777 aircraft (with options on a further 16) also seemed to indicate a political eye was being kept on the US.

Up until now, Boeing has enjoyed a stranglehold on BA new orders. The decision to announce a smaller contract with the Seattle-based aircraft manufacturer looked like a face-saving device to many industry experts. The US is one of BA's vital markets.

Closer to home, Mr Ayling is said to enjoy good relations with the new Trade Secretary Peter Mandelson. Moreover, the Airbus contract will secure the jobs of 38,000 staff who work for British Aerospace, Rolls Royce, and 300 smaller suppliers in the UK.

British Aerospace not only holds a 20 per cent stake in Airbus itself, but also stands to gain as much as pounds 1.1bn in business via BA because it builds all the Airbus wings.

The BA contract with Airbus could create over pounds 500m worth of work for Rolls Royce.

The fact that the deal was won on the tightest of margins by Airbus in competition with Boeing was underlined by Mr Ayling. "We have ordered the right aircraft at the right time at the right price. This is a great investment in our future, made possible by the commercial success."

The first 21 aircraft will be used for intra-UK and European operations by BA Regional, which employs 1,000 staff based in Manchester, Birmingham and Scotland. The rest of the aircraft will be fly out of Gatwick, or operated by the French and German subsidiaries, Air Liberte and Deutsche BA.

New aircraft will replace older equipment and provide capacity for increased passenger volumes. The airline needs the new A319 and A320 aircraft to increase efficiency and cope with tougher EU environmental regulations.

The new aircraft are up to six times quieter than existing airliners. They are also smaller and more fuel efficient, helping BA to compete against low-cost competitors like EasyJet.

Mr Ayling said: "We need to reduce our capital expenditure at a time when we need also to increase our schedules in a deregulated market."

For Airbus the contract from BA underlines the enormous progress it has made since it first opened for business 25 years ago. In 1994 Airbus won more orders than Boeing for the first time.

Airbus has already won more contracts in the first half of this year after finishing 1997 with 45 per cent of the market to Boeing's 53 per cent. The remainder went to McDonnell Douglas, now part of Boeing.

Although BA owns 10 Airbus A320s, they were bought by British Caledonian before it was taken over by BA. The latest deal for 59 firm orders plus options for 129 others will build confidence at a vital time when Noel Forgeard, Airbus Industrie's chief executive, wants to move to a traditional company structure and ultimately bring Airbus to the stock market.

At present the Toulouse-based Airbus is termed a Groupement d'Interet Economique which publishes no accounts and makes no profits or losses in its own right. These accrue to its owners - Aerospatiale of France and Daimler-Benz Aerospace (Dasa) of Germany, which each own 37.9 per cent, and BAe (20 per cent) as well as Casa of Spain (4.2 per cent).

The BA contract also comes at a critical time for Boeing, having run up its first annual loss in 50 years. Last month it lost a lucrative contract on its home ground when US Airways placed a firm contract for seven wide-bodied A330 aircraft, took out options on a further seven and reserved delivery positions on 16 more.

A Boeing spokeswoman said last night that the company was "disappointed", but she brushed aside suggestions that the Airbus contract was a huge psychological blow.

"Market leadership is ultimately decided by long-term success. We will work hard to be lean and efficient to win the next contracts," she said.

The next test for Boeing will come later this year when Scandinavian Airline Services decides whether to choose Airbus or Boeing.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
PROMOTED VIDEO
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little