Boeing Can Win As Airbus Deals Blow To Qatar Airways (NYSE:BA)

The Boeing Company (NYSE:BA) is currently on the way back with its key platforms, the Boeing 737 MAX and Boeing 787. Admittedly, the road towards recovery is a long one and has been paced much slower than was initially anticipated, but if you sat through the absolute worst parts of the crisis, I think you will be able to somewhat appreciate the incremental progress booked by the U.S. jet maker. Boeing is actually receiving some help from competitor Airbus SE (OTCPK:EADSF, OTCPK:EADSY), as the European jet maker is escalating the conflict with Qatar Airways.

Airbus: A high raging conflict with Qatar Airways

I don’t want to go too much into the technical details of the conflict between Airbus and Qatar Airways, but it is important to know that there is one, and it is pretty big. Qatar Airways has had complaints about the quality of the paint job on its Airbus A350 aircraft. I have reviewed footage, and indeed, for an aircraft that costs around $150 million, you would expect the paint to adhere nicely to the skin surface. Painting composite surfaces have proven to be challenging not only for Airbus but also for Boeing. Where things have escalated between Airbus and Qatar is some insensitivity regarding the state of airlines during the pandemic and its rather slow progress on finding a correction for the chipped paint. Qatar Airways, meanwhile, is known for being extremely picky during the quality control of its aircraft.

With the progress on finding a solution for the issue being way too slow for Qatar Airways, it took Airbus to court over the issue. The aviation regulator in Qatar grounded over 20 aircraft, characterizing the paint issue as a safety issue due to reduced lighting protection. For Qatar Airways, this made the easy case to sue Airbus and demand a swift solution and compensation for damages. Airbus felt that the paint issue was unrightfully portrayed as a safety issue and started canceling orders for the Airbus A350. It even cancelled the order for the 50 Airbus A321neo aircraft that Qatar Airways had placed, as the European jet maker believes clauses in the contract would allow the agreement to be terminated. This was also upheld in court.

Data from The Aerospace Forum indicated that Airbus unilaterally cancelled orders for 50 Airbus A321neos and 4 Airbus A350-1000 aircraft valued $3.6 billion. That is an exceptional scenario where a jet maker would rather cancel orders than having to do business with an airline. That says a lot about how large frustrations between Airbus and one of the biggest A350 operators in the world have grown. Things don’t end there for Airbus and Qatar Airways, as the jet maker now has opted to remove the remaining 19 Airbus A350 planes that Qatar Airways had on order, according to a report by Reuters. This would add another $3.3 billion in cancellations, bringing the cancellation value to nearly $7 billion. A costly price over what Airbus characterized as a maintenance issue and not a safety issue.

Dispute Offers Chances For Boeing

For Qatar Airways, the cancellations mark a big setback. That is not necessarily because the aircraft being cancelled would bring the company to its knees, because it wouldn’t. However, normally Qatar Airways gets a lot done by being vocal, and we are now seeing Airbus saying “Enough is enough,” effectively ending their business relation.

That could be a big aid to Boeing, as Qatar Airways will need planes in the future, and it now has only one major manufacturer to source those aircraft from. This will not help them in negotiating for discounts. In an investor report published in January, I already explained that the high-profile battle between the Gulf carrier and Airbus opened up opportunities for Boeing, and more specifically for the Boeing 737 MAX 10, which is in dire need for orders to gain dispensation on new certification guidelines and to win back some of the shares that has been lost in recent years.

Qatar Airways and Boeing did end up announcing a significant order and commitment a month later, including a Memorandum of Understanding for up to 50 Boeing 737 MAX 10. However, in court and during the Farnborough International Airshow, Qatar Airways mentioned that the MoU had lapsed. Nevertheless, the company ended up ordering 25 Boeing 737 MAX 10 aircraft, which could replace the Airbus single-aisle fleet. At this point, one can wonder what will actually become of the Airbus A350 fleet. The 53-unit strong fleet is not by any measure a small fleet, but Qatar Airways has been bringing back its A380s and operates four ex-Cathay Pacific Boeing 777-300ERs. One can wonder how much sense it makes to continue operating the fleet of Airbus A350s, as the relation with Airbus is bad and portions of its Airbus fleet were already set to be removed from the fleet in the coming years. This would leave a stagnant fleet of A350s as the oddballs in the Qatar Airways fleet.

In the short term, it does seem that Qatar Airways has somewhat of a problem, as Boeing can likely not deliver its aircraft fast enough and the Airbus A350s are grounded while the 2022 World Cup will be hosted in Qatar. In the longer term, if a reset on the Airbus-Qatar Airways relation does not happen, Boeing could be the big winner. Qatar Airways still has 23 Boeing 787-9s on order, and even if Qatar Airways does not opt to replace its Airbus A350 fleet, future wide-body business could and should be falling Boeing’s way and benefit the Boeing 787/777X.

Qatar Airways recently converted some of its orders for the big Boeing 777-9 to orders for the Boeing 777-8F, so we could be seeing Qatar Airways ordering more of those aircraft to bring its Boeing 777-9 orders back to previous levels. It should be noted, though, that the Boeing 777-9 is a bigger aircraft than the Airbus A350. Qatar Airways could opt for more Boeing 787-9s and even look at the Boeing 787-10, which it didn’t want to order years ago. What remains to be said is that the Boeing 787 deliveries have not yet recommenced, and production will only be brought back gradually to five aircraft per month once the deliveries gain traction. So, there is no quick solution for Qatar Airways, but for Boeing, there is a big opportunity here to win business.

Conclusion: Boeing Could Win Qatar Airways Orders

The dispute between Qatar Airways and Airbus previously opened up business opportunities for Boeing with the order for 25 Boeing 737 MAX aircraft. I believe that the most recent cancellations of the Airbus A350s by the European jet maker could turn Qatar Airways into a long-term Boeing customer, with possibilities to transform the fleet for all-Boeing operations. Qatar Airways CEO Akbar Al Baker, though, will also realize the consequences of such a move. Nevertheless, for Boeing, I do see an opportunity to sell more wide-body aircraft to Qatar Airways, and it would be a big boost to both the Boeing 787-10 and Boeing 777-9 if these aircraft would be ordered by Qatar Airways to offset the aircraft deliveries that Airbus has cancelled.

It is not the case that Qatar Airways can no longer get Airbus aircraft. If Airbus and Qatar Airways reset their relation, orders could be placed at new terms, and indirectly there are possibilities to lease Airbus aircraft, although there likely is a queue, as is the case for Boeing deliveries. As a result, I believe that Boeing should leverage the current situation and sell more aircraft to Qatar Airways.