Insight: Key Canada win signals Boeing bid to regain market share

By Tim Hepher and Alwyn Scott PARIS/SEATTLE (Reuters) - A few months ago Boeing Commercial Airplanes Chief Executive Ray Conner launched an internal campaign to urge the company's staff to fight for every sale following a series of defeats to European rival Airbus. Its slogan: "We're in it to win it." No longer would Boeing let Airbus walk away with a larger share of the market with competitive deals. In the new campaign, Boeing would redouble efforts to recapture customers without sacrificing profitable growth. On Wednesday, Conner's counter-offensive paid off with a $6.5 billion deal to sell up to 109 jets to Air Canada. His long-time rival, Airbus's sales chief John Leahy, shrugged off the defeat, indirectly accusing Boeing of slashing prices aggressively to win the deal. "It takes two to have a war," he told Reuters. Privately, Airbus officials were said to be shocked by the symbolic loss of one of the first North American carriers to buy their planes 25 years ago - jets that Leahy himself had sold when making a name for himself with flexible deals. Despite dominating last month's Dubai Airshow with sales of one of its biggest jets, the 777X, Boeing is lagging well behind Airbus in sales of the latest generation of smaller single-aisle jets - the best-sellers for both companies. In 2010, Airbus went to the market nine months earlier than its rival with fuel savings on a new version of its A320 made possible by new engines. The revamped A320neo continues to upset the traditional balance in sales of medium-haul jets between the leading manufacturers. In just six weeks between September and October this year, Airbus successfully wooed Delta Airlines, supplanted Boeing at Mexican budget carrier VivaAerobus and ended its monopoly at Japan Airlines for larger models. By end-November, the A320neo had a cumulative total of 2,523 orders, or 61 percent of the market, compared with 1,639 for Boeing's competing 737 MAX, according to Airbus data. "They always compete for market share, but there has been a change of pace in the battle between the A320neo and 737 MAX," said Teal Group aerospace analyst Richard Aboulafia. Conner, promoted from sales chief in June 2012, had already brought in a more direct approach, keeping up the habit of negotiating personally with airline bosses to clinch big deals and achieving the number one spot in overall sales last year. But amid recent losses, the former high school football player decided to win back territory with a coaching effort based on unvarnished talk about the archrival's strengths, rare for an internal communication. The new campaign reminded employees that Airbus had beaten them in net orders for much of the last decade and was now sitting on a bigger backlog. It was seen as a bold move in an industry where executives diligently stay on message. By putting sales at the heart of company culture, and conducting frank post-mortems on losses like JAL, Conner has shifted Boeing's airplane division towards market results and away from the engineering-driven focus of his predecessors. It also highlighted another burning topic: to regain market share and fund the company's future growth, Boeing first needed to put itself in a position to win by improving service and lowering costs, including the cost of its union labor. Boeing is currently locked in a dispute with workers over where to build its next jet. EQUAL SHARE Boeing says it does not target a specific market share, but is widely said to be looking to restore a broadly equal split in the single-aisle medium-haul jets seen in the past decade. "We think about winning campaigns, not about accepting a certain market share," Boeing Chairman and Chief Executive Jim McNerney said at last month's Dubai Airshow. Analysts say market share is, however, a key concern in a duopoly such as that between the world's largest planemakers. Failing to keep up volumes risks allowing a competitor to run away with advantages in costs, increasing its power to offer better prices and win even more share. Industry analysts say Boeing's 40-percent share of the new single-aisle sales is getting close to a point of no return. Furthermore, losing ground in the single-aisle market restricts the supply of cash needed to maintain the attack on other fronts, notably the higher-margin long-distance jets. "Don't make any mistake; in this business market share is extremely important," said a top executive who has done business with both companies said. "You don't do stupid deals, but everyone thinks about it to some extent." Although its underlying strategy has not changed, at some point in recent months, according to industry officials, suppliers and buyers, Boeing drew a line in the sand and put more emphasis on regaining share in the single-aisle market. It flagged its intentions with a surprise decision to increase 737-family production by 23 percent in four years, leap-frogging Airbus and freeing up more planes to be sold. CANADA WIN Under Conner's latest winter offensive, people in both camps say Boeing has stepped up an already vigorous sales effort, identifying key campaigns it wants to win. Some say the 58-year-old has taken a page out of his rival's playbook by racing to close deals at the end of the year when the industry is totting up annual wins and losses. Air Canada was therefore seen as a sales contest to watch. Planemakers compete by blocking and tackling each other with the help of price cuts and other sweeteners like training, but winning Air Canada also called for an audacious throw. The airline wanted to get rid of elderly planes sitting at high values on its balance sheet and had made that a key part of any deal, according to a person familiar with the talks. Boeing agreed to buy back up to 20 Embraer 190s as trade-ins, the airline said. Industry sources said Boeing may also buy two of its competitor's jets: Airbus A340s that Air Canada had leased to a Brazilian airline, but were sitting idle. "The Air Canada win implies that Boeing might actually break out of a 40-percent market share and hit back onto Airbus territory," Aboulafia said. Despite Boeing's focus on winning new sales, Leahy said he was confident of keeping 60 percent of the market for single-aisle jets because the A320's makeover is more extensive, widening a relative gap in performance against the 737. Boeing disputes the Airbus performance claims and insists its 737 workhorse jet is, and will remain, more efficient. Most airlines say the aircraft are broadly similar. From Canada, the contest shifts to the UK, where Boeing aims to overturn Airbus at Monarch Airlines, and China, the world's fastest-growing market, which is looking at revamped jets. Boeing's top sales executive, who took over Conner's old job last year, says it is a long-term struggle he aims to win. "There are 23,000 single-aisle airplanes forecast to be delivered in the next 20 years, and so far we and Airbus have sold just 4,000 of those," John Wojick told Reuters. "Airbus is declaring a decisive victory when only the first quarter of the game has been played. We plan to win our fair market share," he said in an interview at the Dubai Airshow. (Additional reporting by Solarina Ho, Susan Taylor; Editing by Will Waterman)