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Boeing, Airbus and the Battle of Farnborough

The battle lines were drawn in the run-up to this year’s Farnborough Airshow as the world’s dominant plane makers prepare for the next stage of competition in the aerospace industry.

Boeing and EADS' Airbus are both readying their most technologically advanced aircraft yet and the stakes are very high. Boeing's 787 Dreamliner and Airbus's A350XWB cost billions of dollars to develop, and are fairly evenly matched in terms of capabilities.

Boeing and Airbus
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Boeing and Airbus

But the Dreamliner has one huge advantage: a head start.

“The arrival of the 787 Dreamliner at the Farnborough Air Show will install a huge level of confidence for customers and suppliers alike,” Saj Ahmad, aerospace analyst at FBE Aerospace, told CNBC.com.

“They have witnessed a string of delays and challenges (and) many investors will see that achievement as a turning point for the troubled airplane and look to 2011 and beyond for more deliveries and higher revenues,” Ahmad said.

The Dreamliner’s first touchdown in Europe is an important milestone, but just one in a larger process, analysts said.

Boeing announced that the long-awaited aircraft could face further delays in the run-up to the event. Test flights for the 787 have raised issues with its instrument configuration, the company said.

“Everything changes when planes enter service. We don't now what the final production version will look like,” Richard Aboulafia, aerospace analyst at Teal Group, told CNBC.com.

“If they can get it performing as advertised then they have a huge advantage on the market. It's actually what the market wants, but there are a lot of questions,” Aboulafia said.

Meanwhile, EADS' Airbus has been beset with internal disputes that mean it has allowed Boeing to catch up, Paul Beaver, independent aerospace analyst at Beaver Westminster, told CNBC.com.

"In simple terms Airbus will have missed the boat and the Dreamliner will now set the standard for future environmental friendly air travel," Beaver said.

But John Scholle, airlines analyst at IHS Global Insight said Airbus may even gain an advantage by biding its time.

The A350 could pull ahead when it comes to the cutting-edge technology that’s being developed because it has the time to perfect it, Scholle told CNBC.com.

And despite the longer time horizon, the A350 has attracted massive support within the industry and will continue to sell well, he said.

“While rumors of a delay may emerge, the (A350) has been a very big seller and will continue to generate significant business in the coming years as airlines phase out older airplanes and buy new, fuel-efficient jets in the drive for fuel and economic efficiencies,” Ahmad said.

Positives on Both Sides

Both companies could actually come out as winners.

Farnborough International Air Show 2010 - A CNBC Special Report
Farnborough International Air Show 2010 - A CNBC Special Report

While all eyes will be on the incoming Dreamliner and its apparent blow to the A350, the reality could see the two jet makers pushing the industry forward together with enough revenue for both to thrive.

“Both the 787 and A350XWB represent a huge technological leap for aviation. They are the first generation of mostly composite-built airlines that will spawn a complete revolution for all airplanes of the futures,” Ahmad said.

Many airlines will end up using both the Dreamliner and the A350 and there is room within the market for both planes, according to Scholle.

But it could be that while Boeing and Airbus have been playing out the future of the industry on a grand scale, smaller, more nimble companies are sneaking in.

“The big competition for these guys comes form the smaller airplane producers,” Scholle said.

Companies like Mitsubishiin Japan and Sukhoi in Russia, who are trying to make their own aircraft in the 80-to-100 seat range, pose a severe threat because of the industry’s huge reliance on small and adaptable planes, he said.

Meanwhile Asia will also be looking to topple the West’s dominance of the market, but that could be some ten years off, according to Scholle.

“Some day China will certainly be a player in the aviation market, it's just a question of when,” he said.

Military Competition

The battle between Boeing and Airbus is also raging on the military front as the companies continue to slug it out to win a contract from the U.S. Army to produce its next generation of refueling tankers, the KC-X.

“With so much at stake, neither Airbus nor Boeing can afford to lose such a lucrative contract. Boeing needs it to secure the 767 line and Airbus needs it to get a foot into supplying the U.S. military,” Ahmad said.

With military budgets likely to be tightened in the Western world thanks to the wave of austerity gripping the political landscape, such contracts represent an all-important lifeline.

"Do not under-estimate Airbus. It will be showing the A400M military transport at Farnborough and that, in its own way, is a world leader," Beaver said.

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