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Originally published June 21, 2007 at 12:00 AM | Page modified June 21, 2007 at 4:46 PM

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Airbus fails to win over GE for alternate A350 engine

Airbus failed to persuade General Electric, the world's biggest jet-engine maker, to build a new turbine for the planned A350 XWB airliner...

Bloomberg News

Airbus failed to persuade General Electric, the world's biggest jet-engine maker, to build a new turbine for the planned A350 XWB airliner in a setback for the European planemaker's most important program.

A meeting between Airbus Chief Executive Officer Louis Gallois and GE Aviation boss Scott Donnelly at the Paris Air Show ended without agreement, GE spokesman Rick Kennedy and Airbus Chief Operating Officer John Leahy said today. Fairfield, Connecticut-based GE is still not convinced there's a case for spending $1 billion to develop a new engine.

"When I look at what they're asking, I can't make it work for me," Donnelly said in an interview before the meeting. "Their reaction is that what I offered doesn't work for them."

The A350, lagging behind Boeing's 787 Dreamliner on orders, is so far offered with only one engine, the Trent XWB from Rolls-Royce Group Plc.

The 210- to 330-seat Dreamliner comes with a choice of GE or Rolls-Royce engines.

Airlines try to avoid buying planes with only one engine supplier because it leaves them with little leverage to negotiate on price and ongoing maintenance costs. Airbus acknowledged earlier this week that the lack of alternatives was holding up sales.

"There are some customers being reluctant so far, but I think we'll convince them to move on with Rolls," Airbus Chief Financial Officer Hans Peter Ring said June 19.

'Damaging'

"This could be very damaging," said Richard Aboulafia of Teal Group, a Fairfax, Virginia-based consulting company. The A350 badly needs GE's backing, he said, as well as that of International Lease Finance Corp., the world's biggest plane-leasing company.

"Pricing will stink, margins will suffer and market share will be dismal if they don't get those endorsements," Aboulafia said.

ILFC, which had pledged to buy 16 of a previous version of the A350, now says it wants more information before committing to the A350 XWB.

"You're totally captive" with a single engine supplier, said John Plueger, ILFC's chief operating officer, in an interview before the show.

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The A350 XWB is scheduled to enter service in 2013, five years behind its rival. The Airbus model has 134 firm orders to the Dreamliner's 634, which include a 52-plane agreement signed June 19 by ILFC at the Paris show.

GE's stance could hurt Airbus sales even to key customers such as Singapore Airlines Ltd., which made non-binding commitments to buy 20 A350s last July and took options on 20 more.

"Principally it's the engine choice that will take us from a letter of intent to a signing situation," Singapore Chief Executive Officer Chew Choon Seng said June 4.

The absence of engine choice was also "an issue" for US Airways Group, said Andrew Nocella, the airline's senior vice president in charge of route scheduling, as he announced 22 A350 orders the first day of the show. A "competitive price" from Airbus helped clinch the contract, Nocella added, without disclosing financial terms.

GE is proposing to offer its GEnx engines, developed for the Dreamliner, on the A350-800 and -900 variants. Airbus has so far refused, pushing instead for a new engine that achieves the fuel-efficiency of the GEnx while also delivering enough thrust to power the larger, 350-seat A350-1000.

"We have no intention of putting their GEnx engine on the A350 at all," Leahy said June 4. "It has to be a generation beyond."

To equip the entire A350 model series, GE would have to spend about $1 billion developing an all-new engine in a similar category to its existing GE90, the only turbine available with long-range versions of the Boeing 777. GE and Airbus have been discussing A350 XWB engines for more than a year.

"It's pretty clear from what they're saying they are not going to do an engine for the A350 as things stand," said Nick Cunningham, a London-based analyst with Panmure Gordon. "They already have an effective exclusive on the 777 and, as they say, why compete with themselves?"

Pratt & Whitney, the world's third-biggest engine maker, also ruled out making engines for the A350 because it would need more time to adapt fuel-efficient technologies for a widebody plane.

"It's a substantial risk I'm not willing to take, given the window of opportunity," Louis Chenevert, chief operating officer of parent United Technologies Corp., said in an interview.

Although the Engine Alliance, a GE-Pratt & Whitney joint venture, could theoretically adapt its engine for Airbus's A380 model to the A350 series, such a move would require "considerable modifications" as well as fresh regulatory approvals, alliance head Bruce Hughes said yesterday. It would also need a green light from both GE and United Technologies.

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