The balance between Boeing and Airbus in one of the world's most important air transport markets is shifting with Japan Airlines' (JAL) order for the A350, and the consequences will likely be transformational.

The agreement, including 31 firm orders, is so significant because roughly 90% of the country's market belongs to Boeing. Not only are other Japanese carriers, and All Nippon Airways (ANA), in particular, now more likely to order Airbus aircraft, the rationale for the close industrial tries between Boeing and the Japanese aerospace sector could be compromised. After all, the A350 deal means JAL will order no Boeing 777Xs in the foreseeable future.

Airbus's breakthrough in Japan follows a similar success in the U.S., where the aircraft maker managed to place more than 200 narrowbody jets with American Airlines in 2011. Other than a fleet of Airbus A300s, American had been exclusively tied to Boeing and earlier to McDonnell Douglas.

Teal Group analyst Richard Aboulafia says the Airbus win in Japan is a sign that it has upped its game. “The bad old days of management [and] impossibly dumb program launches are over,” he says. “Instead, Airbus is a far more focused company with solid management, and it seems to be executing well” on the A350.

But the deal is telling about Boeing, as well. Since at least 2011, key customers have pressed for the 777X launch, which now looks likely to occur at the Dubai Airshow in November. The 777X delay provided Airbus more time to market the A350—and timing was pivotal in the JAL campaign. Aboulafia believes the 777X has a bright future, nevertheless, though he concurs that Boeing's slow progress on the new jet has cost it customers and could prompt ANA to follow JAL's lead. “For ANA, relying on Boeing for 777Xs means running the risk that JAL, their direct competitor, will get A350s as 777 replacements years before ANA does,” he says. “Therefore, an A350 order is likely.”

Bank of America Merrill Lynch analyst Ronald J. Epstein calls JAL's A350 order “a major upset” that “bodes poorly” for Boeing's market share and widebody strategy. “Boeing management has focused recently on its plans to dominate the widebody market as the narrowbody market becomes more commoditized,” Epstein writes in a note to clients. “But if JAL's order is any indication, this may not be playing out as planned.”

He points out that 20 of the 35 customers ordering A350s also have 777s in their fleet or have revealed plans to acquire the Boeing jet. “While the company clearly does not want to play a market-share game at the risk of margins, it needs to reevaluate its 'go to market' strategy when competing with Airbus,” Epstein says.

And Airbus may have one more card to play. “We might stretch [the A350], but we are not sure how big the market is,” John Leahy, chief operating officer for customers, said Oct. 7 at the International Society of Transport Aircraft Traders (Istat) Europe conference in Barcelona, Spain. “We are studying it.” This was the first time an Airbus official has indicated this possibility.

As part of the revamp to make the 777-9X, Boeing is stretching the 777 further and making it larger than the A350-1000. Airbus has stated that it does not see a need to lengthen the A350 beyond the 1000, which seats 350 passengers in three classes, depending on configuration. But the gap between it and the next-larger model, the A380, is about 170 seats, according to standard layouts. Meanwhile, the proposed 777-9X is now almost the same size as the 747-8, at around 400 seats—10-20% larger than the A350-1000.

Leahy argues that Boeing is stretching the 777 not because there is a market for it, but to attain needed unit-cost improvements. He doubts there will be many buyers for an aircraft in the 400-seat category. But there was strong demand in the past when Boeing still offered the 747-400 and the model was competitive in terms of fuel burn. If Airbus is correct that larger aircraft can best meet growing air travel demand, that will then apply not only to the A380-size category, but also large twin-aisles.

Airbus is busy with A350-900 certification and -1000 development for now, so no company insider expects a quick decision on stretching the A350 further, though it is clearly an option.

In the meantime, the A350 order from JAL could also reverberate through the aerospace supply chain. Epstein says it “bears watching” whether the move by JAL will prompt Boeing to outsource fewer 777X components, such as the center wingbox, to Japanese suppliers. Mitsubishi, Kawasaki and Fuji are major suppliers on the 787 program. Airbus is considering increasing the Japanese workshare in the A350 program.

Boeing's decades-long near-monopoly in Japan, facilitated by the close political ties and long-standing industrial relationship between the U.S. and Japan, has made the country's aerospace industry Boeing's most important international supply network.

In turn, the major Japanese airlines—initially, ANA, JAL and Japan Air System (JAS)—became the most faithful buyers of Boeing jets. JAS also operated 30 Airbus A300s, which JAL inherited in its takeover of JAS a decade ago, and ANA has been operating A320 family jets for years, although its long-haul fleet is still exclusively Boeing. That may change soon.

Airbus has already cornered the new low-fare and smaller regional or domestic airlines in Japan such as Star Flyer, Jetstar Japan and AirAsia Japan (soon to be renamed Vanilla), which have all-A320 fleets. Skymark has ordered six A380s and will take 10 A330-300s on lease from 2014.

Although JAL and ANA were launch customers for the Boeing 787, they were hard hit by the aircraft's grounding and subsequent reliability issues this year. Nonetheless, JAL was the hardest campaign for Airbus to win, if also potentially the most rewarding strategically.

The story behind the A350 order has subplots involving politics, business and personalities. JAL has for some time been losing its status as the de facto national carrier of Japan. It was privatized long ago but had to be rescued in a bankruptcy restructuring through a contentious multibillion-dollar government intervention. JAL is in much better shape since emerging from bankruptcy almost two years ago, but it can no longer rely on political support. When new slots became available at Tokyo's Haneda Airport last month, only a third went to JAL; the other two-thirds were allocated to ANA.

Success in Japan repeatedly eluded Leahy, Airbus's legendary head of sales, despite his victories in other corners of the world that have been instrumental in bringing the manufacturer roughly on par with Boeing in market share. Some say Leahy's outgoing personality does not mesh with Japanese codes of behavior. CEO Fabrice Bregier, on the other hand, who lived in Japan early in his career and speaks some Japanese, has made numerous trips to Tokyo since early 2012. Bregier made it a personal goal to build relationships with the major Japanese airlines and eventually win them over to Airbus.

Moreover, JAL's strongly traditional culture changed under Chairman Kazuo Inamori, the founder of electronics giant Kyocera, during and after its bankruptcy. Early on, Inamori stated that it was not normal for an airline of JAL's size to rely on just one supplier. The 787 problems have surely made it tougher for the airline to continue to stick exclusively with Boeing.

JAL operates a fleet of 45 777s now, with 777-200s and -300s primarily used domestically, and -200ERs and -300ERs on international routes. JAL had previously said it might split the replacement order for its international and domestic 777 fleets, but it has opted to cover both with A350s. The mix of variants for international and domestic routes remains to be decided. JAL has said it is not interested in larger widebodies, such as the A380 or 747-8.

ANA is close to selecting new widebody aircraft for the eventual replacement of its 777s, as well. It operates 55 777s, including -200s, -200ERs, -300s and -300ERs. The 25 777s used on international routes will be replaced first, an ANA spokesman says. The airline is “collecting information” on the 777X and the A350, which it regards as the aircraft best-suited to replace the 777s, an ANA official says, adding that a decision could be made “soon.” ANA plans to start replacing its 777s around 2020.

While persuading JAL to buy Airbus aircraft was politically challenging, things will likely come down at ANA to the usual factors driving aircraft purchase decisions: product quality, timing and price.

With Adrian Schofield and Joseph C. Anselmo.

Boeing and Airbus Fleets of Japanese Passenger Airlines
Boeing single-aisle Boeing twin-aisle AIRLINE Airbus single-aisle Airbus twin-aisle
ANA and Related Carriers
39 138 All Nippon Airways 17
9 4 Air Do
14 ANA Wings
Peach 10
AirAsia Japan 3
JAL and Related Carriers
16 104 Japan Airlines
34 JAL Express
14 Japan Transocean Air
Jetstar Japan 17
Others
32 Skymark Airlines
13 Solaseed Air
StarFlyer 11
Source: Aviation Week Intelligence Network fleet database