$30bn BA order bonanza set for take-off

It is one of the biggest prizes the airline industry has to offer. The race to the tape began in earnest yesterday when British Airways launched the competition to buy new long-haul aircraft. To the victor, the spoils and in this case the spoils could not be bigger - orders worth $30bn (?16bn) over time and the chance to dominate the fleet of one of the world's most important national airlines for decades to come.

For that reason, Boeing and Airbus will be throwing everything they have, and then some more, into the contest. The outcome will determine whether the US aircraft manufacturer retains its monopoly over BA's long-haul fleet or whether its European competitor breaks into one of the few major carriers to have remained impervious to its blandishments and marketing techniques - at least as far as long-range jets are concerned. More than that, the success or failure of some multi-billion dollar aircraft programmes could hang on BA's decision.

The stakes, in other words, could not be higher. For Boeing, it is an opportunity to demonstrate that its renaissance over the past 12 months and its renewed ascendancy in terms of orders over Airbus is not just a flash in the pan. For Airbus, it is a chance to stop the rot and show that despite the horrendous profit warnings, management convulsions and programme delays that have beset it since June, it is still a force to be reckoned with.

BA has not ordered a new aircraft for six years as it has grappled with a succession of crises - from 9/11 and the Iraq war to Sars and a ?2bn pension deficit. But now that a solution appears close to the pension problem, BA is poised to do two things: return to the dividend list and start buying aircraft once again. And, as one industry insider said: "Fleet competitions do not come bigger than this."

In the short to medium term, BA has two requirements. First, to add a further 10 aircraft to its existing fleet of 114 long-haul jets to cope with the expansion of its intercontinental network, which is growing at a rate of between 3 and 4 per cent a year. Second, to replace 34 of the oldest jets in its fleet - 20 Boeing 747-400s and 14 Boeing 767-300s - with brand new aircraft. Together, these two orders could be worth about $10bn. But eventually, BA will need to replace all 114 aircraft, making the eventual cost of the programme at least three times that amount.

Willie Walsh, BA's chief executive, and his commercial director, Robert Boyle, have no shortage of aircraft to choose from. Airbus is offering the 555-seater A380 super-jumbo, the mid-sized A330 and its successor, the A350 XWB. Boeing's stable is made up of the 777, the new 787 Dreamliner and the 747-8, a stretched version of the existing jumbo with maximum seating of 467 in a three-class configuration.

Mr Walsh could opt for one aircraft from one manufacturer but that is unlikely. The best guess is that he will choose to fill BA's requirements by buying two different aircraft types. "This is a decision for the next 25 to 30 years so it is important we get it right," he says. "It is also a very big deal for Boeing and Airbus."

The "request for proposals" that BA issued yesterday to Airbus and Boeing and the three engine manufacturers - Rolls-Royce, General Electric and the Engine Alliance (a partnership between GE and Pratt & Whitney) - kick-starts the process. BA expects to get offers back some time early next year and then place orders in the late summer or early autumn. In between there will be plenty of haggling and an awful lot of TV dinners eaten in Heathrow hotel rooms by desperate teams of aircraft salesmen.

The 777, of which there are 43 in the BA fleet, and the A330 are fast becoming old aircraft. For that reason, there is speculation that BA will skip a generation and opt for all-new models, given its need for greater fuel savings and reductions in noise and emissions. The A350 and the B787, for instance, are likely to be 30 per cent more fuel efficient than the aircraft they replace and much less polluting - emitting a third less nitrogen dioxide than the ageing B767. The A380 and stretched 747 meanwhile offer 17 per cent lower fuel burn and 21 per cent lower emissions.

Chris Avery, the aviation analyst with J P Morgan, says: "What we will probably end up with is one run-off between the A380 and the stretched 747 and another one between the A350 and the 787. For that reason it is one of the most important fleet replacement orders the industry will see this cycle. It could make or break for these programmes." Given that Airbus alone is spending €10bn (?6.7bn) on the A380 programme, and €8bn on the A350, the price of failure would be high.

But, as he points out, both manufacturers have their problems. "Boeing has yet to sell a single passenger version of the 747-8 to a commercial airline customer and the A380 programme is two years late." As for the A350, that is not due to enter service until 2012 at the earliest while Mr Avery is also sceptical of Boeing's promise that the 787 will be ready in 2008.

The 10 aircraft that BA intends ordering to expand its fleet will in all likelihood be new, mid-sized jets and will be needed between 2009 and 2011. That presents a problem for the A350, which is not due to enter service for another six years. Mr Avery says: "Airbus may be so desperate to lock BA into an order that it promises the earth. So it could offer some A330s until the A350 is ready."

Equally, Boeing could do a deal on the 777. BA has options over 10 extended range versions of the aircraft which could help tide it over should the 787 programme encounter the same delays as the A380 and A350.

The choice between the two competing ultra-large aircraft is equally intriguing. BA made a point of not being a launch customer for the A380 - a decision which has been vindicated in spades as the aircraft has stumbled from one delay to another. Nevertheless, Mr Walsh says he still believes the A380 will come right and, if BA chooses to go down that route, it would probably order 10. "I feel sorry for the airlines that have had to wait to take delivery but I still think Airbus will get it right and that the aircraft will be a success," he says.

Such is the allure of BA as a customer, Mr Walsh has most of the cards in his hands. For obvious reasons, he is also playing them close to his chest. "One thing you can be sure of," says JP Morgan's Mr Avery, "it will go right to the wire."