Full disclosure: The following is a story I heard from an industry professional during an Airshow in Asia. It was presented to me as the truth, and while I may have some doubts, I found it so convincing that I decided to tell it here. I personally work for an OEM that has roughly as much business with Boeing as with Airbus and I love both companies so please consider me absolutely neutral in the telling of this story. The gentleman who told me this story used to work in government relations in the US for large investment projects, and has intimate knowledge of Airbus' forays into the US during the past decade; he told me this fascinating story and asked me to keep his identity private.

When I was working in Seattle in '05-'06, I got a lot of crap from people about Airbus and especially over its industrial choices and decision to pursue and build the A380. It was kind of a shock to me, as I had just come from France where the A380 was being hailed as the greatest achievement in mankind and the sign of Airbus' future complete domination of the world. How wrong I was.

Point to Point Vs. Hub

Everyone in the Puget Sound area was drinking the "point to point"* kool aid -which made the 787 look like the greatest thing ever- and talking trash about airbus' Hub strategy. I heard everything from Seattleites, from the A380 being ugly, unable to fly, and the last nail in the Euro makers' coffin. Who could blame them? The A380 was late, over budget, not selling well and many US airports were saying they wouldn't welcome the plane. The whole world was excited by the Dreamliner, which was being touted as the most professional, cutting-edge, best-managed A/C development program in history.

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Airbus, meanwhile was late to get the A350 program on track and many observers thought that they would be stuck playing catch-up to their more innovative Seattle rivals for decades to come.

Fast forward a few years and the situation has turned around; while both companies are back competing (the way I like it), the Boeing people have lost their clear advantage, and have had to eat a lot of crow. The 787 had a very painful entry into service (despite amazing order books) which has cost Boeing money and time and Boeing is now playing catch-up with their future programs; how did this happen?

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Like most turnarounds, it is a conjunction of factors that could be attributed to luck, or to great strategy but most likely both.

*Point to Point dictates that airline passengers will be willing to pay more to fly direct from their departure to their destination thereby giving the airline a better profit; in the context of better seat/mile consumption for the 787 this meant much better economics for airlines. The hub strategy believes that through economies of scale, airlines will make more money flying passengers in large aircraft between major hubs and then transferring them onto smaller A/C to their final destination. As often in life, both were kinda right and kinda wrong…

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In 2006, Airbus had many problems:

-the A380 was dragging the whole company down and showcasing problems in its internal organization

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-EADS, the parent company, was getting killed by its exposure to the USD because of a weak Euro

-the lucrative long range segment was being lost to 787 orders and the upcoming A350 wouldn't be ready for a decade

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-its military branch was underperforming

Among those, Airbus identified that their biggest problems were lost profitability due to currency exposure and the market's perception that they were trailing behind Boeing. So, the solution would have to involve getting a production base in the US and to find a way to close the gap or turn things around on the program development front.

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The KC-X program

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2006 saw the opening of bids for the new KC-X, the replacement for the KC135 tanker fleet.

The company saw a great opportunity for a morale booster to win that program and it offered them a great way to approach the US and study setting up there; their common bid with Northrop was very aggressive, thanks in part to Alabama's very effective incentive policies. My source tells me that the US's decision to award them the contract came as a huge shock to Airbus, as they never thought they would have a chance and hadn't really entered this bid with the goal to win. The goal was to mess with Boeing and use their pride to have them dedicate resources to this program. My source also tells me that Airbus/Northrop's bid was deliberately flawed, I'm not sure I believe that but in retrospect I could understand why. As "predicted" the GAO upturned the decision in 2010 and finally gave the contract to Boeing.

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As a result, Boeing would now have to dedicate many resources to a high-prestige, low profitability project until at least the EIS in 2018. As for Airbus, they now had the knowledge and contacts needed to set up a Final assembly line in Alabama.

The NEO coup

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Airbus now had to strike while the iron was hot; the global financial crisis and high oil prices were killing airlines (and therefore Airbus' customers) and ruining the aero landscape. New developments would bring great economic improvements to long range aircraft, but the sector's bread and butter, single aisle jets, would not have a new product for at least ten years.

To engineer a structure and systems from scratch would be costly and take too long. The 787 had taught everyone that radical innovation and Aerospace don't mix: operators are risk averse, operational flaws cause mayhem but most of all, they could not afford to way a decade to get better economics out of their single-aisle planes. Airbus had to assume that, after the KC-46, Boeing would have to look at a new B737 which, if it was like the B787 would offer better economics and flight experience. They also saw that both P&W and CFM were working on new low-consumption engines (respectively the GTF and LEAP engines) that were being offered to upstarts like COMAC.

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What if you integrated these engines into the existing A320 with minimal modifications? After doing internal work they calculated that they could easily reach a target of 10% improvement in fuel consumption, maybe more if they looked at other tweaks. And they could deliver the program in half the time of a brand new plane for about 1/3 of the cost. But that plane would never perform as well as a clean-sheet design, what to do? They floated the idea to some influential (read LCC) customers and the response was universal praise. Thus the A320 NEO program (New Engine Option) was born. A year later, Boeing announced the B737MAX (their own re-engined version of the plane), thereby validating Airbus' Choice.

As a result, the MAX has a stated EIS 18 months after the NEO and in terms of orders, Airbus has a lead over Boeing (though that might not last as airlines desperately need new planes).

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To add insult to injury, Airbus's planned KC45 assembly facility is now being built to assemble NEOs, making it the fourth FAL for the A320, a move Boeing could not have really seen coming.

So in the span of a half decade, Airbus has caught up to Boeing; the A350 isn't finished yet as a program so it's too early to sing halleluiah but its development is going well (logical as it isn't as daring as the Dreamliner). And work on the A320 NEO is also going well since:

-most of the development cost is shouldered by engine makers

-the A320's higher gears mean that the new high-bypass turbofans will fit under its wing with far less work than for the 737 -which already has a flattened nacelle- to keep the engines from dragging on the ground.

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What's next?

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Airbus is doing better, Boeing isn't doing worse and both will have to contend with new competition from the Chinese and Russians which they are intently studying.

Many airlines who liked the A320 NEO strategy, are now asking for an A330 NEO and Emirates even asked for an A380 NEO. Simultaneously, Boeing has started work on the 777X, a reengined version of its wonderful 777 which will incorporate the latest GE engines for better range and economics. So the competition is still going strong, but on a much more even footing than I would have thought 8 years ago.