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Boeing Won't Have To Cut 737 Price To Compete With Rival - Executive

By Kaveri Niththyananthan Of DOW JONES NEWSWIRES Boeing Co. (BA) won't have to reduce the price of its 737 in order to compete with Airbus' fuel-efficient A320neo, said an executive of the U.S. aircraft manufacturer. Kostya Zolotusky, managing director of capital markets development at Boeing Capital Market, told Dow Jones Newswires in an interview in Dublin that Boeing wasn't feeling any pressure to lower its prices to retain market share for the 737, which competes with the A320 family of aircraft. Airbus, a unit of European Aeronautic Defence & Space Co. NV (EAD.FR), said in December it would replace less efficient engines on its popular A320 in a bid to help airlines become more efficient and cut costs. The new model will be 15% more fuel efficient than the current A320 family of narrow-body aircraft and first delivery is expected in 2016. Boeing is keeping its options open on whether it will follow in Airbus' footsteps or develop a new aircraft altogether. "The neo is catching up with our economics," Zolotusky said, adding that Airbus' decision to re-engine was a response to maintain its own competitiveness. Zolotusky didn't think the European aircraft manufacturer would co-produce both versions of the A320: "It's difficult to price them differently enough to ensure there's demand for both." He wasn't worried that demand would wane for the 737. Ryanair Holdings PLC (RYA.DB), Europe's largest low-cost carrier, is one of Boeing's largest customers for the 737 model. It previously has said it wanted to buy 300 aircraft but if a deal couldn't be reached will pay a further EUR500 million dividend in 2013. Ryanair Deputy Chief Executive Michael Cawley said Monday the airline continued talks with Boeing but also was talking to Russian and Chinese aircraft manufacturers about potential orders. However, he added the Chinese were at least a couple of years away from producing a 150- to 200-seat aircraft that would suit its needs. But Cawley expected to see downward pressure on prices for the 737 as the A320neo comes into play. Airbus previously has refused to entertain negotiations with Ryanair due to a past dispute, leading to bulk orders for Boeing. That would most likely limit Ryanair's leverage in any negotiations with Boeing. Zolotusky wasn't concerned by those types of orders by airlines that prefer one aircraft type due to cost. Lessors, for example, always would need both Airbus and Boeing aircraft to avoid being captive to one manufacturer, he said. He expected lessors to play a greater part in aircraft financing with export credit expected to become more expensive under proposed new rules that could come into effect in 2012. About 30% of capital requirements in 2010 was provided through export credit agencies and Zolotusky expected that to fall to 20% of the market as the commercial markets regain their strength. About 25% of aircraft financing comes from banks, while the capital markets provide about 20%. Zolotusky doesn't think the more expensive source of capital by export credit agencies will dent demand for aircraft. "There's much healthier commercial and debt markets," Zolotusky said. He added there were an increased number of new players willing to support the industry to finance aircraft as collateral or as an asset class. -By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

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