Record Asian order dominates Paris air fest

Markets Reuters

By Tim Hepher and Karen Jacobs

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PARIS/ATLANTA (Reuters) - A record 200-plane order from Asia's largest budget carrier looks set to dominate a jackpot of deals at next week's Paris Air Show in clear evidence of a multi-speed recovery shaping global industry, sources said.

While Western powers display military hardware that their armies can no longer guarantee to buy, all eyes at the world's largest air show will be on civil demand from growth-hungry Asia which has supplanted North America as the busiest travel market.

The roughly $17 billion deal from Malaysia's AirAsia <AIRA.KL> for revamped Airbus <EAD.PA> A320 jets is seen as the centerpiece of an industry show once again buzzing with orders.

"With the global economy, you're seeing some soft spots but yet you're also seeing some acceleration in some parts of the world. We are seeing a lot from Asia-Pacific and the developing economies," said Gleacher & Co analyst Peter Arment.

Sources close to the deal, which is still being finalized, said AirAsia was expected to beat a record for the largest number of planes sold in one contract, even before a recent 180-plane order from India's IndiGo is formally signed.

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The deal will also be a boost for French-U.S. engine venture CFM International, owned by GE <GE.N> and Safran <SAF.PA>, which is scrambling to catch up with rival Pratt & Whitney <UTX.N>.

Boeing has not yet decided whether to copy Airbus in putting new engines on its popular 737 plane. It is weighing this against its preferred option of a bolder redesign, meaning Airbus faces pressure to prove its point with big market wins.

In a build-up resembling the kind of mind games played by team coaches before a sporting clash, a Boeing <BA.N> official speculated this week that Airbus could sell up to 1,000 jets. European sources dismissed the remark as a bid to embarrass Airbus.

Still, barring a last-minute deferral, industry sources said AirAsia's deal was being arranged for Thursday as the finale for a week in which Airbus alone is expected to sell over 500 jets.

Other customers expected to sign up for the revamped A320neo are India's Go Air with 72 planes and U.S. leasing giant GECAS.

A question unlikely to be answered at the air show, at least in public, is how much they are getting for their planes.

Evidence seen by Reuters indicates that planemakers came out of the industry's worst ever recession offering sharply reduced prices to try to keep up sales momentum, even as they increase production to record levels to keep up with resurgent demand.

According to a U.S. diplomatic cable on talks that led up to a sale of Boeing 737s to Caribbean Airlines last year, Boeing offered a 50 percent discount plus training in what the cable described as an "aggressive business offer" to beat Airbus.

The cable is part of a cache of messages obtained by the Wikileaks website and supplied to Reuters by a third party.

An aviation industry source, who asked not to be named, told Reuters that such steep discounts from both Boeing and Airbus had not been uncommon in the periodic price wars between the two plane manufacturers.

Boeing declined to comment. The State Department did not respond to a request for comment.

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Some also question how far the Asian boom is sustainable.

"With ambitious figures like these (aircraft sales) the economy can sometimes pay you an unpleasant visit," said Washington-based analyst Richard Aboulafia of Teal Group.

Airbus and Boeing are refreshing their product lines amid future competition from China, which will display a cabin mock-up of its first large passenger jet, and Russia, whose prime minister Vladimir Putin will visit Le Bourget on Tuesday.

Wheeling and dealing is carried out in luxury chalets with a view of passenger jets like the new Boeing 747-8, the world's longest airliner and one of the stars of this year's show.

The jet is painted in orange and red "sunrise" livery symbolizing the rise of Asia as a hugely important market.

Even though the air show tarmac will be a Paris muscle beach for the world's most powerful transporters and fighters, Western powers facing heavy defense cuts are expected to keep the military side of the world's largest air show in check.

A mood of austerity has discouraged some U.S. industry leaders from attending and the political climate for arms exports is more difficult to read after the Arab uprisings.

"Exports are being dampened by turmoil in the Middle East. Some countries are making decisions that focus more on social and defense needs," said Byron Callan, a director at Capital Alpha Parters in Washington. "Japan is focusing on its crisis and the economic damage from Fukushima," he added.

Several companies including Eurofighter will however take the opportunity to give briefings on their operations in Libya.

The show also takes place against a backdrop of rising trade tensions as Air France <AIRF.PA> comes under mounting political pressure in France to buy Airbus planes instead of Boeing.

Industry experts say that internally, the episode is acutely embarrassing for Airbus, which plans to warn European ministers at the show of the risks of a trade war over European emissions trading proposals. But U.S. commentators say a petition signed by 100 French parliamentarians proves that partly state-owned Airbus does not operate on the same playing field as Boeing.

(Additional reporting by Y-Sing Liau, Cyril Altmeyer, Kyle Peterson; editing by Sophie Walker)