Giant Plane Gives Airbus Giant Headaches
By Marilyn Adams
The Airbus A-380 superjumbo jet, which will be the world’s largest passenger plane when it starts service late this year, inspires awe for its sheer size. From wingtip to wingtip, it’s wider than two common Boeing 737s side by side.
But, increasingly, the giant plane has become a giant problem for the European company that’s building it. The recent focus has been on production problems that have put the big jet a year behind schedule and well over budget.
Just as damaging, it appears in hindsight, may have been the decision in 2000 to pin the future of Airbus on the gargantuan 555-seat plane, which the company calls its “flagship.” While Airbus struggles to fill a relatively modest number of orders for A-380s, rival Boeing is booking a huge number of orders for its 787 Dreamliner, a smaller, 300-seat wide-body plane scheduled to fly commercially in 2008.
The airplane makers got set to show off their new plane designs to customers and investors at one of the biggest events in the aeronautical industry — the Farnborough International Airshow, which begins today near London. This weekend, both companies announced some problems with their jets:
*Boeing said Sunday that its 787 Dreamliner is overweight and there are some delays with suppliers, even though it remains on budget and on schedule.
*Airbus, meanwhile, said it expects the redesign of the A-350 — seen as a competitor to the Dreamliner — would nearly double the cost of developing the plane to about $10 billion. Details are to be announced today.
As the world braces for an explosion in air travel brought about by emerging middle classes in developing nations, Boeing in a few years could become the sole supplier of competitive midsize wide-body jets. The reversal of fortune for Airbus, which has led Boeing in total plane orders for five years, could knock Airbus out of competition with Boeing for years to come. That would allow Chicago-based Boeing to largely name its price in a market worth $35 billion to $50 billion a year.
That worries customers.
“We need the competition,” says Doug Parker, CEO of US Airways, which flies more than 200 Airbus jets and has more on order.
Though there are only two major builders of commercial airplanes in the world, he says, “They’re intensely competitive, and that’s good for prices and technology development.”
Critics of the Airbus superjumbo program are more blunt.
To develop a competitive midsize jet, “Airbus needs to reinvent itself,” says aerospace analyst Richard Aboulafia of Fairfax, Va.-based Teal Group, who has followed the industry for 20 years. “The question is: When? When can they pay for it, and when can they find the engineering resources they’ll need?”
Allan McArtor, chairman of Airbus North America, says any concerns that the European company has lost its edge are overblown. “We’re a very healthy company,” he says. “Our customers are confident we’ll build a superior airplane.”
A year ago, Airbus was flying high on the strength of its full order book and the popularity of its model line with the world’s airlines. But lately, news from the Toulouse, France-based company has been nothing but bad.
Airbus has had to announce two six-month production delays of the superjumbo. When Airbus announced June 13 that wiring-installation problems would cause a second delay, the share price of Airbus parent European Aeronautic Defence and Space (EADS) fell 26% in one day. EADS, which owns 80% of Airbus, cut future profit forecasts by $2.5 billion. British BAE Systems owns the other 20% of Airbus.
Two weeks ago, the A-380 production problems and internal politics at Airbus triggered a management meltdown at Airbus and EADS. Airbus CEO Gustav Humbert was forced to resign, as well as Noel Forgeard, a strong supporter of the superjumbo and one of the two chief executives at EADS.
EADS has named Christian Streiff, a veteran French corporate executive with no aerospace industry experience, to head Airbus. Meanwhile, millions of dollars in EADS stock sales by Forgeard and other insiders — before the latest A-380 delay was announced and the share price fell — are being investigated by regulators. Forgeard has said his sale was a coincidence.
More trouble for Airbus
Equally troubling, the Airbus A-350 program has run into trouble. Airbus proposed the A-350 in 2004 as a direct competitor with the Boeing 787 Dreamliner, which by then was years in development.
Customers criticized Airbus’ current midsize A-350, which starts at $165 million, as a glorified version of its older A-330 jet and inferior to the lighter, faster Dreamliner.
Singapore Airlines is the launch customer for the Airbus superjumbo. But it declined to buy Airbus’ midsize jets. Instead, Singapore last month ordered 20 Boeing Dreamliners. The Dreamliner runs $140million to $180 million each.
The Dreamliner is the first commercial jet designed to have a fuselage built entirely of manmade composite material instead of traditional aluminum. That means lighter weight, a big selling point when jet fuel prices are at all-time highs. Composites, Boeing says, will also require less maintenance than aluminum, another savings.
Airbus has repeatedly redesigned its A-350 in response to resistance in the market. It added composite wings and more advanced structural material, an aluminum-lithium alloy.
It added the same faster, more fuel-efficient engines as the Dreamliner. Airbus has briefed customers on a design for an improved A-350 that US Airways CEO Parker calls “a better airplane.”
But other Airbus customers, such as Steven Udvar-Hazy, chairman of International Lease Finance Corp., suggested Airbus spend billions of dollars to develop an all-new midsize jet. ILFC, which leases planes to airlines around the world, is Airbus’ largest customer. “Airbus is at a crossroads,” he said in a recent speech in Florida. He challenged the company to make a decision in time for the Farnborough air show. At a press conference there today, Airbus is expected to unveil yet another A-350 design.
The turmoil at Airbus has surprised customers and admirers worldwide. The 30-year-old company, which is jointly owned by French, German and British interests, had been winning more orders than Boeing, the world’s biggest aerospace company.
But in a clear sign of Airbus’ malaise, the company last week reported only 117 airplane orders in the first six months of 2006, about 25% of the order number announced by Boeing. The reason: midsize jets in the 200-to-300-passenger range. Airbus has orders for 100 A-350s, vs. 360 Boeing Dreamliners.
Airbus’ blunders follow Boeing embarrassments in recent years. In 2002, Boeing was forced to scrap plans for a futuristic, high-speed jet called the Sonic Cruiser. In the financially bleak days after the Sept. 11 terrorist attacks, Boeing found little airline demand for an expensive jet that resembled something from Star Wars.
More damaging were Boeing’s military contract and ethical scandals. The company in 2003 was barred from bidding on certain military contracts for two years. In a second scandal involving a government contract for 767 refueling tankers, Boeing’s former CFO was sentenced to prison.
Boeing chairman and CEO Phil Condit resigned after the scandals. His replacement, Harry Stonecipher, installed to shore up Boeing’s integrity, resigned 15 months later because of an extramarital affair with a female colleague.
Differing philosophies
Today, Boeing is on pace to surpass Airbus in total aircraft orders for the first time in six years. The company never introduced a competing superjumbo because of its dramatically different view of the world. Boeing says it foresees the vast majority of the world’s airlines wanting smaller, efficient planes that can fly to more destinations, more frequently.
Boeing marketing chief Randy Baseler says Boeing couldn’t justify building its own superjumbo to compete for what it believes will be a tiny fraction, perhaps 5%, of the overall jet market. Boeing believes 90% of the wide-body airplanes delivered in the next 20 years will seat 200 to 400 passengers.
Airbus, on the other hand, thinks superjumbos could capture as much as 20% of the total jet market as passenger demand on major international routes grows.
To date, there are 159 firm orders for Airbus’ A-380 superjumbo. Advertised price: $296 million each. Singapore Airlines, which has 10 firm orders, is scheduled to receive the first one late this year and launch it on its Sydney-Singapore-London route.
“We will be able to uplift more passengers with each flight” than is possible now with Boeing 747-400s, says Singapore spokesman James Boyd. “That makes an enormous amount of sense to us.”
Airbus says that on long-haul routes between major international airports, airlines flying the A-380 will be able to sell more tickets on routes that use less fuel and fewer pilots and flight attendants. Likewise, cargo airlines can transport more freight for less.
“The A-380 is a game-changer,” says McArtor.
But the superjumbo has suffered repeated production setbacks. In March, the A-380′s huge wing failed a required stress test, snapping before the maximum stress load had been reached. Airbus plans to strengthen the wing but will not retest it. Then came the wiring-installation delays.
Some A-380 customers are threatening to cancel orders and demanding costly compensation.
“I think Airbus lost confidence in the airline community by not letting people know the problems sooner,” says Annapolis, Md.-based aviation consultant John Walsh.
Even if Airbus this week unveils a new A-350 jet as attractive as the Dreamliner, Airbus won’t be able to build and deliver the first one until years after Boeing delivers its first 787 Dreamliner in 2008.
That could give Boeing leverage to raise prices unfettered. Airlines also might not be able to get planes when they need them because of a manufacturing backlog.
Now, the industry is awaiting word on what decision Airbus will make on the A-350. Whether or not that comes this week, “They need to send a strong signal,” says analyst Aboulafia. “A lot of people don’t want to see a monopoly.”
(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.