Airbus

[syscom3]

I saw this article this morning about EADS and the future of Airbus.

Please post any others you have. Lets keep this on a proffesional level and not have a silly name calling "Boeing vs Airbus" battle.

October 18, 2006; Page A21

Aerospace codgers must be having a Rip Van Winkle moment. There was a time when Europe's supersonic Concorde was ringing up orders and seemed destined to be the future of commercial aviation. Then costs ballooned and the economics dropped out of the project. Only 14 planes were put into service with the national airlines of Britain and France, a face-saving gesture subsidized by taxpayers.

Nothing quite so ignominious will likely be the fate of the giant Airbus 380, although it's interesting to note that 15 just happens to be the number of assembled, flightworthy planes stranded amid the current production shutdown. But one thing is certain: Any hope that Airbus would become more like a real company, and less like a make-work-***-technological ego trip for European governments, just went out the window.

Christian Streiff, the short-lived Airbus chief who resigned last week, was concise about why he wanted full control to impose a brutal overhaul of how the European group does business: "We must generate cash to afford [to launch a competitor to Boeing's hot-selling 787] and continue investing in the future."

He was cashiered, which means investment cash now will have to come from somewhere else, i.e., European taxpayers.

The crisis suits Spain just fine, eager to increase its government ownership of Airbus and grab more of the work as a result. The German government is leaking a proposal to take a direct stake, buying shares that DaimlerChrysler wants to sell. The city of Hamburg craves a piece of ownership too, to protect local jobs.

All this is exactly the wrong way for Airbus to be headed, but there's another irresistible pressure on political meddlers. Five percent of Airbus's parent company was recently acquired by a Russian state-owned bank, which is now militating for a seat on the board. The Russian move, even more than the A380 troubles, probably guaranteed a reversal of Airbus's casual migration toward true privatization.

The A380 will fly in respectable numbers even if it never makes money. European taxpayers will see to that. The hastily redrawn A350 will sprout wings too, even if it's years late against the 787 and never recovers its costs. Ironically, the Airbus meltdown may one day be seen as the decisive ending of the flagging era of privatization. Its deficiencies notwithstanding, Airbus is admired by some Democrats as a template for future U.S. government enterprises to pursue carbon control and "energy independence."

This comes as Washington has its finger on the trigger of a World Trade Organization proceeding on Airbus subsidies. The lawsuit has been paused for government-to-government negotiations, but it's hard to see a resolution now. Airbus may be the case that blows up the WTO, or Washington may back down to avoid a nobody-wins trade war.

Yet folks at Boeing seem more bemused than worried about the Airbus meltdown and its consequences. Sales have lately been stupendous. Boeing's 787 and 777 have commanding positions in the lucrative long-haul market. Only Airbus's single-aisle A320, the company's true home run, has been outselling Boeing's 737, but Boeing still has a fat order book of 737s.

Airbus will continue to be a government-subsidized competitor, but much of this advantage will be dissipated over a featherbedded work force and inefficient manufacturing system. So Boeing has nothing to worry about?

Not entirely. Building large commercial aircraft is a business where the decisions are few, much agonized over, and pregnant with long-run consequences. The decision that Boeing has been noodling for years, and likely planned to continue noodling for years, is when to launch a replacement (or multiple replacements) for the 737.

Planes in this class sell in large numbers (Boeing sold 569 last year, compared to barely more than 1,400 jumbos in the 747's 36-year existence). They are the foundation of scale and scope in the airliner assembly business.

Boeing's decision is complicated by several factors: desire not to cannibalize sales of the 737, concern that technology is not yet proven that would allow dramatic efficiency gains. Conservative thinking along these lines served Boeing well in choosing not to join in Airbus in the superjumbo gamble, but there's a new consideration in the post-737 sweepstakes: Airbus may be able to tap taxpayer money, but there's no bottomless well of engineering resources and skills to tap. Its preoccupation with the A380 and A350 means Airbus would be in no position to match a Boeing investment in a new short-haul workhorse for a decade or more.

Enter Pratt & Whitney, which has spent 20 years pursuing a "geared turbofan" as a breakthrough technology to rebuild its lagging share in the engine marketplace. Never mind the technical specifications: The engine would allow the various spinning parts of a modern turbofan to operate at their own efficient speeds, saving fuel and maintenance costs.

Other engine makers have their own breakthroughs in development, but P&W's is the only technology in the works likely to justify an early gamble on a 737 replacement. Pratt says the engine will be flight-tested in 2008.

Game theorists, fire up your workstations. CFO Dave Anderson of Honeywell told an investors conference last month that his company expects to compete for contracts related to the 737 replacement later this year. Southwest Airlines, a big 737 customer, is pushing for a new plane. Don't be surprised if Boeing, in despair at getting relief at the WTO, decides its best bet is to move fast to cement its lead while Airbus struggles.

[Matt308]

Emirates is sitting on $43 Billion in A380 orders and has announced they are contemplating changing many of those to A340/A330. As one of THE primary launch customers, this is giving investors fits.

Let's face it. A world with no competitive manufacturing, is a world destined for no innovation and high airframe costs. As much as some folks would like to see one or the other manufacturer suffer its demise, the operators are certainly not hoping for the same. Eveyone would suffer.

Hope I didn't violate your rules from above, but I have a hard time decoupling this discussion from the rivalry.

[syscom3]

Matt, I saw that article too about the UAE thinking of cancelling or cutting orders. I suspect they wont, as they can leverage the A380 delays into great deals on other aircraft they would buy anyway.

What I am interested in too, is the number of A380 airframes Airbus has to sell to break even. The delay penalties they are paying for, and the loss of productive time building the aircraft is increasing the numbers needed.

I dont mind this thread being a Boeing vs Airbus battle...... just no name calling (Boeing or Airbus sucks!!!!) and deal with the subject on a technical level.

[Matt308]

Good.

As you are probably aware, the actual numbers and $ necessary to break even is closely guarded. You might surmise, however, that the launch of the airplane is an indication that the numbers of firm orders indicate very little risk. The numbers that are being released by Airbus and the operators are also subject to debate. As this information is proprietary between Airbus and each individual operator. They don't need operators competing with each other on concessions, don't ya know! However, I have read that EADS is claiming losses of almost $5Billion in profits whose hemmorhaging will not be staunched until 2009.

Of interesting note, is EADS additional effort to build the A400M. An internal audit is underway with that program too. EADS has officially stated that A380 engineering will in no way affect the A400M, but time may tell on what is really going on.

I'm reading that over 10,000 people may be laid off. Supposedly these would not be manufacturing/integration types, but rather administrative and mid level management. That's a lot of people in mid management.

[Glider]

There was a piece in the paper today about BA replacing all its long distance fleet. Its in the initial stages and the planes will not be needed for 8-10 years.
You probably are aware that BA long haul is all Boeing but I bet they could cut the deal of the century with Airbus.

lets see how this goes

[syscom3]

Glider, I think you will see BA have a mix of -380's and 787's.

The -350 isnt even in the design stage and I wouldnt bet on it being around till 2015, if then.

The -380 will have its issues worked out by then, but I dont think you will see many airports in the world that could handle it. No airport is going to spend the hundred of millions in dollars on infrastructure to handle an occaison A380.

I think the 787 is the future of aviation. People will always prefer to go point to point than to change flights in hub airports.

[Matt308]

Or so Boeing has stated. However, I think Asia is going to change the way the world thinks of aviation. Japan already uses single class 747-400s for short domestic hops. The A380 is likely to capture those types of operations that are surely to increase with China's burgeoning society.

[the lancaster kicks ass]

geez i don't want this to degrade into name calling either but the first article you posted syscom is even more bias than me just as much in the tone of the writing than the subject matter..........

and i can see what syscom's saying about the future of BA, however they will more than likely put more emphasis on the A380 for major routes such as London-New York which are very lucrative, they would rather get more people onto bigger aircraft and soldier on with slightly older planes for longer trips with smaller capacities, budget airlines however would much rather have the Beoing..........

[syscom3]

Lanc, but look at it this way, if a sizeable number of the passengers fly to these hubs just to change planes to go to their ultimate destinations, then what happens to the -380 passenger loads when many fly will on the 777 or 787 to the smaller airports?

I remember my traveling days, and I would have liked to travel from point to point and not go through hubs

[the lancaster kicks ass]

for a major route like London-New York you don't need to stop over...........

[syscom3]

Originally Posted by the lancaster kicks ***

for a major route like London-New York you don't need to stop over...........

Thats true, and thats where the -380 will be usefull. But that also assumes that all the passangers have NYC as a final destination.

[syscom3]

This is really bad news for Airbus. They only have sold 159 of them, far short of the goal of profitablity. Plus the demands for additional compensation from the airlines sure isnt going to push that number down anytime soon.

The Seattle Times: Business & Technology: First profitable A380 superjumbo will now be the 421st sold, Airbus says

Airbus, the world's largest maker of commercial aircraft, conceded today that the chances of making a profit on the 555-seat A380 model slipped years into the future because of cost overruns and production delays.

The planemaker will reach the breakeven point in the program with the delivery of the 420th A380, according to the latest analysis, compared with 270 aircraft in a 2005 business plan, Airbus said today in a report posted on the Web site of parent company European, Aeronautic Defense & Space (EADS).

Airbus has so far received orders for only 159 A380s and customers, angered by the delays, have threatened to cancel some contracts. Under current planning, Toulouse, France-based Airbus will deliver only 84 of the planes by 2010, compared with the 159 aircraft estimated as recently as June, with a total operating loss in the period of $6 billion.

EADS said Oct. 3 that the A380's first delivery is now scheduled for the fourth quarter of 2007, a year after the most recent plan and the third postponement in 16 months. The delays, first disclosed in June 2005, have prompted the departure of two top executives. Airbus estimated as recently as mid-2004 that the A380 would be profitable after 250 deliveries.

The A380's lifetime deliveries will total 751 aircraft, unchanged from a 2005 forecast, Airbus Chief Financial Officer Andreas Sperl said in the Web site report. That compares with 1,000 A380s that Airbus expected to sell over the model's half- century lifecycle in May 2004.

Airbus risks airlines making operating-cost comparisons with Boeing's smaller 787 model, which will be going into service about the same time, said Hans Weber, president of San Diego-based Tecop International, a consulting company.

Tecop has estimated Airbus will sell 496 A380s, including 43 freighter versions, through 2025, and "since we did this study in 2001, we think there are indications the number will be smaller," Weber said. The A380 is designed to serve routes linking large hub airports, while the 787 will allow more so- called point-to-point routes between less populated cities.

"There's only a relatively small number of routes in the world where hub-to-hub flying makes sense," Weber said. "That number has not increased, whereas the number of point-to-point flights has increased."

The A380 delays have carved "huge holes out of our resources," and "we have to take cost-cutting measures to compensate for this," EADS Co-Chief Executive Officer Tom Enders said at an aviation conference in Berlin today. "We don't want the A380 to be the last model we build. We want to keep making new airplanes."

The planemaker will centralize purchasing, seek more supplies from lower-cost countries, streamline and contract out component shipments and work to reduce spending on services, Airbus Senior Vice President of Financial Control Harald Wilhelm said in a separate presentation on EADS's Web site.

The German division of Airbus said Oct. 17 that it reduce the workweek, cut 14 percent of its temporary workforce and give employees who work overtime extra time off instead of additional pay in response to the A380 production delays.

Airbus will receive a "grace period" of one year if it can't repay German government loans on time because of the production delays, the Economy Ministry said in a written response to an opposition party question that was obtained today by Bloomberg News.

[the lancaster kicks ass]

well to most desdinations in America, Europe and the near east (although i don't know the A380's range) will be reachable in one go, i'd love to see the range of the A380 imposed onto a map...........

edit- you posted your other post whilst i was typing this one

[twoeagles]

This has been a very interesting discussion. Although trained as an aeronautical engineer, I never worked on transport aircraft...But in the world of major weapons systems, 80+% of life time cost is maintenance and logistics. What I have not seen with A380, while efficient in revenue/passenger mile, is compelling maintenance savings for any airline selecting to change from BA heavies. There's an enormous up front cost involved unless they are outsourcing all the logistics/maintenance, and then it is still a gamble that passengers will love flying on a moving hotel which offers a fairly limited number of destinations equipped to handle it. Lob a grenade at me for suggesting this, but when Airbuis was riding high and Boeing was on the ropes a few years ago, I think their collective executive ego was in overdrive and pushed them to attempt the 380. I think the early business models reflected what the executives wanted to see.

Tom

[syscom3]

I do think that Airbus had some ego problems..... emulating the soviet era charachteristic of "giganticism".

There are some heavily traveled routes between some cities, where the -380 will make sense, but the huge majority of passnagers ultimatly end up at smaller airports.

Could you imagine tourists flying directly from Tokyo to Las Vegas and not having to go through the San Fran or LAX hubs?