Not long ago, a fellow blogger accused us of having a singular point of view in regards to Boeing vs. Airbus. Now, it was not long ago Boeing had its problems, and it has succeeded in turning them around for the most part. Right now, Airbus is in the midst of serious problems, and the A380 is at the heart of it.
As ITP Business reports, a year and a half ago, the A380 seemed to be a success. Airbus had a vision of the future…a plane larger than any other…a new superjumbo. And it is not that idea that we criticize. The drive for humanity to build larger constructs has been a constant in our history: The pyramids, the Titanic, skyscrapers…and so on…
The Titanic sunk because of management…who insisted on cutting safety measures in favor of comfort. It was the dream of a new era. Airbus dreamed the same for the A380…a new age of luxury. With airlines cramming more seats onto aircraft for profit, the luxury seems long gone sometimes.
The double-decker A380 can carry up to 840 people, with a range of 14,500km. The cost per passenger mile would be less than any of its competitors…but its cost-effectiveness would be dependent on an airline’s ability to consistently fill it. Consistently filling 80% of an aircraft is considered a good load factor. Costs would be increased by the fact airports would need to be modified to accommodate them.
To that end, Airbus received orders for 159 aircraft, estimating it would need 270 to break even. The first aircraft began construction in May 2004, using components assembled all over Europe. By December, it was revealed that the project was 1.8 billion dollars over budget. Continued complexities with wiring led to repeated delays, until in July…everything hit the fan.
Not only would there be more delays, but less than half of the promised aircraft for that year would be delivered in 2007. The first aircraft is now set to be delivered in October of next year, almost two years late, to Singapore Airlines. Their chief executive resigned, and his replacement resigned after only two months.
Airbus is experiencing massive financial issues as a result of this. The delay may cause the airlines to seek compensation, and even without that, Airbus now estimates it must sell 420 A380s to merely break even. It is freezing salaries, cutting staff, and thousands of workers will be losing their jobs. These issues are due to management issues, political concessions, and an incredible gamble on the future. The downward spiral could be one Airbus cannot recover from.
Meanwhile, Boeing’s project, the 787 Dreamliner, is a next generation aircraft which transports fewer passengers, but is less expensive to operate. It has had its problems too, but it is on schedule thus far for its deliveries. Boeing seems poised to capture market share and to dictate the future direction of aircraft design. Airbus’s problems mean it cannot devote the funds it needs to developing its competitor for the 787.
Airbus is doing what it can. The Australian reports, for example, that Qantas has taken advantage of Airbus’s situation to add 8 additional A380s to its order, giving it a total of 20 aircraft when delivery is complete between 2008 and 2015. It used the delay to negotiate significant discounts, which will further decrease Airbus’s profit. Qantas will also acquire four A330-200s to help with the capacity issues caused by the delay. Qantas also has an order in for up to 115 Boeing Dreamliners. The article does note that the airline did NOT see Boeing’s 747-8 as an alternative to the A380.
The 747-8 is not an alternative to the A380. It is an improvement on a trusted model. Boeing is not going after the the superjumbo market in the way Airbus is, therefore its efforts are into improving its existing offerings in that area, not in new designs.
If Qantas has not restored your faith in Airbus’s future…Bloomberg reports that Emirates has sent a team of auditors to Airbus’s factories to see if the delivery will be delayed any further. The delay is a massive revenue loss for Emirates as well as the other airlines who have ordered it. Virgin Atlantic postponed its order this week and while Emirates has said it will not do the same as of now, it is considering ordering some 747-800s to supplement its A380 order. It has also apparently received tentative offers from Boeing for a larger version of the 787 Dreamliner, indicating Boeing may expand the plane’s capacity to exploit Airbus’s problem. Finally, Emirates has cancelled a $4.2 billion dollar offer for ten A340-600s and dropped options for eight more.
As our reader commented on his blog though, “What a technological advance. There is no competitor for this aircraft in terms of capacity so, we can be a bit patient with production problem, don’t you think so?” Unfortunately, the airlines do not believe so. And they are the customers.
Airbus is doing what it needs to do, and as we believe that competition in an industry encourages innovation, we hope that they can survive this. Our experiences on A320s, A330s, and other aircraft have been pleasant. Just today, for example, Northwest retired its last DC10 on the transatlantic in favor of the A330. The A319, 320, 321, and 330 will continue to be popular aircraft, and will hopefully shore up financial weaknesses until Airbus can get its affairs in order.
More to come…