Airbus Losing Altitude

Thursday, June 15, 2006
Delays and engineering problems with the A380 are taking their toll.
Shares in European Aeronautic Defense & Space, the parent company of Airbus, plummeted Wednesday, wiping €5.5 billion off its market value, as a fresh delay in the delivery of the new double-decker A380 airplane raised questions about the company's management and strategy.
The continuing struggle between France and Germany for influence seems to have played a role.
EADS named Forgeard and a German, Thomas Enders, co-chief executives last July after a protracted struggle to preserve the balance of power between the company's largest French and German shareholders. The months of wrangling also delayed the naming of Forgeard's replacement at Airbus, Gustav Humbert, a German-born engineer.
It helps Boeing. I can even forgive Boeing for moving their headquarters to Chicago.
Boeing shares rose $4.21, or 5.5 percent, to $81.19 in afternoon trading in New York on Wednesday.
I'm apologize to any who may be offended, but I'm having a severe attack of schadenfreude. Given the current European attitudes and the gloating a year ago when Airbus overtook Boeing in aircraft sales, I think it excusable. Airbus is not just a company, it is the symbol of government subsidized industry in Europe, a company put together 36 years ago to take business from Boeing, Lockheed, and McDonnell Douglas for nationalistic European reasons, much as Galileo is being put together to challenge GPS. So screw 'em, I say. It's like shooting down a Messerschmitt, who was one of the companies involved in the original consortium. And after all, it's not as if the governments of Spain, France, and Germany will let Airbus go bankrupt.

There is a footnote to this tale.
The news comes amid revelations that Forgeard and his family and other top EADS managers sold off shares before Airbus announced the delays, which sent the company's stock tumbling and angered airlines worldwide.
But they aren't the only ones who sold stock in EADS.
Richard Aboulafia of the Teal Group has expressed concerns to the International Herald-Tribune (IHT) that the combined BAE, DaimlerChrysler, and Lagardere sales totaling 35% of EADS shares may create cash issues that would affect its ongoing ability to invest heavily in R&D. If true, this could be a critical weakness given its need to match Boeing's 777 and 787 aircraft in the market. Yet EADS' release noted that the company "was anticipating the possibility of such a move and is fully prepared to move ahead constructively." The IHT meanwhile, notes that the French, German and Spanish company has more than EUR 5 billion ($6.05 billion at current conversion) of cash on hand, and that many of these shares are likely to be floated on the open market. The exact structure of these deals remains to be seen.
Makes one wonder, no? Thanks to no pasaran, who has the latest entries in a story that I've been following for a while.

6 comments:

Rick Ballard said...

I see that Singapore Airlines just cheered Boeing up a bit. I've also heard the Airbus is paying some very hefty late penalties.

Good.

David Thomson said...

“Airbus is not just a company, it is the symbol of government subsidized industry in Europe.”

Airbus is likely doomed. Political infighting is inevitable. Practical business decisions are a secondary consideration. This company is now competing with one hand tied behind its back. Buying Boeing’s stock might be a good idea.

Luther McLeod said...

Having worked on both Boeing and Airbus aircraft, I would just say Airbus deserves whatever it gets. Disliked their engineering. Strictly from a knucklebusters POV of course.

OT

Rick, problems with my email, think I finally succeeded. Let me know if not.

terrye said...

I echo the screw em sentiment. Arrogant pompous Eurotrash of a company.

Skookumchuk said...

Well, here in Seattle, and knowing a few Boeing guys, I hear varied reactions. First, both the 380 and especially the 787 use composites in new ways. These are still untried and may lead to delays in both programs. So even though the Airbus problems are probably much bigger than any Boeing problems, there should be no chicken-counting yet, in other words.

Second, one engineer I know says that this is a classic "let's sell it before we finish engineering it" situation that can happen in any manufacturing company. The feeling is, there but for the Grace of God, etc.

And I think at heart this was not entirely an economic decision, but has a whiff of Colbertian SST-style grandiosity to it - it must be bigger than the American one.

Knucklehead said...

I can't find it now but I also saw a report re: the A380 that claimed one of the primary reasons it was attractive to airlines has run into turbulence.

What I presume were simulations of some sort suggest that aircraft coming in (perhaps even taking off) behind the A380 will need to double the normal distance due to the enormous turbulence the giant aircraft creates in its wake.

Part of the selling points, allegedly, was that the A380 would allow twice as many passengers to be handled in the same landing slot at the world's largest and busiest hub airports. If, in fact, traffic controllers need to double the distance to the next aircraft the A380 then costs the airport a landing slot each time it lands. So much for doubling the passenger load per landing slot.

Lateness of delivery, unless extreme and/or there are major economic shifts predicted or detected isn't likely to yield a large number of cancellations of existing orders. It isn't like an airline can cancel one order and have another jumboliner from another supplier delivered in 90 days.

Late penalties, extended sales cycles that will almost certainly yield serious price pressure and drive up costs, and lost future sales will undoubtedly have serious impact on the potential profitability of the aircraft.

One can smell another Concorde brewing.