The A380 - it's worse than you think

Friday, March 02, 2007
Thomas Lifson at The American Thinker has done an outstanding job chronicling and analyzing the problems Airbus has encountered in bringing the Airbus A380 "superjumbo" to life. Design errors due to mismatched CAD software and persistent weight problems have delayed the creation of a production-ready aircraft, costing billions in lost and delayed revenue, and at least hundreds of million more in penalties (the total cost of the program may have exceeded $15 billion at this point). The A380F, the freighter version of the aircraft, is likely to be cancelled following the announcement by its last remaining customer (UPS) that it would cancel its order.

But there may be an even more fundamental problem facing the A380 program. It appears that, in the judgment of the airlines, the aircraft itself is outclassed.

There are two basic appeals to the superjumbo concept. First, by carrying more passengers it reduces the cost to fly any given person any given distance - assuming the flight is at or near capacity. This would give airlines flying the A380 a cost advantage over other airlines for certain heavily-traveled routes. Second, by carrying all these passengers on a single plane it allows more people to be delivered to a single gate. This addresses a need for an increasingly large niche - heavily traveled point-to-point connections between very busy hubs.

There are two different ways that the second need can be met - by flying more people to a single gate, or by flying them directly to their destination, avoiding the overcrowded hubs altogether. The latter approach is the one Boeing emphasized in building the 787 "Dreamliner", and this has been the focus of most commentary. But the truth is that both have merit, and both approaches probably present sustainable market niches.

The problem for Airbus is this - while the 787 is clearly the class of the mid-size market it targets, it isn't clear at all that the A380 is the class of the jumbo market. Boeing has a competing product - the 747 - which is a tried and true people mover. Airbus intended to displace it by outclassing it in so many ways that the airlines' choice would be an easy one - take the modern, more fuel efficient, longer-range, bigger jet. The 747 is a 40-year old airplane, surely, thought Airbus, it's time for a new one.

But in November, 2005, Boeing announced the start of development of a new version of the 747 - the 747-8, which would incorporate more advanced technology and more fuel efficient engines than previous versions - and orders for the A380 stalled. The new 747 is, by some accounts, even more fuel efficient that the A380, and on any given route it is guaranteed to fill more of its seats - because there are fewer of them. The A380 still carries more passengers, but it has lost one of the major reasons that was appealing to carriers.

At the time, Airbus was already experiencing production problems, and that probably factored into it, but I believe the primary problem was that airlines now believe that, in general, Boeing's product meets their needs better. As they so often do, the numbers tell the story.

Since the launch of the 747-8, Boeing has received 78 orders for the plane - 24 for the passenger version (the 747-8I) and 54 for the freighter version (the 747-8F). Airbus has lost two orders for the A380 - it has picked up 25 orders for the passenger version (though 17 of those are subject to cancellation at the customer's option, and seven more resulted from customers changing their orders from the A380F), but has lost all 27 of the orders it once had for the A380F freighter. Clearly the 747-8F is the preferred plane among cargo carriers - which is what leads me to predict outright cancellation of the A380F (development of which was placed on hiatus this past Monday). What is more troubling for Airbus is that the 747-8I is splitting the market for jumbo passenger planes as well, and might well have won the lion's share of orders since its introduction if customers hadn't already placed deposits with Airbus. It might win the lion's share of orders going forward.

The enormous development costs of the A380 were justified because it was projected to be a category killer, Airbus's flagship for the next several decades. Increasingly, it looks like it won't reach that status. It may not break even - EADS was projecting breakeven at 420 units, but that was before the latest round of delays, and the figure almost certainly assumed that it wouldn't take twenty years to sell that many.

I don't think this will kill Airbus - the "Power 8" restructure plan is part pie-in-the-sky, but probably has enough meat to it to get Airbus over the hump - and Airbus is "too big to die", in the political sense, anyway. But the cash crunch it creates may very well complicate Airbus's attempts to develop its answer to the 787 - the A350-XWB. Add in Boeing's clear lead in composite technology and its apparent lead in production methods, and Airbus will have a long row to hoe to get back to parity in the industry.

3 comments:

Skookumchuk said...

Morgan: Here is an interesting Airport Compatibility Brochure (PDF) from Boeing showing how close the footprint and ground handling characteristics of the 747-8I are to the traditional 747-400 in most cases, which probably helps sway customers, too.

chuck said...

I went abrowsing in the wikipedia looking at the Boeing 787. Parts of that aircraft is being manufactured in Japan (35%), Australia, Italy, France, Sweden, Canada, England, and the US. To me, it looks even more international than Airbus, and I suppose that is another advantage to not being enmeshed in the politics of France and Germany. The other thing that caught my attention was the participation of Pacific Rim countries. This is another place where Boeing can get ahead of Airbus; the Pacific Rim might be the Europe of the 21'st century, hopefully without the wars. The balance of the world is shifting. In electronics it has already moved.

Skookumchuk said...

chuck:

I have always felt that Boeing is attempting to create a kind of in-house Airbus on the Pacific Rim.