A380 Problems

Airbus' Lumbering Giant

Airbus 380 p1 photo source dpa
Too big to fail? This week's Paris Air Show has failed to pull in punters for the A380.
  • Why it matters

    Why it matters

    The Airbus A380 could become obsolete if Airbus does not quickly receive more orders or update the aircraft.

  • Facts

    Facts

    • Airbus says the A380 cost roughly €115 billion, or $17 billion, to develop.
    • Only 162 A380s have been delivered since it was launched in 2007.
    • Airbus rival Boeing has said it will fight any offer of government subsidies to help revamp the A380.
  • Audio

    Audio

  • Pdf

No airplane is bigger, more imposing or more expensive than the Airbus A380. Even though the company delivered the first A380 in 2007, it is still a youngster in aviation terms. The superjumbo is the star of the Paris Air Show at Le Bourget this week – visitors can marvel at the luxuriously appointed Qatar Airways plane, and watch the giant machine conduct nimble flight maneuvers.

Airbus is asking more than $400 million, or $453 million, for the model, according to the list price. For that money, an airline can expect significant improvements in efficiency and correspondingly lower costs. Yet despite these advantages, the Airbus flagship has ended up being a slow seller. The European aerospace company has waited three years for a new customer, but there aren’t any in sight.

The company finds itself in a dilemma. On the one hand, it urgently needs new customers for the A380. After production problems, this year Airbus might succeed for the first time in delivering 30 planes and get back into the black. But if new orders don’t roll in soon, production will have to be restricted starting in 2018, according to sources in the company’s headquarters in Toulouse. By then, profitable production will be all but impossible.

“There would need to be at least 20 new A380 orders to secure future production.”

Ben Moores, Analyst, HIS Aerospace, Defence & Security

There have been only a handful of orders for the wide-bodied aircrarft in the past 12 months, said Ben Moores, an analyst at the market research firm HIS Aerospace, Defence & Security. “There would need to be at least 20 new orders to secure future production,” he said.

On the other hand, potential customers’ inclination to buy the planes is dependent on the model being modernized, which would mean extra costs for the company. Key client Emirates, for example, would buy new machines only if Airbus would pay for new engines and wings, a revamp that is being called the A380 Neo.

“The A380 Neo has to be built,” said Tim Clark, CEO of Emirates, at the Paris Air Show. “We would replace all of our other A380s with the Neo.”

That would mean at least 100 airplanes. But that is not enough for Airbus CEO Tom Enders. He will only spend the money on development of the Neo – estimated to be €2 to €3 billion – if he is able to find other customers, possibly in China. That is likely why the company is now working on a new cabin with almost 40 additional seats. In China, packing airplane seats very close together is the norm.

This solution doesn’t please Emirates. “We want a larger A380,” said Mr. Clark. A decision as to whether or not that will happen is expected this year.

 

Airbus Results-01

 

“This is one of the most difficult production decisions in recent years,” Mr. Enders told the business magazine Wirtschaftswoche a few days ago.

Airbus’ insistence on finding a second customer for the Neo is understandable, because the corporation has no alternative for its financing. Even if Emirates definitely wants the giant plane, Mr. Clark would not consider forming a development partnership to share some of the risk. “Our business is the flying,” he said. “That is Airbus’ job.”

And the path to federal funding is blocked. Ray Connor, the president and CEO of Boeing Commercial Airplanes, made it very clear at Le Bourget that this kind of start-up financing would be in violation of a 2011 ruling by the World Trade Organization (WTO), which defined such financing as subsidies.

“It was clear after the WTO decision that something like this should not happen again, and we would react should Airbus truly request start-up financing,” he said.

Airbus has delivered 162 A380s, and almost twice that many have been ordered. But when the aircraft was conceived, the company planned to sell four times as many. The fact that the calculations have not worked out so far is primarily down to false assumptions made about the Asian market.

Airbus can boast some customers there with Asiana Airlines in South Korea, Korean Air, Thai Airways and Malaysian Airlines. Singapore Airlines was the first customer from the region. But the business plan focuses primarily on two countries: China and Japan. Both are considered top potential clients for the A380 because of their high populations and tight airport capacities.

Video: The A380 performs a vertical take-off at the Paris air show in 2013.

 

But China has only ordered five planes. The largest Chinese airline, Air China, has the ideal landing rights at the hub in Beijing for the A380, but has since decided to go with the 747-8 made by Airbus rival Boeing. On top of that, for political reasons the Chinese want to have as many international airports as possible outside of Beijing and Shanghai, which can then be served by smaller aircraft.

In Japan, the two leading airlines, ANA and JAL, have decided against the super jumbo jets. ANA is betting on the planned longer version of the Boeing 777, and JAL has ordered Airbus’s new A350 for its long-haul flights. Only the small airline Skymark decided to order A380. But Skymark is falling into bankruptcy and the six airplanes on order will be cancelled.

There are also no contracts expected in Europe. Lufthansa laid its foundation for its long-haul fleet with the order of A350s and Boeing 777Xs, said Nico Buchholt, the director of fleet management at the German airline. “This fleet will be supplemented by our new Boeing 747-8 and Airbus A380,” he said. “There is currently no increase planned to these 33 large aircraft.”

A premature end to the A380’s lifespan would make it an expensive product for Airbus. But it would not throw the company off track financially. Airbus executives started the development of the twin-engine wide-body A350 jet early enough, and it is being well-received in Le Bourget. Thirty one of them were sold on the first day of the trade fair alone.

 

016 Airbus Group

 

Markus Fasse is a Handelsblatt editor specializing in the aviation and automobile industry. Thomas Hanke is the Handelsblatt correspondent in Paris. Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry and is bureau chief in Frankfurt. To contact the authors: fasse@handelsblatt.com; hanke@handelsblatt.com; koenen@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!