June 8, 2005
Airbus hits turbulenceBy Thomas Lifson
Europe, as a potential superpower rival to America, is reeling in the wake of voter rejection of its constitution in France and Holland. Speculation abounds that Italy�and even Germany�may abandon the euro as currency.
Now Airbus, the flagship for Europe's dirigiste model of technological and industrial development, is on the ropes following three decades of ascent to leadership in the jet airliner market. After absorbing tens of billions of dollars in subsidies, and driving Boeing into the unaccustomed status of second—place, stress fractures are appearing in the cobbled—together multi—national, multi—cultural organization still officially celebrated�as a source of strength for the company.
If Airbus flops spectacularly, as has suddenly become thinkable, the entire EU project could end up with its thrust reversers fully deployed. The ability to take on the commanidng heights of American technological leadership has served as a crucial source of legitimacy for the Eurocrats. Failure could bid�au revoir to the dream of the United States of Europe.
Along with oil exploration, manufacturing civil airliners is an example of high stakes gambling undertaken by massive, technologically sophisticated business organizations, with governments anxiously looking over their shoulders as the bets are laid on the table. In a spectacle that dwarfs the most star—studded celebrity poker match, Europe's champion Airbus is staring across the table at America's champion Boeing, with the stakes amounting to tens of thousands of high—paying jobs, hundreds of billions of dollars in exports, and prestige on display to the global elites at every major airport in the world.
After years of clawing its way to the top with the help of subsidies from European taxpayers, Airbus seemed to be grabbing a permanent lead, humbling Boeing and the United States, and giving the mandarins of Europe bragging rights to justify their claims of superiority over the cruel and inefficient market—based economies of les Anglo—Saxons.
But right now the bragging is a bit subdued at Airbus. The Europeans threw roughly $8 billion taxpayer dollars at Airbus in the form of loans which need not be repaid in the event of market failure, to enable development of the A380 superjumbo airliner. Aside from the pleasure of launching the world's largest civil aircraft, the Europeans must have spent many a two hour expense account lunch happily contemplating Boeing's loss of its highly profitable market for the 747, which has ruled the skies for three and a half decades.��
Boeing, which must put at risk its shareholders' money to develop new products, looked closely at the market's needs, and decided to bet on a smaller plane, now called the 787 Dreamliner, which would be a state—of—the—art fuel—efficient plane holding roughly one third as many passengers as the A 380, and therefore useful on so—called point—to—point routes (Charlotte to Paris) which greatly outnumber hub—to—hub routes (New York to London), and are increasingly preferred by passengers anxious to avoid the pain of changing planes.
So far, Boeing is having greater success in the marketplace. So much so that Airbus is now imploring its governmental sugar daddies for yet more billions to develop an all—new competitor for the Dreamliner. This is particularly humiliating, since Airbus is publicly abandoning its previous plan to merely update the comparably—sized A—330, a halfway new aircraft that very, very few airlines were interested in buying, as it turned out.
But mere failure in the marketplace is only the start of Airbus's troubles at the very moment it was planning as its great triumph. Last week, Airbus publicly humiliated itself by announcing that the actual deliveries of the A380 to customers would be delayed by three to six months. Early customers had been warned in private over the last couple of months, but the public announcement took place just two weeks before the Paris Air Show, the largest event in aerospace sales, which opens on June 12th.
Launch customer Singapore Airlines had planned to begin A380 service next April, so a possible six month delay will be very inconvenient and costly, to say the least.
Putting a new airliner in service is quite a bit more complicated than, say, buying a new car. Crews must be trained, spare parts purchased and inventoried, maintenance procedures established and training programs and manuals delivered to maintenance facilities all over the world, and marketing programs put into place. The aircraft being replaced are not simply parked on the tarmac, they are sold or leased out, and usually not available for last minute substitution for the missing new aircraft. Singapore Airlines in particular has long made a practice of buying the newest equipment and retiring (i.e., selling to less prosperous carriers) its slightly—used planes before any wear and tear builds up.
In other words, Singapore Airlines and the other early customers for the A380 like Emirates and Qantas must now scramble to line up alternative airlift capacity for their passengers. This is expensive and ties—up personnel, not a happy outcome. Airbus will reportedly have to pay 'tens of millions of dollars' in contractually—specified penalties to customers affected by the delays, but according to reports,�
But mere money cannot fully compensate for the disruption, nor can it remove the stain on the reputation of the A380.
Compounding the error, Airbus actually seemed to blame its customers for the delay, saying that the interior customization demanded by them turned out to be a problem:
Another Airbus spokesman reinforced this point:
Blaming the customer is never a wise move, and nearly always an indicator of an organizational pathology at work. A380 customers are already reacting with prickliness. Singapore Airlines' Chew stated
Qantas's CEO Geoff Dixon made it clear that his airline has held up its end of the bargain, even as Airbus has not:
Subsequent reports indicate that blaming the other guy is becoming an art form at Airbus. According to Reuters last Friday:
Airbus has always been an odd entity, cobbled together from formerly—autonomous aerospace manufacturers in France, Germany, and Spain, with additional participation by British Aerospace. The original Airbus model, the A300, launched in 1972, was the product of Sud Aviation, manufacturer of the Caravelle twin—engine airliner of the 1960s. France got Germany to participate, and Spain later joined the consortium. The British declined to join in when the first Airbus elected to use General Electric [GE has extensive business ties to French engine manufacturer SNECMA] engines, not Rolls—Royce, but later participated anyway. The corporate parent of Airbus is one—fifth owned by British Aerospace. Airbus headquarters remain in Toulouse, France, Sud's former home base. It may be a European company, but to many it looks quite French.
Despite the dreams of Brussels bureaucrats, national antagonisms remain, and have been compounded by the pressure attendant upon looming humiliations. Reuters notes:�
Now that EU's proposed constitution has crashed to earth in flames, these nationalist tensions within Airbus are not going to calm down anytime soon. France and Germany have a long history of conflict, and aviation played a particularly important role in the Twentieth Century iterations of their rivalry.
Despite the constant back—and—forth information flow customary between a manufacturer and its airline customers, nobody seems to know exactly (in public, at least) what the problems are which have delayed the A380 deliveries. Airbus failed to give adequate notice to its launch customers about the delay, suggesting that there may have been technological surprises at its root.
"These things happen," he [Qantas CEO Dixon] added, "but up to now, we have not had a lot of communications about it, and that concerns us. While we understand that some of these things are unavoidable, we would have appreciated earlier and more detailed information."
Secretiveness naturally arouses fears of an unpleasant nature.�Because the new airplane is both massive and extensively employs state—of—the—art composites in its structure, the nightmare scenario would involve threats to its structural integrity. The smaller Boeing Dreamliner also employs composites, but its smaller size means that stresses due to sheer mass will be less of an engineering obstacle. The A380 is so large and heavy that even runways at major airports have to be strengthened to support its unprecedented stresses. The same mass factor multiples the challenge designers face in ensuring that the fuselage and wings, held together with high tech glue, stay attached to each other through turbulent weather, hard landings, and temperature extremes. The possibility of structural failure is so dire that no one wants to even contemplate it.
Yet airliner manufacturers have, in the past, made small errors in design and manufacturing which have had catastrophic results. The very first jet airliner, the British DeHavilland Comet I, disintegrated�in mid—air due to unforeseen metal fatigue stress cracks in the fuselage at the corners of its square windows. The wings of the Lockheed Electra of the 1960s repeatedly fall off in flight due to engine mounting and wing reinforcement problems. Design revisions and updated models were produced, but neither airplane ever was a commercial success, and the names DeHavilland and Lockheed never again recovered their commercial aviation luster.
Airbus needs to get the A380 right. It is under deadline, alienating customers, facing financial penalties, and now going cup—in—hand to several European governments, begging for yet more billions to design an all—new aircraft to counter the Dreamliner. The major European governments have bet a lot on Airbus. Just as they bet a lot on the EU constitution.
High stakes gambling can get very interesting, indeed.
Thomas Lifson is the editor and publisher of The American Thinker.