September 22, 2006
The Airbus FiascoBy Thomas Lifson
As a supreme symbol of Europe's prowess in aerospace, indeed in modern technology itself, the A 380 superjumbo jet, is melting down. No longer the embodiment of European cooperation and unity, its third announced delivery delay reveals internal chaos, bickering, finger—pointing and recrimination within Airbus and its parent EADS.
The whalejet, as it is known to some, has morphed from queen of the air into drama queen of the air.
Over a week ago, I pointed to signs of further trouble for Airbus in meeting its delivery commitments. Yesterday, Airbus roiled the airline industry with its announcement of an indeterminate delay in delivering the airplane to its waiting customers. Those rumors have proven out and more.
You have to feel sorry for Christian Streiff, brought in as the new CEO of Airbus from French glassmaking giant St. Gobain, following earlier delays and political scandal. He has inherited an organization at odds with itself, and unable to identify, much less fix, the source of the problems preventing it from completing and delivering the massive airplane. He has a lot of bad news ahead before he gets to annoucne any positive moves.
Airbus and its parent EADS are the product of mergers done in the name of European unity, intended to produce a giant that could compete with the likes of Boeing and Lockheed—Martin in both civil aviation and defense. State shareholders and 'launch aid' funding make it beholden to political interests, not markets alone, in its decision—making. It is often cited as a 'social enterprise' of the European model, not merely interested in profits, but in public service and the welfare of its employees.
Such muddled thinking has produced results that are currently serving nobody. Except maybe sales executives of rival Boeing, chalking up more and more orders for the 787 Dreamliner, a smaller, more efficient, longer range competitor, offering passengers the option of avoiding crowded hub airports and time consuming changes of plane, and flying nonstop to their destination.
The confusing, even contradictory reactions of A 380 customers to the third announcement of a delay, as reported in the world press, are a sign of the hardball negotiations underway. Billions of dollars are at stake, but in aviation, nobody wants to undermine passenger confidence, so direct expressions of dismay and votes of no confidence are as rare as French military triumphs in the last two centuries.
The biggest customer for the A 380 is Emirates, the airline based in Dubai, which accounts for 43 orders and two lease options, for a total of 45 aircraft, out of announced order book totaling 159 birds. That's almost 30% of the total sales for one unhappy customer.
The Associated Press ran a story that Emirates' order was 'up in the air.'
Reuters, however, ran a denial of any jeopardy for the order.
Hardball is being played. No airline is happy when scheduled deliveries are pushed back. Passengers must be accommodated in hastily—acquired alternative aircraft, crew training and scheduling plans are thrown into chaos, vast expenditures in new facilities to accommodate the planned planes are made less useful, and everyone must scramble to keep things on an even keel. And all of this costs a lot of money.
Airbus is on the hook to pay compensation to its customers for the delays, but lost opportunities cost more than money. Aviation is a business built on dreams and visions, and prestige is not at all incidental when you are talking about carriers that embody national aspirations of greatness.
Singapore Airlines was to be the first customer to fly the A 380. It had proudly announced and advertised the beginning of service this year. Earlier delays caused that to be rephrased as a 'delivery' this year, allowing for training, testing, and other necessary functions to be carried out for scheduled service beginning next year. Now, that 'delivery' has been rephrased as a 'ceremonial delivery.' Whatever that means.
Singapore, too, is not pleased.
Keeping your best customers in the dark about when they will receive airplanes is the very opposite of what jetliner manufacturers ordinarily do. It is a signal of big trouble within Airbus.
CEO Streiff obviously (to my eyes at least) realizes that he has got a huge mess on his hands, and wants to get the bad news out as quickly as possible, rather than letting it dribble out bit by bit. That's the only smart way to pull off a turnaround.
But he obviously does not yet know himself what all the problems are, much less when they can be solved, and awaits the results of a management audit. In the meantime, hints are being dropped of possible drastic measures necessary to fix the problems.
How drastic? How about this report from the UK Guardian?
I cannot begin to imagine the reaction in Germany if the Hamburg works are closed. Germany is supposed to be an equal partner with France in Airbus. Depressed Hamburg can ill—afford to lose this one bright spot of high tech employment. Toulouse, meanwhile, is the fastest—growing city in France, and buoyed by Airbus employment. Consolidating work in Toulouse would not go down well at all. But Toulouse, the heart of the operation, cannot be closed and work moved to branch plant Hamburg.
Even worse, the respected aviation journal Aviation Week & Space Technology reports
Emirates may well decide to cut back on the size of its order, shrinking the Airbus order book. It faces intense new competition since the time of iots big order, from rival airlines in the UAE, each modeling itself on Emirates, which to a large extent has modeled itself on Singapore. Flight Global reports
Boeing, thoughtfully, has planned the 747—800I, a stretch of the long ago paid—for and proven 747 model that could carry enough passengers to eat into the A 380 order book. It has already sold a healthy number of freighters of this stretch version. You can be certain Boeing sales reps are intensely talking with angry Airbus customers.
Streiff, for his part, may be pulling a similar hardball strategy with the EU and its member states. The threat to close Hamburg and move production to China or (gasp!) Alabama may be intended to pry open the state coffers. Airbus is going to have to spend a lot more money than it probably can generate, in order to pay off customers needing compensation, complete the problematic A 380, and fund development of the revised version of the A 350, the planned new technology competitor for the 787 Dreamliner.
But increased governmental aid not only burdens taxpayers, it threatens to provoke a trade war with Washington, DC, which has been vigorously warning the EU against further handouts to Airbus, even in the form of forgivable loans for development expenses.
The A 380 has gone from a dream to a nightmare. It is problem that is simultaneously financially important, diplomatically sensitive, and symbolically potent. Outright cancellation of the A 380 seems almost unthinkable, such would be the blow to Europeans' self regard. Bt the program is already billions of euros over budget, and the end is nowhere in sight.
The only thing worse than delivering the whalejet late would be delivering it without having solved all the problems currently delaying production and delivery. A stranded plane with 600 passengers is no treat. God forbid, an outright crash costing that many souls would make the nightmare into a catastrophe of a scale rivaling the ambitions which drove the project in the first place.
Thomas Lifson is the editor and publisher of American Thinker.