The Airbus Fiasco

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.

Customer reaction

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.'

After announcing its order of 45 Airbus A380 jumbo jets was "up in the air," Emirates Airline said Thursday that it wanted the European consortium to clarify the aircraft's delayed delivery schedule.

Emirates' statements were spurred by the manufacturer's announcement that deliveries of the 555—seat A380 would be delayed. The double—deck airplane has a list price of $300 million, valuing Emirates' order at roughly $13.5 billion.
"Emirates awaits clarification from Airbus as to when the rescheduled delivery dates are going to be, and has taken no position with regard to cancellation, compensation, damages," airline president Tim Clark said in an e—mailed statement.

Clark said the Dubai—based carrier, in the midst of a rapid expansion, was waiting to learn "exactly when the aircraft will be delivered."

His statement came after Emirates spokeswoman Valerie Tan said the manufacturer's delay had left the carrier's order in doubt.

Reuters, however, ran a denial  of any jeopardy for the order.

Dubai's Emirates [EMAIR.UL] airlines denied a media report on Thursday that it was considering cancelling an order for Airbus A—380 aircraft.

Emirates has ordered 43 of the aircraft, which carry a list price of $300 million —— by far the largest order for the plane.

The A—380 project has been delayed and angry customers have called for compensation, but Emirates spokesman Boutros Boutros said an Associated Press report that the order was being reconsidered was incorrect.

"This report is wrong. Nothing has changed. The order still stands," said Boutros said in Dubai.

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.

'We're in contact with Airbus concerning the announcement EADS has made,' said Stephen Forshaw, SIA vice—president for public affairs.

'We're now waiting to hear some firm details from them about the delays and how they will impact on us.'

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?

EADS, majority owner of Airbus, is planning a radical costcutting at the European planemaker to offset the strong euro, replenish its earnings and restore investor confidence which has been battered by fresh delays to the A380 superjumbo.

The plans are being drawn up by Christian Streiff, the new Airbus chief executive, for an EADS board meeting on September 29 and could see cost cuts of at least £2bn (£1.35bn) a year, including job losses and eventually moving production to plants outside Europe. [....]

Under Mr Streiff's plans, work that is currently shared between the main Airbus plants in Toulouse and Hamburg would be given to just one. It would involve more components, traditionally bought from European suppliers, sourced overseas to companies operating in the dollar zone.

Ultimately, it is said, output could be switched to new plants such as the factory Airbus is building in China for its A320 planes or even the US itself where the company plans to build a plant in Alabama for the air—to—air refuelling tanker plane it is offering to the Pentagon in a contract worth up to $100bn (£52bn).

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

...an analysis of Airbus's recent errors could well unveil weaknesses that are simply too difficult to admit to the outside world: Cultural differences are still there (or are back), especially when French and Germans try to speak with a single voice and work closely together. The disorder affecting the A380 production schedule could stem from failures in communication and a tactic to conceal, rather that reveal, information affecting Hamburg and Toulouse. Concealing information may have prevented the other "side" from intervening.

Such structural secrecy in decision—making and the retention of information are dangers that constantly threaten any chain—of—command. However, within Airbus, such difficulties could be exacerbated by cultural differences as well as national pride. Middle—level managers were probably caught between a rock and a hard place, doing their best to resolve problems, long before top executives could identify the looming disaster.

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

the basic menu and ingredients from which it was created have been adopted by two of Dubai's neighbours — Abu Dhabi and Qatar. This has seen the creation of Etihad Airways and Qatar Airways, which are becoming worthy rivals to their mentor. Both airlines have growing fleets of new—build widebodies, rapidly expanding route structures — both are poised to introduce direct services to the USA — and bespoke major developments of their hub airports funded by their governments.

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.