Airbus Struts Its Stuff in Paris

It is the time for Airbus to shine in the spotlight of the Paris Air Show, the pre-eminent aerospace gathering of the year, announcing $45 billion in new orders, ten times the value of new orders Boeing revealed on Day One. Already basking in the record orders received by its 787 Dreamliner, Boeing made it clear in advance that it would not try to hog the spotlight, preferring instead to focus on the planned rollout of the first 787 next month, to be broadcast worldwide, anchored by Tom Brokaw.

Airbus has to thread a needle over the next few years. It desperately needs to raise cash by selling as many of its existing products as possible, especially the A320 narrow body twinjet and the A330 widebody twinjet. Since the engineering, tooling, and other one-time expenses were paid for long ago, each of these planes sold, even at a substantial discount, sends many millions of dollars of gross margin cash into the corporate treasury. Actual prices paid and financing received are usually confidential. But everyone in the industry realizes Airbus needs the cash that even a steeply discounted sale will generate, that it is expanding production of the two workhorses, and is prepared to do what it takes to keep the two aircraft rolling off assembly lines painted in the liveries of paying customers.

Airbus needs to sell, sell, sell because it has to pay, pay, pay - for the penalties for delaying delivery of its A380 superjumbo, for fixing the production problems, and most of all, to pay for developing the brand new A350 XWB twinjet, planned rival to the 787. The 350, like the 787, uses composite fiber construction to replace heavier aluminum, but with a slightly wider cabin and larger passenger capacity.

The company is now deeply immersed in the
Power 8 program of restructuring and cost reduction, relying on factory closures, outsourcing, and lay offs, with a September deadline for finalization. Negotiations are underway over downsizing staff: 3,700 in Germany, 3,200 in France, and 1,600 in the UK, with the company stating it wants amicable cash settlements if they can be agreed upon.

The New president of France, Nikolas Sarkozy, is said to be pondering what to do about Airbus, but is on the record that Airbus cannot be allowed to fail. Despite being a conservative in the French political spectrum, Sarkozy has spoken approvingly of other big business bailouts in France. Of course on cue, EU Ministers have voiced confidence in the company.

In a business as dependent on trust and service as airliner manufacturing, doubts about the viability of the company are poisonous. At the same time, every airline in the world has a vested interest in vigorous competition between two healthy manufacturers, so nobody wants Airbus to fail and be prey to the mercies of a monopolistic Boeing.

Turning its crisis into a talking point, Airbus is now claiming that Power 8 has forced necessary improvements, and that the A350 XWB will be the beneficiary. The company's chief operating officer Fabrice Bregier told Flight Global that  
Airbus's phenomenal success over the previous 10 years had led the company to become complacent, he believes, and the crisis was a real wake-up call.

"Airbus was an innovator," Bregier says. "Because it was so successful, it didn't feel the need to change its organisation, its structure or its business model. It's easy for me as a newcomer to see Airbus had become complacent, but that's what most Airbus old-timers recognise." [....]

The A350 XWB programme will be the first to be developed within the new Power8-based Airbus structure. "It will be about using new tools and methodologies in a fully integrated way with our risk sharing partners," Bregier says.
Airbus announced a huge order for the A350 XWB Monday in Paris, 80 birds for Qatar Airways, valued at $16 billion, and another 12 orders from Kuwait Aircraft Leasing. US Airways indicated it would order another 22 A350s. So the order book, which stood at a puny 13 copies going into Paris, is now into triple digits.

A350: The Great Compromise

Not everyone is happy with the A350, however. The most vocal critic is Stephen Udvar-
Hazy, billionaire head of International Lease Finance Company (ILFC) [now a unit of AIG], the largest leaser of airliners, and a widely respected figure in the industry. A year ago, he killed an earlier version of the A350, publicly telling an audience of 700 the design for the plane was inadequate and would be rejected by the market. Airbus dumped the design, and has been slowly revealing the technical details of the new version, the one with XWB (for "Extra Wide Body") tacked on the end.

Udvar-Hazy, who has reportedly said the 350 is no match for the 787, told the Wall Street Journal
...he is concerned that Airbus doesn't yet have a deal in place with Co. to provide a second engine choice for the plane. PLC is offering engines, but airlines prefer having choices because that creates price competition, and some carriers already have agreements with one engine maker or the other. A GE spokesman said officials plan to meet with Airbus executives during the air show but a deal is unlikely before later this summer. Mr. Leahy said engine selection is important but rarely critical. 
The problem with that earlier design Udvar-Hazy killed was that it was a hybrid: taking the successful A330 fuselage and adding new, more efficient wings. Boeing's rival 787, by contrast, was an all-new airplane built with a carbon fiber fuselage, and capable of clearly superior fuel economy. Cancelling the 350 update added to the terrible news about A380 production problems. Airbus found itself behind in the technological competition.

But when Airbus went back to the drawing board, it produced another hybrid. The XWB version has a carbon fiber fuselage like the 787, but while Boeing makes the entire fuselage barrel out of carbon fibers, Airbus mounts large carbon fiber panels on an aluminum skeleton. The result is an airplane which has most of the weight reduction of an all carbon fiber construction, but which avoids the very tricky and advanced technologies necessary to build large diameter tubes from the high tech material. In fact, by using the aluminum frame, Airbus is able to make the XWB with a larger diameter fuselage, and allow airlines potentially one extra seat per row, should they choose to offer sardine class accommodations.

But there are also serious unknowns, chiefly how the company will deal with the problem of aluminum and carbon materials expanding at different rates when exposed to heat and cooling. This is potentially serious because an airliner goes through a lot of temperature zones on the ground and in the air. The maintenance costs to ensure the structural integrity of a pressurized cabin tested with every takeoff and high altitude journey are an unknown, even as the orders have come in. Emirates, the dominant customer for the A380, has not yet embraced the 350, while ordering yet another 8 A380s announced in Paris, suspected of being acquired on highly concessionary terms. Still, the canny CEO of Emirates, Tim Clark, is playing Boeing against Airbus, saying, "We know as much as we need to know about the plane (the A350) to contribute to the decision process," and hoping to use the pressure of a large order (for as many as 100 airplanes) to land an excellent price and financing.

The Low End

Boeing and Airbus are both enjoying robust sales for their twin engine narrow bodies, the 737 and 320 series aircraft, respectively. But some including me have wondered if Boeing might press its strategic advantage and announce development of an all-new narrow body twinjet, using a carbon fiber barrel fuselage. Because Airbus is financially and technically stretched to the limit for at least the next five years, Boeing could put its rival behind it in both widebody and narrow body segments.

However, Boeing announced in Paris that it would
not replace the 737 for at least 7 years.
"The plane continues to produce excellent value...We're probably seven to eight years away from a replacement, but it will depend on technology and demand," said Scott Carson, chief executive of Boeing Commercial Airplanes, at the international air show being staged here on the outskirts of Paris.  [....]

"If we do a 10% improvement only, then we have to do another airplane right after that," Carson said. He said there's no point in rushing out a 737 replacement if the engine technology is not there.

Carson said Boeing continues to press the engine makers on how quickly they can bring the new technologies to the market
Standing pat with a very profitable product line will no doubt help Boeing's bottom line, and allow it to concentrate engineering resources on the 787 and derivative aircraft with longer range and larger passenger capacity. The 737 family includes stretch versions and long range versions that can haul over 200 passengers, or which can fly intercontinental routes. Airbus also has stretch and long range versions of its 320 series, but not as many variants and not as advanced in range and capacity.

At the low end of the market there is a growing threat from commuter airliner manufacturers scaling up their products. At the Paris show, Brazilian maker Embraer (Empresa Brasileira de Aeronautica) announced on Day One that it had sold over $3 billion of  its twin jet 170s and 190s to respected industry leaders Lufthansa and Japan Air Lines. These planes are slightly smaller than the 737 and 320, but stretch versions have been growing, and taking on the amenities passengers expect in a trunk line airliner.

Embraer and Bombardier of Canada now have several more years to upgrade their products  before facing new generation narrowbody competition from Boeing.

More to Come

There are more questions than answers ahead in Paris. Boeing may have a few surprises up its sleeve for both the airs show and the July 8 unveiling of the 787. And Airbus must continue to skillfully navigate the shoals of dismissing workers while keeping governments happy, finally delivering the first A380 to Singapore Airlines later this year and straightening out the production mess, and developing a hybrid airliner mixing an aluminum frame with carbon fiber panels. All the while cranking out production of 330s and 320s and hoping the prices received cover all the expenses the company has ahead of it.

This business is as tough and unforgiving as the environment an airliner faces when cruising at 38,000 feet.

Thomas Lifson is editor and publisher of American Thinker.
It is the time for Airbus to shine in the spotlight of the Paris Air Show, the pre-eminent aerospace gathering of the year, announcing $45 billion in new orders, ten times the value of new orders Boeing revealed on Day One. Already basking in the record orders received by its 787 Dreamliner, Boeing made it clear in advance that it would not try to hog the spotlight, preferring instead to focus on the planned rollout of the first 787 next month, to be broadcast worldwide, anchored by Tom Brokaw.

Airbus has to thread a needle over the next few years. It desperately needs to raise cash by selling as many of its existing products as possible, especially the A320 narrow body twinjet and the A330 widebody twinjet. Since the engineering, tooling, and other one-time expenses were paid for long ago, each of these planes sold, even at a substantial discount, sends many millions of dollars of gross margin cash into the corporate treasury. Actual prices paid and financing received are usually confidential. But everyone in the industry realizes Airbus needs the cash that even a steeply discounted sale will generate, that it is expanding production of the two workhorses, and is prepared to do what it takes to keep the two aircraft rolling off assembly lines painted in the liveries of paying customers.

Airbus needs to sell, sell, sell because it has to pay, pay, pay - for the penalties for delaying delivery of its A380 superjumbo, for fixing the production problems, and most of all, to pay for developing the brand new A350 XWB twinjet, planned rival to the 787. The 350, like the 787, uses composite fiber construction to replace heavier aluminum, but with a slightly wider cabin and larger passenger capacity.

The company is now deeply immersed in the
Power 8 program of restructuring and cost reduction, relying on factory closures, outsourcing, and lay offs, with a September deadline for finalization. Negotiations are underway over downsizing staff: 3,700 in Germany, 3,200 in France, and 1,600 in the UK, with the company stating it wants amicable cash settlements if they can be agreed upon.

The New president of France, Nikolas Sarkozy, is said to be pondering what to do about Airbus, but is on the record that Airbus cannot be allowed to fail. Despite being a conservative in the French political spectrum, Sarkozy has spoken approvingly of other big business bailouts in France. Of course on cue, EU Ministers have voiced confidence in the company.

In a business as dependent on trust and service as airliner manufacturing, doubts about the viability of the company are poisonous. At the same time, every airline in the world has a vested interest in vigorous competition between two healthy manufacturers, so nobody wants Airbus to fail and be prey to the mercies of a monopolistic Boeing.

Turning its crisis into a talking point, Airbus is now claiming that Power 8 has forced necessary improvements, and that the A350 XWB will be the beneficiary. The company's chief operating officer Fabrice Bregier told Flight Global that  
Airbus's phenomenal success over the previous 10 years had led the company to become complacent, he believes, and the crisis was a real wake-up call.

"Airbus was an innovator," Bregier says. "Because it was so successful, it didn't feel the need to change its organisation, its structure or its business model. It's easy for me as a newcomer to see Airbus had become complacent, but that's what most Airbus old-timers recognise." [....]

The A350 XWB programme will be the first to be developed within the new Power8-based Airbus structure. "It will be about using new tools and methodologies in a fully integrated way with our risk sharing partners," Bregier says.
Airbus announced a huge order for the A350 XWB Monday in Paris, 80 birds for Qatar Airways, valued at $16 billion, and another 12 orders from Kuwait Aircraft Leasing. US Airways indicated it would order another 22 A350s. So the order book, which stood at a puny 13 copies going into Paris, is now into triple digits.

A350: The Great Compromise

Not everyone is happy with the A350, however. The most vocal critic is Stephen Udvar-
Hazy, billionaire head of International Lease Finance Company (ILFC) [now a unit of AIG], the largest leaser of airliners, and a widely respected figure in the industry. A year ago, he killed an earlier version of the A350, publicly telling an audience of 700 the design for the plane was inadequate and would be rejected by the market. Airbus dumped the design, and has been slowly revealing the technical details of the new version, the one with XWB (for "Extra Wide Body") tacked on the end.

Udvar-Hazy, who has reportedly said the 350 is no match for the 787, told the Wall Street Journal
...he is concerned that Airbus doesn't yet have a deal in place with Co. to provide a second engine choice for the plane. PLC is offering engines, but airlines prefer having choices because that creates price competition, and some carriers already have agreements with one engine maker or the other. A GE spokesman said officials plan to meet with Airbus executives during the air show but a deal is unlikely before later this summer. Mr. Leahy said engine selection is important but rarely critical. 
The problem with that earlier design Udvar-Hazy killed was that it was a hybrid: taking the successful A330 fuselage and adding new, more efficient wings. Boeing's rival 787, by contrast, was an all-new airplane built with a carbon fiber fuselage, and capable of clearly superior fuel economy. Cancelling the 350 update added to the terrible news about A380 production problems. Airbus found itself behind in the technological competition.

But when Airbus went back to the drawing board, it produced another hybrid. The XWB version has a carbon fiber fuselage like the 787, but while Boeing makes the entire fuselage barrel out of carbon fibers, Airbus mounts large carbon fiber panels on an aluminum skeleton. The result is an airplane which has most of the weight reduction of an all carbon fiber construction, but which avoids the very tricky and advanced technologies necessary to build large diameter tubes from the high tech material. In fact, by using the aluminum frame, Airbus is able to make the XWB with a larger diameter fuselage, and allow airlines potentially one extra seat per row, should they choose to offer sardine class accommodations.

But there are also serious unknowns, chiefly how the company will deal with the problem of aluminum and carbon materials expanding at different rates when exposed to heat and cooling. This is potentially serious because an airliner goes through a lot of temperature zones on the ground and in the air. The maintenance costs to ensure the structural integrity of a pressurized cabin tested with every takeoff and high altitude journey are an unknown, even as the orders have come in. Emirates, the dominant customer for the A380, has not yet embraced the 350, while ordering yet another 8 A380s announced in Paris, suspected of being acquired on highly concessionary terms. Still, the canny CEO of Emirates, Tim Clark, is playing Boeing against Airbus, saying, "We know as much as we need to know about the plane (the A350) to contribute to the decision process," and hoping to use the pressure of a large order (for as many as 100 airplanes) to land an excellent price and financing.

The Low End

Boeing and Airbus are both enjoying robust sales for their twin engine narrow bodies, the 737 and 320 series aircraft, respectively. But some including me have wondered if Boeing might press its strategic advantage and announce development of an all-new narrow body twinjet, using a carbon fiber barrel fuselage. Because Airbus is financially and technically stretched to the limit for at least the next five years, Boeing could put its rival behind it in both widebody and narrow body segments.

However, Boeing announced in Paris that it would
not replace the 737 for at least 7 years.
"The plane continues to produce excellent value...We're probably seven to eight years away from a replacement, but it will depend on technology and demand," said Scott Carson, chief executive of Boeing Commercial Airplanes, at the international air show being staged here on the outskirts of Paris.  [....]

"If we do a 10% improvement only, then we have to do another airplane right after that," Carson said. He said there's no point in rushing out a 737 replacement if the engine technology is not there.

Carson said Boeing continues to press the engine makers on how quickly they can bring the new technologies to the market
Standing pat with a very profitable product line will no doubt help Boeing's bottom line, and allow it to concentrate engineering resources on the 787 and derivative aircraft with longer range and larger passenger capacity. The 737 family includes stretch versions and long range versions that can haul over 200 passengers, or which can fly intercontinental routes. Airbus also has stretch and long range versions of its 320 series, but not as many variants and not as advanced in range and capacity.

At the low end of the market there is a growing threat from commuter airliner manufacturers scaling up their products. At the Paris show, Brazilian maker Embraer (Empresa Brasileira de Aeronautica) announced on Day One that it had sold over $3 billion of  its twin jet 170s and 190s to respected industry leaders Lufthansa and Japan Air Lines. These planes are slightly smaller than the 737 and 320, but stretch versions have been growing, and taking on the amenities passengers expect in a trunk line airliner.

Embraer and Bombardier of Canada now have several more years to upgrade their products  before facing new generation narrowbody competition from Boeing.

More to Come

There are more questions than answers ahead in Paris. Boeing may have a few surprises up its sleeve for both the airs show and the July 8 unveiling of the 787. And Airbus must continue to skillfully navigate the shoals of dismissing workers while keeping governments happy, finally delivering the first A380 to Singapore Airlines later this year and straightening out the production mess, and developing a hybrid airliner mixing an aluminum frame with carbon fiber panels. All the while cranking out production of 330s and 320s and hoping the prices received cover all the expenses the company has ahead of it.

This business is as tough and unforgiving as the environment an airliner faces when cruising at 38,000 feet.

Thomas Lifson is editor and publisher of American Thinker.