Push starts to come to shove at Airbus

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Christian Streiff, who proposed strong medicine to get the A 380 superjumbo jet into customers' hands, either resigned or was fired when the prospect of job cuts in Hamburg and elsewhere caused political resistance. Airbus was and remains a "social enterprise" whose goals include keeping governments and their constituents happy.

But key customers are not particularly sanguine. The realization has crept in that if Airbus fails, Boeing will be in a monopolistic position when it comes to pricing, so no airline wants to torpedo the company. As a passenger, I want there to be healthy and vigorous competition in the airliner business. That is what drives excellence.

But matters have come to the point where the head of the largest single customer for the A 380 is now publicly threatening to cut its order for 43 aircraft, almost 30% of the stagnant order book for Big Bird. The BBC reports:

Airline Emirates has warned that it may cancel some of its order for 45 giant Airbus A380 planes if there are any further delays to the troubled project.

Emirates said it planned to "stick with the order for now", but said "cancellations" remained an option. [....]

Emirates chief executive Tim Clark said he was looking for Toulouse—based Airbus, which is owned by Franco—German aerospace giant EADS, to put its "house in order"

"We have invested a lot in ground facilities so we have to stick with the order for now," Mr Clark told Dow Jones Newswires.

"We cannot wait forever but at this point there is nothing that comes close to the A380 as far as seat capacity."

Mr. Clark, a Briton, is one of the most respected leaders in the airline business. Emirates is the most outstanding success story in the industry since the rise of Singapore Airlines, on which the carrier is somewhat modeled.

Understand that in the complex relationship between airline and aircraft builder, disputes are taken public only as a last resort. Washing one's dirty linen in public is very bad form. One doesn't wish to roil the flying public, after all. And the leverage of potentially taking a dispute public is often enough to affect the desired change.

But matters have obviously gone well beyond that point with Moby Jet. As Clark points out, any cancellation would have enormous costs for Emirates, which has already invested large sums based on the premise of starting flying it soon.

The "house in order" wording sounds to me like a serious warning to parent EADS and to the French, German, and other EU governments that their existing priority of minimizing pain for workers and communities is not shared by customers.

It also sounds to me as though Mr. Clark is signaling to Boeing that its current plan to launch the 747 800i stretch version of the first jumbo jet might benefit from a further incremental stretch. This is hardball. The freight version of the 747 800 is already enjoying brisk sales, including some to Emirates. But so far, other than a couple of executive jet versions (presumably for oil potentates), no passenger version orders have yet been booked.  

When the late lamented Pan American World Airways gave the "launch order" for the original 747, it was for a grand total of 25 copies. Quite obviously, an order of that magnitude would be possible for Emirates, should it desire to be the launch customer for an even bigger stretch passenger version. Just cancel a couple dozen 380s, and voila! the seats can be used productively.

The world's most fascinating business battle is becoming even more fascinating.

Thomas Lifson  10 17 06

Christian Streiff, who proposed strong medicine to get the A 380 superjumbo jet into customers' hands, either resigned or was fired when the prospect of job cuts in Hamburg and elsewhere caused political resistance. Airbus was and remains a "social enterprise" whose goals include keeping governments and their constituents happy.

But key customers are not particularly sanguine. The realization has crept in that if Airbus fails, Boeing will be in a monopolistic position when it comes to pricing, so no airline wants to torpedo the company. As a passenger, I want there to be healthy and vigorous competition in the airliner business. That is what drives excellence.

But matters have come to the point where the head of the largest single customer for the A 380 is now publicly threatening to cut its order for 43 aircraft, almost 30% of the stagnant order book for Big Bird. The BBC reports:

Airline Emirates has warned that it may cancel some of its order for 45 giant Airbus A380 planes if there are any further delays to the troubled project.

Emirates said it planned to "stick with the order for now", but said "cancellations" remained an option. [....]

Emirates chief executive Tim Clark said he was looking for Toulouse—based Airbus, which is owned by Franco—German aerospace giant EADS, to put its "house in order"

"We have invested a lot in ground facilities so we have to stick with the order for now," Mr Clark told Dow Jones Newswires.

"We cannot wait forever but at this point there is nothing that comes close to the A380 as far as seat capacity."

Mr. Clark, a Briton, is one of the most respected leaders in the airline business. Emirates is the most outstanding success story in the industry since the rise of Singapore Airlines, on which the carrier is somewhat modeled.

Understand that in the complex relationship between airline and aircraft builder, disputes are taken public only as a last resort. Washing one's dirty linen in public is very bad form. One doesn't wish to roil the flying public, after all. And the leverage of potentially taking a dispute public is often enough to affect the desired change.

But matters have obviously gone well beyond that point with Moby Jet. As Clark points out, any cancellation would have enormous costs for Emirates, which has already invested large sums based on the premise of starting flying it soon.

The "house in order" wording sounds to me like a serious warning to parent EADS and to the French, German, and other EU governments that their existing priority of minimizing pain for workers and communities is not shared by customers.

It also sounds to me as though Mr. Clark is signaling to Boeing that its current plan to launch the 747 800i stretch version of the first jumbo jet might benefit from a further incremental stretch. This is hardball. The freight version of the 747 800 is already enjoying brisk sales, including some to Emirates. But so far, other than a couple of executive jet versions (presumably for oil potentates), no passenger version orders have yet been booked.  

When the late lamented Pan American World Airways gave the "launch order" for the original 747, it was for a grand total of 25 copies. Quite obviously, an order of that magnitude would be possible for Emirates, should it desire to be the launch customer for an even bigger stretch passenger version. Just cancel a couple dozen 380s, and voila! the seats can be used productively.

The world's most fascinating business battle is becoming even more fascinating.

Thomas Lifson  10 17 06