Airbus may end production of A380 superjumbo airliner

Just over 7 years after it entered commercial service, Airbus has let it be known that it may end production of the world’s largest passenger airliner, the A380. Last year, not one single frame was sold to an airline, and an order for 6 birds was cancelled by troubled Japanese carrier Skymark.  At current rates of production, the existing order book will be filled by 2018.  The company faces a choice: invest more money in an improved product in order to generate new orders or drop the program. Bloomberg BusinessWeek reports:

Chief Financial Officer Harald Wilhelm, speaking on Dec. 10 to investors in London, said Airbus (EAD:FP) might have to discontinue the A380 by 2018 unless it invests in improvements to make the plane more attractive to customers, Bloomberg News reports.

Shares of the company dropped 4.5% the following day, and continued downward Friday. Sales executives of the company were appalled, because selling an orphan airliner is no easy task. The only way to move metal is to cut prices drastically:

Other Airbus executives sought to downplay those comments, saying that the program was on track and that demand for the world’s biggest passenger jet would increase. “The A380 will dominate the market in years to come,” Airbus sales chief John Leahy told investors at the London gathering.

Leahy is a very well-known and colorful character in the aviation world, and I can well imagine him going ballistic when he heard what the finance chief had uttered. If some hacker ever does to Airbus what has been done to Sony, I bet the emails would be highly entertaining.

As the superjumbo was undergoing production and entry into service, I wrote very critically about the strategy behind it, as well as the difficulties in actually producing them efficiently and profitably.  Most of my critique has been vindicated by events. The A380 was a bet that airports would be so congested that slot restrictions would require bigger and bigger planes. It was also a bet that traffic would be funneled into massive hubs, collecting passengers form many spokes, for a ride to another big hub airport, where they would change planes for another spoke destination.

But the world aviation downturn in 2008 meant that congestion has not been a problem at most airports (London Heathrow is the biggest exception), and passengers strongly prefer making fewer connections.

But the biggest problem the A380 faces is that it has four engines. The technology of airplane engines is one of the most exciting and dynamic areas to advance, with new materials (primarily ceramic-based but some metallurgical) combining with advances in computer design capabilities to make much bigger and more powerful engines than were dreamed of in the past. The result has been that really large airplanes are able to fly really long distances on just two engines.

Two engines not only burn less fuel than 4, they also need less maintenance. Both factors have a huge influence on airline costs of operation. Some observers think that the era of “four holers” as aviation industry people call them, is over, and that the A380 is the last of the breed.

The evolution of another Airbus product, the A340/330 family demonstrates the impact of the dramatic changes in engine technology.  The A340 is a four engine verion, originally intended for long haul flights. The A330 was basically the same, but with 2 engines, and it was intended for shorter and medium haul missions. However, engines have improved so dramatically that A330 versions can fly nearly any practical long haul flight, so A340 planes have not just failed to sell, some have been scrapped. It is simply too expensive to keep especially the smaller capacity versions flying. The largest stretch model of the A340, the 600 version, is almost as big as a 747, and it continues to be used, but hasn’t sold a copy in quite some time. Meanwhile, A330s sell very handsomely, and Airbus is investing in a NEO (“new engine option”) version that is being very well received by airline customers.

The question for Airbus now is whether to spend about two and half billion dollars to create a NEO version of the A380, or just give up the project. Meanwhile, Boeing is proceeding with a new version of its twin engine 777, to be made with composites, similar to the smaller 787, which has sold very well. The 787 was meant to make long distance routes from secondary cities profitable to fly, and it appears to have done this very successfully. British Airways, for instance, recently began highly successful nonstop service from Austin, Texas to London using the 787, a route that would have been unthinkable previously. 

Boeing invested in an update of its 747 to compete with the A380, but it has not sold very well, either.  The company has recently announced plans to slow the production rate in order to keep the assembly line open while hoped-for new orders may appear. There is hope for more freighter orders, and also the US Air Force may buy a few copes for a replacement for Air Force One.  But because it also has four engines, the writing is on the wall for the 747 product line, which entered service, after all, in the late 1960s.

There is only one airline that has fully embraced the A380, and that is Emirates of Dubai. Fully 40% of sales have gone to this one carrier, which operates with a single hub for intercontinental travel, and is able to fill the aircraft profitably. But the secrets behind Emirates’ success are a complicated topic, perhaps for future writing. It is a unique carrier, and has rewritten the book on airline operations. It has two imitators nearby, Etihad of Abu Dhabi and Qatar Airways of Qatar, both of which attempt to follow the same strategy of acting as intercontinental hubs, but neither of which operates on a scale or with a degree of success comparable to Emirates.  

Just over 7 years after it entered commercial service, Airbus has let it be known that it may end production of the world’s largest passenger airliner, the A380. Last year, not one single frame was sold to an airline, and an order for 6 birds was cancelled by troubled Japanese carrier Skymark.  At current rates of production, the existing order book will be filled by 2018.  The company faces a choice: invest more money in an improved product in order to generate new orders or drop the program. Bloomberg BusinessWeek reports:

Chief Financial Officer Harald Wilhelm, speaking on Dec. 10 to investors in London, said Airbus (EAD:FP) might have to discontinue the A380 by 2018 unless it invests in improvements to make the plane more attractive to customers, Bloomberg News reports.

Shares of the company dropped 4.5% the following day, and continued downward Friday. Sales executives of the company were appalled, because selling an orphan airliner is no easy task. The only way to move metal is to cut prices drastically:

Other Airbus executives sought to downplay those comments, saying that the program was on track and that demand for the world’s biggest passenger jet would increase. “The A380 will dominate the market in years to come,” Airbus sales chief John Leahy told investors at the London gathering.

Leahy is a very well-known and colorful character in the aviation world, and I can well imagine him going ballistic when he heard what the finance chief had uttered. If some hacker ever does to Airbus what has been done to Sony, I bet the emails would be highly entertaining.

As the superjumbo was undergoing production and entry into service, I wrote very critically about the strategy behind it, as well as the difficulties in actually producing them efficiently and profitably.  Most of my critique has been vindicated by events. The A380 was a bet that airports would be so congested that slot restrictions would require bigger and bigger planes. It was also a bet that traffic would be funneled into massive hubs, collecting passengers form many spokes, for a ride to another big hub airport, where they would change planes for another spoke destination.

But the world aviation downturn in 2008 meant that congestion has not been a problem at most airports (London Heathrow is the biggest exception), and passengers strongly prefer making fewer connections.

But the biggest problem the A380 faces is that it has four engines. The technology of airplane engines is one of the most exciting and dynamic areas to advance, with new materials (primarily ceramic-based but some metallurgical) combining with advances in computer design capabilities to make much bigger and more powerful engines than were dreamed of in the past. The result has been that really large airplanes are able to fly really long distances on just two engines.

Two engines not only burn less fuel than 4, they also need less maintenance. Both factors have a huge influence on airline costs of operation. Some observers think that the era of “four holers” as aviation industry people call them, is over, and that the A380 is the last of the breed.

The evolution of another Airbus product, the A340/330 family demonstrates the impact of the dramatic changes in engine technology.  The A340 is a four engine verion, originally intended for long haul flights. The A330 was basically the same, but with 2 engines, and it was intended for shorter and medium haul missions. However, engines have improved so dramatically that A330 versions can fly nearly any practical long haul flight, so A340 planes have not just failed to sell, some have been scrapped. It is simply too expensive to keep especially the smaller capacity versions flying. The largest stretch model of the A340, the 600 version, is almost as big as a 747, and it continues to be used, but hasn’t sold a copy in quite some time. Meanwhile, A330s sell very handsomely, and Airbus is investing in a NEO (“new engine option”) version that is being very well received by airline customers.

The question for Airbus now is whether to spend about two and half billion dollars to create a NEO version of the A380, or just give up the project. Meanwhile, Boeing is proceeding with a new version of its twin engine 777, to be made with composites, similar to the smaller 787, which has sold very well. The 787 was meant to make long distance routes from secondary cities profitable to fly, and it appears to have done this very successfully. British Airways, for instance, recently began highly successful nonstop service from Austin, Texas to London using the 787, a route that would have been unthinkable previously. 

Boeing invested in an update of its 747 to compete with the A380, but it has not sold very well, either.  The company has recently announced plans to slow the production rate in order to keep the assembly line open while hoped-for new orders may appear. There is hope for more freighter orders, and also the US Air Force may buy a few copes for a replacement for Air Force One.  But because it also has four engines, the writing is on the wall for the 747 product line, which entered service, after all, in the late 1960s.

There is only one airline that has fully embraced the A380, and that is Emirates of Dubai. Fully 40% of sales have gone to this one carrier, which operates with a single hub for intercontinental travel, and is able to fill the aircraft profitably. But the secrets behind Emirates’ success are a complicated topic, perhaps for future writing. It is a unique carrier, and has rewritten the book on airline operations. It has two imitators nearby, Etihad of Abu Dhabi and Qatar Airways of Qatar, both of which attempt to follow the same strategy of acting as intercontinental hubs, but neither of which operates on a scale or with a degree of success comparable to Emirates.