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 (