Airbus's Flagship Plane May Be Too Big To Be Profitable

Tom Enders stared at the phone on his desk as it began to ring. The Airbus boss had been expecting a call to his office in Toulouse. It was Tim Clark, chief executive of Dubai-based airline Emirates, the biggest buyer of the planemaker’s A380 “superjumbo”.

Clark was angry. He wanted to know why Airbus finance director Harald Wilhelm had just raised the prospect of the death of the A380.

The aircraft cost $25bn (£16bn) to develop, but it has struggled to chalk up the large orders Airbus had envisioned, at $440m each. So far, it has just 318 orders, compared with the 1,200 that Airbus thought airlines needed in that size category – it carries around 550 passengers – when it began marketing in 2000.

Wilhelm sparked panic among Airbus customers and shareholders when he told analysts it would break even on the aircraft up until 2018, “if we would do something on the product, or even if we would discontinue the product”.

The indiscretion let slip an internal debate at Airbus about the future of the world’s largest jetliner. However, it was the first time the Franco-German manufacturer had publicly admitted it was contemplating pulling the rug on the programme. “I am not particularly happy, as you can imagine,” Clark fumed. “We are on the hook for this plane. I get pretty miffed when we have put so much at stake.”

Emirates has 55 of the giant planes in service and has placed orders for a further 85. The carrier accounts for 40% of the total orders for the aircraft, so any squeak from Clark will reverberate around Toulouse.

Airbus has attempted to soothe fears about killing off its marquee plane by saying it was more likely to modify the aircraft and launch a model with more fuel-efficient engines, known as the A380Neo (new engine option), or a bigger “stretch” version.

“The entire Airbus top management continues to believe strongly in the market prospects for the A380, but any investment requires a sound business case, which we will continue to study.”

 
REUTERS/Tobias Schwarz
Clark said if Airbus did press ahead with the engine upgrade, which could improve fuel efficiency by up to 15%, Emirates would eventually replace all 140 of its superjumbos with the upgraded version.

Since the plane’s first commercial flight with Singapore Airlines in 2007, Airbus has struggled to sell the A380. The global economic downturn hit airlines hard, forcing many out of business. Those that survived have turned to using smaller, twin-jet models that are more fuel efficient and can fly to more airports.

One industry source said: “We still haven’t come out of recession and for companies to put major assets like this on the balance sheet is a big ask.”

The A380 works best when flown on popular routes, or from capacity-constrained airports, such as Heathrow. But many airlines have struggled to make the investment profitable.
Alexandre de Juniac, chief executive of Air France-KLM, aims to cancel the last two of a dozen A380s the airline has on order and swap them for smaller models. He said recently: “It’s an excellent plane but it only works for the right destinations.”

This year looks like it will be the first since the A380 entered service without a new airline customer. The only buyer has been a leasing company that has yet to line up a single carrier to take any of the 20 planes it ordered.

James Hogan, chief executive of Etihad, this month ruled out further A380 purchases as he took delivery of the airline’s first “superjumbo”. His frank assessment that Etihad would not be affected by the ending of A380 production added weight to fears that Airbus has struggled to find any more buyers.

 
REUTERS/Tobias Schwarz
Hogan said: “When you are taking 10 aircraft, whether Airbus continues the production line or not isn’t an issue.”

Airbus is suing Japan’s Skymark Airlines after canceling an order for six A380s amid fears that it would not receive payment from the airline, while Virgin Atlantic and Air Austral are among the carriers increasingly unlikely to proceed with orders.

Clark is baffled by the way rival airlines use the A380, noting the odd seating configurations that some use.

Emirates is using the plane as its main jet because air travel is forecast to double in the next 10 years to 7bn passengers annually. So it is convinced that airports and airlines will need huge jets like the A380 to cope with the surge in demand.

“It’s a great aircraft,” Clark told Airlineratings.com. “If airlines don’t believe they can fill an A380, their business model is wrong.”

He said if a new model was built it would be as economical to fly as the Boeing 777X long-haul jet, which is being introduced in 2018. “We will buy 140 of the A380Neos,” he said. “As long as I am around, I am going to continue to fight the battle for the A380. The world needs [this aircraft].”

He described the plane as a “passenger magnet” and reckons the five that Emirates operates each day between Dubai and Heathrow are 95% full.

While the Dubai carrier is loath to see the A380 cancelled, perhaps even more is at stake for Britain’s economy. Any move to kill off the “queen of the skies” is sure to cause anguish at Airbus’s two main British plants. All of the wings for its planes are designed in Filton, Bristol, and assembled at Broughton in north Wales.

Broughton’s new north factory is one of the biggest in Britain and contains a huge, automated rivet gun which is five stories high. It takes this giant industrial stapler 10 days to punch 750,000 rivets into precise locations on both wings. It would take more than a month for two teams of 20 people on each wing to do the same job.

The wings are the most complicated and most important part of the plane and there are thousands of well-paid, highly skilled British jobs that rely on the work. “There’s a lot hanging on the future of this programme for Britain,” an industry source said.

However, insiders suggested that Wilhelm’s gaffe and Clark’s angry response had refocused Airbus’s top team on sorting out the A380, which may give the programme a shot in the arm.

 
REUTERS/Chip East

The Emirates chief urged the manufacturer to step up its A380 marketing efforts. He also criticized Airbus for focusing too heavily on an upgrade of its best-selling A320 short-haul plane.

“What is happening over there?” he fumed. “I would like a first-hand understanding on where it is going.”

Whatever Airbus decides, some believe the A380 is already destined for the history books.
Richard Aboulafia, aviation analyst at Teal Group and a long-time critic of the giant jetliner, said the fresh crop of wide bodied, twin-engine planes coming to the market signalled the death of the A380.

“I don’t think it will last for more than a few years into the next decade,” Aboulafia said. “The quicker Airbus lets go, the quicker it can devote its marketing efforts to other products.”

A380 FACTFILE

■ The Airbus A380 made its first flight on 27 April 2005 and entered commercial service in October 2007 with Singapore Airlines.
■ It is the world’s biggest jetliner at 73m long, 24.45m high and with a wingspan of almost 80m.
■ Each of the A380’s giant wings, which are designed and made in Britain, can hold up to 125 tonnes of fuel. This gives it a flight range of 15,700 km, or enough juice to fly non-stop from Dallas to Sydney.
■It takes 3,600 liters of paint to cover the 3,100 sq m (33,000 sq ft) exterior of the aircraft.
■There is 530km of wiring in each A380 aircraft.

This article originally appeared on guardian.co.uk