Scott M. Kozel
2006-09-24 22:02:00 UTC
The Airbus Fiasco
By Thomas Lifson
September 23, 2006
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
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
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
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.
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
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
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
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
"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
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 (£1.35bn) a year, including job losses and
eventually moving production to plants outside Europe. [....]
Under Mr Streiff's plans, work that is currently shared between the
main Airbus plants in Toulouse and Hamburg would be given to just one.
It would involve more components, traditionally bought from European
suppliers, sourced overseas to companies operating in the dollar zone.
Ultimately, it is said, output could be switched to new plants such
as the factory Airbus is building in China for its A320 planes or even
the US itself where the company plans to build a plant in Alabama for
the air-to-air refuelling tanker plane it is offering to the Pentagon in
a contract worth up to $100bn (£52bn).
I cannot begin to imagine the reaction in Germany if the Hamburg works
are closed. Germany is supposed to be an equal partner with France in
Airbus. Depressed Hamburg can ill-afford to lose this one bright spot of
high tech employment. Toulouse, meanwhile, is the fastest-growing city
in France, and buoyed by Airbus employment. Consolidating work in
Toulouse would not go down well at all. But Toulouse, the heart of the
operation, cannot be closed and work moved to branch plant Hamburg.
Even worse, the respected aviation journal Aviation Week & Space
...an analysis of Airbus's recent errors could well unveil
weaknesses that are simply too difficult to admit to the outside world:
Cultural differences are still there (or are back), especially when
French and Germans try to speak with a single voice and work closely
together. The disorder affecting the A380 production schedule could stem
from failures in communication and a tactic to conceal, rather that
reveal, information affecting Hamburg and Toulouse. Concealing
information may have prevented the other "side" from intervening.
Such structural secrecy in decision-making and the retention of
information are dangers that constantly threaten any chain-of-command.
However, within Airbus, such difficulties could be exacerbated by
cultural differences as well as national pride. Middle-level managers
were probably caught between a rock and a hard place, doing their best
to resolve problems, long before top executives could identify the
Emirates may well decide to cut back on the size of its order, shrinking
the Airbus order book. It faces intense new competition since the time
of iots big order, from rival airlines in the UAE, each modeling itself
on Emirates, which to a large extent has modeled itself on Singapore.
Flight Global reports
the basic menu and ingredients from which it was created have been
adopted by two of Dubai's neighbours - Abu Dhabi and Qatar. This has
seen the creation of Etihad Airways and Qatar Airways, which are
becoming worthy rivals to their mentor. Both airlines have growing
fleets of new-build widebodies, rapidly expanding route structures -
both are poised to introduce direct services to the USA - and bespoke
major developments of their hub airports funded by their governments.
Boeing, thoughtfully, has planned the 747-800I, a stretch of the long
ago paid-for and proven 747 model that could carry enough passengers to
eat into the A 380 order book. It has already sold a healthy number of
freighters of this stretch version. You can be certain Boeing sales reps
are intensely talking with angry Airbus customers.
Streiff, for his part, may be pulling a similar hardball strategy with
the EU and its member states. The threat to close Hamburg and move
production to China or (gasp!) Alabama may be intended to pry open the
state coffers. Airbus is going to have to spend a lot more money than it
probably can generate, in order to pay off customers needing
compensation, complete the problematic A 380, and fund development of
the revised version of the A 350, the planned new technology competitor
for the 787 Dreamliner.
But increased governmental aid not only burdens taxpayers, it threatens
to provoke a trade war with Washington, DC, which has been vigorously
warning the EU against further handouts to Airbus, even in the form of
forgivable loans for development expenses.
The A 380 has gone from a dream to a nightmare. It is problem that is
simultaneously financially important, diplomatically sensitive, and
symbolically potent. Outright cancellation of the A 380 seems almost
unthinkable, such would be the blow to Europeans' self regard. Bt the
program is already billions of euros over budget, and the end is nowhere
The only thing worse than delivering the whalejet late would be
delivering it without having solved all the problems currently delaying
production and delivery. A stranded plane with 600 passengers is no
treat. God forbid, an outright crash costing that many souls would make
the nightmare into a catastrophe of a scale rivaling the ambitions which
drove the project in the first place.
Thomas Lifson is the editor and publisher of The American Thinker.
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