A380 delays set back Airbus in
Asia By Duncan Freeman
Airbus parent company European Aeronautics
and Space Defense Co (EADS) shocked the
civil-aviation industry this month and sent its
stock into a steep tumble when it announced a
six-month delay in most deliveries of its giant,
double-decker Airbus A380. The news was nowhere
more consequential than in Asia, regarded as the
big aviation growth market of the 21st century.
It is likely that the A380 delay will
significantly damage Airbus's efforts to match
Seattle-based rival Boeing in Asia. The A380
represents a gamble on the future for Airbus,
since its success will be based on as yet unproven
assumptions about the future needs of airlines,
and has pitched the superjumbo against
Boeing's 787 Dreamliner.
The A380, with its unrivaled passenger
capacity, is relying on future demand to fly large
numbers of people from hub airport to hub airport,
while the Boeing 787 is intended to fly smaller
payloads from point to point, without necessarily
going through the large hub airports that normally
serve long-distance flights today. Also, the
Dreamliner reflects Boeing's calculation that
airlines will be more interested in an economical
mid-size airliner that uses new technology and
materials to reduce operating costs and increase
passenger comfort.
So far, it is unclear
which strategy will win out, but the A380 delay
fiasco has done little to help Airbus's cause. It
was not the first time: a similar set of problems
last year also put back production. The
announcement of the delivery delays, which
resulted from problems with electrical-wiring
harnesses, had an immediate effect on the company.
As shares in EADS fell sharply, bitter
recriminations were made against the management of
Airbus, along with a whiff of scandal after it
emerged that the EADS joint head Noel Forgeard,
who was formerly chief executive officer of
Airbus, and a number of other senior executives
had sold large amounts of shares in the company in
March, only a short time before the problems were
made public. The first question being asked is
whether they knew about the production problems
when they sold shares, which could make them open
to charges of insider dealing.
The
follow-up question is, if the senior executives
did not know about the A380 problems, why didn't
they, given the seriousness of the delays and
their implications for the firm? Even senior
figures such as Arnaud Largardere, one of the
joint chairmen of EADS, have conceded that there
is a major crisis at Airbus. The problems with the
A380 are also compounded by delays to the new
A350, which is intended to compete directly with
Boeing's Dreamliner.
The implications for
the performance of Airbus and the A380 in Asia are
not yet clear. Airbus still maintains that it will
deliver the first A380s to launch customer
Singapore Airlines by the end of this year.
However, there will be a production shortfall in
the following years, so that in 2007 only nine
aircraft will be produced compared with the
original target of 20-25, with a shortfall of five
to nine aircraft in 2008, and about five aircraft
in 2009. Thereafter, Airbus maintains, production
should reach the scheduled targets.
Asia
has proved a lucrative market for Airbus, and the
A380 has received a relatively good initial
reception in the region. There are currently
orders for 159 A380s, with by far the largest
order coming from Dubai-based Emirates, which
ordered 43 of the enormous airliners. But Asian
airlines account for a large proportion of the
aircraft currently on order. Qantas has ordered 12
A380s, Singapore Airlines 10, Thai Airways
International six, Malaysian six, China Southern
Airlines five, Kingfisher Airlines (based in
Bangalore) five, and Korean Airlines five. In
fact, orders from Asia outstrip those from Europe,
where so far Lufthansa (15), Air France (10) and
Virgin Atlantic (six) are the only passenger
carriers to have ordered the aircraft. To date, no
US passenger carrier has ordered the A380.
Singapore Airlines is scheduled to be the
first airline to fly the A380. In fact, on the
basis of the original production schedule, the
airline should already be flying the aircraft,
with the deliveries supposed to have started at
the beginning of this year. After the initial
delays last year, the first delivery was delayed
until late 2006. Despite the new delays, the
airline still insists that it will have aircraft
carrying passengers by the end of this year.
Qantas, on the other hand, has said that delivery
of its first aircraft will be delayed from this
October to next April. Some airlines in Asia
insist that they will not be affected by the
delays; for example, THAI has said it will be
unaffected since its aircraft are not due for
delivery until 2009.
So far, no airline
has canceled A380 orders. Although the delivery
failures will have an impact on the airlines, for
the moment they appear to be willing to live with
the delays. Still, there is no question that
Singapore Airlines and Qantas, among others, will
be able to claim hefty compensation from Airbus
for losses caused by the delays.
Airbus
regards China as a crucial future market, and an
Airbus China Ltd spokesman said on Thursday that
China would get its first A380 on schedule despite
delays.
"We are doing our best to ask our
headquarters to ensure that China receives its
first A380 before the 2008 Olympic Games," said
Airbus China Ltd spokesman Kevin Gu, adding,
"China is one of the most important markets for
Airbus given the fact that we have put
engineering, training and customer support
facilities into the country and will even produce
aircraft here."
Gu noted that pilots from
China Southern Airlines, the first Chinese airline
to fly the A380, will receive flight training in
France next month as scheduled.
Airbus
announced recently that it has selected Tianjin as
the site for a proposed final-assembly plant in
China for the A320 series aircraft. According to
Airbus, the site selection will allow an ongoing
feasibility study to be completed with a view to
making a final decision on the establishment of
the plant by the end of September. If a positive
decision is made, the plant will commence
operations by 2008.
China is a market
where Airbus has had growing success in recent
years, although it still lags well behind Boeing
in terms of the total number of aircraft in
service there. The establishment of the
final-assembly plant in China is a move intended
to make sure that it is able to continue
challenging Boeing in China.
The
possibility of the assembly plant was first
announced during a visit to Europe by Premier Wen
Jiabao in December. Airbus and its Chinese
counterparts have moved forward rapidly since
then, and are evidently closer to making a
positive decision on the plant. After the
difficulties with the A380 and the A350, Airbus
will need all the success it can get with its
other aircraft models in China.
Duncan Freeman is a writer and
consultant based in Brussels. He can be contacted
at duncanfreeman@skynet.be.
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2006 Asia Times Online Ltd. All rights reserved.
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