For Airbus Industries, 2006 has been an annus horribilis, a year so damaging that the grand idea of a pan-European aircraftmaker capable of challenging Boeing, the industry’s American heavyweight champion, seems under threat.
In the space of three months over the summer, the company had three chief executives. It has delayed its flagship A380 superjumbo project twice this year, announced a €4.8 billion (£3.2 billion) reduction in earnings over four years and suffered a collapse of its market share.
The impact of these problems is being felt not merely in Toulouse, where Airbus has its headquarters, but across Europe. Airbus and EADS, its parent, employ more than 17,000 people in the UK, 13,000 alone at the wing-making factory at Broughton, North Wales. Indeed, Airbus is thought to be the largest manufacturer left in the UK, and its problems are being scrutinsed from Whitehall to Merseyside.
Nearly all of Airbus’s problems stem from the so far troubled birth of the A380. The double-decker aircraft is not simply massive, it is a massive undertaking, an engineering achievement on the scale of the first steel ships. Yet such achievement rarely comes without difficulties and the engineers of the A380 have struggled with its weight and co-ordinating the miles of wiring on board.
The first A380 will be delivered to Singapore Airlines next October — two years later than planned. The aircraft is so late, in fact, that all contracts with customers have effectively lapsed, allowing airlines to walk away from the aircraft, if they want.
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So far only FedEx, the parcel company, has done so, dropping a $2.5 billion (£1.3 billion) order for ten freighter versions of A380. UPS, another parcel company, may follow soon. Virgin Atlantic has postponed an order for six A380s worth $1.8 billion.
What has frustrated and infuriated airline customers is that Airbus has been reluctant to acknowledge its problems. The company revealed the first delay in June and most customers heard of the schedule change only days — or, in some cases, hours — before the public announcement. The market was so surprised that EADS’s share price plummeted by a third. A further delay was announced last month and now Airbus has lost so much credibility with its customers that airlines such as Emirates, the A380’s biggest backer, and Singapore have sent their own audit teams to Toulouse to establish whether the present delivery schedule is realistic.
Industry analysts and consultants believe that the way in which Airbus acted in the first half of this year — keeping its customers in the dark until the last moment — is typical of the company’s occasionally pompous attitude.
Airbus was set up as a pan-European challenger to Boeing and it has always had an element of continental dash and arrogance. The A380 is seen by some as the embodiment of this — a statement of ambition so big that the future of the whole company is at risk if it fails.
Airbus’s fall from grace has clearly rattled the company, but a new management team is in place, led by Louis Gallois, and confidence is returning. The A380 is sailing through its final flight tests and almost certainly will be certified next month for passenger flights. Airbus executives are speaking with more optimism and are pointing out that the other parts of the business are booming. The A320, the Airbus rival to the Boeing 737, continues to be a huge success. After a slow start to the year, the company is picking up orders again. This year is forecast to be the second- best for Airbus, although it will still lose the order race to Boeing for the first time in five years.
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Confidence is also returning to the A350 project, which was knocked back by airlines this year because its design specifications did not match up favourably with those of the Boeing 787 Dreamliner. The A350 almost certainly will be approved this week by the board of EADS and given a public launch next week.
With a $12 billion investment needed to get the A350 in the air, some analysts had predicted that Airbus might choose to focus on the A320 and A380, skipping the middle market. Doing so would have handed Boeing billions of dollars in orders and turned Airbus into a niche manu- facturer. Its decision to launch the A350 will be applauded — and supported — by airlines, as nobody benefits from gifting one company a monopoly.
As John Leahy, the chief operating officer of Airbus, said yesterday: “This has been one of the best of years, but also one of the worst of years.”
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Time of Crisis
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April 2006: BAE Systems confirms plans to sell its 20 per cent stake in Airbus to EADS, believing that the sale would raise £3 billion
June: EADS says that €2 billion (£1.35 billion) will be wiped off its earnings in the next four years because of a new six-month delay in delivering the A380 superjumbo
June: Noël Forgeard, joint chief executive of EADS, fights for his job after it emerges that he sold shares worth millions of euros months before the announcement of delays by Airbus. Mr Forgeard made a €2.5 million profit, his three children a total of €1.2 million. Four other executives made about €3.2 million in total
July: Mr Forgeard and Gustav Humbert, head of EADS’s Airbus unit, resign. An independent assessment of Airbus by NM Rothschild, the investment bank, values BAE Systems’ 20 per cent stake at £1.9 billion
October 3: A380 customers are told of new year-long delay, costing EADS €4.8 billion in lost earnings
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October 9: Christian Streiff, Airbus’s chief executive, resigns after three months in the job. He clashed with EADS over plans to shake up Airbus and cut costs. He is replaced by Loius Gallois
October 19: Airbus announces that it must sell 420 A380s to break even. It has orders for 159 — a shortfall of $78 billion October 27: Emirates Airline confirms it is cancelling $4 billion of A340 orders
November 7: FedEx scraps a deal for ten aircraft worth more than $2.5 billion
Members of the Fleet
A300/310 The A300 was Airbus’s first aircraft. It was the first large aircraft to fly (in 1972) with only two engines. Total orders, 821. Out of production, except for freighters
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A320 Airbus’s bestseller. Twin engines, single aisle. Total orders, 4,732. List price $55-$80 million (£29-£42 million). The aircraft allowed Airbus to challenge, and overtake, Boeing
A321 Stretched version of the A320, popular with charter airlines. Highest-capacity single-aisle aircraft available
A330/340 The old-timers. Twin (A330) and four (A340) engines, wide body. Total orders, 1,081. List price $150-$240 million. A330 is still built, but its old design has been overtaken by Boeing’s 777. The A340 is struggling to be competitive with four engines
A350 On the way. Twin engines, wide body. Will compete with the Boeing 787 and 777. List price $180 million-plus
A380 First delivery in 2007. Four engines, wide body. Total orders, 159. List price $300 million. Seats up to 650. Will be the biggest aircraft in the skies when it gets official certification, mid-December
A400M Military transport plane. Turbo prop. Not yet in production. Airbus started work on the project in the mid-1980s