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What's wrong at Airbus? Will the A380 sink the ship?

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  • #1

    What's wrong at Airbus? Will the A380 sink the ship?

    The company just announced another year-long delay on the A380 superjumbo (2 year delay total), which will have a $6.1 billion negative impact to its bottom line. Ouch.

    The question has to be asked... Did Airbus bite off more than it can chew, knowing that European governments will not allow it to fail?

    Boeing's strategy of focusing on the Dreamliner is looking awful rosy in comparison.

    EADS Says A380 Jet to Be Delayed a Year

    By LAURENCE FROST
    The Associated Press
    Tuesday, October 3, 2006; 5:44 PM

    PARIS -- Airbus parent EADS said Tuesday that the flagship A380 superjumbo jet will be delayed for another year and Virgin Atlantic and Emirates _ the plane's biggest customer _ hinted that the new setbacks could lead to order cancelations.

    In a statement issued after its second board meeting in four days, EADS said the latest delays will cut an extra 2.8 billion euros ($3.6 billion) off operating profit and announced a restructuring plan to cut costs and boost productivity at Airbus.

    Airbus sees "no significant signs" that cancelations are likely from any of its A380 customers, CEO Christian Streiff said during a conference call with reporters and analysts. "Until now, everybody's still on board."

    But Dubai-based Emirates signaled that its bumper 45-plane order, worth over $13 billion at list prices, could be in doubt after suffering a further delay of 10 months.

    "This is a very serious issue for Emirates and the company is now reviewing all its options," Chief Executive Tim Clark said in an e-mailed statement.

    Virgin Atlantic Airways Ltd. spokesman Paul Charles said the carrier will be reviewing its six-plane order at an Oct. 12 board meeting, with "all options" on the table. "The depths of the delays have serious implications," he said.

    But Air France and Lufthansa said they were still committed to the plane despite a new one-year delay to their deliveries.

    While Air France "can only regret" the latest delays, the airline said in a statement, they will have no impact on its growth strategy.

    "We're still convinced that the A380 is a success story and the A380 is a growth aircraft," Lufthansa spokeswoman Stefanie Stotz said.

    Airbus CEO Streiff reiterated Tuesday that the latest production holdups _ which leave the program two years behind its original schedule _ were caused entirely by problems with the installation of the 300 miles of wiring aboard each plane. "This is the only weak link in the production chain," Streiff said.

    Emirates, which had originally been scheduled to take delivery of an A380 this month, will receive the first plane 22 months late. Lufthansa now expects to get its first A380 between May and September 2009, and Air France said its first delivery has been pushed back to the second quarter of 2009.

    Airbus has been discussing the latest holdups with airlines in recent days as it tries to gauge the likely compensation bill. EADS had confirmed last month that the plane would be delayed a third time, without giving details.

    EADS shares had plunged 26 percent on June 14 after Airbus announced a second delay of six months to the 555-seater A380 and a 2 billion euro ($2.6 billion) profit warning. Tuesday's announcement takes the total financial impact of program delays to 4.8 billion euros ($6.1 billion) over four years.

    The world's largest passenger jet has so far won 134 orders from 14 airlines and leasing companies and a further 25 for its freighter version.

    The June revelations led to the sacking of Airbus boss Gustav Humbert and EADS co-CEO Noel Forgeard _ who remains under investigation by market authorities after it emerged that he exercised stock options to make a profit of 2.5 million euros ($3.2 million) just weeks before ordering an internal probe into the production problems.

    Airbus said Tuesday that A380 launch customer Singapore Airlines will receive its first jet in October next year _ the only delivery promised for 2007. Until recently, Airbus had maintained that the first superjumbo would be delivered to launch customer Singapore Airlines by December this year, on schedule.

    In June, Airbus had already slashed its delivery targets to nine planes from 25 in 2007; to 28 from 35 in 2008; and to 40 from 45 in 2009. EADS further reduced those forecasts Tuesday, pledging 13 deliveries in 2008 and 25 in 2009.

    The defense group confirmed that it now expects to make a loss on some of the Airbus A380 sales contracts, warning of a 600 million euros ($760 million) charge this year to cover those losses. The A380 program will not generate positive operating earnings until 2010, EADS predicted.

    The ripple effect of the fresh A380 delay is likely to hurt the group's industrial shareholders and to benefit U.S. rival Boeing Co., which is developing a 400- to 500-seat version of its 747 jumbo to compete with the A380.

    German automaker DaimlerChrysler AG _ which owns 22.5 percent of EADS _ said it will review its own operating profit guidance as a result of the Airbus problems. Shares of Boeing rose $1.81, or 2.3 percent, to close at $81.78 on the New York Stock Exchange.

    EADS also announced the launch of a new cost-cutting program to counter the impact of A380 delays as well as the weaker dollar and growing competition from Boeing. EADS gave few details of the plan but said it aims to generate annual cost savings of 2 billion euros ($2.6 billion) from 2010.

    Management oversight of Airbus is also being tightened up at EADS _ expected soon to buy the 20 percent of the aircraft maker that it does not already own from Britain's BAE Systems PLC. BAE shareholders vote Wednesday on a management recommendation to go ahead with the 2.75 billion euro ($3.5 billion) sale.

    Shares in European Aeronautic Defence and Space Co., which had fallen recently in anticipation of the A380 delays, closed 1.1 percent higher at 22.65 euros ($28.85) in Paris before the company's statement, but after those issued by Emirates and Lufthansa.
    Last edited by DanS; October 5, 2006, 12:03.
    I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891
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  • #2
    And here's today's WSJ article about the redesigned A350 being up in the air due to the A380 problems. If the A350 slips its schedule, Boeing will start eating Airbus's lunch with the Dreamliner.

    Why EADS's Growing Pressures
    Can Further Hamstring the Firm
    By DANIEL MICHAELS
    October 5, 2006; Page A2

    PARIS -- Already saddled with cost overruns for delays on the A380 superjumbo, Airbus parent EADS now faces additional costs implementing a new restructuring plan and possible penalty payments on another jetliner program, the long-haul A350.

    European Aeronautic Defence & Space Co., which owns 80% of Airbus, has already slashed its operating-profit forecast by €4.8 billion ($6.11 billion) through 2010 because of a two-year delay in production and delivery of the A380 two-deck plane. Trying to draw a line under Airbus's industrial problems, EADS this week announced a sweeping restructuring plan aimed at improving the European plane maker's operations.

    But implementing the plan is likely to increase the financial squeeze EADS faces in the next four years. EADS plans to give details on its eight-point plan, called Power8, early next year. Yet steps to boost long-term efficiency, such as layoffs, factory closures and manufacturing overhauls, usually increase short-term charges, analysts say. Such measures may face resistance from European politicians concerned about job losses and labor unrest.

    Airbus also faces other, and unquantified, expenses related to delays on another plane project -- the proposed A350 long-range wide-body plane. Initial plans for the proposed A350, which was marketed to compete against Boeing Co.'s strong-selling 787 "Dreamliner," disappointed many potential customers. By spring, Airbus signed firm contracts for 150 A350s, which was supposed to enter service in 2010. But customer dissatisfaction with the original A350 design prompted Airbus to redesign it. In July, the company announced a revised version of the plane, called the A350 XWB.

    At the time, Airbus said EADS would give the green light to production of the plane this month and that it would enter service with airlines in 2012. The delay could trigger penalties on the 150 firm orders, industry analysts say. Now, amid the current turmoil, it is also unclear whether the new A350 schedule will be maintained. An EADS spokesman declined to comment.

    Analysts can only estimate what slippage in the A350 schedule might cost EADS. They predict from €300 million in potential A350 contract losses to €500 million.

    As the extent of EADS's troubles grew clearer, shareholders in Britain's BAE Systems PLC overwhelmingly approved the sale of its 20% stake in Airbus to EADS for €2.75 billion, as expected.

    BAE Chairman Dick Olver told a meeting of BAE shareholders that the board is concerned about the possible cash requirements for the Airbus business in the medium term. EADS acknowledges its financial squeeze. EADS's sudden drain on cash presents "a significant challenge," EADS Finance Chief Hans Peter Ring said. EADS, which has little debt and has kept a positive cash position since its creation in 2000, is set to hold an investor conference Oct. 19 to update its financial outlook.

    The Power8 plan has met political resistance. German Finance Minister Peer Steinbrueck called on EADS not to upset the national parity inside Airbus. "The European balance of the company, with regard to its production and the existing jobs, must not be changed to the disadvantage of Germany," he said yesterday.

    --Rod Stone in London and Andrea Thomas in Berlin contributed to this article.
    I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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    • #3
      European Bureaucracy + European Management + European Engineering = lol
      "The issue is there are still many people out there that use religion as a crutch for bigotry and hate. Like Ben."
      Ben Kenobi: "That means I'm doing something right. "

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      • #4
        Meanwhile, the entrepreneurs at the startup Eclipse Aviation received FAA certification on the first Very Light Jet. It costs about $1.5 million apiece. About 2,500 orders already. Within range of most upper middle class folks via fractional ownership.
        Last edited by DanS; October 5, 2006, 12:42.
        I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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        • #5
          The Eclipse 500
          Attached Files
          I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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          • #6
            The Eclipse 500 interior.
            Attached Files
            I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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            • #7
              Re: What's wrong at Airbus? Will the A380 sink the ship?

              Originally posted by DanS
              The question has to be asked... Did Airbus bite off more than it can chew, knowing that European governments will not allow it to fail?
              There's that, but it's not the only reason.

              What's happening is that plenty of problems were hidden for years, and they're all getting revealed nearly simultaneously. The optimism in Airbus was exaggerated back when everything was rosy, and now we're seeing more of an adjustment crisis than a genuine crisis threatening the future of Airbus.
              "I have been reading up on the universe and have come to the conclusion that the universe is a good thing." -- Dissident
              "I never had the need to have a boner." -- Dissident
              "I have never cut off my penis when I was upset over a girl." -- Dis

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              • #8
                How many does it seat?? I presume that's not intended to be a major passenger plane ...
                <Reverend> IRC is just multiplayer notepad.
                I like your SNOOPY POSTER! - While you Wait quote.

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                • #9
                  Seats 6. Can land at over 10,000 airports in the U.S. May be a major passenger plane by making airtaxis possible.
                  I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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                  • #10
                    Six? Um...

                    I don't think that'll ever overtake the seats 120+. You'd need 20 of these to make up for one 727, and the problem is, even with so many airports, you only have 3 airports in the chicago area that allow them to land iirc (with Meigs gone) and you can only take off one at a time
                    <Reverend> IRC is just multiplayer notepad.
                    I like your SNOOPY POSTER! - While you Wait quote.

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                    • #11
                      Now, if it can take off in a small enough space that you could create a few dozen MORE airports in the chicago area (say, 10 more even) without a major cost, that might make a difference. If it takes less fuel to fly 20 of these than a 727, anyway (which would surprise me, but I guess that's probably the design spec).
                      <Reverend> IRC is just multiplayer notepad.
                      I like your SNOOPY POSTER! - While you Wait quote.

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                      • #12
                        The problem with the Airbus is that it's not American. If it was, this would be ready, it would be twice as big in fact. The problem is, that the project is filled with French idiots who rather smell each others toes than actually work. They intentionally sabotage the work if they don't get their favourite bread every other day.

                        The problem with Airbus is that it's happening in Europe. God didn't bless Europe. Even less did God bless EU, pagan union and alliance.

                        The problem with Airbus is that if it succeeds, there must be some scam in it. It can't succeed. And even if it does, it'll be so expensive no one can buy it. It's a freak show that reflects quite well the stupidity, inferiority and intelligence of all Europeans, who are not only stupid but also sissie.

                        The fact is, if it has stars but no stripes, it smells like cheese and armpits, communism AND fascims at the same time. Basically, the recipe for success is missing. They're stupid. Idiots. Pagans.
                        In da butt.
                        "Do not worry if others do not understand you. Instead worry if you do not understand others." - Confucius
                        THE UNDEFEATED SUPERCITIZEN w:4 t:2 l:1 (DON'T ASK!)
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                        • #13
                          Yay! Pekka!
                          “As a lifelong member of the Columbia Business School community, I adhere to the principles of truth, integrity, and respect. I will not lie, cheat, steal, or tolerate those who do.”
                          "Capitalism ho!"

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                          • #14
                            Originally posted by Pekka
                            The problem with the Airbus is that it's not American. If it was, this would be ready, it would be twice as big in fact. The problem is, that the project is filled with French idiots who rather smell each others toes than actually work. They intentionally sabotage the work if they don't get their favourite bread every other day.

                            The problem with Airbus is that it's happening in Europe. God didn't bless Europe. Even less did God bless EU, pagan union and alliance.

                            The problem with Airbus is that if it succeeds, there must be some scam in it. It can't succeed. And even if it does, it'll be so expensive no one can buy it. It's a freak show that reflects quite well the stupidity, inferiority and intelligence of all Europeans, who are not only stupid but also sissie.

                            The fact is, if it has stars but no stripes, it smells like cheese and armpits, communism AND fascims at the same time. Basically, the recipe for success is missing. They're stupid. Idiots. Pagans.
                            Obviously, this is the unvarnished truth.
                            I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891

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                            • #15
                              Darn those communist fascists!
                              <Reverend> IRC is just multiplayer notepad.
                              I like your SNOOPY POSTER! - While you Wait quote.

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