Week of August 2, 2004
Snapshot from the Field
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Adding 1,000 Jobs
by JACK LYNE, Site Selection
Executive Editor of Interactive Publishing
HAMPSHIRE, England Strutting its stuff at the recent Farnborough International Air Show, Airbus ( www.airbus.com) announced plans to add up to 1,000 jobs and increase total output by 50 percent over the next two years.
Airlines are now keen to take delivery of ordered planes, and some even want earlier deliveries, Airbus President and CEO Noel Forgeard explained in Hampshire, England. So I can confirm that we plan to deliver more aircraft this year than last year and more than we initially planned.
Before the annual Farnborough show was over, in fact, the world’s No. 1 commercial aircraft manufacturer had signed an order that could be worth as much as US$7 billion. Significantly, part of that order is for the A380, the multibillion-dollar jumbo jet on which Airbus is staking a large slice of its future. The company launched A380 production on May 7 at the new $435-million, 1.36-million-sq.-ft. (122,500-sq.-m.) assembly plant that it’s built near its headquarters city of Toulouse, France.
In Hampshire, Etihad Airways inked a contract to buy 24 Airbus planes, including four A380s, eight A340s and 12 A330s. And the United Arab Emirates’ national airline has an option to purchase a dozen more.
For over a year now, we have been in intensive discussions about our future craft needs with both Boeing and Airbus, explained Etihad Airways Chairman Ahmed Bin Saif al Nahyan. We believe that the Airbus range of aircraft offers us the best option for both guest satisfaction and future growth.
Those words must’ve been harsh music to the ears of Chicago-based Boeing ( www.boeing.com), the erstwhile king of commercial airliner manufacturers. The U.S. firm is locked in a huge tussle with Airbus, which last year delivered more planes than Boeing for the first time ever.
That fracas was much in evidence at the July 19-25 Farnborough show. The two companies traded broad-ranging barbs on everything from incentives to plane weights to EU-U.S. trade agreements.
Two Very Different Visions:At the center of that controversy are two very different planes: Airbus’ $12-billion double-decker A380 and Boeing’s midsized 7E7, with its $10 billion developmental price tag.
Airbus’A380 vs. Boeing’s 7E7
Boeing has hitched much of its hopes to the 7E7, which it decided late last year to assemble in Seattle. (For more details see Boeing Back Where It Belongs, the Dispatch’s Blockbuster Deal for the week of Dec. 15, 2003.)
The U.S. firm’s first new craft in 14 years, the 7E7 is the major driver in Boeing’s recent announcement that it will hire as many as 3,000 workers by year’s end. That marks Boeing’s first major job increase since it slashed 42,000 positions in the wake of 9/11’s terrorist attacks.
The 200- to 250-seat 7E7 takes a smaller-is-beautiful page from Southwest, the only consistently profitable U.S. airline since Sept. 11. The craft represents a radically different airplane, asserted Mike Bair, senior vice president of Boeing’s 7E7 program. Flying 7,000 to 8,000 miles (12,894 and 14,739 kilometers) at speeds similar to today’s fastest twin-aisle commercial crafts, the 7E7’s 20-to-30-percent higher fuel-efficiencies offer major savings, Boeing says.
Back in England, though, Airbus’ Forgeard described the 7E7 as much ado about not very much. The Airbus A330, he asserted, already leads the midsize market.
We don’t need to react to a reaction, the recently knighted Forgeard said. We feel no market pressure, but we stay vigilant and ready to act pragmatically to take advantage of any market opportunity.
Just How Big a ‘Baby’?Airbus is eagerly acting to capitalize on what it sees as the A380’s strong market opportunity.
And the A380 is one very big flagship. When it begins commercial flights in early 2006, the 555-seat plane will end the long-running reign of Boeing’s 416-seat 747 as the world’s largest jetliner. With its wingspan of 261.8 feet (79.4 meters), Airbus’ jumbo jet will be 49.5 feet (15 meters) wider than the 747. The A380’s mammoth dimensions will enable it to carry 35 percent more passengers than a 747, reducing per-seat operating costs by 15 to 20 percent, Boeing says.
Our big baby, a beaming Forgeard said in May to 4,000 guests after he unveiled the A380’s first test fuselage at Airbus’ brand-new French factory.
Just how big a baby is yet another sharp-edged element in the persistent Airbus-Boeing sniping. Airbus set the A380’s target weight at about 240 tons (216 metric tons).
But Boeing voiced strong doubts about whether the big new plane could really hit that target. And the U.S. company brought some experience to the argument. Boeing was developing the Sonic Cruiser, its own entry for the world’s biggest jetliner, before dropping the project in 2001. Even EADS CEO Rainer Hertrich conceded that the plane was encountering technical problems on weight during his company’s annual shareholder meeting in early May.
Overweight planes carry a litany of bottom-line liabilities. Extra weight reduces passenger payloads and route lengths and increases fuel, maintenance, landing and navigation costs.
But Forgeard asserted in Hampshire that the weight debate was over.
There is no room for negative headlines whatsoever, the Airbus CEO said of the alleged poundage problems. I confirm that the maximum empty weight of the A380 is less than 1 percent above our internal target. We are on target to meet our guarantees to customers and to put an end to dubious figures floating around.
Airbus’ subsidies provide an unfair advantage, Boeing charges. Airbus received some $3.2 billion in repayable government loans to build the A380.
That support is authorized by 1992 trade agreement between the European Union and the United States. The accord allows companies to receive government subsidies to finance up to one-third of a new plane’s developmental costs. Boeing has been calling for reopening E.U.-U.S. talks on the agreement.
But Boeing’s $3 billion in Washington state tax aid for the 7E7 amounts to the same thing, Airbus argues.
This is a game, Forgeard said at the Farnborough show. There is no ground to attack Airbus whatsoever.
Boeing, however, maintains that the French firm’s subsidies are very different, creating an un-level playing field. Airbus, the U.S. company asserts, is getting its meaty subsidies up-front, before taking on the huge financial risks of developing a new plane. By comparison, Boeing’s Washington state subsidies will trickle in incrementally over many years.
In addition, Boeing charges that Airbus’ subsidies are risk-free: The company may not even have to pay back its $3.2-billion loan, Boeing points out. The loan’s terms only require an Airbus payback if it turns a profit on the A380. That would require selling 250 of the planes, company officials have estimated.
[Airbus] has 50 percent of the market, Boeing Commercial Airplanes President and CEO Alan Mulally said in Hampshire. It can compete on commercial practices now.
Coincidentally, U.S. and European Commission trade representatives met in Brussels during the Farnborough show, beginning discussions on government funding for commercial plane development. The two sides agreed to resume further talks in September.
Airbus Says It’s ‘In-Sourcing’ U.S. JobsMeanwhile, the grumbling over Airbus’ subsidies has spread to Capitol Hill.
Will the last aerospace worker in America please turn out the lights? Washington Sen. Patty Murray (D) said in a May 5th speech on the Senate floor.
Airbus, which spends more than $5 billion annually in the U.S., has countered with its own stateside image-polishing campaign. It’s repeatedly emphasizing that the A380 program will generate 22,000 direct aerospace jobs for American companies.
Airbus could not build the A380 without the significant support of American aerospace companies, Airbus North America Chairman Allan C. McArtor said in May at Alcoa Fastening Systems headquarters in Torrance, Calif.
While out-sourcing is an issue for so many today, Airbus is delighted to be among those companies who are ‘in-sourcing’ high-technology jobs, McArtor continued. Fifty percent of the A380’s components and subsystems will be made in the United States.
The Future of Air Travel:The Airbus-Boeing bickering in Hampshire didn’t include perhaps their biggest difference: the future direction of air travel. But the two firms had already knocked heads on the issue numerous times before the Hampshire event.
Point-to-Point or Hub-to-Hub?
Airbus and Boeing’s diametrically differing views are reflected in their new planes: Boeing’s smaller 7E7 is aimed at airlines that focus on flying nonstop between smaller terminals. In contrast, Airbus’ A380 jumbo jet is aimed at companies focused on flying from hub to hub.
Airbus is projecting that there is a market for sales of up to 1,500 A380s over the next 20 years. Boeing pegs jumbo jet demand as dramatically lower, with a market for only 320 sales.
The market segment Airbus is aiming for is just 10 percent [of the total market], and we’ll be offering the advanced 747-400 with 450 seats by the end of this decade, Boeing’s Mulally asserted in April. Our plane (the 7E7) is the low-risk solution, but we just don’t see the market as big enough for the investment of $15 billion to $20 billion that Airbus is making.
In Readying Operations for A380
The larger market will obviously decide who’s right.
For certain, a lot of new airplanes are going to be sold. With air traffic increasing by some 5 percent every year, air industry analysts estimate that 40,000 planes will be purchased over the next two decades.
Airbus currently has orders for 129 A380s. In addition to Etihad, buyers include Air France, Federal Express, International Lease Finance Corp. (the aircraft leasing unit of American International Group), Korean Air, Lufthansa, Malaysia Airlines, Qantas, Qatar Airways, Singapore Airlines and Virgin Atlantic Airways.
Bair said in Hampshire that the 7E7 has 62 orders from four carriers, including Air New Zealand, All Nippon Airways, Italy’s Blue Panorama and the UK’s First Choice Airways. But Boeing, he added, has deposits from another two dozen airlines, which will increase total orders to almost 200.
The A380 has prompted a number of major hubs to begin readying operations for the larger plane. Preparations include constructing double-decker passenger ramps and strengthening bridges and roads. By 2010, Airbus is estimating that more than 60 airports will be handling A380 flights.
But the hubs aren’t complaining about being saddled with major new expenditures to prepare for the new jumbo jet. The A380 offers major potential payoffs, providing more business from bigger passenger payloads and without adding to air congestion. One example is London’s Heathrow International, where the British Airport Authority plans to spend $821 million over the next 10 years to accommodate A380 flights.
By 2016, we expect 60,000 A380 movements a year at London Heathrow, said Eryl Smith, director of business strategy, planning and development for BAA Heathrow. This will enable nearly 10 million more passengers to fly to and from Heathrow with no increase in flights.
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