FLUG REVUE August 2006: A380 delay puts Airbus in spin

August 2006

A380 DELAY PUTS AIRBUS IN SPIN

By Sebastian Steinke

Airbus President and CEO Gustav Humbert delivered the bad news personally. On the evening of 13 June he appeared before the world's aviation press who had gathered in Toulouse for the annual Airbus Technical Press Briefing to report the disastrous results of an internal study he had commissioned on imminent production delays in the A380 programme. “The study concluded that production cannot proceed according to plan. The activities of the last year have not resolved all the problems. We took the decision last night that we have to inform our customers.”

Humbert announced that Airbus still intended to deliver a single A380 to Singapore Airlines (SIA) by the end of the year, as it has confirmed several times, but that after that it would only be possible to deliver nine aircraft in 2007 rather than the 25 originally planned. In 2008, the company would deliver “between five and nine” units fewer than the 35 originally planned and in 2009 five fewer than the planned 45.

“I have spoken today with ten chief executives of our customers. They are not happy with Airbus but they acknowledge our efforts,” Humbert reported. “My primary concern is customer satisfaction, which has taken quite a beating today. I will personally ensure that this is the last delay that our customers have to endure.” All the airlines, he said, were affected by the delays, but deliveries of the A380 cargo aircraft were unaffected.

No A380 cancellations have as yet been announced by angry customers. However, the leasing company ILFC is threatening to cancel. On the other hand, A380 launch customer Singapore Airlines, which up to now has been viewed as a hot candidate for an A350 order, announced its decision to purchase 20 Boeing 787's immediately after the A380 delay was announced, possibly as retaliation.

The fact that deliveries of the A380 have now been delayed yet again by six to seven months is not actually that surprising for a brand-new aircraft type, and this possibility is something which customers have to weigh up when making their purchase decision. However, what is more worrying is the fact that Airbus is laying all the blame for this “purely industrial problem” on the unexpectedly complicated planning, production and assembly of the wiring. This problem had in fact been identified as the cause of another six-month production delay back in the late summer of 2005. At that time the company had declared that the “wiring bottleneck” had been recognised and already successfully eliminated (see FLUG REVUE 11/2005).

The wiring problems are apparently due to the escalating special wishes of the airlines for the most state-of-the-art entertainment and communication systems in the cabin. Evidently Airbus has underestimated the amount of work involved in developing cable harnesses tailored to the requirements of each customer and their structural mountings. Moreover, according to unconfirmed reports, the switch from copper to aluminium wiring in order to save weight has caused further problems. The lighter, but bulkier aluminium cables apparently will not always pass through the conduits and openings that were originally calculated for thinner copper cables. Furthermore, apparently the more brittle and hence delicate aluminium cables do not lend themselves easily to later modification or rerouting.

Due to the pressure to deliver, sections which were only partially wired have been passed to final assembly and are only now being fitted with the remaining cables, but wiring in the equipment phase is a lot slower than in the stage at which it is normally carried out. However, it is as yet unclear why it will take until 2010 to achieve the original production rates urgently demanded by the market.

Gustav Humbert accounted for the problems as follows: “We wanted to use the very latest technology. Now we have so many innovations in the electrical systems that modification is causing problems. We already have a very high workload, and now there is a spate of issues with the wiring and fuselages.”

In response to a question from FLUG REVUE, Humbert confirmed that the A380 will not undergo significant technical changes. “The aircraft is fine. The same production standard will be applied from the first SIA aircraft. There will not be any changes in the systems. All the aircraft will be the same.”

For the manufacturer, a delay in delivery also means delays in payment and hence a hole in its cash coffers. Moreover, many A380 customers are likely to bide their time before placing follow-on or new orders until the delayed first operational experience is available.

Airbus's parent company EADS is expecting the A380 delays to result in lost revenue of around € 500 million per year between 2007 and 2010. The news was followed by a dramatic 26% dive in the EADS share price to a two-year low from which it had still not completely recovered as we went to press, corresponding to a temporary loss of value of €5.5 billion.

EADS Co-CEO Noel Forgeard was drawn into the cross-fire of criticism. Like other high-ranking (non-German) representatives of EADS, he had sold a sizeable block of his own shares at a profit in March, just before the announcement that the major shareholders were to sell off parts of their equity stakes and before the recent slump in the share price. However, the share options used in this case are supposed to be cashed in only in a previously defined narrow timeframe so that the transaction can count as a random sale. The German and French financial services supervisory authorities announced that the sales had been under investigation “for weeks”.

At the same time speculation was rife that the Co-CEO might have had advance knowledge of developments in the pipeline. Forgeard denies this, saying that he was only informed of the likely, but still not definite delays in A380 production in April and the end of May. Forgeard went onto the counteroffensive on the French radio, accusing the Hamburg Airbus plant of being responsible for many of the recent problems. Despite angry protests from the head of Airbus in Germany, Gerhard Puttfarcken, Forgeard, who is always extremely careful with his words, did not subsequently withdraw the content of his accusation but merely expressed regret that he had mentioned Hamburg by name.

Further speculation revolved around the question of whether EADS might not actually benefit from the recent collapse in the share value as it would then be able to buy the 20 percent of Airbus shares owned by BAE Systems a lot more cheaply.

After a “working session” of the EADS management on 19 June, the company refuted reports in the French press that the Germans were demanding the resignation of Noel Forgeard and his replacement by Louis Gallois, head of the French railway, SNCF.

Management of EADS and Airbus now face a whole series of tasks. The Europeans want to unveil their revised counterpiece to the Boeing 787, which up to now has gone by the designation of Airbus A350, at the Farnborough Air Show in July. The A380 certification process should be complete by the end of the year, clearing all obstacles to delivery of the first customer aircraft to Singapore Airlines, as confirmed once again.

Meanwhile, it is business as usual in Toulouse: several A380's are continually setting off for test flights from in front of the flight testing department building. The day after the delay was announced, for example, A380 chief test pilot Jacques Rosay returned from a flight test in Istres with one of the giant aircraft, during which the minimum take-off speed in the event of engine failure (VMCg) had been calculated. In this situation, after one engine has shut down at 122kt (226km/h) just before take-off, the aircraft is allowed to swerve no more than ten metres from the centre of the runway before being forced back into the centre with the aid of rudder and, until rotation, spoilers. The take-off is then continued with three engines.

All 50 test pilots and also the 50 airline pilots who have been allowed to fly the A380 up to now are extremely positive about the aircraft. Tim Clark, head of the biggest A380 customer airline, Emirates, had even been pressing Airbus before the latest setback to raise production so as to be able deliver more quickly.

From FLUG REVUE 8/2006

The story closed for print before the resignations of Noel Forgeard and Gustav Humbert became known on July 2.

Last updated 14 July 2006

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