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Airbus versus Boeing: Record year with some setbacks
By Sebastian Steinke
Louis Gallois, Airbus President and CEO and also Co-CEO of parent company EADS, opened the Airbus annual press conference on 17 January in Paris with a confession: “This morning EADS issued a profit warning for our 2006 results. The EADS and Airbus management is estimating Airbus to most probably deliver a negative EBIT for 2006. These are the first consequences of our 2006 turbulences – in particular the effect of the A380 delay,” he explained. However, he said that he would not be in position to publish more precise figures until the auditors and the EADS Board of Directors had signed off the official financial results consolidation scheduled for 8 March. All things considered, EADS was expecting to “more or less” break even at Group level thanks to the other, profitable business areas.
“The A380 industrial delays were a major shock for Airbus, EADS, our customers and shareholders,” Gallois conceded. “We intend that something like this never happens again. We are very grateful to the customers who placed repeat orders notwithstanding. We have not lost the trust of our customers. This is great news.”
Moreover, the Frenchman believes that the A380 is now on schedule to make up for lost time. “MSN003, the first A380 for Singapore Airlines, has received all its electrical wiring and the “Commercial Installation” phase [installation of the complete cabin, galleys, toilets, seats and airline-specific equipment] will commence at the beginning of next week. I have personally promised the CEO of Singapore Airlines that we will hand this A380 over to him on schedule in October.”
MSN003, which is already fitted with revised cable harnesses incorporating the corrected installation data, is serving as a kind of teaching model for the process of finishing the next customer aircraft, which is now getting under way. A dozen structurally complete aircraft are waiting in the final assembly hall in Toulouse for their wiring to be manually finished off. The final production cable harnesses, which have recently completed development with new software, will then be directly installed from the 26th aircraft.
Whereas this appears to finally resolve the acute problems of the recently type-certificated passenger version of the A380, the cargo version, the A380-800F, faces what may be its most difficult test: as Airbus Chief Operating Officer Customers John Leahy explained: The only remaining customer of the cargo version, UPS, is currently considering whether to stick with the order or cancel. Emirates Sky Cargo/ILFC and FedEx Express have already, respectively, converted their orders to passenger versions or completely cancelled them. Only at the beginning of December, EADS Co-CEO Tom Enders had confirmed that the company would continue with the A380 cargo version, whose market potential he still believed to be around 500 units over the next 20 years.
In Paris, John Leahy left open the question of what decision he expected from UPS, but he did not rule out the possibility that the parcel freight company's decision would go against the A380F. “We will build the A380 Freighter version in any case,” he stressed to journalists several times. “But you wouldn't believe how many airlines' CEOs phoned me up the day FedEx cancelled its orders to request that the delivery slots which had now become vacant should be taken over by their own passenger A380's.”
According to Leahy's statement, Airbus is therefore considering postponing the A380 Freighter by several years. This would enable the company to satisfy the high demand for the passenger version more quickly and to concentrate all its energies on this task. In response to a question from FLUG REVUE, Leahy expressly confirmed that it was even possible that the stretched passenger version, the A380-900, would appear before the cargo plane. Emirates has already several times expressed great interest in this new version.
If the A380 Freighter should really lose its last remaining customer, Boeing will have won a significant skirmish with its own freighter offensive. Through their programme to convert used passenger Boeing 747-400's to Boeing 747-400 Special Freighters or 747-400 Boeing Converted Freighters the Americans have made good use of the four-digit stock of jumbo jets around the world for an assault on the Airbus giant and they are flooding the market with their big, inexpensive converted freighters. They are also offering two attractive new-build types, the large-volume 777F which, despite coming with a high price tag, is very economic in operation, and the 747-8F, which has only emerged as a new-build freighter with nose door and long fuselage after many years' hesitation. This aircraft can seamlessly use the 747F infrastructure such as containers and loading ramps already available at many airlines.
The situation regarding the passenger version, the 747-8I, is different: this four-engine jet appears to be more of a smaller addition to the A380 than a direct adversary. But apart from Lufthansa, Boeing urgently needs some other customers to make the passenger version profitable. According to unofficial information, a further 747-8I order from Taiwan, which should really have been signed last year, is expected to be finalised shortly. However, the President of Taiwan was apparently recently offended because he could not get a meeting with the US President, as he had hoped, during a transit visit to the USA, and as a result of the fallout from this incident the contract has not yet materialised.
The two big commercial aircraft manufacturers enjoyed a really good year as regards sales of single-aisle aircraft. Both the 737NG family and the A320 family sold extremely well. For this reason, neither manufacturer has yet been prepared to talk publicly about their respective successor models, even though it is likely that work on the strategic concepts has already begun internally. Airbus and Boeing are also waiting for a new generation of engines that will probably not be available until 2014 or so.
The new mid-sized models, the Airbus A350 XWB and the Boeing 787, which should be particularly economic to fly thanks to new materials and new system architecture without bleed air (787), will serve as a technological source of ideas for the next generation of narrowbodies. However, both manufacturers have yet to deliver the demanding technology for their new mid-sized jets on time. Airbus has kept adding more and more advanced features to the A350 XWB, turning it into a pricey high-tech marvel (see FLUG REVUE 2/2007), and Boeing is even hoping to make an even more expensive generation leap with the carbon fibre 787 and its fully electric system architecture without bleed air.
According to Boeing planners, the new 787 final assembly facility in Everett, where the sections and wings produced by suppliers all over the world will be put together, will officially open in May. The first 787 will taxi out of the production hall in the summer and take off for its maiden flight in August or September.
Despite this, on 22 January investment company Wachovia Securities downgraded its assessment of the Boeing share from “outperform” to “neutral”. According to a report by Wachovia analyst Joe San Pietro which was extensively quoted in the Wall Street Journal, the company had passed the peak of its incoming orders while the 787 suppliers were demanding more money because their costs are rising due to the extremely ambitious development and production ramp-up plan. Apparently cables, hydraulic lines and rivets which according to the plans were supposed to be preinstalled were missing in the first shipment of 787 wing boxes supplied by Fuji to Global Aeronautica in Charleston. 787 wing manufacturer Mitsubishi and the rear fuselage section supplier, Alenia, have also apparently fallen behind schedule. As a result there is a risk of a three- to six-month programme delay on the 787, about which some Asian and Pacific customer airlines have already been pre warned. This news caused the Boeing share price, which rose by 29 percent last year, to drop back by 3.4 percent. Notwithstanding, Boeing's spokesperson on the 787 programme, Yvonne Leach, confirmed that no change was planned to the date of the first delivery in May 2008.
Meanwhile the picture is still unclear at Airbus as regards the cost situation. Hans Peter Ring, Chief Financial Officer of EADS and recently also of Airbus, did not rule out a further issue of capital at EADS in the future and conceded, “Now that I have spent two weeks taking a closer look at the Airbus books, I have to say that the financial situation at Airbus will probably be more difficult than expected. We are expecting to take a hit in 2006, but for things to then pick up again. We now have to make a decision about our “Power8” cost reduction programme. That will be a marathon race and it will hurt.” Ring announced that Airbus planned to ascribe as many costs as possible, including some of the development costs of A350 XWB, to the financial year 2006. The declining value of the dollar is also unfortunate for the Europeans who in part produce in hard euros but are invariably paid in weak dollars for their aircraft. Louis Gallois complains, “Every time the dollar falls by 10 euro cents we lose a billion euros.”
Meanwhile in 2006 Airbus delivered 430 complete aircraft, which generated sales revenue of €26 billion. The second-best orders year in Airbus's history ended with new orders for 824 aircraft with a list price of $75.1 billion. But Boeing did even better: the Americans managed to find takers for a total of 1,044 aircraft, 42 up on 2005, which itself had been a record year. 729 of these were Boeing 737NG's. For the first time since 2000, Boeing has slipped back past Airbus with a 56 percent market share expressed in terms of unit sales. But in the competitive struggle, the high number of sales of lucrative wide-body jets weigh even more heavily. Last year Boeing pocketed orders for 157 Boeing 787's, 76 Boeing 777's, ten 767's and an impressive 72 Boeing 747's in both old and new versions, passenger and cargo, especially the latter.
By contrast, Airbus sold “only” 151 wide-body aircraft, including 17 A380's, which at least more than made up for the cancellation of FedEx's ten A380F's. Airbus Chief Commercial Officer John Leahy, who moreover was heard to mention the name “Lufthansa” when listing the airlines which had placed additional orders for the A380, stressed that his A330/A340 had beaten the Boeing 777 with 119 sales. Apparently he is currently negotiating on conversion of the old A350 letters of intent to provisional agreements for the updated A350 XWB. By the end of 2007 he expects to have 200 firm orders for the A350 XWB.
“We want a 50 percent market share,” said Louis Gallois apropos of the company's planned direction of travel. John Leahy was expecting Airbus aircraft sales in 2007 to number around 900. However, he pointed out, the big US airlines need to consolidate their positions before they can set about renewing their fleets in two years' time or so.
From FLUG REVUE 3/2007
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