PittsburghAfterDark
07-11-2006, 02:34 AM
The truth that the A350 was a dead duck finally hit home in Toulouse. The design was torn up earlier this year, and work started on an all-new plane, codenamed A370. Now, the board of EADS, which met on Friday, has ?suspended? the launch of this aircraft, with a likely development cost of E8bn, twice that anticipated earlier. The decision underscores the scale of the strategic errors made by Airbus. Founded 36 years ago to provide an umbrella beneath which the national aerospace companies of Britain, France, Germany and Spain could achieve economies of scale and compete effectively with market leader Boeing, Airbus had become a symbol of effective state industrial policy. Alas, no more. BAE, which makes the wings, wants out of the partnership, the French and German government are tussling for control of EADS, heads are rolling at the top of both companies, and even legal action from airline customers over late deliveries is threatened.
The dream of creating a pan-European aircraft manufacturer which could challenge Boeing?s domination began well enough. Its first aircraft, the A300, was a modest success. But the federation, now a company, went on to build the A320 series, which took on Boeing?s 737, the world?s short-haul workhorse, and won half the market. In recent years Airbus was winning more aircraft orders than Boeing. Airbus followed up on the success of the A320 with the A330 wide-bodied twin-jet and the A340 four-engined long-haul wide-body. The ambitious A380 super-jumbo, with a baseline 555 seats, was supposed to fill in the final gap in its range, leapfrogging Boeing?s venerable B747 jumbo, the plane that pioneered long-haul travel for the masses 30 years ago.
But with the A380, Airbus was building the wrong plane. Since the design of the A380 was approved, half a decade ago, the global aviation industry had entered a new phase. Thanks to improved technology, airlines no longer saw the need for giant planes flying long distances. And as hub airports become more crowded, and passenger numbers grow, customers can see the obvious advantage of flying ?point-to-point? from regional airports close to home, to regional airports close to their destination.
This had been obvious to Boeing?s crystal-gazers years ago. The Chicago-based aircraft maker began work on an all-new widebody twin-jet, offering from 250 to 300 seats, to capture this market. Its B787 Dreamliner, using composite materials and state-of-the-art technologies, will provide big fuel economies at a time of soaring oil prices, and will fit the shape of passenger demand when it comes into service in 2008. The proof is in the sales figures: airlines have ordered more than 350 Dreamliners, enough to offset the plane?s huge development costs.
Additionally, rising oil prices have also favoured Boeing?s bigger B777 widebody twinjet seating 300 to 400 passengers. After years of watching Airbus catch up, then race ahead of it with new aircraft sales, Boeing has regained the sales lead in convincing style. At the end ofJune, Boeing had booked 445 new aircraft orders, against just 142 signed for Airbus planes.
The A380, at a list price of $300m, hasn?t scored a single new order for more than 12 months. Sales booked or promised remain stuck at 159 aircraft, little more than half the number needed to break even. Meantime, the $12bn development cost, albeit aided by soft loans from European governments, has absorbed Airbus cash and the engineering talent the company should have been applying to challenge the new market Boeing has so neatly cornered.
The huge double-decker A380 flies well enough and is a technological marvel. Visitors to Farnborough next week will see it go through its paces in impressive style. There is no doubting the ability of Airbus to design and assemble technically-advanced products. But the A380 beast, like the A370, has turned into a nightmare. The six month delivery delays announced on 13 June is the second presented to the A380 customers, many of whom are now seeking hundreds of millions of euros in compensation.
The problem is this: installing the wiring in the A380, particularly for advanced in-flight entertainments systems that vary in specification from one airline customer to the next, has proved vastly more complicated and time-consuming than Airbus engineers envisaged.
Only one production aircraft, for launch customer Singapore Airlines, is expected to roll out of the enormous new assembly facility at Toulouse this year. Only nine A380s will be built in 2007, rather than the 25 planned, and delays will continue thereafter. Production bottlenecks will lop E500m a year off EADS? profits from 2007 to 2010, or E2bn in total, not including compensation payments for delays.
Airbus enthusiasts argue that the 747 was a challenge for Boeing in its first decade, and that the jumbo too, like the A380, was ahead of its time. Fixing the A380 problems will absorb enormous management energy and resources which should be going into the A370.
John Leahy, Airbus?s American-born sales chief, was last week jetting around Asia presenting the new A370 design to airlines and trying to get them to sign contracts to buy. Other executives, meantime, were racing to conclude an engine-supply contract with Britain?s Rolls-Royce, the only engine-maker yet booked into the programme while colleagues were lobbying America?s General Electric to also develop a news engine for the plane.
The A370 Airbus is now touting to airlines will have new wings, designed and built in Britain, made entirely of lightweight composite materials. It will have a wider cabin than the B787 and, like its Dreamliner rival, enable higher cabin pressurisation, improving passenger comfort. Crucially, it will also have the ability to be extended upwards from 250 seats to perhaps 350 or more, enabling different versions to do the job of the Boeing 787 and Boeing 777. This requires engine makers to develop new power plants able to provide up to 95,000 lbs of thrust, compared to a maximum of 75,000 lbs required for the A350 design.
To get airlines to commit, Airbus has to produce a better plane than Boeing?s 787, one that provides more flexibility and greater fuel efficiency. But customers will have to be prepared to wait until 2012 for it to enter service ? four years after its B787 rival will be in commercial service. Singapore Airlines voted with its cheque book, ordering 20 B787s, with options for 20 more, just days after Airbus warned that its A380s would be more than a year late. Singapore?s decision amply displayed the extent to which Airbus has lost credibility with some of its major customers.
The crisis has now been addressed, to a degree, by senior level management changes at Airbus and EADS. Gustav Humbert, a German former professor of production engineering who replaced No?l Forgeard as chairman of Airbus only a year ago, resigned last Sunday, taking personal responsibility for all that had gone awry on his watch.
The next day, Christian Streiff, a 26-year veteran of French building materials group Saint-Gobain, arrived in Toulouse to take his place. Streiff has a reputation as an able, incisive and intelligent industrial manager. He quit Saint-Gobain, where he was heir-apparent to chairman Jean-Louis Beffa, last year after being passed over for the top job. And he speaks German, which helped win the confidence of the German co-chief executive of EADS, Thomas Enders, to whom he will report. But his experience of the aerospace industry is limited.
The appointment came after a fortnight of wrangling between the French government, French quoted media group Lagard?re, and German car-maker DaimlerChrysler, which, with the Spanish government, together control just over half of EADS?s equity. Adding to the turbulence, Forgeard, the EADS co-chief executive under investigation after selling a slew of his share options in March, simultaneously resigned, to be replaced by Louis Gallois.
Gallois, who had been running the French state train operator SNCF, was already a non-executive on the EADS board, having piloted French state aerospace company A?rospatiale and state aero-engine maker SNECMA, now part of privatised technology group Safran, before turning to trains.
Their task is made all the more challenging by the failure of EADS?s shareholders to overhaul the management structure of EADS, and by BAE?s decision to opt out of the partnership.
National pride continues to dictate that EADS has a joint reporting structure, with French and German co-chief executives and co-chairmen. Arnaud Lagard?re, the French co-chairman, already admitted that he ?didn?t know what was going on in my own factories? when Airbus finally admitted to delivery delays on the A380. Neither did BAE, which also has seats on the Airbus board.
BAE expects the Airbus audit to take until end-August, then being able in September at the earliest to advise shareholders whether an exit for ?1.9bn is acceptable. The price calculated by Rothschild is taken by analysts to mean the problems at Airbus are profound, and that prospects for the company making decent profits again are far on the horizon.Which leaves unresolved the key issue. Boeing, a company answerable to fund managers, made the right strategic choices. Airbus, like EADS and answerable largely to national pride, got it wrong. Until EADS ownership and management are properly overhauled, BAE is probably correct in deciding to head for the Emergency Exit.
Link (http://www.thebusinessonline.com/Stories.aspx?StoryId=B51E1E82-B32B-4E78-BFA1-270A85816D48&page=1)
This is likely to be an absolute crapstorm in Europe poltically.
After a decades long ascendency, brief market parity to a small lead, over one American company Airbus is in deep deep stuff.
Now how would this play on the American stage? The government takes over an industry dominated by a foreign player. It subsidizes it to the tunes of billions of dollars yet, because any company still attached to government is still in effect government, fails to react to reality and business conditions/trends.
Couple that with one other factor. Say we partnered with Canada and Japan on a venture to compete with an industry dominated by China. The blame cannot just be placed with our own government for a venture failing.
Imagine how this plays out. So and so was in favor of the Canadian executive that failed. Congress approved the management structure introduced by the Japanese. So and so got campaign contributions. Patronage jobs were given to Canadians in exchange for certain trade concessions that favored the U.S.
Imagine the web that critics, conspiracy theorists and everyday armchair know nothings would contrive if a venture like this cost our nation's taxpayers tens of billions of dollars.
Airbus will go down in history as an allegory as to how government and business, however well intentioned and envisioned, can not work against a true free enterprise competitor.
The dream of creating a pan-European aircraft manufacturer which could challenge Boeing?s domination began well enough. Its first aircraft, the A300, was a modest success. But the federation, now a company, went on to build the A320 series, which took on Boeing?s 737, the world?s short-haul workhorse, and won half the market. In recent years Airbus was winning more aircraft orders than Boeing. Airbus followed up on the success of the A320 with the A330 wide-bodied twin-jet and the A340 four-engined long-haul wide-body. The ambitious A380 super-jumbo, with a baseline 555 seats, was supposed to fill in the final gap in its range, leapfrogging Boeing?s venerable B747 jumbo, the plane that pioneered long-haul travel for the masses 30 years ago.
But with the A380, Airbus was building the wrong plane. Since the design of the A380 was approved, half a decade ago, the global aviation industry had entered a new phase. Thanks to improved technology, airlines no longer saw the need for giant planes flying long distances. And as hub airports become more crowded, and passenger numbers grow, customers can see the obvious advantage of flying ?point-to-point? from regional airports close to home, to regional airports close to their destination.
This had been obvious to Boeing?s crystal-gazers years ago. The Chicago-based aircraft maker began work on an all-new widebody twin-jet, offering from 250 to 300 seats, to capture this market. Its B787 Dreamliner, using composite materials and state-of-the-art technologies, will provide big fuel economies at a time of soaring oil prices, and will fit the shape of passenger demand when it comes into service in 2008. The proof is in the sales figures: airlines have ordered more than 350 Dreamliners, enough to offset the plane?s huge development costs.
Additionally, rising oil prices have also favoured Boeing?s bigger B777 widebody twinjet seating 300 to 400 passengers. After years of watching Airbus catch up, then race ahead of it with new aircraft sales, Boeing has regained the sales lead in convincing style. At the end ofJune, Boeing had booked 445 new aircraft orders, against just 142 signed for Airbus planes.
The A380, at a list price of $300m, hasn?t scored a single new order for more than 12 months. Sales booked or promised remain stuck at 159 aircraft, little more than half the number needed to break even. Meantime, the $12bn development cost, albeit aided by soft loans from European governments, has absorbed Airbus cash and the engineering talent the company should have been applying to challenge the new market Boeing has so neatly cornered.
The huge double-decker A380 flies well enough and is a technological marvel. Visitors to Farnborough next week will see it go through its paces in impressive style. There is no doubting the ability of Airbus to design and assemble technically-advanced products. But the A380 beast, like the A370, has turned into a nightmare. The six month delivery delays announced on 13 June is the second presented to the A380 customers, many of whom are now seeking hundreds of millions of euros in compensation.
The problem is this: installing the wiring in the A380, particularly for advanced in-flight entertainments systems that vary in specification from one airline customer to the next, has proved vastly more complicated and time-consuming than Airbus engineers envisaged.
Only one production aircraft, for launch customer Singapore Airlines, is expected to roll out of the enormous new assembly facility at Toulouse this year. Only nine A380s will be built in 2007, rather than the 25 planned, and delays will continue thereafter. Production bottlenecks will lop E500m a year off EADS? profits from 2007 to 2010, or E2bn in total, not including compensation payments for delays.
Airbus enthusiasts argue that the 747 was a challenge for Boeing in its first decade, and that the jumbo too, like the A380, was ahead of its time. Fixing the A380 problems will absorb enormous management energy and resources which should be going into the A370.
John Leahy, Airbus?s American-born sales chief, was last week jetting around Asia presenting the new A370 design to airlines and trying to get them to sign contracts to buy. Other executives, meantime, were racing to conclude an engine-supply contract with Britain?s Rolls-Royce, the only engine-maker yet booked into the programme while colleagues were lobbying America?s General Electric to also develop a news engine for the plane.
The A370 Airbus is now touting to airlines will have new wings, designed and built in Britain, made entirely of lightweight composite materials. It will have a wider cabin than the B787 and, like its Dreamliner rival, enable higher cabin pressurisation, improving passenger comfort. Crucially, it will also have the ability to be extended upwards from 250 seats to perhaps 350 or more, enabling different versions to do the job of the Boeing 787 and Boeing 777. This requires engine makers to develop new power plants able to provide up to 95,000 lbs of thrust, compared to a maximum of 75,000 lbs required for the A350 design.
To get airlines to commit, Airbus has to produce a better plane than Boeing?s 787, one that provides more flexibility and greater fuel efficiency. But customers will have to be prepared to wait until 2012 for it to enter service ? four years after its B787 rival will be in commercial service. Singapore Airlines voted with its cheque book, ordering 20 B787s, with options for 20 more, just days after Airbus warned that its A380s would be more than a year late. Singapore?s decision amply displayed the extent to which Airbus has lost credibility with some of its major customers.
The crisis has now been addressed, to a degree, by senior level management changes at Airbus and EADS. Gustav Humbert, a German former professor of production engineering who replaced No?l Forgeard as chairman of Airbus only a year ago, resigned last Sunday, taking personal responsibility for all that had gone awry on his watch.
The next day, Christian Streiff, a 26-year veteran of French building materials group Saint-Gobain, arrived in Toulouse to take his place. Streiff has a reputation as an able, incisive and intelligent industrial manager. He quit Saint-Gobain, where he was heir-apparent to chairman Jean-Louis Beffa, last year after being passed over for the top job. And he speaks German, which helped win the confidence of the German co-chief executive of EADS, Thomas Enders, to whom he will report. But his experience of the aerospace industry is limited.
The appointment came after a fortnight of wrangling between the French government, French quoted media group Lagard?re, and German car-maker DaimlerChrysler, which, with the Spanish government, together control just over half of EADS?s equity. Adding to the turbulence, Forgeard, the EADS co-chief executive under investigation after selling a slew of his share options in March, simultaneously resigned, to be replaced by Louis Gallois.
Gallois, who had been running the French state train operator SNCF, was already a non-executive on the EADS board, having piloted French state aerospace company A?rospatiale and state aero-engine maker SNECMA, now part of privatised technology group Safran, before turning to trains.
Their task is made all the more challenging by the failure of EADS?s shareholders to overhaul the management structure of EADS, and by BAE?s decision to opt out of the partnership.
National pride continues to dictate that EADS has a joint reporting structure, with French and German co-chief executives and co-chairmen. Arnaud Lagard?re, the French co-chairman, already admitted that he ?didn?t know what was going on in my own factories? when Airbus finally admitted to delivery delays on the A380. Neither did BAE, which also has seats on the Airbus board.
BAE expects the Airbus audit to take until end-August, then being able in September at the earliest to advise shareholders whether an exit for ?1.9bn is acceptable. The price calculated by Rothschild is taken by analysts to mean the problems at Airbus are profound, and that prospects for the company making decent profits again are far on the horizon.Which leaves unresolved the key issue. Boeing, a company answerable to fund managers, made the right strategic choices. Airbus, like EADS and answerable largely to national pride, got it wrong. Until EADS ownership and management are properly overhauled, BAE is probably correct in deciding to head for the Emergency Exit.
Link (http://www.thebusinessonline.com/Stories.aspx?StoryId=B51E1E82-B32B-4E78-BFA1-270A85816D48&page=1)
This is likely to be an absolute crapstorm in Europe poltically.
After a decades long ascendency, brief market parity to a small lead, over one American company Airbus is in deep deep stuff.
Now how would this play on the American stage? The government takes over an industry dominated by a foreign player. It subsidizes it to the tunes of billions of dollars yet, because any company still attached to government is still in effect government, fails to react to reality and business conditions/trends.
Couple that with one other factor. Say we partnered with Canada and Japan on a venture to compete with an industry dominated by China. The blame cannot just be placed with our own government for a venture failing.
Imagine how this plays out. So and so was in favor of the Canadian executive that failed. Congress approved the management structure introduced by the Japanese. So and so got campaign contributions. Patronage jobs were given to Canadians in exchange for certain trade concessions that favored the U.S.
Imagine the web that critics, conspiracy theorists and everyday armchair know nothings would contrive if a venture like this cost our nation's taxpayers tens of billions of dollars.
Airbus will go down in history as an allegory as to how government and business, however well intentioned and envisioned, can not work against a true free enterprise competitor.