Aerospace. Stuck on the runway

Airbus's jumbo-sized problem threatens the firm's future

THE A380 passenger jet was meant to take Airbus to new heights of success. Instead, the problems experienced by the new super-jumbo are dragging the European consortium down. This week Airbus announced a delay of up to seven months for deliveries of the huge 555-seat airliner, which is set to enter service next year. In response, the value of shares in EADS, Airbus's parent company, fell by 26% on a single day, June 14th, wiping euro5.5 billion ($6.9 billion) off the value of the firm.

Airbus's announcement went down particularly badly with the markets because it had already extended its delivery deadline by some six months last year. The firm blamed trouble installing the complicated electrical wiring for the plane's entertainment system. It reckons that the delay will cost it euro500m a year in lost profits between 2007 and 2010.

Airbus has staked a great deal on the success of its super-jumbo. But even before the latest hold-up, orders had slowed to a near standstill--159 planes have so far found buyers, well below the number Airbus must sell to offset development costs of around euro12 billion. The costs of the latest delay will only add to the number it must sell to break even.

Although demand for the new aircraft has been sluggish, Airbus will almost certainly eventually get enough orders to make its money back. It is the knock-on effects of the race to develop the A380 that may pose the more lasting problem for the company. Airbus's factories are now so overloaded that any airline ordering an A380 today would have to wait at least six years before receiving the aircraft-- a delay that is understandably putting off potential customers. And Airbus has expended huge amounts of time, money and engineering resources on just one airliner in one part of the market, while attempting to take on Boeing, its American arch-rival, on a number of other fronts, too.

The good news for both firms is that they are running at full stretch because of an unprecedented demand for new passenger jets. In 2005 they shared orders for over 2,000 new aircraft, a new record and far more than in recent times. But after some years of dominance Airbus has now slipped behind Boeing. The American firm came a close second going by the number of orders in 2005 but crept ahead in terms of value. Boeing is set to win on both counts this year.

The reaction of Singapore Airlines, the first to place a large order for super-jumbos, is a reflection of the crisis facing Airbus. As the European firm's shares tumbled, the Asian carrier ordered 20 of Boeing's new 787 "Dreamliners" with a list price of $4.5 billion. And, like other customers, it will want compensation from Airbus for the tardy delivery of the super-jumbo. Emirates, another big customer for the A380, is also less than delighted.

Countering the threat from Boeing's new model is yet another problem for Airbus. The 787 is made from light and strong composite materials that allow higher cabin pressure and humidity, adding to passengers' comfort. Its width will give more space for seating. At first Airbus sought to compete with Boeing's all-new design using an upgraded version of its successful A330. But the airlines are not happy. They want a redesign that incorporates a wider fuselage, too, which could double the cost of developing the new aeroplane to around $10 billion. Worse still, the radical overhaul will delay deliveries of the A350 by a couple of years, giving the 787 a four-year head start. Boeing is also winning the dogfight between its 777 and the Airbus A340.

Airbus's wary investors may recall what happened to Boeing itself when it last ramped up production--and suffered disastrous glitches that set it back years. Airbus could face similar problems and start the next big aerial clash at a disadvantage. Within ten years both firms must replace their ageing single-aisle workhorses, the A320 and 737. Any difficulties for an overloaded Airbus today could spill over into efforts to take on Boeing on the new battlefront. The A380 could leave a long trail behind it.

Article looks at the challenges facing Airbus as the delays with the A380 delivery mount.