A Minor Victory Amid the Gloom for Airbus

The troubled Airbus A380 program got an expected--but needed--boost yesterday, when the super-jumbo jet received type certification from both the European Aviation Safety Agency (EASA) and the Federal Aviation Administration. Certification by the two, major aviation governing bodies came after the A380 completed its certification trials, ensuring that the aircraft meets and exceeds all airworthiness criteria. Type certification represents a major step in the A380's entry into operational service, now scheduled for late 2007.

While the super-jumbo remains a technical marvel, its market viability remains a problem. The A380, which can transport up to 853 passengers, was designed in an era when oil was at $40 dollars a barrel. With crude now trading around $60 a barrel, the A380 makes less economic sense, and potential customers are growing nervous--especially when more fuel-efficient Boeing models (the 777 and the new 787 Dreamliner) are available. Last month, the A380 program took a major hit when FedEx cancelled its order for 10 cargo versions of the super-jumbo, in favor of Boeing 777 freightliners. While rival UPS is holding firm on its A380 order, the FedEx cancellation was viewed as a blow to Airbus's plans to challenge Boeing in the long-haul market.

Making matters worse, Boeing is about to launch the 747-8, the latest in that long (and profitable) line of passenger and cargo aircraft. While the A380 offers increased payload and range over the Boeing jets, the American aircraft are less expensive, more economical to operate, and mesh well with existing terminals, cargo hubs, and logistical networks. Some of the major European carriers (British Airways, Lufthansa) have expressed an interest in the 747-8, which could result in fewer orders for the A380. Industry analysts have long believed that Airbus needs to sell at least 250 A380s for the program to break even. Failing to reach that mark will require more subsidies from European governments, and (potentially) less money for other aircraft programs.

While Airbus ends 2006 with a record number of deliveries (430), it had generated only 508 orders for new aircraft (as of early November) it will lose that key race to Boeing for the first time in several years. Beyond that, the future looks relatively bleak. The 787 is far outpacing its Airbus rival (the A350), and that program is in disarray. If fuel prices remain in their current range, Airbus will be stuck with a super-jumbo that no one can really afford, while their answer for the 777 and 787 remains mired in financial and development problems. Boeing already has 291 firm orders for the Dreamliner, while Airbus has only 100 for the A350.

As we noted back in March, the A380 is indeed a technical marvel, but so were the Lockheed L-1011, Boeing's B-70 bomber and Howard Hughes' Spruce Goose. All of those designs were ultimately unsuccessful because they proved to be the wrong aircraft at the wrong time. It's still too early to write off the A380 and A350 as failures, but by putting its eggs in the super-jumbo design (and paying less attention to more efficient long-haul platforms), Airbus has painted itself into something of a corner, with no easy--or cheap--way out.