Wednesday, February 21, 2007

More Bad News for Airbus

British Airways elects to buy more Boeing 777s for its long-haul fleet, instead of Airbus A330s.

An airline spokesman described the decision as "very close," but that sounds like a bit of public relations puffery. Here's the bottom line: British Airways is looking to buy four additional jets for its long-distance routes, with options for another four aircraft. BA already owns/operates 43 Boeing 777s. It made absolutely no sense to create a separate maintenance, logistics, crew training and support structure to buy a handful of A330s. I'm guessing that Boeing didn't have to work very hard to land this contract.

As for Airbus, they recently took members of the media for a spin on their super-jumbo A380. As we've noted in the past, the A380 is a technical marvel, but it makes little sense for carriers in an era of deregulation, intense competition and high jet fuel prices. One recent report now suggests that the "break even" point for the A380 is 412 aircraft; in other words, Airbus has to sell at least that many super-jumbos to avoid losing money on the project. At one point, the European consotium suggested that it could break even with as few as 250 A380 sales. But continuing cost overruns--and fewer-than-expected-orders--means that Airbus must sell more planes to turn a profit.

The real question is whether Airbus's more viable programs--notably the A400 military transport--can generate enough revenue to offset near-term losses from the A380 and the more troubled A350 project. The A350 is supposed to be Airbus's answer to Boeing's 787 "Dreamliner," but its also behind schedule; potential customers have demanded major design changes and it has generated less than half the orders than Boeing has received for its new entry. Problems with the A380 and A350 may force European governments--and taxpayers--to increase the subsidies they provide to Airbus, to keep the company going so that its key airliner projects can eventually turn the corner.

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