Global Economics

Airbus Eats Humble Pie at Farnborough


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Airbus got the message. In an extraordinarily public mea culpa at the Farnborough International Airshow near London this week, executives of Airbus and its parent European Aeronautic Defense & Space admitted that they misjudged their market, handing a big advantage to U.S. archrival Boeing. "Airbus is in the middle of a serious crisis in our relationship with our customers," the plane maker's new boss, Christian Streiff, said at a July 17 press conference.

But if Airbus now grasps what the airlines want—faster, more fuel-efficient, widebody jets—it still has to prove that it can match what the competition is offering. As expected, Airbus used the Farnborough show to announce plans for a new long-range jet, dubbed the A350 XWB for "extra wide body."

The aircraft, which will cost an estimated $10 billion to develop, is intended to counter two of Boeing's best-selling aircraft, the new 787 Dreamliner and recently updated models of the Boeing 777. Both planes have been clobbering Airbus in the marketplace, mainly because of superior fuel efficiency, a key concern for airlines at a time of soaring oil prices.

WIDEBODY WINNER. Underscoring its market advantage, Boeing (BA) continued to rake in orders during the Farnborough show. Among the biggest: a $3.3 billion deal with Dubai-based Emirates for the freighter version of Boeing's updated 747, and a $1.2 billion order from U.S.-based International Lease Finance for 10 Boeing planes, including two Dreamliners.

As of Wednesday, Airbus's biggest deal at the show was a $1 billion preliminary agreement by Libya's Afriqiyah Airways to buy 12 planes. Going into the show, Boeing had logged 486 firm orders this year compared to only 117 for Airbus.

Can the A350 XWB get Airbus back on track? It does boast some appealing features. It has an advanced new engine design and a sleek wing made of lightweight plastic composite materials. Airbus says the new plane will at least match the Dreamliner on fuel efficiency and flying range, while exceeding the 777 on both measures.

BAD TIMING. In response to tepid customer response to an earlier version of the A350, Airbus also has widened the cabin and upped the plane's flying speed. "What's new? Virtually everything," Airbus sales chief John Leahy said in describing the new design. He called the A350 XWB "a step ahead of the 787 and a leap ahead of the 777." While some airline executives have welcomed Airbus' announcement, most are taking a wait and see stance. That makes sense because Airbus still faces some formidable obstacles.

Timing is one. Airbus says it expects to get the first A350 XWB into service in 2012. That model, a 314-seater, will compete mainly against a 280-seat version of the Dreamliner that Boeing expects to get airborne in 2010. Two years doesn't sound too bad—until you consider that a smaller, 242-seat version of the Dreamliner will start flying in 2008. It will have the skies to itself until 2013, when Airbus plans to launch a comparably-sized version of the A350 XWB.

Equally worrisome for Airbus, the Boeing 777 is already flying. Airbus plans to counter that plane with a 350-seat version of the A350 XWB—but it won't enter service until 2014. Nor is it clear that the A350 XWB will be a technological slam-dunk. Although detailed technical specifications are still months away, Airbus has already made clear that the new plane will not have an all-composite fuselage and wings as Boeing's 787 does.

GOOD NOT GREAT. Composites can yield impressive fuel savings, but they're tricky to manufacture. Indeed, the U.S. company already has encountered some production problems (see BusinessWeek.com, 6/7/06, "On a Wing and a Prayer at Boeing").

Airbus is taking a more conservative approach on the A350 XBW, using advanced metal alloys as well as composites. To reduce fuel consumption, it's counting on an advanced engine and aerodynamic wing design. That could enable the plane to match the Dreamliner's fuel efficiency, but probably not exceed it by much, says Doug McVitie, a France-based aerospace analyst who previously worked at Airbus. "The A350 will be a good aircraft, but it's not going to set the industry on fire, and it's not going to worry Boeing too much," McVitie says.

But surely the A350 XWB can leapfrog the older Boeing 777—or can it? Given its big head start, Boeing has time to develop new engines or other modifications to improve the 777's performance. What's more, the largest versions of the 777 have more seats than the biggest A350 XWBs will have, and the Airbus plane can't be stretched further without seriously compromising efficiency, says Richard Aboulafia, an aerospace analyst with the Virginia-based Teal Group.

Even if its new plane isn't a champion, Airbus at least has shown customers and investors something that many thought was overdue: humility. After pulling ahead of Boeing as the world's No. 1 plane maker in the past few years, Airbus seemed to take its eye off the ball.

For months, it dismissed the sales threat posed by the Dreamliner, arguing that minor modifications to an existing Airbus jet were all that was needed to counter the Boeing plane. The company also stumbled on manufacturing, allowing technical problems on the new A380 megaplane to get out of control before acknowledging belatedly that deliveries would be delayed.

The company says it has learned from those mistakes and will shape up. "Airbus will get out of this crisis stronger than before," Streiff said at Farnborough. Now Airbus has to deliver on that promise.


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