Global Economics

Finally, Good News for Airbus


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After weeks of unrelenting bad news, European plane maker Airbus has scored a major coup. On July 21, Singapore Airlines announced it would place an order worth $7.5 billion for 20 of Airbus's new A350 XWB widebody jets, plus nine Airbus A380 megaplanes.

The deal, announced at the Farnborough International Airshow outside London, could help Airbus dispel the clouds of doubt that have hovered over both planes. Airbus unveiled the A350 XWB—for "extra wide body"—at Farnborough on July 17 after an earlier version of the midsized widebody had fared poorly in sales against Boeing's (BA) 787 Dreamliner.

That the outsized order comes from Singapore adds to its significance. The airline has long been a pacesetter for the global aviation industry and had already agreed to buy 20 Boeing Dreamliners. Its decision to snap up an equal number of A350 XWBs is a key vote of confidence in the new Airbus plane.

Singapore Airlines Chief Executive Chew Choon Seng had been one of several industry luminaries who called publicly for a revamp of the plane's earlier design (see BusinessWeek.com, 3/30/06, "The Escalating Woes at Airbus").

DELIVERY DELAYED. Singapore's big order for double-decker A380s also gives a much-needed boost to that program, which has been plagued by production delays and slow sales. Indeed, this is the first new order for A380s in more than a year.

Singapore, the launch customer for the plane, had earlier agreed to buy a total of 10, which it planned to start flying early this year. But because of assembly problems at Airbus factories, Singapore was forced to wait until the end of 2006 for its first delivery (see BusinessWeek.com, 6/14/06, "Airbus' Behemoth Hits Turbulence").

While the airline has made clear it's unhappy about the delay, its decision to buy nine more A380s bolsters Airbus's argument that there will be a strong market for the 500-plus-seat plane. The deal boosts the A380 order to 168 planes, and while that's probably fewer than half the number Airbus must sell to break even, Singapore's decision could spur other airlines to place orders, too.

FUEL EFFICIENCY? Including the Singapore deal, Airbus slightly outpaced Boeing in deals announced at the Farnborough show. As of July 21, Airbus' tally stood at 114 orders, worth about $9.7 billion at list prices. Boeing's was 72 orders worth $9.1 billion. However, Boeing remains well ahead of Airbus in year-to-date orders. Before Farnborough, the U.S. company had logged 486 firm orders this year compared with only 117 for Airbus.

Airbus still faces formidable challenges in the coming months. It's likely to spend $10 billion developing the new A350 XWB, but won't get the plane into service before 2012, four years after Boeing's Dreamliner is expected to start carrying passengers (see BusinessWeek.com, 7/19/06, "Airbus Eats Humble Pie at Farnborough").

The Franco-German-Spanish plane maker still must show that its new plane can match the Dreamliner's fuel efficiency, a key selling point at a time of soaring oil prices. And, of course, it must resolve assembly line delays on the A380 that have undermined customer and investor confidence. But this week at least, Airbus has good reason to celebrate.

Click here for a slide show of the latest Airbus and Boeing models on display at the Farnborough Intternational Airshow.


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