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Turbulence Hits Superjumbo
After a year when it outstripped its major rival Boeing for new orders, the European Airbus consortium is in deep trouble.
Problem ? The flagship product of Airbus, the 555-seat A380 'superjumbo' is much late in delivery. The offical version from its factory in Toulouse and co-headquarters in Paris is that the plane (with technical electronic difficulties) will not arrive with customers before seven months. Singapore airlines is set to get its first delivery of the A380 six months late. Two other big customers - Emirates and Qantas - may have to wait even longer.
These key clients are lining-up at the offices of their lawyers and are probably ready to sue. Estimates for the final bill for compensation payments for the A380's late landing hover around the three billion euro mark. Let's just say not far from the gross domestic product of Luxembourg. And that doesn't count potential cancelled orders: International Lease Finance Corp has warned it might cancel its order for ten superjumbos. That's quite a bite from the 159 solid orders Airbus has received (though Airbus' chief sales executive John Leahy said today that he expects another twenty orders from two new clients before the end of the year.
Airbus is effectively a subsidiary of EADS, the European Aeronautic Defence & Space Co, which owns 80 percent of the company. British defence and aerospace group BAE Systems owns the other 20 percent, and is to conduct an independent audit of Airbus (by NM Rothschild) to help to decide whether to sell its stake, valued, at this point in time, at 2.75 billion euros.
The low valuation for BAE follows the resignation of EADS co-chief executive Noel Forgeard after intense pressure in the wake of an insider trading scandal. (He sold his share options just a bit before the bad news of A380 delayed delivery). Though Forgeard denies any wrongdoing, suspicions about his sale of the shares were sufficiently raised to make his position untenable. Market regulators are investigating the movement of EADS shares in recent months.
The new boss of EADS, Louis Gallois, has warned that the company's reputation is now "at stake". However, commentators were less than thrilled that Forgeard's replacement was yet another product of France's elite ENA school - one newspaper described the reshuffle as "musical chairs."
Despite changes at the top, many experts are worried that EADS is persisting with its dual management structure - made up of two chairmen and chief executives from France and Germany. There is little love lost between the two sides - not least since Forgeard's German counterpart was appeared to brief against the Frenchman regarding the shares scandal. EADS' shareholders include the French government and German-US carmaker DaimlerChrysler, so it's unlikely that things will change at the top of the troubled company soon, as both Paris and Berlin see it as a matter of national pride to have their man installed in one of the top jobs. In France, at least, promotions to the top of firms linked to the state are as much a matter of patronage than of ability.
This cannot but help Airbus's big rival, Boeing. Their aircraft, the 787 'Dreamliner' is selling exceptionally well - Qantas alone is said to have ordered 115. The Dreamliner carries fewer passengers than the A380 and is based on very different visions of commercial air-travel's future - one on long haul in big jets and then onto destinations via hubs, the other on direct, long distance travel. For a while, as Airbus picked up customers, it looked as if the two would be able to co-exist, and while it would be a mistake to describe the Airbus plane as a failure, its sales have not lived up to expectations.
All this might change: There is pressure from many governments, not least those with ambitions to host giant "hub" airports, for the A380 to work. The Dreamliner might experience similar teething troubles - they're not unique to Airbus. But the delays, the apparent haste of a chief executive to unload his shares, the political interference are not promising.
To add insult to injury, Airbus recently raised the price of the A380 by 4.6 percent. A good way to win friends and influence people.
