Airbus A380 cost overruns of 1.45 bln euros

[rotornut]

EADS sees Airbus A380 cost overruns of 1.45 bln eur
Wed Dec 15, 2004 05:10 AM ET

MUNICH, Germany, Dec 15 (Reuters) - Planemaker Airbus's A380 superjumbo project is running 1.45 billion euros ($1.93 billion) over budget because of work to improve the efficiency and weight of the aircraft, the co-head of parent company EADS said.

Total costs for the mammoth doubledecker are currently estimated at over 12 billion euros, EADS German co-chief Rainer Hertrich said late on Tuesday in comments embargoed until Wednesday.

"That (the extra costs) is indeed a lot, that is indeed hefty," Hertrich told journalists in Munich, Germany. The extra costs cover the entire A380 development project, including a freight version by 2008, he added.

An EADS spokesman said on December 7 that the A380 was on track for entry into service in 2006 and that the overall programme would achieve a target of an internal rate of return of 20 percent -- despite acknowledging possible cost overruns.

Analysts at brokerage Lehman Brothers had said in a note to investors that Airbus was running 500 million euros over budget.

Hertrich said on Tuesday that the A380 will be presented on January 18 and added that the company was sticking to its target for the aircraft to take off for the first time by the end of March.

The A380 is set to eclipse Boeing Co.'s 747 jumbo as the world's biggest airliner, with seating for 555 passengers or more depending on layout.

[TheOddOne]

I'd say that of equal importance are the mass and performance issues. i understand that a little while ago the a/c was predicted to be 18 tonnes overweight. Anyone any news on the slimming process? Presumably this is the most significant part of the preformance problem. Is this correct?

Cheers,

The Odd One

[rotornut]

OddOne,

There was a thread on this sometime ago (can't remember exactly when). You can probably find it using Search.

[Alpha Leader]

Only € 1.45 bn overrun?

Would have expected more when bureaucrats try to build an airplane :ok:

[Max Angle]

Boeing have managed a few cost overruns in their time as well. 777 cost a lot more than planned and the 747 nearly broke the company back in 1969.

[ironbutt57]

Well it won't break Airbus, because the govt's will just pump more welfare money into it....not "derived" money like Boeing gets..just plain govt cash infusions...:bored:

[fear_not]

Now i wonder how high the cost overrun with the 7E7 will be.
After all the 7E7 will be full of new and untried technologies. I just can't imagine, that they wont have any problems.

[LowObservable]

As mentioned, cost overruns are not surprising, particularly when long delays or compromised performance are not options. A lot of A380 stuff - weight and cost - goes back to the last-minute decision to do QC2, at the end of 2000.
Now try asking that icon of fiscal disclosure and transparency in Seattle about the overruns - or any development costs whatsoever - on the 777 and 737NG.

[chrisN]

Is it really the case that Boeing get no US government money, e.g. for military versions of aircraft which then go on to have shared civil use?

Similarly, do all their engines get R&D paid for without any Government funding for an extent of shared military development?

If there are any military programs at all, as well as civil, there would in principle be three ways to split the costs:

1. Boeing (and/or engine makers) pay total cost of developing the civil version as though there were no military contract. Military contracts are only charged for the marginal costs of doing the extra military version. No subsidy at all for civil, relatively cheap add-on for military.

2. Total costs of both programs are added together and split between civil/military in proportion to some measure, e.g. number of units built. Both programs benefit - each costs less that doing that program on its own.

3. Government pays total cost of developing the military version as though there were no civil contract. Civil program only has to cover the marginal costs of doing the extra civil version, relatively cheaply.

Any of these is open to a certain amount of "creative accounting". Only the first, if accounting is done even approximately fairly, involves no form of subsidy. Is that really how things are done in USA?

Chris N.

[humble_dor]

Is it really the case that Boeing get no US government money, e.g. for military versions of aircraft which then go on to have shared civil use?

B can spend their money for whatever they want. Mercedes can use the extra money from their truck business to finance luxury car development and vice versa. What's the problem with money coming from military programmes ? EADS can spend as much military money as they want in Airbus. Who cares ?

[Old Aero Guy]

chrisN,

I think your question is rather moot. Can you name a Boeing military plane that later went on to have a commercial application with the possible exception of the 707?

Don't say the 747 since the Boeing proposal for the C-5A was completely different, with high wing versus low wing being the most obvious difference.

[chrisN]

OAG, thanks for the courteous follow-up question. I don't know enough about current civil or military programs, or about any in the last few years, to know how relevant it is at present. My interest (and question, not political rant) was prompted by references in various PPRuNe threads from people alleging various degrees of government assistance to Airbus vs Boeing.

I worked at a well-known maker of aero engines in the 1960's, outside the USA. I was told there that whereas we had to make our components on mostly prewar machinery, funded entirely by the company, our then principal competitor in the USA used ranks of machines funded by the US government on military contracts which, at the end of the contract, were able to be purchased for $1 each. That, if true, would certainly have given them a commercial advantage.

In later life, I changed career from being an engineer to being a bean counter in the car industry. There I learned of ways of costing things on marginal, fully accounted, and apportioned methods. Part of my function was to try to use the right, most appropriate, method depending on the type of decision being contemplated.

Just out of my own interest, I wondered to what extent apportioning costs might be affecting the costs Boeing attribute to civil sales - a large part of which includes engines, I believe. It seems to me apparent already that Airbus gets benefit from government grants or loans, at least for R&D and maybe for some machinery etc., but I see little about what Boeing or its engine suppliers get.

Either way, I do not expect to change the mind of anybody on PPRuNe - I have not yet seen any evidence that people who hold strong views change them when learning any new facts!

Chris N.

[LowObservable]

I don't think there's a huge difference between Boeing and Airbus when it comes to military/government R&D assistance. NASA's aeronautics budget is a joke. Boeing gets lots of military R&D money (including IRAD, or independent R&D, that's built into overhead on all contracts), but since Boeing Commercial does not think that the defense side has anything to teach them (they're wrong) this has little effect.
Launch aid is a big benefit to Airbus, but it's legal under the 1992 agreement. Boeing also benefited massively through the 1990s from an export tax break that the Europeans complained about, until it was removed.
Meanwhile, Boeing is getting big-time money related to 7E7, including up to $3.2 billion from Washington state and an undefined amount from the Japanese government. Boeing ties itself in knots insisting that those aren't "subsidies" but they look a lot more like that than the relatively small tax breaks that Airbus has received (for example) because of its expansion in North Wales.
Also, the Boeing tanker deal was initially set up by Congress to help Boeing, post 9/11. Noncompetitive, and it would have helped cover overhead on Everett - which otherwise is becoming a one-aircraft plant - and keep the excellent but expensive 777 in the game.

[Old Aero Guy]

chrisN,

With regard to the question about subsidies to engine manufacturers, if the suppliers are being subsidized, both Airbus and Boeing benefit since both use engines from the three major engine suppliers (GE, P&W, & Rolls).

To know if the State of Washington tax break is a subsidy or not, one would need to understand the tax bases in Everett vs Toulouse for Boeing and Airbus respectively.

When the Everett plant was expanded for the 777, the city of Everett required Boeing to pay for road and infrastructure improvements because of the expected increase in employment.

Did Airbus have to pay for the road improvements necessary to truck the A380 components to their assembly building?

What appears to be a subsidy could merely be a leveling of the playing field. I frankly don't know.

[rotornut]

Airbus plays down extra costs for A380
Wed Dec 22, 2004 02:10 AM ET

PARIS, Dec 22 (Reuters) - The extra costs to develop Airbus's A380 superjumbo may not turn out to be as serious as initial figures have suggested, the program's chief engineer Charles Champion was quoted as saying in the Wall Street Journal newspaper on Wednesday.
Airbus parent company EADS said this month the cost to develop the double-decker, seen as the successor to U.S. rival Boeing's 747 jumbo, could be as much as 1.45 billion euros ($1.94 billion) higher than budgeted.

"The money is not spent. We are not bleeding money," Champion said in the newspaper. He added the 1.45 billion figure was the worst-case scenario of possible additional spending over the next 9 years and that he had begun efforts to avoid as much of this cost as possible.

EADS's incoming co-head Noel Forgeard has said the company sees margins at planemaking unit Airbus broadly intact despite higher costs that could come on top of the A380's $10.7 billion development programme.

The double-decker 555-seat A380 is due to be delivered in the first half of 2006 and Singapore Airlines is set to become the plane's first user.