First profitable A380 superjumbo will now be the 421st sold, Airbus says
By Richard Blackden
Bloomberg News
Airbus, the world's largest maker of commercial aircraft, conceded today that the chances of making a profit on the 555-seat A380 model slipped years into the future because of cost overruns and production delays.
The planemaker will reach the breakeven point in the program with the delivery of the 420th A380, according to the latest analysis, compared with 270 aircraft in a 2005 business plan, Airbus said today in a report posted on the Web site of parent company European, Aeronautic Defense & Space (EADS).
Airbus has so far received orders for only 159 A380s and customers, angered by the delays, have threatened to cancel some contracts. Under current planning, Toulouse, France-based Airbus will deliver only 84 of the planes by 2010, compared with the 159 aircraft estimated as recently as June, with a total operating loss in the period of $6 billion.
EADS said Oct. 3 that the A380's first delivery is now scheduled for the fourth quarter of 2007, a year after the most recent plan and the third postponement in 16 months. The delays, first disclosed in June 2005, have prompted the departure of two top executives. Airbus estimated as recently as mid-2004 that the A380 would be profitable after 250 deliveries.
The A380's lifetime deliveries will total 751 aircraft, unchanged from a 2005 forecast, Airbus Chief Financial Officer Andreas Sperl said in the Web site report. That compares with 1,000 A380s that Airbus expected to sell over the model's half- century lifecycle in May 2004.
Airbus risks airlines making operating-cost comparisons with Boeing's smaller 787 model, which will be going into service about the same time, said Hans Weber, president of San Diego-based Tecop International, a consulting company.
Tecop has estimated Airbus will sell 496 A380s, including 43 freighter versions, through 2025, and "since we did this study in 2001, we think there are indications the number will be smaller," Weber said. The A380 is designed to serve routes linking large hub airports, while the 787 will allow more so- called point-to-point routes between less populated cities.
"There's only a relatively small number of routes in the world where hub-to-hub flying makes sense," Weber said. "That number has not increased, whereas the number of point-to-point flights has increased."
The A380 delays have carved "huge holes out of our resources," and "we have to take cost-cutting measures to compensate for this," EADS Co-Chief Executive Officer Tom Enders said at an aviation conference in Berlin today. "We don't want the A380 to be the last model we build. We want to keep making new airplanes."
The planemaker will centralize purchasing, seek more supplies from lower-cost countries, streamline and contract out component shipments and work to reduce spending on services, Airbus Senior Vice President of Financial Control Harald Wilhelm said in a separate presentation on EADS's Web site.
The German division of Airbus said Oct. 17 that it reduce the workweek, cut 14 percent of its temporary workforce and give employees who work overtime extra time off instead of additional pay in response to the A380 production delays.
Airbus will receive a "grace period" of one year if it can't repay German government loans on time because of the production delays, the Economy Ministry said in a written response to an opposition party question that was obtained today by Bloomberg News.
Shares of EADS in Paris fell 0.1 percent today. The stock is down 34 percent this year.
Analysts seem to have widely different opinions on the future sales potential of the super jumbo. The major issue will be CASM numbers which can only be attained with any accuracy during actual in-service use. The post-EIS experience will also be telling regarding dispatch reliability and related to CASM, the A380's route profitability. Good numbers here combined with a healthy world economy should surely allow the A380 programme to at the very least break even within the next 20 years.
My own opinion is that Airbus needs to get cracking on the A350 in short order if they intend to remain competitive with Boeing in the coming decade.