HUGE MISTAKE OR HUGE SUCCESS? AIRBUS ALL IN ON NEED FOR A380 - BUT BOEING STILL DOUBTFUL

It was an unlikely gathering of aviation rivals from opposite sides of the Atlantic.

At the Four Seasons Hotel in Munich, Germany, officials from Airbus and The Boeing Co. had wrapped up two days of meetings with an extravagant dinner.

But they would not be breaking bread together again.

After several years of secret meetings and discussions in Seattle and Toulouse, France, Boeing said it was pulling out of a joint feasibility study to determine if the industry needed a new and bigger jumbo jet, and, if it did, could the two airplane makers design and develop one together. Such a massive undertaking, Boeing had concluded, was too risky and expensive.

One of the Airbus officials who was there would later tell a Wall Street Journal reporter that Airbus had looked at the same data and decided the real risk to the European companies that made up Airbus was in not going ahead. As the Airbus group lingered in the hotel's lobby bar after the dinner with Boeing, they decided to "go our own way," the official told the paper.

Although Airbus had announced at the Paris Air Show in June 1991 that it would begin to study the development of a 600- to 700-seat jumbo jet, what would become the Airbus A380 was arguably born in the hotel bar that night, in April 1995.

Nearly $20 billion later, and after a wild, 12-year roller-coaster ride of embarrassing delays, setbacks and triumphs, Airbus last week finally delivered the first of the double-decker A380s to launch customer Singapore Airlines.

On Thursday, the airline will put the A380 into commercial service with a flight from Changi Airport in Singapore to Sydney, Australia. It is one of the most anticipated aviation events in years. Singapore Airlines auctioned off many of the 471 seats on the plane, with one person paying more than $100,000 to be on the historic flight.

Not since Boeing's 747-100 entered commercial service with Pan Am in January 1970 has there been so much public anticipation and excitement about a new commercial jetliner. But while the 747 changed air travel in its heyday, the celebration and hoopla surrounding the introduction of the A380 only serves, for now at least, to mark a new chapter in an industry debate that began even before Boeing and Airbus went their separate ways after the meeting in Munich a dozen years ago.

Capacity vs. range

Boeing argues that in an era of open skies and deregulation, more and more airlines will fly passengers on smaller planes from point to point - which is how they want to travel anyway - and bypass the big hub airports that the A380 was designed to serve. The market for big planes has fragmented and there is simply not enough demand for jets the size of the 747 or bigger to justify the huge development costs of an all-new jet such as the A380, according to the Boeing view. So it has bet its future on a midsize jet, the 787 Dreamliner.

Airbus agrees there is more fragmentation and point-to-point service, but it is confident the market for large planes is much bigger than Boeing has forecast.

Airports are increasingly congested, and many, such as London's Heathrow, have slot constraints, limiting the number of jets an airline can operate. That makes the bigger A380 the ideal plane, the Airbus argument goes. And besides, many hub airports are actually where people want to travel to and from.

And so the stage is set for two contrasting visions to play out about how people will fly. The day of the A380 has arrived.

John Leahy, the longtime tenacious Airbus sales chief, may have best summed up what's at stake for Airbus.

"Either this is going to be that flagship of the 21st century or it's going to be a disaster," he says in an Airbus documentary about the making of the A380.

With two full decks and wings nearly as long as a football field, the A380 represents the crowning achievement for Airbus, which as recently as 1995 had only about 20 percent of the market for commercial jets with more than 100 seats. Now Airbus has about 50 percent and is delivering more planes than its U.S. rival.

But whether the A380 will be the biggest jewel in the Airbus crown remains to be seen.

Some have long argued that Airbus had no choice but to develop a big plane to complete its product line and match Boeing.

"The problem is the monopoly of the 747, which is a fantastic advantage. They have a product. We have none." Those were comments, made in 1995 after the Munich meeting with Boeing, by Louis Gallois, who at the time was chairman of Aerospatiale, one of the companies that made up the Airbus consortium.

After being named to take over Airbus last year when the French and German company's chief executive abruptly resigned, Gallois is now chief executive of European Aeronautic Defense and Space Co., which owns Airbus.

The Airbus and Boeing talks about a 500-seat jumbo jet, which had started in January 1993, had been so sensitive that lawyers for both sides were usually present at any meeting to make sure that there was no improper transfer of information. After Boeing withdrew, Airbus later accused its rival of deliberately drawing out the discussions to stall the Airbus effort at developing a large airplane to compete against the 747.

Now, critics say Airbus made the wrong bet on the A380.

"The A380 was a big mistake then and it is a big mistake now," said Richard Aboulafia of the Teal Group, an industry consulting firm.

"It is something they have to recover from and they are doing their best to recover," he said of Airbus, which in June 2006 disclosed that its prize plane, already late, would be delayed by another year because of significant wiring issues. The French and Germans had not used uniform software tools, and when it came time to begin assembling the big jets at a new factory in Toulouse, the complex wiring bundles that ran the length of the plane did not fit.

The projected $12 billion development cost of the A380 is believed to have ballooned to at least $18 billion. Airbus has gone through five chief executives in the past two years and is slashing 10,000 jobs as part of a restructuring plan to get financially healthy.

As a result of its focus on developing the A380, Aboulafia said, Airbus took its eye off the far bigger market for smaller but long-range widebody jets, and Boeing has leapfrogged Airbus with its 787.

The 787 has been the fastest-selling jetliner ever. Boeing has more than 700 orders for the 250- to 300-seater, which will be the first large commercial jetliner with an airframe made of carbon-fiber composite. Airbus is responding with the slightly bigger A350 XWB (extra wide body), but that plane won't enter service until 2013.

"Airbus is scrambling to catch up, but because of the A380 it has been a slow, slow road," Aboulafia said.

The 787 was supposed to be ready for airlines next May, but Boeing announced two weeks ago a six-month delay. Boeing has had problems getting the first plane finished, and first flight has been pushed back to late March.

"This is the market that matters," Aboulafia said of the 787 and A350, as well as the bigger 777. "It is all about range, not capacity."

Airbus has won only 165 firm orders for the A380 from 14 customers, not including a recent commitment by British Airways to buy a dozen. But 47 of those orders are from one airline, Emirates.

Leahy believes the series of delays - the plane is about two years late getting to customers - hurt sales. British Airways was the first new customer for the A380 in about two years. Sales will pick up now that the A380 is entering airline service, said Leahy, who recently predicted Airbus will sell more than 800 over the life of the plane.

Boeing has sold 1,506 of its 747s, starting with Pan Am's order in the late 1960s.

Passengers the final judge

Rather than develop an all-new jumbo, Boeing is taking the cheaper derivative route and will stretch its 747 to carry about 50 to 60 more passengers. The 747-8 will have an improved wing and other changes to make it more efficient, including the same fuel-efficient engines as the 787.

The freighter version of the 747-8 will be ready for service in 2009, and the passenger version, known as the Intercontinental, in 2010.

Although Boeing has more than 60 orders for the 747-8 freighter, so far only Lufthansa, another A380 customer, has ordered the passenger version of the 747-8. British Airways, one of the biggest remaining 747 operators, had been considered an ideal candidate, given its large fleet of 747s, to order the 747-8. But it liked the A380 better.

Boeing has said it remains confident that it will get more orders for the passenger version of the 747-8.

Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, said the 747-8 is essentially a replacement plane for the 747-400.

"Anyone who flies a 747 today is a likely candidate for the 747-8, he said.

Just as they are for the A380.

Airbus has said it needs more than 400 orders just to break even as a result of the difficult birth the A380 has had.

Aboulafia said the actual break-even number may never be known because of the steep discounts Airbus has given customers. The company does not disclose how much airlines are paying for the A380, which has a list price of about $320 million.

"Not only will they not reach that figure (of 400 sales), but I don't believe it is relevant because it does not speak to pricing," Aboulafia said. "If they sell 400 planes but at 60 percent discount, is that the break-even number? I doubt it."

In its latest market forecast, Airbus said airlines will need 1,600 planes the size of the 747 or bigger during the next 20 years. Of those, about 400 will be freighters.

Boeing, however, sees that large airplane market much differently.

The total demand for planes with more than 400 seats over the next 20 years, according to Boeing's forecast, is 960 planes, of which 590 will be passenger models and the rest freighters.

"We are betting on a different future," Tinseth said.

"For a number of years, Airbus has had this very large forecast for very large planes and it seems to be blowing in the wind of what airlines are actually doing, how they are buying planes and planning their networks."

Tinseth noted that the total A380 sales to date over the past seven years, when combined with 747-8 sales, is consistent with Boeing's market forecast for large planes and not the Airbus forecast.

"This is probably the greatest debate we have had in our industry in 20 years," Tinseth said.

"It's clear the 787 market is big. But the jury is still out as to how big that large-airplane market segment is."

Meanwhile, it's finally time for another group of people to weigh in about the soon-to-be biggest commercial jetliner - the passengers who will fly on it.

P-I aerospace reporter

James Wallace can be

reached at 206-448-8040

or jameswallace@seattlepi.com

Read his Aerospace blog at

blog.seattlepi.com/aerospace.

HOW WAS THE FLIGHT?

P-I aerospace reporter James Wallace is among the members of the media that Singapore Airlines invited on the first commercial flight of the A380, from Singapore to Sydney, Australia. Read his report after the big Airbus jet arrives in Sydney early Thursday, Seattle time, at seattlepi.com and in Friday's editions.

BATTLE OF THE JUMBO JETS

Airbus and The Boeing Co. have competing visions for the jumbo jet market. The all-new Airbus A380 enters service Thursday with Singapore Airlines and will carry 471 passengers, although it's certified to carry nearly 900 passengers and crew. Instead of developing a new plane of that size, Boeing plans to revamp its 747, which first entered service in 1970.

%% SIDE BY SIDE

AIRBUS A380 BOEING 747-400 BOEING 747-8

Typical seating, three class* 525 416 467

Range with max. passengers 8,200 7,260 8,000

(in nautical miles)

Cruise speed 0.85 mach 0.85 mach 0.85 mach

Cabin width 19 ft. 5 in. (upper)

21 ft. 7 in. (main) 20 ft. 20 ft. 1 in.

Max. takeoff weight 1,235,000 lbs. 875,000 lbs. 970,000 lbs.

Max. fuel capacity 81,890 gal. 57,285 gal. 64,225 gal.

Width 261 ft. 8 in. 211 ft. 5 in. 224 ft. 7 in.

Length 239 ft. 3 in. 231 ft. 10 in. 250 ft. 9 in.

Height 79 ft. 7 in 63 ft. 8 in. 64 FT. 2 in.

*Singapore Airlines has configured its A380 to seat

471 passengers, and its 747-400 to seat 372-375. %% A380 ORDERS

Emirates: 47

Qantas Airways: 20

Singapore Airlines: 19

Lufthansa: 15

Air France: 12

ILFC: 10

Malaysia Airlines: 6

Thai Airways: 6

Virgin Atlantic: 6

China Southern: 5

Kingfisher Airlines: 5

Korean Air: 5

Qatar Airways: 4

Etihad: 4

Total: 165

COMMITMENTS

British Airways: 12

Emirates: 8

Grupo Marsans: 4

Total: 24

DELIVERY SCHEDULE

2007

1 plane, for Singapore Airlines

2008

13 planes, for Singapore, Qantas and Emirates

2009

25 planes

2010

45 planes (in full production)

A LONG, COMPETITIVE HISTORY

1970

Jan. 21: Pan Am inaugurates service with Boeing's first 747-100, from New York's Kennedy airport to London. Flight is delayed several hours by engine problems and a backup 747 is finally used. Plane carried 324 passengers. Flight lasted six hours, 10 minutes.

1989

Feb. 9: The 747-400 enters service with Northwest Airlines. Remains current version, though range and efficiency have improved.

1991

June: Airbus President Jean Pierson announces at Paris Air Show that Airbus will study development of a 600- to 700-seat plane, the first competition to Boeing's 747.

July: Boeing forms unit to study market for a bigger jumbo.

1993

January: Boeing and the French, British, German and Spanish companies that make up the Airbus consortium agree to jointly study the Very Large Commercial Transport. Meanwhile, Airbus continues its own work on what it calls the A3XX.

1995

April: Boeing pulls out of the joint effort with the Airbus companies. Boeing goes off to work on what will become known as the 747-500/600, while Airbus continues with the A3XX.

1997

January: Boeing drops plans for 747-500/600. Will focus on 777 derivatives.

1999

Late 1999: Boeing dusts off plans to stretch the 747. The 747X would cost about $4 billion to develop and have around 520 seats - about 100 more than the 747-400.

2000

October: Singapore Airlines shuns Boeing's 747X in favor of the A3XX. Will order 10 and take 15 options.

Dec. 19: Airbus gets final authority to develop the double-decker A380, previously known as the A3XX. Introduction set for early 2006. Development costs estimated at $12 billion.

2001

March: Boeing announces it has stopped work on the 747X to focus on the speedy Sonic Cruiser, which will fly at nearly the speed of sound. The Sonic Cruiser will later be shelved in favor of the superefficient 787 Dreamliner.

June: Airbus says it will develop freighter version of the A380, with 10-plane order from FedEx.

2005

Jan. 18: First A380 unveiled in Toulouse, France.

April 27: First flight of the A380.

May: Airbus notifies Singapore Airlines delivery of its first plane will be pushed back from March 2006 until the second half of the year.

Nov. 14: Boeing announces it will develop the 747-8 Intercontinental, which will carry about 50 more passengers than the 747-400. It will be the first stretch of the 747's fuselage. A freighter version will come first.

2006

June 13: Airbus announces major A380 delays because of wiring problems. Some customers will get planes two years late. The next day shares of EADS tumble. Former Airbus boss Noel Forgeard, now co-chief executive of EADS, which owns Airbus, is suspected of insider trading after it is revealed he made substantial profits from stock options sold before the bad news was announced.

July 2: Forgeard and Airbus boss Gustav Humbert resign. Louis Gallois replaces Forgeard at EADS. Christian Streiff replaces Humbert at Airbus.

Oct. 3: Streiff announces third major delay in A380 program. First plane won't be delivered until third quarter 2007.

Oct. 9: Streiff resigns. Says he does not have enough autonomy from parent EADS to make drastic changes necessary to turn around Airbus. He is replaced by Gallois.

2007

Feb. 28: Airbus announces plan to cut 10,000 jobs as part of major restructuring to become more efficient. Costs of the A380 program have soared to at least $18 billion.

March 1: Airbus suspends work on the A380 freighter after launch customer FedEx and then ILFC cancel their orders because of delays. UPS cancels its order shortly after.

July 16: The co-CEO management structure of EADS is simplified. Frenchman Gallois is sole chief executive. Tom Enders, his German counterpart, takes over as head of Airbus.

Oct. 3: News reports say French investigators found massive insider trading at EADS.

Oct. 15: First A380 delivered to Singapore Airlines in Toulouse. The airline unveils new interior, with 12 first-class cabins featuring beds.

Oct. 25: The A380 to begin commercial service between Singapore and Sydney, Australia.

FUTURE

Mid-2010: Lufthansa Airlines scheduled to take delivery of the first of Boeing's bigger 747-8 jets. Lufthansa will already be operating the A380 starting in 2009.

20XX: Airbus eventually plans to stretch the A380 to carry about 100 more passengers. Airbus has not given a development timetable.

Source: Airbus, The Boeing Co., P-I reporting

SEATTLE P-I


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