Airbus Struggles to Turn Page on Crisis Year

Airbus, poised to fall behind U.S. rival Boeing Co. in orders for the first time in six years, must be wishing 2006 was already history.

Airbus, poised to fall behind U.S. rival Boeing Co. in orders for the first time in six years, must be wishing 2006 was already history.

But for the European planemaker and its parent European Aeronautic Defence and Space Co., the coming year may not be much easier.

Since new delays to the 555-seater A380 superjumbo came to light in June, EADS and Airbus have lost three CEOs, one A380 customer, a big potential order from another client and euro4.8 billion (US$6.4 billion) in forecast profits. EADS shares have fallen about 25 percent since the start of the year.

The quadrupling of the A380 production delay to two years prompted FedEx to cancel its 10 orders and was a likely factor in Lufthansa's Dec. 6 decision to buy 20 747s instead.

The threat of customer defections still hangs over Toulouse, France-based Airbus as it enters the New Year - a prospect that chief operating officer John Leahy is keen to play down.

"Most of the customers I've talked to are annoyed, they're rightfully upset," Leahy said at a news conference earlier this month. "But they aren't rushing for the doors."

Against this backdrop, the decision by U.S. and European aviation authorities to certify the A380 for commercial service, 10 months before the first plane is due for delivery to Singapore Airlines, was a small mercy.

Clouds were already gathering on Jan. 17, as Airbus announced 1,111 orders for 2005 - a new industry record - to Boeing's 1,002. Measured by catalog value, Airbus had lost its market leadership to Boeing, as its order share fell to 45 percent from 54 percent in 2004.

Stung by higher fuel prices, airlines were abandoning Airbus widebody airliners for Boeing's more efficient 777 and upcoming 787 "Dreamliner." Based on orders so far, Airbus is set to fall behind Boeing's full-year tally for the first time since 2000, as its share of new business by value extends its slide to about 37 percent.

EADS responded Dec. 1 by approving an ambitious upgrade to the planned Airbus A350 airliner, designed to take on both mid-sized Boeing models. The long-awaited decision had been caught up in the A380 production setback and resulting management crisis - which saw the departure of EADS co-chief executive Noel Forgeard and two Airbus CEOs in quick succession.

Forgeard and several of his former colleagues are under investigation over share sales conducted soon before the A380 delays emerged, along with EADS' two biggest corporate shareholders, Lagardere SCA and DaimlerChrysler, which both reduced their stakes around the same time.

The A350 is now due to enter service in 2013, five years behind the 787 and a year later than announced at July's Farnborough Air Show, where Airbus vowed that its new design would be significantly cheaper to operate than the 787.

In order to deliver on that pledge, Airbus has since increased the use of composites and the overall program cost - now euro11.6 billion (US$15.4 billion), compared with the US$10.6 billion announced at Farnborough.

"You don't come out with a 'me-too' airplane five years later," Airbus' Leahy said as he unveiled the new specifications this month.

EADS says a large, unspecified share of that cost will be met from its own cash-flow and from cost-cutting at Airbus, while suppliers will be invited to contribute euro1.8 billion (US$2.4 billion) through risk-sharing investments.

But the main EADS shareholders - DaimlerChrysler, Lagardere and the French government - have so far failed to agree on where the rest of the cash will come from.

EADS, Airbus and the governments of France, Germany, Britain and Spain must also decide what if any public aid the A350 program will receive. A renewed aid pledge could inflame a long-running EU-US trade dispute over subsidies to Boeing and Airbus.

With three years to go before the bulk of the A350 program costs kick in, it is the restructuring at Airbus that poses the more immediate challenge - and the bigger headache for 2007.

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