More Airbus Headaches: ICAO Wants Greater Separation

ICAO's final approach rule for the A380 changes the cost calculus for airports such as Heathrow, which depend on constant traffic flow for profit margin.</


Tim Clark, the president of Emirates, said the A350 is a terrific aircraft. "Unfortunately for Airbus, two things happened: Boeing came up with an even better plane and the price of fuel went through the roof,'' he said.

Airbus is gritting its teeth and preparing to go back to the drawing board to design an entirely new aircraft, with longer range and more capacity. Estimated cost? An extra $5 billion, and two years' further delay.

Fitch Ratings downgraded EADS yesterday, citing the cracks emerging in the two principal pillars that will support Airbus over the next decade.

Banks scrambled to lower estimates, with downgrades from Deutsche Bank, SG Securities, HypoVereinsbank, and Oddo Securities, all now distrustful of the jostling Franco-German, twin-headed management.

Morgan Stanley said there was a risk that customers may start to cancel existing orders for the A380, opting to for Boeing instead.

Airbus currently has 159 firm orders, but needs roughly 300 at the current euro-dollar exchange rate to be sure of breaking even.

Matthieu Raimbault, an analyst at Vile Tradition in Paris, said Airbus is paying the price for neglecting bread-and-butter business to build a glamour jet able to carry up to 853 passengers.

"EADS made a strategic error by opting for a jumbo rather than a fuel efficient model, especially if the price of oil increases further,'' he said.

For now Airbus is still riding the wave of a lucrative aerospace boom that reached a peak last year with record orders for 1,111 aircraft, leaving it with a $200 billion backlog and plenty of work until the end of the decade.

But aerospace is fickle, ever at risk from the ups and downs of the global cycle, as Boeing discovered in its near death experience after 9/11. Total orders for big jets worldwide are expected to fall from 2,173 last year to 800 this year, and could dip much deeper if the world's central banks keep turning the monetary screw to curb inflation.

Tim Van Beveren, a German television producer and author of a book on Airbus, said the company had staked its destiny on the wrong model with the A380.

"It's going to be the biggest flop since the Concorde. Airbus always wants to be the biggest, the newest, and the best, but it has this habit of over-promising,'' he said.

"The A380 may have a future as a cargo freight plane. But what passengers want these days is to fly point to point rather than being herded through big hubs,'' he said.

He said the electrical system was coming under intense scrutiny from the certifying authorities after a Swiss Air crash in 1998, traced to faulty wiring.

The A380 has been struggling with excess weight, too heavy for the landing gear. A wing, built at Broughton, north Wales, snapped during a stress test in February at a level below the requirement of 1.5 times maximum load, in part because the wings had been shaved so thin to save weight.

Airbus has been a great success story, rising from derided upstart to global leader in civil aviation with factories across Europe. But it is a hard company to love.

The eminence grise is France's Noël Forgeard, co-chief of EADS and confidant of President Chirac, with Gaulliste arrogance and sharp elbows to match.

Mr Forgeard waged a bare-knuckle campaign last year to gain dominant control over EADS, upsetting the delicate Franco-German balance that has always been the secret of its success.

The bitter taste left in the mouth by that unseemly affair has not been forgotten by the German side.

A great number of investors are starting to feel the same way.

A380 customers' orders

Air France 10

China Southern Airlines 5

Emirates 43

Etihad Airways 4

Federal Express 10

Int'l Lease Finance Corp 10

Kingfisher Airlines 5

Korean Air Lines 5

Lufthansa 15

Malaysian 6

Qantas Airways 12

Qatar Airways 2

Singapore Airlines 10

Thai Airways 6

UPS 10

Virgin Atlantic 6

TOTAL 159

Battle for subsidies in fight for supremacy

Airbus and Boeing are bitter rivals for the crown of world number one in passenger jets, each accusing other of state support.

The Europeans have staked their future on the A380 superjumbo, a double-decker the length of eight London buses and with room for 853 people.

The Americans have opted for the mid-sized Dreamliner, betting that more people will travel in criss-cross patterns to smaller cities rather than hub to hub.

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