Very Few Buyers for the Enormous A380s puts Airbus in a Spot

A long-lost sense of glamour has been brought back to travel since the commercial introduction of the Airbus A380 in 2007. With in-flight lounges where bartenders mix bespoke cocktails, the first-class cabins featured with private showers and buttery leather armchairs and a broad staircase reminiscent of a 1920s ocean liner links the two decks, the airplane is arguably the most comfortable flying the world skies today.

However the grandeur of the craft is matched with a financial disaster of similar grand proportions.

Airbus is leaning heavily on one customer, Emirates, for sales of the craft as the initial flood of interest from airlines has turned into a slow drip.

While Japanese airlines, among the biggest cheerleaders for huge planes, have taken just a handful, not a single U.S. carrier has bought one. Airbus has only 126 A380s in its order book, to be built over the next five years or so and has delivered 193 A380s—early on it predicted airlines would buy 1,200 supersize planes over two decades.

Further, since airlines are shifting away from superjumbos, many orders appear squishy. And there’s little indication any A380 contract will be unveiled as the aviation world starts gathering on July 11 for the Farnborough International Airshow in England, where carriers often announce big orders.

A380, which lists for $433 million but almost always sells at a discount, was launched at a wrong time, concedes Airbus. While soaring oil prices made airlines reluctant to buy the four-engine behemoth,  the financial crisis hit just as production was picking up in 2008.

While acknowledging that it will never recoup the €25 billion ($32 billion) it spent on development, Airbus only last year managed to start breaking even on production.

The concern is that if production slips far below 30 planes a year, the program could fall back into the red, says Zafar Khan, an analyst at Société Générale. “The crying happens when it’s losing money,” Khan says.

Airbus would need to write off factories across Europe and redeploy thousands of workers besides the embarrassment of admitting defeat on the program if it axes the A380 outright.

The plane’s demise would leave airports worldwide questioning the wisdom of facilities constructed to accommodate it while airlines would see the resale value of their A380s plummet.

10 years is too short a time to determine its fate, Airbus says.

The company would assess the plane’s future “in cold blood,” said Chief Executive Officer Thomas Enders said in December.

“The A380 is here to stay,” he says. “We are maintaining, innovating, and investing in it,” said sales chief John Leahy while pledging to continue the program.

The A380 can’t match the distinctive profile of Boeing’s humpbacked 747 with its short snout and upper deck crouching above the cockpit. But perhaps the biggest Airbus success with its plane is that the A380 has largely sucked the life out of Boeing’s jumbo.

Due to their high fuel consumption, four-engine planes have become a tough sell. As carriers gravitated to smaller, more economical widebodies such as the Airbus A330 or Boeing 777, Airbus in 2011 scrapped the A340, its other four-engine model. However the upgrade Airbus has pulled off for smaller planes could be risky for the A380 by adding more fuel-efficient engines as there are so few orders coming in. Due to financial difficulties or shifts in strategy, three A380 customers have dropped their orders in the last two years.

“I think the size of the plane scares most of the airline world,” says Emirates President Tim Clark.

“Nobody seems to want this plane other than Emirates. The A380 might just make it until 2020, but even that’s almost optimistic at this point,” says Aboulafia, a longtime critic of the plane and vice president of aviation consultant Teal Group.

(Adapted from Bloomberg)

 

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