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Aerospace & Defense
Editors’ Pick
The Plane That Never Should Have Been
Built: The A380 Was Designed For Failure
Dan Reed
Senior Contributor
An Emirates Airbus A380, with nearly 500 seats, was showered by water canons as it mad
it’s… [+]
Blame it on testosterone, of which there’s always been an over-abundance in aircraft design
and manufacturing. Or blame it on national pride (or continental, in the case of the multi
nation European company Airbus) and political grandstanding. Blame it on out-sized
executive or corporate egos – another thing that is never lacking in aviation.
But whatever you choose to blame it on – and there are plenty more options to pick from –
Airbus’ announcement Thursday that it will stop making the A380 superjumbo airplane
amounts to a giant “I told you so” moment. Only the “I” in that phrase does not refer to just
any one person.
Many, many aircraft manufacturing experts, airline executives, industry consultants, airport
planners, travel marketing and planning executives, tourism promoters and chamber of
commerce-type officials around the globe, and yes, a whole bunch of reporters and pundits
did, in fact, advise Airbus leaders in the 1990s not to do it as they were considering whether
to build a mega-jet even bigger than Boeing’s 747.
Even Boeing’s brass – who, if their intent had been ill would have encouraged their Airbus
counterparts to build the 600-plus seat, double-decked behemoth — told their rivals in the
1990s that building a superjumbo was a bad idea, and that even their own 747 was probably
too big for the market. In fact, when they dropped out of talks about a possible joint venture
to build a huge airplane, Boeing’s leaders were quite open about their reasons. Maybe they
didn’t say it quite so explicitly, but in effect Boeing’s leaders made it clear that they thought
that it would be impossible to make a profit on such a plane. But Airbus executives, laboring
under pressure from their political masters in France and Germany primarily and whatever
other unwise motivations that drove them, plowed ahead.
The A380 turned out to be an impressive technical achievement, and passengers loved flying
on the roomy beast. But Thursday’s announcement that production would end in 2021 was no
surprise to anyone who was paying attention back when Airbus was considering building it.
Nor was it a surprise to anyone who has been even sporadically following the saga of the
plane’s slow-motion failure in the market and Airbus’ current leadership’s dilemma over how
to kill off its politically popular but commercially disastrous signature program.
Tom Enders, a German, became CEO of what is now Airbus Group in 2012, following the
reign of Frenchman Louis Gallois, per the traditional Airbus pattern of alternating CEOs from
the two countries in order to keep politicians on all sides at least partly satisfied. Enders’ goal
at Airbus has been from the start to finish the job that Gallois proved incapable of achieving:
converting into a real, honest-to-goodness, share-holder focused, profits-driven company the
multi-national, politically-steered, pool of aviation assets and interests created to advance
national and European pride plus lots of high-paying jobs.
Now Enders’ time at the helm is coming to an end – less than harmoniously – after seven
years of fighting the rival national and political interests that have resisted giving up control
of the aircraft maker to mere profit-focused investors. He’s set to retire in April. And he
clearly had been searching for a way and a time to pull the plug on the A380 program before
leaving. Doing so should give his well-regarded French successor, Guillaume Faury,
something closer to a clean ledger, financially and politically, to work from going forward. It
also should protect Faury from being saddled with the political blame for the potential loss of
3,500 European jobs because of the A380 program’s demise.
Emirates Airlines, the fast-growing global powerhouse based in Dubai, UAE, had been the
A380’s most important customer from the beginning. It placed the first order for the plane
back in 2000 and took the first delivery in 2008. It has used the A380 as its primary tool in
turning what used to be a “where’s that?” outpost on the south end of the sparsely populated
Arabian Peninsula into one of the world’s busiest and best-operating connecting hubs. Dubai
is just about perfectly situated geographically to serve as a connecting point for travel from
both Europe and the Americas to India, Southeast Asia and the Australia/Oceania region. It
and other airlines based in the Persian Gulf region have diverted huge amounts of passenger
traffic from Japan and other connecting points, and created lots more traffic on those routes
(and on routes to central and southern Africa) by pouring tons of capacity (via the A380s
massive number of seats) at low prices into the market. Currently Emirates serves 50 global
destinations with A380s, of which it currently operates 108. Not only has it stolen market
share from global rivals, it has created lots of new demand, and captured most of that for
itself. And Emirates has undermined western carriers’ pricing strategies and profitability on
those routes with its abundance of cheap seats on offer.
It’s unclear, maybe even doubtful, that Emirates could have done all that without the A380.
But no other carrier in the world has been able to use the A380 as effectively. Not Qantas,
whose homeland is so far from the rest of the world that Airbus’ leaders thought Australia
would become a huge A380 market. Not Singapore Air, one of the world’s best airlines and
Asia’s leading carrier. Not Japan’s All Nippon Airways. Not British Airways. Not Air
France. Nobody.
Those are among the most notable of the 15 other airlines that ever placed orders for the
A380. (Two of those “carriers” were actually leasing firms ordering A380s in hopes of being
able to lease them to carriers, but they couldn’t, so the 23 planes ordered between them were
never built). And most of the others on the list of carriers that ordered A380s already have
canceled some of their orders and/or sold or retired some of the ones they did fly.
Much was written about the spacious – and expensive – private suites that some airlines
installed… [+]
© 2017 Bloomberg Finance LP
Now even Emirates is losing some interest in the plane. It still flies those 108 in its fleet. But
in announcing the A380’s production end on Thursday, Enders also disclosed that Emirates
cancelled 35 of the 55 A380s it still had on order. In place of those 35 A380s Emirates said it
would take 70 smaller, mid-size wide bodies from Airbus; A330s and A350s, mainly. At list
prices those 70 other planes are worth about $21.4 billion. At a list price of $445.6 million
each, those 35 cancelled A380s would be worth about $15.6 billion. That compares with the
$24.5 billion (at list prices) that it would have paid for all 55 A380s that Emirates still had on
order before Thursday. Since Emirates, as Airbus’s best customer, likely pays nowhere near
list price for any of its Airbus jets, it’s hard to tell whether Airbus or Emirates is getting the
best end, financially, out this. But it’s likely somewhat close to being a wash in a financial
sense.
It’s also very likely that Enders and his team at Airbus are happy with the arrangement – and
may have even initiated it – as a way of creating a natural and graceful opportunity to put the
A380 program out of its misery.
But it should have happened much earlier. In fact, the A380 should never have been built.
In the immediate aftermath of Thursday’s announcement most news reports followed the
company line that the A380 was designed to disrupt the airline industry’s hub-and-spoke
model of airline operations but was made vulnerable by the airlines’ shift point-to-point
operations even before the first A380 was delivered 11 years ago.
In international hub-and-spoke operations airlines seek to collect travelers from many cities at
a central collecting point, or hub, to fill large planes for flights to international destinations
(hub-and-spoke does the same thing domestically, but using planes half or a third the size of a
747). Point-to-point international operations, as the name implies, focus of non-stop flights
between international cities aboard mid-size wide body planes, often by-passing hubs.
But that, to put it kindly, is a gloss of what really caused the A380 to perform poorly in the
market. With a program development cost of more than $17 billion upfront (some analysts
suggest that number actually is as high as $25 billion), high European labor costs, persistent
manufacturing cost overrun problems and widely suspected steep discounting of the A380’s
price just to achieve the 396 firm orders it eventually did get (119 of those orders
subsequently were cancelled) it is abundantly clear that the A380 program will be
remembered as a massive money loser. It did, however, achieve its political masters’ goal of
employing lots of European aerospace workers and keeping the Continent relevant in the high
tech aviation manufacturing world.
What really happened is simple. From Day One Airbus’s superjumbo was too big; way too
big. And Airbus should have known that from its two sets of talks with Boeing in the 1990s
about teaming up to build a jointly-produced superjumbo. Careful, dispassionate analysis of
the global travel market also would have shown Airbus leaders why Boeing and most airlines
and travel companies thought building a superjumbo was a really dumb idea.
While passengers reported that economy seating aboard A380s to be reasonably comfortable,
economy… [+]
Getty
Boeing’s iconic 747 had held the crown as the world’s largest passenger jet since its service
entry in 1970. But by the ‘90s demand for later versions of the 747 had fallen way off from
the peak demand era of the 1970s. It, too, was too big and too costly to operate profitably
year-round on all but a handful of international routes. U.S. carriers, none of which ever
seriously considered buying the A380, had begun removing the four-engine 747 and its
smaller rivals, the Lockheed L1011 and McDonnell Douglas DC-10/MD-11 tri-jets, from
domestic operations by the early ‘90s. Those planes’ large capacity and the low fare-oriented
competitive marketplace driven by deregulation in this country made those wide bodies
automatic money losers on domestic flights. And even internationally, the 747 had proved
itself to be an inconsistent profits producer.
Boeing engineers, market analysts, financial planners and top leadership all told their Airbus
counterparts during their talks about building a jointly-produced superjumbo plane that the
market just wouldn’t support a 500- or 600-seater, and likely wouldn’t any time in the
foreseeable future. But Airbus’ leaders at the time did not listen. They were certain of the
correctness of their view that hub airports were becoming too crowded to accommodate lots
of flights each day on the same international routes, and that congestion would force airlines
to switch to once-daily flights on such routes using superjumbos.
But those airport congestion worries were never well-founded. Yes, some airports were – and
continue to be – heavily congested. But given the power of hubs to collect hundreds and
hundreds of travelers a day to funnel into multiple profit-making hubs, airlines weren’t about
to abandon that successful operating style. So they found other ways to make time and space
available to keep on flying mid-size planes on key international routes like New YorkLondon s many as 12 times a day. High frequency service aboard multiple mid-size planes
was the model that they believed would continue to produce the most revenue and profits
because it better fit what travelers actually wanted – lots of access and relatively low prices –
than limited access service on one big plane each day in each market. The economic power of
the hub was too obvious for airlines to throw it all away in pursuit of Airbus’ grand vision of
a mega-plane flying once a day on major international routes.
Yes, as some have noted, some airlines did begin, as Airbus leaders had predicted, bypassing
their own hubs, or big foreign hubs to operate some point-to-point flights using mid-size wide
bodies. But relatively little of that kind of flying has ever been undertaken, and only on routes
where significant point-to-point demand – especially business travel demand – already
existed. Additionally, a small number of carriers – just 15 in total – ordered some A380s
either because they operated in isolated but large markets where a bigger plane potentially
might make economic sense. Others, like British Airways, ordered a few A380s because they
so thoroughly dominated a few routes with heavy existing demand that they thought a
superjumbo had a realistic chance at becoming a profit maker in limited deployment. But no
carrier, except for Emirates, pushed all their chips to the middle of table in a bet on the A380.
In fact, even Emirates continued to order mid-size planes, mostly Boeing 777s, to hedge its
bet on the A380 and to cover markets that even it knew an A380 was too big to serve.
The fact of the matter is that most international travel today continues to be aboard mid-size
wide body planes, not the jumbo 747 or superjumbo A380. Indeed, the 747 has been fading
gradually from the market for more than 20 years now. After delivering more than 1,500 747s
in various versions over the last 49 years, Boeing is down to just 24 747-800s still on order.
And nearly all of those are freighters. In fact, there are no more orders from airlines for the
747-800I, the current passenger version. However, two are being built now – to very special
specifications – to replace the two 747s-200s that began serving in the role Air Force One
way back in 1991. Now the wide-spread assumption in the aviation community is that Boeing
will shut down its 747 production line entirely once those two highly specialized aircraft are
delivered to the U.S. Air Force sometime in the middle of the next decade.
Thus, instead of the 747 and the A380, the future of international air travel over the next 30
years is likely to depend on mid-size wide body planes. Boeing’s and Airbus’ mid-size planes
carry just half to two-thirds as many travelers as the 400-seat 747. That makes them
consistent money makers on the routes where the 747 typically has struggled to be profitable
on a year-round basis – and where the A380 simply cannot compete profitably. When in the
mid-90s Boeing added its 777 with more than 300 seats to fit into the market between the
230-seat 767 and the 400-seat 747, it became the optimal Boeing plane for serving most highdemand long-haul international routes profitably. That further undercut the 747’s market
opportunities. Now the 787, which entered service in 2012 featuring big operating cost
savings, is taking the place of the out-of-production and slightly smaller 767 in Boeing’s
lineup. Meanwhile Airbus has significantly updated its older 300-seat A330 and last year
introduced its brand new, highly efficient A350 with similar seating capacity to compete
effectively against Boeing’s two primary long-haul planes, the 787 and the 777.
Airbus, however, stubbornly pressed on with its A380, which is capable of carrying more
than 600 seats but typically flies with closer 500 unusually spacious seats on board because
airlines know another 100 seats on board would be superfluous and pointless. With the
possible exception of Emirates, no airline has come close to wringing an acceptable return on
its investment out of the A380. And most have struggled to even cover their direct operating
costs on that plane on a full year-round basis.
So despite the quick and easy excuse being tossed around that the market changed on the
A380 after it was designed and built, the reality is that the plane, as impressive and even
beautiful as it is, was built for all the wrong reasons. It knowingly was aimed at a market that
did not exist at the time of its design and, speaking generously, barely exists today even after
11 years of service. Simply put, the A380 was from the day it first flew designed to be a
marketplace loser.