Airbus A380: What Went Wrong?
[pic]Published by Miqdad Sibtain on March 12, 2009 in Opinions
“In most airline programmes of this size – including those of our competitors – things can run a little later than originally planned.” – Airbus spokesman. “I am extremely sorry vis-à-vis investors that have placed their confidence in EADS. This announcement came as a big blow. But we will create recovery.” - Noel Forgeard, co-CEO
“While we have some sympathy with Airbus for the sheer scale of the challenge, we believe it is difficult to justify warning so late of the problem or failing to anticipate the issue.”1
On June 13th 2006, Airbus S.A.S. (Airbus), the world’s biggest commercial airplanemaker, announced a delay of six months in the launch of its much awaited/forthcoming A380 passenger jets. Airbus A380, which was nicknamed ‘superjumbo’, would be the largest passenger aircraft in the world with seating capacity of 555 passengers. Back in 2005 also, Airbus had extended its delivery deadline by six months and planned to deliver the first aircraft in October 2006. The new announcement further deferred the delivery till April 2007.
After the announcement, the market capitalization of European Aeronautic Defence and Space (EADS), the parent company of Airbus, fell by 26% on 14th June 2006. Airbus explained that the delay was caused by a problem in the installation of cables for the plane’s entertainment system. Panicked by the announcement, the company’s biggest customers, including Emirates and Singapore Airlines, demanded compensation for the delay in the delivery of planes, while International Lease Finance Corporation (ILFC), the biggest aircraft-leasing company, threatened to cancel its order of 10 A380s. In the mean time, Singapore Airlines, which was the first to order A380, ordered 20 of Boeing
Co.’s2 (Boeing) new 787 ‘Dreamliners’ worth $4.5 billion (or 3.57 billion euros). Analysts opined that Boeing could benefit from Airbus’ crisis. In the given scenario, experts debated how Airbus was going to overcome the crisis. They also wondered how Boeing intended to take advantage of the situation.
In 1970s, four European aircraft manufacturers, namely Aerospatiale (France), Deutsche Airbus (Germany), British Aerospace (UK) and Constructions Aeronautics (Spain), collaborated and formed ‘Project Airbus’ in order to compete with Boeing, which dominated the market with more than 80% market share. Later, the name of the company changed to ‘Airbus Industrie’ after British Aerospace exited from the consortium. In the beginning, Airbus manufactured A300 aircraft to compete with Boeing aircrafts. A300 was lighter, more fuel-efficient and had lower operating costs compared to Boeing’s and, thus, was more profitable. In the early 1980s, Airbus developed A310, a derivative of A300, which competed with Boeing’s 767 aircrafts. Airbus’ next model was A320 which was positioned against Boeing’s 737. With a number of aircraft models (A300, A310 and variants of A320), Airbus was able to acquire a market share of 25%, while that of Boeing dropped to 56%. Afterwards, the company added A330 and A340 to its product line-up. The A340 (Airbus’ largest aircraft) competed with Boeing’s 747, which was larger than A340. The extra size of 747 made it very popular with the airlines. During the 1990s, Airbus evolved as an innovative and customer-friendly aircraft manufacturing company. In the late 1990s, Airbus restructured itself controlled almost 50% of the market share.
By the turn of the 21st century, Airbus perceived that the increasing number of passengers and cargo, alliance among various airlines and industry concentration would create demand for larger aircrafts. The company predicted a demand for 1,144 large aircrafts (having more than 500 seats) by 2020. However, Boeing had different views of ...