A380 - Introduction

Introduction
When talking about the new Airbus A380, one would think it is easy to write about it, since it has been all over the news for the past 2 years. However there were never any concrete consequences mentioned, except the ones for Airbus. Neither financial statements nor any other kind of literature were available. Even the attempt to get an interview with Lufthansa failed. So what seemed to be easy in the beginning became harder to write about in the end, due to the missing literature. That is why most of my sources are based on the internet. Nevertheless, the media wouldn’t even make such a fuss about it, if it wasn’t the biggest airplane in the world. For the first time in aviation history, Airbus was trying to replace Boeing in the civilian aircraft construction. They wanted to become number one by building the biggest and most luxurious aircraft in the world, which is why the delays became so significant. In my essay I will analyse the impacts on some industrial factors due to the delayed delivery of the A380.
2. Reasons and Consequences of the delays
2.1 First delay
The first delay of Airbus’s A380 was announced in June 2005, when Airbus confirmed that the delivery would be six months later than promised. An Airbus presenter told the BBC that the hold-up was because of several reasons, saying, "In most airline programmes of this size - including those of our competitors - things can run a little later than originally planned. The plane is continuing to perform well in tests." Other industry sources, however, claimed that the original model was too heavy and therefore wasn’t able to overcome the distance promised.

2.2 Second delay
Airbus announced another delay on June 13, 2006, with an additional setback of six to seven months on the delivery schedule. Reasons given for this postponement were, according to an Airbus statement, the installation of electrical systems and resulting harnesses. For these reasons, the EADS, owning 80 percent of Airbus, said that the deliveries in 2007 would drop from an original target of 20 to 27 aircrafts to only 9, and deliveries by the end of 2009 would make an additional loss of 70–80 aircrafts. The proclamation of this news caused a 26% drop in the share price of EADS and a possible cancellation of orders. Customers like Emirates and Qantas were angered by the delays and Singapore Airlines said they might even seek penalty compensation for the wait.2
2.3 Third delay
The third setback, which was publicized on October 3, 2006, had some even greater consequences to Airbus than expected at first. Not only that the airlines of the passenger version of the A380 were more disappointed about this further delay, FedEx and UPS even cancelled their orders of the freighter’s version in favour of 15 Boeing 777. This additional delay was to some extent still due to the wiring problems, which have, according to an Airbus statement, taken more work than expected. Since there was no other opponent on the market able to catch up with the capacity of the A380 and thanks to the incentives offered, the airlines themselves didn’t cancel their requests. However, in order to raise the productivity and avoid any further hold-ups, Airbus decided to initiate a restructuring and cost cutting program.
3. How are the airlines affected by the setback?
In general, one could say that, due to the delayed delivery of the A380, airlines have to find a way of compensating their losses. A major reason why airlines ordered the A380 was the low mileage of only 3.4 l per passenger and km , which has unfortunately now become irrelevant, since the planes will not be there on time. Also the ground-handling, personnel and landing charges will now cause twice as many costs, since airlines need to offer more flights to one destination if they want to survive on the market. For Lufthansa, this means that since they wanted to get into the Asian market to compete against Singapore Airlines, they cannot offer as many flights as initially planned, since Lufthansa does not have the amount of planes required. This also applies to other profitable routes. So far they have ordered 15 A380, but instead of being able to put them to use, they are now forced to either lease airplanes in order to provide enough capacity to rival in this market or to use older planes with less luxurious interior, which could cause a loss in image. Lufthansa relied too much, in this respect, on Airbus, since they thought that due to the increasing oil prices it would be best to invest in more economical planes. That means that out of the total 174 planes that were ordered, 80 of them were ordered by Airbus and Boeing, which cost them 14 billion Euros. Lufthansa chairman, Wolfgang Mayrhuber, therefore called for compensation to balance the loss of income. The adjustment payment would be negotiated through a reduction of price once the airplanes have been delivered. However this whole setback has also had an impact on Lufthansa Cargo. Since air freight is not only getting more important, but also more expensive, Lufthansa wants to participate in this industry. With the bigger belly of the A380, it would have been possible to load more cargo in the aircraft than it is possible with any other aircraft. On top of that, all the pilots that Lufthansa has trained to be able to handle such a big aircraft, are now becoming redundant. For Singapore Airlines this was also a hard setback, since they have been number 1 in the airline industry for years. With the new A380 they wanted to improve their image with even more luxury and quality. The A380 should have been their new prestige object, but has now turned more into a rebound in their growth.
4. Who else suffers from the proclamation?
4.1 Airports
The major challenge that the aviation industry had to face was to modify all their facilities due to regulations announced by the International Civil Aviation Organization (ICAO), which declared that the A380 belonged to code F category, even though Airbus at first developed the A380 to operate on runways of code E standard, which most of the important international airports possess. A significant modification was to adjust all the runways due to the fact that the wingspan of the plane was longer than the one of the Boeing 747. However, runways were not the only thing that needed to be changed. Also, the Taxiways had to be designed in order to allow operations without any struggle. The main target, however, was to adjust the terminals in a way that made it possible for the A380’s 555 passengers to be handled as quickly and professionally as the Boeing 747. In order to achieve this difficult feat, larger gate rooms, gate allocation and improvement of boarding procedures were required. New passenger boarding bridges and parking positions were also mandatory, since the A380 is a double-deck airliner. Moreover, lift trucks for catering and de-icing vehicles are essential to handle the new generation of aircraft. While some airports are afraid that they have no alternative but to accept the modifications or are still pondering the viability of adjusting their facilities after analysing the cost-benefits, Frankfurt’s international airport was the first to already complete these changes in order to handle the new aircraft. For certain other airports, these adjustments are not obligatory, but rather an image building technique used to interest new airlines operating the A380. However one must consider that all those changes made by Fraport require funds, which they couldn’t possibly come up with on their own. They needed to acquire credit in order to render all these changes possible. Since Airbus isn’t able to deliver all the promised planes to Lufthansa in time, the expected source of financial income through the A380s will not come through.
4.2 Passengers
According to a passenger image research taken by Airbus in May 2007 , the majority of passengers, which in this case accounts for more than 95%, were not concerned about the safety of the A380, nor were they hesitant about flying on the aircraft. Regardless of setbacks and industrial issues which were announced, most passengers continued to support the A380 brand. However the minimal communication regarding the A380 was not significant enough to dilute the primarily negative comments being generated by the media. Communicating the benefits of the A380 serves to reinforce its image as the latest generation aircraft offering comfort and high performance. Passengers are more likely to accept communications about testing and certifications if it is positioned as a normal milestone along the way to commercial service. Furthermore passengers who are familiar with the A380 have a higher tendency to fly with the new aircraft. Leong W., one of the passengers on the first flight of the A380 paid 55.000 Dollar for the 7 hours flight, just to enable his 91 year dad and 7 more family members to be part of the premier of the A380. William said: „It was worth every single cent". Moreover more than 2.5 times as many people would rather fly in an A380 than in a 747 due to its increased safety.
4.3 Human Resources
With the arrival of the A380 comes the hiring of new staff members for both sides of the aviation industry, the airports as well as the airlines. For instance, more ground-handling is required to dispose the entire luggage or people handling the fleet of cars. Also, cleaners are mandatory to tidy up the planes during their ground time. Furthermore, depending on the size of the airport, more employees working on the check-in are essential to handle all the passengers that need to get in the plane. All of those human resources of course needed to be trained in order to provide a smooth transition and to be able to handle all of their tasks properly. New staff however, is also connected with costs and since there is no use for those employees at this time, the airlines and airports are still obligated to pay them, due to their contracts. On top of that, when the new personnel have completed their training, they will receive an increase in salary. Therefore, the only thing that could be done in order to stop this loss of money, is if the airlines lay off the employees after their probation time or tell them that there is no use for them right now and rehire them once the new fleet of the A380 arrives.
4.4 Suppliers
Due to the delay, airlines and airports were not the only ones that needed to change their future plans. More than 3000 suppliers were scared to close down their companies. 300 businesses around Hamburg have already started to change their preparations. Suppliers who are only working for Airbus, are especially affected. According to Klaus Ardey, chairman of the Hanse-Aerospace association, this financial bypass could become a loss of livelihood for smaller businesses. However, lots of companies work not only for Airbus, but also for several different kinds of customers and could therefore compensate the delay better than others. For instance, Matzen & Timm, who are responsible for devices of the air conditioning, or Extel Systems Wedel (ESW), who is in charge of installing the elevators are not afraid of this setback, since they still supply other customers. Contracts, however, still need to be changed, since Airbus does not want to risk losing their suppliers due to insolvency of the companies. A reciprocal agreement is therefore highly appreciated. Airbus still wants to build its new generation of aircraft for at least 20 years and therefore reliable suppliers are essential for their survival. According to a letter by Joachim Gante, chairman of the “Deutsche Luft- und Raumfahrtindustrie”, German suppliers that got into financial difficulties from the setback of the A380 could hope to get some help from the union. The main A380 suppliers, however, include Fairchild Controls, Goodrich, Hamilton Sundstrand, Honeywell, Parker, Rockwell Collins and TRW Aeronautical Systems.
5. Conclusion
In short, although there have been several delays and some negative media in regards to the A380, it will still not keep Airbus from bringing out the biggest and safest aircraft ever built. True, the setbacks have upset airlines like Lufthansa or SA and airports are still waiting for those airlines to operate with the new aircraft. The suppliers also suffer from these delays and passengers, as well as the employees, are in some way disappointed about all this. Yet Airbus is not the only aircraft manufacturer with those concerns. The new Boeing Dreamliner is experiencing similar problems. The demand for new technological aircrafts is increasing; however, the development departments and product divisions of the manufacturers are not yet ready for all this, regarding personnel or in the physical aspect. Setbacks have to be taken into account for every new product entering the market. However, we must consider that in the end, all this will be positive for the customer and the economical growth of the country.