Airbus May Be Making the World’s Fattest, Most Expensive Turkey

  • Share
  • Read Later
Bloomberg / Getty Images

When passengers on Air France’s Flight 006 land at New York City’s Kennedy Airport from Paris on Thanksgiving Day they may also have the distinction of arriving on one of the biggest turkeys in aviation history, the Airbus super jumbo A380. Airbus has no new orders for the jet this year, and Lufthansa recently canceled three A380s—it had ordered 17—which typically have 500 to 525 seats. Airports are required to build special gates just to board and unload that many passengers. Air France/KLM, which launched its A380 service with much fanfare, doesn’t want any more as it continues to restructure. Orders at Virgin Atlantic (6) and Hong Kong Airlines (10) seem vulnerable while an option taken by finance firm Doric Asset Finance for 20 of the big birds hasn’t been converted to a firm order.

No U.S. carrier has stepped up to buy the A380 and none likely will. “The A380 is, by definition, an uneconomic airplane unless you’re a state-owned enterprise with subsidies,” said Delta ceo Richard Anderson in a recent speech. He’s making a reference to Emirates and Singapore Airlines, who own about 45% of all planned deliveries. Emirates has 35 A380s operating out of a total order of 90. According to aviation expert Richard Aboulafia, vice president of analysis at Teal Group, there have been 167 net A380 orders over the last decade. Airbus planned to build 30 A380s annually but the current rate is less than 17 per year. “The people who are in the order book are the order book,” Aboulafia says, meaning the potential to add new orders is limited.

As things now stand, it is unlikely that the A380 will produce anything but a write-down for Airbus and its parent company EADS (soon to be called Airbus Group), which invested something on the order of $25 billion to get the first A380 airborne. The jet lists for about $400 million, but you can make them an offer: the going rate is somewhere north of $200 million.

(MORE: How the Airlines Put the Squeeze on Passengers)

Passengers seem perfectly happy with the A380, which has the coolest takeoff feel—it’s like being in an elevator, not a jet— since the supersonic Concorde. (Some versions have what has been called the world’s most luxurious accommodations.) But, for operators, the A380 was launched in 2000 to solve a problem that never materialized. Planners perceived an air travel corridor that was going to be so cramped with traffic that jumbos would seemingly have to play a role. But global deregulation, which has allowed more airlines to fly transnationally from more places, eliminated some of the need for collecting large amounts of passengers in one hub like Paris or Frankfurt and then sending them on to other big hubs.

Airbus hasn’t given up on that notion. Canceling orders may be fashionable now, said its COO for customers John Leahy, but just wait two years when the skies are even more crowded and see who needs what. In the Airbus view, the world will need 1711 very large aircraft over the next 20 years, in part because traffic will double in 15 years.

Airbus is absolutely rocking in other aircraft categories. The company now has 725 firm orders for the A350 XWB, a twin-aisle, long-range aircraft that is undermining its big brother. The A350 helped Airbus crack the code in Asia, winning an order of 31 A350 XWBs from Japan Airlines, once a Boeing captive. It was a huge victory for the Europeans. “It’s not about capacity, it’s about range and economics,” says Aboulafia. Similarly, Airbus has a ton of orders for its single-aisle jets, including the new A320neo, the most fuel-efficient version of that model yet. Airbus grabbed 1,062 new orders this year, putting it ahead of its great rival Boeing, and a record backlog of nearly 5,300 jetliners, or about eight years of production. It’s going to be busy in Toulouse for some time.