Tags: EU | Spain | Airbus

Airbus Leads Boeing but A400M Problem Lingers

Tuesday, 12 January 2010 09:39 AM

Airbus on Tuesday said it beat rival Boeing in aircraft production in 2009, maintaining its place as the world's largest planemaker, but warned that a troubled military transport jet program is endangering the rest of the company.

CEO Tom Enders said Airbus should cancel the delayed and over-budget A400M military plane project if customer governments fail to commit more funds soon because it is swallowing money and valuable resources.

The issue overshadowed the news that Airbus delivered a record 498 aircraft in 2009, above its 2008 tally of 483 and Boeing's score of 481.

The increase masks what Enders called a "big disappointment" with Airbus' newest plane, the A380 superjumbo, which has suffered from costly delays. Airbus only managed to deliver 10 A380s last year, well below its initial goal of 18, and Enders said the program will be "a financial liability" for years to come.

At the same time, the hulking gray A400M turboprop, which made its first flight only last month, is costing euro100 million ($145 million) each month and valuable engineering resources, Enders said.

"Part of my responsibility as CEO is when you see a clear danger coming up, that you speak up, that you suggest action, that you take action and that is what I am doing," he told The Associated Press.

The money being spent on the A400M could be used on other Airbus projects: it wants to double production of the A380 to 20 planes this year. Airbus is also working on a new widebody, the A350 XWB, and is thinking about fitting a new engine to its A320 single-aisle workhorse.

Airbus was "stupid" to agree to the original fixed-price contract for the A400M with an unrealistic delivery schedule, Enders said at the company's New Year's press conference in the Spanish city of Seville.

EADS CEO Louis Gallois called some of the A400M arrangements imposed on the company by governments "baroque." He said governments should resolve the issue of who pays for the extra costs "no later than end of January."

"The A400M puts all of Airbus in jeopardy," Enders said.

Analysts have said the threat is aimed at forcing governments to move ahead with a project that supports 40,000 jobs, many of which would be based in Seville, where the A400M is assembled.

The A400M project was launched six years ago with an order for 180 planes from seven governments — Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

The original price was euro20 billion ($29.5 billion), but a preliminary report by auditors PricewaterhouseCoopers said EADS might need an extra euro5 billion — inflating the final bill by 25 percent. Some reports have put the extra bill as high as euro11 billion.

Defense officials involved in the project are due to meet in London on Thursday, ahead of a Jan. 30 deadline to reach a financing deal on how to cope with the cost overruns. That deadline has already been extended several times, and it is a year since Airbus proposed a "new approach" for the troubled program.

In its main jetliner business, Airbus survived a crisis year for the airline industry to post better results than Boeing on both orders and deliveries.

"Under the circumstances it was a rather good year," Enders said.

Airbus' rise in deliveries in 2009 includes 402 single-aisle A320s, 86 of the A330/A340 family and 10 of the A380 superjumbos — eight less than the company's original target.

Enders said the A380 program has been a "big disappointment" and Airbus is still struggling with the "complexity" of the aircraft.

The European planemaker captured 310 gross orders in 2009, within the target range set by chief salesman John Leahy a year ago.

The net tally of 271 beat Boeing's 142 after the Chicago-based rival suffered multiple cancellations of its delayed 787.

Leahy said he expects between 250 and 300 gross orders this year, as well as more than four orders for A380s this year for a total of less than 10 plans. The pickup won't come before 2012, he said.

He denied that Airbus gained more orders than Boeing because it is offering bigger discounts. "We never had cheaper planes," he said.

Enders said he expects deliveries in 2010 to remain at the same level as the past two years, and has no plans to slow down production schedules for any of its planes.

The crisis, however, has caused disruption, with changes to 500 delivery slots, he said. Airbus has moved up some of its more financially secure customers to 2010 slots for planes originally scheduled for delivery in 2011, 2012 and even 2013, he said.

Enders said that in 2010 he plans to make a decision on whether to put new engines on the A320 to keep up with competition — a decision he described as crucial.

"That's our bread and butter business," he said. "If I get that wrong I would be in serious trouble."

Airbus' parent company EADS also gave an early view of its full-year earnings, saying 2009 revenue fell 3.6 percent to euro41.7 billion ($60.6 billion) from euro43.26 billion in 2008.

Gallois blamed the weakening dollar, saying revenue was "a bit less than 2008 not in volume but only because of the dollar effect," he said.

Airbus sells its planes in dollars, but many of its costs are in euros.

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Airbus on Tuesday said it beat rival Boeing in aircraft production in 2009, maintaining its place as the world's largest planemaker, but warned that a troubled military transport jet program is endangering the rest of the company.CEO Tom Enders said Airbus should cancel the...
Tuesday, 12 January 2010 09:39 AM
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