The Big Bird that Struggles to Fly

On April 27, 2015 Airbus Group NV celebrated the 10th anniversary of the A380 superjumbo’s first flight. The Airbus A380, which is the world’s biggest jetliner at 73m long, 24.45m high and with a wingspan of almost 80m, made its first flight on 27 April 2005 and entered commercial service in October 2007 with Singapore Airlines. Each of the A380’s giant wings, which are designed and made in Britain, can hold up to 125 tonnes of fuel. This gives it a flight range of 15,700 km, or enough juice to fly non-stop from Dallas to Sydney.

A bit of a history of rivalry

A little more than a decade ago, the two dominant airplane makers and rivals, Airbus and Boeing, looked at where their businesses were headed and saw similar facts: air traffic doubling every 15 years, that number of travellers would hit four billion by 2030, and came to radically different conclusions about what those numbers meant for their future:

• Airbus saw the rise of international traffic through major hubs and decided to bet on a big plane to connect big airports.
• Boeing, on the other hand, figured that traffic would move away from big hubs and towards secondary airports. So it started to build smaller, more fuel-efficient long range aircraft, which became known as the 787 Dreamliner.

Developing an ultra-high-capacity airliner (UHCA)

As a result, in mid-1988 a group of Airbus engineers led by Jean Roeder began working in secret on the development of an ultra-high-capacity airliner (UHCA), both to complete its own range of products and to break the dominance that Boeing had enjoyed in this market segment since the early 1970s with its 747. The project was announced at the 1990 Farnborough Air Show, with the stated goal of 15% lower operating costs than the 747-400. The first A380 was unveiled at a ceremony in Toulouse on 18 January 2005, and its maiden flight took place on 27 April 2005.

The European plane maker however has had little to cheer about so far, as it has struggled to win sales for its flagship plane. As of May 2016, Airbus had received 319 firm orders and delivered 190 aircraft; Emirates is the biggest A380 customer with 142 on order and 80 delivered. Thai Airways International, British Airways, Asiana Airlines, Qatar Airways, Etihad Airways are the other customers.

The A380 was an ambitious project

From the start, Airbus ran into trouble. The A380 was an ambitious project, some would argue over-ambitious. The project was layered with new complex systems and myriad design failures. Even though, originally planned for entry into service (EIS) in 2005, the A380 didn’t enter service until 2007. Problems abounded during the manufacturing ramp up, most notably with cabin wiring. The first aircraft were delivered six tons overweight, missing on promised fuel burn performance by at least 3-4 %. By EIS, the program’s development cost had ballooned to $25 billion. Even after entering service, the A380 did not exactly enjoy a smooth journey into airline fleets. The oil leaks from the Rolls Royce Trent 900 engines in 2010?and the 2012 wing cracks incident were substantial safety problems with the A 380. As a result the A380 was not a fast-selling aircraft. The Airbus A380 was delayed in October 2006 due to the use of incompatible software used to design the aircraft. Although no orders had been cancelled, Airbus still had to pay millions in late-delivery penalties.

Besides, development and production delays, a deep financial crisis and changes in airline preferences have stymied Airbus’s efforts to sell the world’s biggest airliner. Almost as many buyers have decided not to introduce into their fleets some or all of the A380s they ordered, as those sticking to their commitments. About a dozen airlines have walked away or delayed delivery of the A380 jets. Only a handful of buyers such as Emirates Airline and Singapore Airlines Ltd., have been its big customers.

Did the Big Bird Struggle to Fly?

When the company embarked on building the jet in 2000, Airbus had projected that over the next 20 years it would win half the market for very large aircraft, which it had estimated at around 1,550 planes. As of June 2016, till date 319 A380s have been ordered, out of which only 193 have been delivered.

In 2000 when Airbus got initiated on the A380 program, the world was a very different place. The Boeing 747-400 was still a key component of most long-haul fleets, the A340-600 had been launched but was two years away from entry into service (EIS) and the 777-300ER was four years from EIS. The company had spent $15 billion to develop the plane and, before costs rose, hoped to reach break-even on the program after 250 deliveries. The business case for the A380 was based on development costs of roughly $15 billion, with a planned EIS in 2005, and sales of 750 aircrafts over a 20-year period. The A380 was designed to break even on cash flow at 250 deliveries, with targeted production rates of 45 aircraft per year.

What is worrisome for Airbus is that it has struggled to find new customers for the A380 after a flurry of initial orders. It has been almost three years since Airbus won an A380 order from a new airline customer. Emirates Airline, the plane’s biggest buyer, ordered 50 more in 2013. Aircraft lessor Amedeo ordered 20 in a deal completed last year, but it has yet to announce any airlines that will take the plane and has delayed its first delivery. Even, rival Boeing Co. also has struggled to win sales for its 747-8, the direct competitor to the A380, and has had to curtail output.

The A380 “from the beginning wasn’t super-efficient,” said Adam Pilarski, a senior vice president at aviation consultancy Avitas. Having given large price discounts to the A380’s first customers and those that bought large numbers—which is typical in the aviation industry—Airbus now has to try to sell A380s at high prices, Mr. Pilarski said, hampering efforts to win new deals. The A380s carry a price tag of $428 million, though customers usually pay less. Airbus has now promised its investors that A380s being delivered from 2016 will no longer lose money.

The A380 saves millions of dollars in operating costs, but...

The A380 has not been a poor performer; in fact far from it. The A380 has actually been a smashing success. Its operators, airlines such as British Airways, have found that the A380 saves millions of dollars in operating costs, and that it is a fantastic marketing tool.

Despite its higher capacity, the A380 (at between 80 and 90 % for most airlines) actually operates at higher load factors than any other long-haul aircraft. In spite of such superlative performance, Airbus has struggled to sell the plane. Orders have been slow, and not a single buyer in the United States, South America, Africa or India. Only one airline in China has ordered it, and its only customer in Japan has cancelled. Even existing customers are pairing down orders. Current customers too are cutting back their orders, including the major carriers in France and Germany, where the plane is assembled.

It is being rumoured that Airbus is suing Japan’s Skymark Airlines after cancelling an order for six A380s amid fears that it would not receive payment from the airline, while Virgin Atlantic and Air Austral are among the carriers increasingly unlikely to proceed with orders.

So what explains the A380’s relative sales weakness? In the opinion of aviation analysts, the key demand driver for any aircraft model is a mix of latent conservatism at airline route planning departments in the developed world and macroeconomic weakness in the developing world.

The lacklustre commercial success lies in part in a misuse of the A380’s basic purpose. When Airbus introduced the plane, it was touted as the ideal response to crowded skies, with airlines benefiting from scale and better economics by packing in more seats. Instead, carriers used the vast real estate to embrace custom extravagances including bars, showers and duty- free shopping zones, turning many A380s more into exotic luxury liners rather than vehicles of mass transportation.

The global economic downturn too had hit the airlines hard, forcing many out of business. Those that survived have turned to using smaller, twin-jet models that are more fuel efficient and can fly to more airports. Bruno Delile, Air France's senior vice president for fleet management, says that there are a limited number of routes in its network with enough daily traffic to justify the expense of such a big plane. "The forecasts about traffic growth and market saturation haven't exactly panned out," he says. Not only do airlines take a big risk on the size and cost of the A 380, but they also have to gain the cooperation of airports to modify gates and widen taxiways to make room for the plane.

As airline buyers remain concerned about making money with the plane, to boost the plane’s economic appeal, Airbus has increased the advertised average seat count on the plane to 544 passengers from 525. More seats mean lower unit costs, which is a closely watched measure by airlines when they decide what plane to buy.

Some believe the A380 is already destined for the history books. However, any move to kill off the “Big Bird” is sure to cause anguish at Airbus’s two main British plants. All of the wings for its planes are designed in Filton, Bristol, and assembled at Broughton in north Wales. The wings are the most complicated and most important part of the plane and there are thousands of well-paid, highly skilled British jobs that rely on the work. “There’s a lot hanging on the future of this programme for Britain,” an industry source said.

Airbus now wants customers to rediscover the A380 as a work horse, encouraging existing and prospective buyers to use denser configurations, seating 11-abreast instead of 10 in economy, while still exploiting the cabin’s size to keep perks like bars that distinguish the plane. The company has lifted standard seat capacity to 544 in a bid to pull customers along.

The A380 is "here to stay," insists Airbus

Although Airbus insists the A380 is "here to stay," industry sources say the project is effectively in a strategic holding pattern while Airbus takes advantage of low oil prices to defer decisions on whether to invest more or allow it to fade away. Richard Aboulafia, aviation analyst at Teal Group and a long-time critic of the giant jetliner, said the fresh crop of wide bodied, twin-engine planes coming to the market signalled the death of the A380. “I don’t think it will last for more than a few years into the next decade,” Aboulafia said. “The quicker Airbus lets go (of the A380), the quicker it can devote its marketing efforts to other products.”