Airbus A380 Darling to $50BB Disaster in a Decade

Airbus A380

The Boeing-747 has dominated the large-aircraft market since its inception in 1970, four years before the first Airbus product (the A300) took to the skies. It took almost two decades for Airbus to begin investigating how to crack Boeing’s monopoly. In the early 1990s, Boeing and Airbus conducted independent feasibility studies of the very large commercial transport (VLCT) or ultra-high capacity airliner (UHCA), as each referred to this specific market.

The results could not have been more different. Boeing saw the airline market already straying from the “hub-and-spoke” network that valued large numbers of large aircraft to connect hubs, instead focusing on aircraft to fill more non-stop routes (namely the 777). Airbus was confident there was an opportunity to build a plane 15% more efficient than the 747 and to take an ever-increasing market share away from Boeing. The two companies came to one similar conclusion: the development cost of creating a comparable aircraft to the 747 “Queen of the Skies” would be astronomical, Airbus estimated $12 billion, Boeing $15 billion.

Initial A3XX designs, as the A380 was originally designated, included such ‘innovative’ ideas as having side-by-side fuselages (instead of the double-decker approach) and the inclusion of restaurants, casinos, beauty parlors, and gyms onboard the gargantuan aircraft.

In 2000, the A380 project was officially launched with an estimated development cost of approximately $12.5 billion. Airbus stopped publishing estimated development costs in 2006, but experts estimated in 2016 that the cost had grown to $25-30 billion. The rise in development cost, and multiple years of delays, stemmed from many sources. In particular, logistic issues arising from transporting massive subassemblies from all over Europe (indeed, the world), required specialized land and water transportation and the creation of custom jigs to secure the precious hardware. Another trouble spot was the 330 miles worth of cabling on the aircraft. In addition to the expected complexity, Airbus made serious unforced errors. The most famous example of these faux pas is that different Airbus facilities were using different versions of a Computer Aided Drawing (CAD) package, known as CATIA, which were not congruent. As the problems grew, Airbus was forced to focus on the passenger variant of the aircraft which put the freighter variant on the back-burner. This decision motivated UPS and FedEx to cancel their orders. Work on the A380 Freighter is suspended with no expected service date, but it remains on offer.

Airbus A380 InteriorOther airlines also began to question their orders and, in 2006, the announcement of another delay caused the share price of EADS, Airbus’ parent company, to drop 26%. This loss led to a shakeup of the executive team and further delays. Back in 2014, Airbus CFO Harald Wilhelm hinted of a 2018 termination of the program, causing stock prices to drop again. Airbus leans on its sales of its other aircraft to maintain jobs created by the A380 program. Airbus CEO Fabrice Bregier, in attempting to defend the program recently stated that “it was almost certainly introduced ten years too early.” Airbus is trying to stick by its 20-year forecast which estimates a demand for 1400 large aircraft. Airbus has also admitted the $25 billion production cost will never be recouped.

Boeing estimates the market demand so low it expects Airbus to struggle to deliver the last 100 of its 315 firm orders. Independent estimates anticipate the final delivery of A380s in 2020 and point to “shoddy market analysis, nationalism, and simple wishful thinking” for its struggles. Quite clearly, the battle for airliner market-share is centered on single-aisle and two-engine wide-body aircraft. As United Airlines said, the A380 “just doesn’t really work for us” because travelers prefer more choices (more frequent flights) and that can be offered at lower trip costs using other airplanes.

The current list price of the A380 is $432 million (more than 50% higher than most B777s). With that price tag comes an estimated hourly cost of $50 per seat hour which fails to improve on the A350 or B-777. This list price also factors into why Airbus is struggling to sell the aircraft and why current customers are terminating rather than renewing their leases. The weakness of a secondary market for the A380 has led to speculation of scrapping relatively new jets or attempting to convert them for the business jet market (could you imagine!).

Despite its struggles, the A380 has had a significant impact on the aviation industry. The four-engine jet has 40% more usable floor space than the next largest commercial airliner and can carry up to 853 people over 8,500 nautical miles (i.e. Hong Kong to New York) at 0.85 Mach. The plane is so big that an optimal design for its weight is too wide for current airports. Instead, the wings are designed to fit within airports. The plane’s fuel efficiency and operating costs suffer because of this. That being said, aided by composite materials, the plane is 20% more fuel efficient than the 747-400. Its size has caused other problems, as well. ICAO was forced to declare a new designation of aircraft, the “super” A380 creates much more wake turbulence than “heavy” aircraft. This new designation lead both to higher separation requirements with air traffic control and to the A380s nickname, the Superjumbo.

The A380 faces a long, uphill battle as the future of aircraft with more than two engines is bleak. Emirates, which bought nearly half of the A380s sold to date, just announced a purchase of 40 B-787s at cost of $15 billion.

The novelty of the massive jet and its distinct profile will always have its own chapter in the history of aviation but at what a cost!

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