The demise of the A380 superjumbo marks the end of another grand European project driven more by pride and ambition than economic sense.
Big prestige, no profit.
The mother of all super-airliners is crashing back to earth. Fourteen years after the A380's maiden flight, Airbus announced it will cease production of its biggest and most prestigious aircraft in 2021, leaving behind shattered dreams and a long trail of losses.
“In business we can’t make decisions based on feelings or wishes, they must be based on facts,” said Tom Enders, boss of the pan-European multinational. The giant double-decker ultimately did not sell, with airlines preferring smaller, nimbler planes.
The decision will be unpopular among passengers and aircraft connoisseurs, who loved the A380’s roomy interior and luxurious feel. But Airbus investors will breathe a sigh of relief. Sales were going from bad to worse: Just a few days ago, Australian airline Qantas canceled an order for eight A380s, while Emirates recently reduced a massive order from 163 to 123.
The concept behind the A380 – list price $450 million (€400 million), but heavily discounted for airlines – was that air travel would increasingly focus on large hubs. The oversized aircraft, which would normally carry about 15 percent more passengers than Boeing's 747-8 Dreamliner, was built to serve that model. But while passenger numbers across the globe have soared in the last two decades, growth has largely focused on shorter, direct flights that didn't force travelers to change at major airports.
Smaller aircraft are better suited for this kind of air travel. Originally the A380 could hold up to 868 passengers, but Airbus later rejigged the space into "a comfortable three-class" configuration for a maximum 544 seats. This raised the chances of an airline losing money on a flight if it didn't fill the plane.
Airbus tried to address the problem with still more cabin configurations and more economical engines, but sales did not pick up. Speaking in Toulouse on Thursday, Enders said Airbus would end production in two years’ time, although the firm would continue to service the 220 A380s still flying after that date.
While hardly a white elephant, A380 production has been an expensive adventure for Airbus. Development costs are estimated to have run to €12 billion. Around one-third of this came in the form of credits from European national governments. This “start-up funding” is common practice for Boeing in the United States, but is frowned on by the World Trade Organization, which regards it as dubious state subsidy.
Statements from Airbus CFO Harald Wilhelm suggest the company regards the credits as now adequately repaid. According to a statement from the German Economics Ministry, a small part of its €1.1 billion loan remains to be settled. But the company remains a darling of European governments, heavily promoted as a global high-tech champion.
With management in upheaval over forthcoming departures and supply problems delaying deliveries, the European aerospace company may have to kill its technological wonder.
Be that as it may, the A380 never turned a profit. In 2015, its best year, it just about broke even. By 2019, every aircraft produced was losing money for Airbus. Pressure from investors grew, and CEO Enders seems to have decided to deal with the situation before he retires in April. Ultimately, despite its prestige, the model was a relatively minor part of Airbus’ business, accounting for just 2 percent of aircraft deliveries in 2018.
Last year, the company wrote down €463 million to cover costs of the A380’s removal from production; that figure is not expected to rise much higher. Some production locations will switch to the A320 and A350, but Airbus hopes to avoid any widespread job losses. Unions appear to be cooperative on the issue.
Overall, the company’s 2018 results were strong. The troubled military transport plane, the A400M, required a further write-down of over €400 million, but operating profits were over €5 billion, and revenues rose from €59 billion to €63.9 billion. Dividends are to be increased by 10 percent.
In terms of civilian aircraft, the company’s flagship will now be the A350, a smaller and less glamorous airplane, but one with the advantage of actually making money for the company.
Thomas Hanke is Handelsblatt's correspondent in Paris. Jens Koenen leads Handelsblatt's coverage of the aviation and space industry and writes about IT companies. Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. Brían Hanrahan adapted this story into English for Handelsblatt Today. To contact the authors: [email protected], [email protected], [email protected]
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