…And the Elephant
France’s Flights of Fancy No.2:
Airbus A380
Will Concorde’s successor, the Airbus A380, be the new white Elephant of the Skies?
Any way you look at it, the Airbus A380 is big. Above all, it is a big French gamble using European money for the bet. In January 2005, the new 555-seat “Superjumbo” was unveiled in an all-singing, all-dancing ceremony in Toulouse. Not elegant by any means, looking rather like a super-sized maggot. the giant plane – the first full double-decker – has a 262ft wing- span, a tail as high as a seven-storey building and room for the equivalent of seventy cars on its wings.
Airbus believes that bigger is better. The A380 will have nearly 50% more space than the Boeing 747, the current largest airliner, and can carry a third more passengers (up to 800, if they are packed in tight and use the cargo hold).
UK Prime Minister Tony Blair, Spanish Prime Minister Jose Luis Zapatero and German Chancellor Gerhard Schroeder attended but the day belonged to the fourth and, on paper, equal partner, President Jacques Chirac of France.
In an emotional speech, Chirac touched on previous French-driven triumphs in aviation including, to the raised eyebrows of the international press corps, the first powered flight and the invention of the jet engine. He ended: "A new page of aeronautical history has been written. ... It is a magnificent result for European industrial cooperation and an encouragement to pursue this path of building a Europe of innovation and progress.” For “European”, Chirac surely means “French”.
Airbus may be a European consortium registered in Amsterdam but its main office is in Paris, 20,000 of its 49,000 employees work in France and, thanks to one of those “informal” agreements which the French demand for participation, the most senior executives must have a strong French presence.
But the progressive thing about Airbus, as far as the French government is concerned, is that the company is effectively underwritten by taxpayer. Over the last four decades, Airbus has got subsidies worth €32 billion ($40 billion) from both national governments and the European Union, mostly in the form of government loans with utterly uncommercial repayment terms. When projects go wrong, like the poorly received A300 (which only had fifteen orders on its 1972 launch), taxpayers around Europe foot the bill.
The Airbus A380 did not come cheap. Airbus has ploughed €10 billion ($13 billion) into the plane’s development, 33% of which comes from below-market rate loans from European governments. Each aircraft has a list price of €224 million ($280 million) a pop. Rainer Hertrich, outgoing co-chief executive of Airbus announced his company would have to sell 300 A380s (an upgrade of the original estimate of 250) to break even – and 750 of the planes if Airbus intends to repay its government loans.
This is where the A380 becomes a gamble. The Superjumbo – and Airbus itself – have only ever had one real competitor: the Americans, in the form of the giant aero-engineering company, Boeing. One plane has dominated the skies for the last thirty years, the Boeing 747 jumbo jet. The A380 has been specifically designed by Airbus to replace its ageing rival. It can carry a third more passengers, it flies 9000 miles (5% further than a 747) and it burns 12% less fuel with half the take-off noise and requires needs runways. All in all a magnificent French (apologies, European) flip-off to the Americans. No wonder President Chirac calls it: “The unstoppable flagship of Europe”.
But how stoppable is it? If Boeing knows one thing, it is the airliner marketplace. The company never made planes for a successor to the jumbo because it saw that market was changing. The plane on which Boeing has pinned its hopes is the new 787 Dreamliner. This is a mid-sized, twin-aisle plane that will carry between 200 and 350 passengers depending on the seating configuration. Because it will eventually be made of 80% composite materials, it is lighter than all other passenger carriers, and 30% more fuel efficient. It goes further with a range of 11,000 miles. Each one only costs €92 million ($120 million).
The theory behind the 787 Dreamliner is based on the “hub-and-spoke” reality of the world’s airports. In each country, there are only one or two major airports with facilities large enough to take giant carriers. That said, countries have smaller regional airports, sometimes many hundreds of miles distant from these main hub. To travel long distance, a passenger has to fly in from their spoke, catch the carrier from the hub, fly to another hub and then perhaps take another plane to their final destination if it is not close to that hub.
The 787 is designed to fly “spoke-to-spoke” to the approximately 2000 airports already able to take it – and do so cheaply and frequently. The A380 files “hub-to-hub” – and, for the sake of profitability, can only do so when its huge passenger decks are full; that means fewer flights and only at rigorously scheduled time. Right now, there are only sixty airports in the world with the entry and debarking facilities to handle the A380 – and some of those are having to undergo costly refits to handle the giant plane. (London’s Heathrow, for example, is having to invest £580 million to enlarge Terminal 3 to take it.)
If Boeing is right, then the Airbus, designed and directed by a French desire to put one over the Americans is riding for a massive financial fall. Luckily, the European taxpayer will cushion the fall.
2010 and beyond
In 1988, Air Canada placed an order with Airbus for 34 A320s, as well as the sale of some of Air Canada's existing Boeing 747 fleet. At the time, the Prime Minister was Brian Mulroney. This was a hefty purchase and required a lot of political clout at the highest level.
However in 1995, the Royal Canadian Mounted Police accused Mulroney of accepting kickbacks from Airbus via a circuitous network of foreign bank accounts and third parties to the tune of $300,000. The former Prime Minister denied the allegations, and launched a $50 million defamation suit against the Canadian government, alleging that the newly elected Liberal government was trying to smear its predecessor. He won, and the Canadian government settled out of court in early 1997, and publicly apologised to Mulroney.
Since then, further evidence emerged that Mulroney did indeed take a $300,000 pay-off from one Airbus-connected bagman though he claimed that the money was for consulting services he provided “to help promote a fresh pasta business”. On 13 November 2007 a new Prime Minister, Stephen Harper, announced that a parliamentary inquiry would take place into Mulroney’s dealing with Airbus. Mulroney, in turn, refused to appear, accusing it of being “unfair”.
The inquiry’s report, released on 31 May 2010, found that Mulroney had indeed entered into an agreement with Airbus’ agents and “that these business and financial dealings were inappropriate given Mr. Mulroney's position, and that Mulroney repeatedly acted inappropriately in disclosure and reporting of the dealings and payments”.
The Canadian parliament and the Mounties are continuing to investigate the scandal, trying to find out who paid whom and when and where....
EXTRA….EXTRA….EXTRA….EXTRA….EXTRA
Fare Competition? Boeing has continually complained about the plentiful "launch aid" that Airbus gets from the partner governments in the consortium. Airbus has to pay back this money and its interest but only if the plane is a commercial success, 33% of the A380’s €10 billion cost is met through government loans which are held at interest rates far below market rates. On 31 May 2005 the United States filed a case against the European Union for providing illegal subsidies to Airbus. A day later, the European Union filed a tit-for-tat complaint against the United States protesting support for Boeing in the form of military contracts for the company’s defence divisions. Boeing pointed out that this action was rather rich since Airbus is owned by Europe’s two largest defence consortia, EADS and BAE, both awash with government money.