PICS:Airbus to Unveil $16 Billion Wager on the World's Biggest Plane
Jan. 17 (Bloomberg) -- Airbus SAS, the world's largest planemaker, tomorrow will unveil its 555-seat A380, a 12 billion- euro ($16 billion) wager that airlines will order giant aircraft to ferry passengers between major airports over the next 20 years.
The A380 will surpass Boeing Co.'s 35-year-old 747 as the world's largest passenger plane and is meant to help the Toulouse, France-based planemaker maintain its lead in sales and deliveries over Chicago-based Boeing, said Airbus Chief Executive Noel Forgeard on Jan. 12. Boeing has no plan for a competing aircraft.
Airbus said on Dec. 15 it expects be demand for 1,250 new planes seating at least 400 passengers and 398 giant freighters through 2024. It aims to get contracts for 700 of those aircraft and says the A380 will break even with 250 orders. Boeing, by contrast, estimates demand for about a third of the large planes.
``This is a plane for big airports, flying to other big airports,'' said Joseph Campbell, an analyst at Lehman Brothers in New York who has ``overweight/positive'' ratings on Airbus parent European Aeronautic, Defense & Space Co. and Boeing. ``Maybe there's not room for two planes, but now, there's only one.''
The double-decker A380 plane has a wing span of 80 meters (262 feet), almost the length of an American football field. It's 73 meters long and weighs as much as 569 tons (1.2 million pounds) when fully loaded for takeoff. It will have a range of 8,000 nautical miles (15,000 kilometers) compared with 7,600 nautical miles for the Boeing 747-400.
Rising Shares
Shares of EADS have risen 28 percent over the last 12 months while those of Boeing are up 19 percent on expectations a recovery in airline passenger traffic will lead to increased demand for new planes. Traffic rose more than 10 percent in 2004 from a slump that began with the 2001 terrorist attacks on the U.S.
The European planemaker has invited about 5,000 people to attend the A380 inauguration at its Toulouse headquarters. Guests include French President Jacques Chirac, British Prime Minister Tony Blair and German Chancellor Gerhard Schroeder. France, Germany, Spain and the U.K. contributed 3.5 billion euros in loans to the 12 billion-euro development cost.
Airbus so far has firm orders for 139 of the planes and commitments for another 10. Customers include Singapore Airlines Ltd., Deutsche Lufthansa AG, Emirates, Air France-KLM Group, Virgin Atlantic Airways, and Korean Airlines. FedEx Corp. and United Parcel Service have ordered the freighter version.
Higher Sales
Forgeard, 58, said on Jan. 12 that the A380 will contribute as much as a third to the company's sales by 2008 and help revenue rise 50 percent by 2010 to about 30 billion euros. He said Airbus plans to build 35 of the planes annually from 2008. The plane has a list price of $280 million, compared with $198 million to $227 million for the 747-400. A380 test flights are scheduled to begin in March. The first plane is supposed to enter service in June 2006 with Singapore Airlines.
Boeing has received orders for 661 of the 747s since the plane was launched in the mid-1960s, of which 629 have already been delivered. Orders have slowed since Airbus started developing the A380. Over the last five years, it received orders for 81 of the 747s and delivered 120, according to information on its Web site. No passenger versions have been ordered since 2002.
The U.S. planemaker decided to develop a smaller plane, the 7E7, which would carry about 250 passengers on point-to-point trips such as between Chicago and Dusseldorf.
Connecting Hubs
The A380 will carry passengers between major hub airports, such as London's Heathrow to Tokyo, and then passengers would catch connecting flights. Boeing says there won't be enough demand for that type of travel to justify the investment expense in the A380.
``It's just a big airplane for a small market,'' Randy Bassler, Boeing vice president of airline marketing, said in an interview on Jan. 12. ``We really believe in our forecast that there's a good market for about 400 of these.''
Some analysts agree.
``I suspect that use of this plane will be limited to major hubs, leaving a very significant market for planes such as Boeing's 7e7,'' said Paul Nisbet, an analyst at JSA Research Inc. in Newport, Rhode Island, who has a ``buy'' recommendation on Boeing shares.
Airbus has promised airlines that the A380 will be 15 percent less expensive to operate than Boeing's 747.
``The aircraft should be a 'game changer' in the long-haul market,'' wrote JP Morgan analysts Chris Avery in a Jan. 11 report to investors. ``Increasing congestion at major airports, such as London Heathrow, and an ever-greater focus on costs, means that the A380 will deliver valuable benefits to its operators.''
Break-Even Point
According to Avery, the 747, with 413 seats, needs 290 passengers to break even. The A380, with 555 seats, needs 323 people to break even, meaning it has another 227 seats available to sell at a profit--85 percent more than the 747-400.
The A380 may help it achieve operating margins that are consistently higher than the 10 percent targeted by its parent company, EADS. Forgeard said on Jan. 12 that profit margins on the new plane will be higher than on existing models.
Nine-month operating profit as a percentage of sales at Airbus was 9.6 percent compared with a 5.8 percent margin at Boeing, Forgeard said.
BAA Plc, the world's biggest operator of airports and the owner of Heathrow, expects the new plane to account for one in eight flights there by 2016. Heathrow, the world's third-largest airport by passenger count, has only two runways. Atlanta, the largest, has four with a fifth under construction.
``Eight carriers that fly to Heathrow have ordered it and intend to use it at Heathrow,'' said Eryl Smith, development director of BAA Heathrow in an interview. ``For the international hub airports of the world, many of whom are constrained by runways, the A380 is critical to their growth. It will have same step-change effect to air travel as the 747.''
Well, it's big, it's ugly, but it's potential benefits to airliners and airports are huge. So what do you think, success or failure?
Personally, I think it'll be a modest success seeing how Boeing's not interested in this market, but I doubt if it's going to be as good as sliced bread.
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