White Elephants Land in Berlin as Jumbo-Jet Sales Dwindle
Berlin, building an airport that is underappreciated and over budget, is hosting two aircraft to match.
Airbus SAS and Boeing Co. (BA) put their flagship jumbo jets on display this week at the Berlin air show adjacent to the yet-to- be opened airfield. While the gleaming white aircraft are crowd pleasers at any event, they’re getting less affection from the audience that matters most: airlines.
- Full Special Report: Berlin Airshow
Airbus has won orders for just four A380 superjumbos in 2012, and sales chief John Leahy said yesterday he’s running out of time to get to his target of 30. Boeing’s last deal for its 747-8 came in July 2011, raising the prospect that this year would be the first shutout since the plane’s initial purchase in 1966 heralded the age of intercontinental travel.
“The theory was that the combination of rapid growth and airport constraints would force carriers to up-gauge and go to very large aircraft,” said Robert Mann, a former American Airlines fleet manager who is now an industry consultant in Port Washington, New York. “But for any given airline it becomes a daunting prospect to fill 500 seats with every departure.”
Boeing and Airbus are the only commercial planemakers offering four-engine jets. The 747-8 is the world’s longest airliner, measuring 250 feet (76 meters) from nose to tail, while the A380 boasts a full-length double-decker cabin.
The two manufacturers, which are presenting their biggest planes at the same venue for the first time in more than a year, remain confident they will overcome the lull, and that the success of aircraft programs is measured in decades.
“One or two or three years in which the demand for very large aircraft is not so strong does not mean you can prematurely call the end of such aircraft,” Tom Enders, chief executive officer of Airbus parent European Aeronautic, Defence & Space Co., said in an interview in Berlin.
Emirates flew in the A380 in Berlin, while the 747-8 is operated by Deutsche Lufthansa AG (LHA), which accounts for 20 of the 36 orders for the variant of that plane. Europe’s slump, cooling growth in Asia and a slowdown in global air-traffic gains are keeping most airlines at arm’s length from jumbo jets.
Virgin Atlantic Airways Ltd. Chairman Richard Branson said in July that he would again delay his six orders for A380s because of the adverse environment. Turkish Airlines (THYAO), a long- running potential buyer for jumbo jets as it beefs up its network, has pared its ambition to six planes from 15.
The A380 has a list price of $390 million and typically seats about 525 passengers in a three-class configuration. The 747-8 lists for $351 million and seats about 467 travelers in three classes.
“What is happening isn’t so much demand has changed but airlines are thinking more carefully about spending that level of money,” said Rupinder Vig, a London-based analyst at Morgan Stanley.
Airbus has amassed 257 orders for the A380, and Boeing has 106 orders for the 747-8, 70 of them for the freighter version. Those totals compare with 824 orders for Boeing’s 787 Dreamliner, whose inaugural delivery in September 2011 came a month before the initial 747-8 handover. The first A380 was delivered in October 2007.
While the jumbos are popular on routes they serve, Boeing and Toulouse, France-based Airbus must still win over airlines whose passengers prefer flexibility when they travel. That drives demand for more, smaller jets than a single large one.
Performance advances on twin-engine wide-bodies such as the Boeing 777 are also eroding the market for very large aircraft. At 7,725 nautical miles (14,305 kilometers), a 777-200ER can fly almost as far as the 8,000-nautical-mile range of the 747-8, according to specifications on Boeing’s website.
Leahy said demand for the largest types will be supported by the doubling of megacities in the next two decades that generate 10,000 long-haul passengers daily. Those cities will represent more than 90 percent of long-haul traffic, requiring bigger planes, he said.
Jim Proulx, a Boeing spokesman, said the Chicago-based planemaker has identified prospective buyers, and “we can expect to see some activity” in 2012. Airlines that need to fly more than 400 passengers or heavy cargo loads have to buy the biggest jets, he said.
“There’s enough of a market there that we can sell a lot of airplanes for a lot of years,” Proulx said in interview from Everett, Washington, where Boeing builds 747s.
The A380 was designed to dethrone the 747 as the jet with the greatest range and capacity. Leahy scored a victory two years ago at the last Berlin expo when Emirates topped up its A380 order book and bought an additional 32. The Middle Eastern carrier now has 90 A380s on order, using its Dubai base as a hub to connect any two points on the globe with one stop.
Emirates showed off the A380 in Berlin as it tries to pry open a market where local regulations make it difficult win access. Berlin is building the new airport next to the old airfield that serves as a low-cost hub, and has extended the life of the Tegel aerodrome that’s popular with travelers who can slip directly from a taxi into their departure gate.
Following construction delays and protests about excess noise, the city was forced to delay the opening by more than a year to October 2013. Critics say the airport will struggle to siphon traffic from the established Frankfurt and Munich hubs.
China Southern Airlines Co. (1055) is the only Chinese carrier with an order so far, for five A380s. Air China Ltd. committed to five 747-8s, without signing a deal yet. In India, Kingfisher Airlines Ltd. (KAIR) is the only customer, also with five A380s.
“China is not yet there, but China will be a huge market for the A380,” Airbus CEO Fabrice Bregier said in Berlin. “It will take some time.”
Both manufacturers may struggle to ever recoup their investment to develop the A380 and 747-8. Airbus remains far off break even after the program ran 6 billion euros over budget and the aircraft maker has scrapped the goal of boosting output to four A380s each month. Costs have piled up after cracks emerged in the A380’s wings, which Airbus must now fix.
Barclays Plc estimates that by the time the 747-8 program breaks even on a cash basis, Boeing will have poured in more than $8 billion after delays. The planemaker, which doesn’t disclose detailed investment costs, took $2.04 billion in charges as postponements pushed back the jet’s debut by two years before the cargo version entered service in 2011.
Slow 747-8 sales center on weakness in global air-cargo shipments, while the A380 order drought stems from Airbus’s manufacturing and service issues, said Carter Copeland, a Barclays analyst in New York. Four-engine planes still serve an industry niche, he said.
“I don’t think the market is non-existent,” Copeland said. “Two or three years will give us a lot more data to judge its health.”
To contact the editor responsible for this story: Benedikt Kammel at firstname.lastname@example.org