Europe’s Superjumbo Jet Gamble
For the time being, it’s known, simply and mysteriously, as the A3XX. If it gets off the ground, air travel--and the transatlantic struggle for business mastery of the skies--will be transformed forever.
For the past four years, the European partners in the Airbus Industrie plane-building consortium have been hard at work on a new model of aircraft, a superjumbo able to carry more passengers over longer distances than Boeing Co.’s 747 or any other airliner.
Airbus’ single biggest customer, Los Angeles-based International Lease Finance Corp., has made no secret of its keen interest in the double-decked behemoth, announcing recently that it will buy five if the plane is built.
“We believe that the A3XX will become the flagship of the 21st century and will introduce new standards in operational efficiency, passenger comfort, range and environmental friendliness,” Steve Hazy, chief executive of the airliner leasing company, said in a statement released at Airbus headquarters in Toulouse, France. “Airline interest and momentum for the A3XX are undeniable.”
The two-level giant would be capable of transporting up to 650 people as far as 8,700 miles. On Airbus drawing boards, the A3XX seems as much a small town as a plane. The jet, with an estimated price tag of at least $220 million, could include shops, lounges, a restaurant, a gymnasium, a casino and a play area for children.
Seattle-based Boeing, locked in a bitter contest with Airbus to sell planes to the world’s airlines, has long dismissed the Europeans’ contention that there is a market for 1,500 A3XXs over the next 20 years. But this month, Airbus Chief Executive Noel Forgeard announced that eight carriers, among them Emirates, Virgin, Air France and Singapore, have expressed their readiness to order a total of 60 planes if the project proceeds.
“There’s no longer any reason to drag our feet,” Forgeard said in a newspaper interview. According to industry insiders, Airbus will probably announce at Britain’s Farnborough air show in July that it is finally ready to sign contracts with airlines to build the superjumbo.
Going ahead would be a colossal crapshoot for Airbus, which would have to spend an estimated $20 billion before the first A3XX rolled off the assembly line, in 2005 at the earliest. The venture has already suffered repeated delays, in part because of concurrent efforts to build a pan-European military aerospace company, EADS, and to convert Airbus--a loose association of French, German, British and Spanish partners--into a single private company. Airbus partners have also quarreled over where the A3XX should be built.
Formal launch of the jet had been expected at the Berlin air show last week, but the Airbus board postponed a key meeting.
If Airbus is right about market demand, it could be a calamity for Boeing. The 747, the most profitable aircraft in history, has been a dependable, high-margin cash cow for the U.S. company. Last year, Boeing delivered 47 jumbos for an estimated $175 million apiece.
“Boeing has had a monopoly market in large aircraft in the last 25 to 30 years,” said Paul Nisbet of JSA Research, a Newport, R.I.-based equity research firm. “If Airbus is right, Boeing is going to lose market share.”
Until last month, Boeing maintained that the demand for superjumbos was simply too small to make a new plane worthwhile. But after airlines began declaring that they would buy A3XXs if they existed, Chairman Phil Condit informed carriers that a new, super-stretch version of the 747, which now carries 415 passengers on average, is being considered.
“We’re flattered Boeing has decided we were right all along,” an Airbus spokesperson said this week.
If the A3XX goes ahead, it is likely to provoke a major political wrangle between Europe and the United States. This spring, the British government said it will provide a loan of $800 million to Airbus’ British partner, BAE Systems, to help launch the superjumbo. According to BBC Corp., both Boeing and the U.S. Embassy in London promptly questioned whether the aid would violate a 1992 treaty limiting government subsidies for civilian aircraft development.
