Airbus is at a crossroads. It needs to address its major twin-aisle product line disadvantage to Boeing, while simultaneously implementing organizational reforms that could leave the company with less cash for new product development.
The European jet maker faces three particular challenges. First, it must decide how best to compete with Boeing’s 787-8/9 for long, thin international routes. For years, Airbus has relied on its A350-800 to compete in this class, despite a widespread belief that this airplane would be too wide and heavy to compete with the 787. Yet, over the past year, the orderbook for this variant has fallen by about half. Last week, Aviation Week reported that International Lease Finance Corp. (ILFC) and Libyan Airlines had switched their combined 10 -800XWBs on order to the -900XWB model, dropping the total number of A350-800XWBs on order to 46.
The alternative is to develop a re-engined A330, which could carry on the A330’s profitable legacy. The problem with that approach is that it would cost more in non-recurring and ongoing overhead costs than simply offering one family of twin-aisle twinjets under the A350XWB range. Launching an “A330neo” would also produce a 2-3-year production downturn in Airbus’s most profitable program, as customers opted to wait for the re-engined A330. Given the weakness of the A350XWB-800 orderbook, Airbus may be facing a simple choice: Reengine the A330 despite the costs, or lose the 220-300-seat segment to Boeing.
Airbus’s second challenge is decide whether or not to rescue the A380. With new widebody engine technology arriving on the 787, A350XWB and 777X, the slightly older-generation engines on the A380 put it at a disadvantage, particularly since it has been plagued by a very high structural weight (on a per-seat basis). While Emirates continues to view the A380 as a mainstay of its fleet, there have been just 164 non-Emirates orders after 14 years on the market, and many of these have been filled. Airbus must decide whether it needs an “A380neo” to keep Emirates satisfied or should focus on expanding the A380 customer base beyond the current level.
Airbus’s third—and certainly largest—product-line challenge is to develop a response to Boeing’s 777-9X. With the A350XWB-1000 limited to 350 seats, it’s clear that Boeing’s 407-seat 777-9X will be the largest and most capable twinjet on the market. Here again, the limits of the A350XWB range are all too apparent. While a further stretch of the A350XWB fuselage is possible, it would need a new engine as well as wing and tail modifications. Even then, a notional “A350-1100” is not likely to match the 777-9X’s capabilities. An all-new big twin would be optimal, but quite expensive.
All of these challenges are emerging at a difficult moment in Airbus’s history. On the positive side, it is being reformed under CEO Tom Enders into more of a private-sector company, moving away from government ownership and influence. It’s becoming more like Boeing. Yet relying on private-sector investors necessitates a greater focus on providing returns—and more discipline in new product development spending. Late last year, Enders stated, “We’ll continue to focus on improving our profitability, our earnings, as well as our cash situation. . . . Why should we spend large amounts of money when we can make significant incremental improvements?”
Historically, Airbus has spent more than Boeing on development as a percent of sales than. But during the past 15 years, the bulk of this heavy spending was squandered on the A380. Today, development spending is set to fall in line with the company’s new direction. Last year, it fell below 6% for the first time since the company was established (see graph). Given the requirements of funding the A350XWB and A320neo, Airbus isn’t likely to have the resources to fund both an A330neo and A380neo and a new large twin, too. Tough choices will need to be made.
When these factors are taken into account, the market picture for the next decade or so becomes clear. Airbus may have a slight advantage in single aisles, but Boeing’s twin-aisle product line superiority implies a 55% market share by value across the board, assuming it can execute as planned on the 777X and 787-10. The odds are heavily against Airbus’s finding the resources to compete in the 360-450-seat twinjet segment for the next 10 years.
In short, Airbus will be paying the price for the A380 for many years to come.