LONG-DISTANCE GAMBIT

The A380 is poised to make its first flight in the next two months. While the Europeans prepare to celebrate the milestone, the long-lasting ideological battle between Boeing and Airbus on the merits of ultrahigh-capacity aircraft is reaching new heights.

Since program go-ahead four years ago, Airbus has secured 154 orders, exclusive of an estimated 50-plus options. The mega-transport's backlog significantly exceeds expectations at this early stage of production, says Airbus Chief Executive Noel Forgeard.

In recent months, EADS managers have stressed repeatedly that the A380's business case is intentionally conservative: The program should achieve profitability with the 250th delivery. And by the end of the current decade, production should reach four aircraft per month. EADS owns an 80% stake in Airbus; the remaining 20% is in BAE Systems' portfolio.

Top European industry executives acknowledge that unfavorable exchange rates stemming from the weak U.S. dollar and the euro's appreciation could threaten profitability. However, about 50% of the A380's content is dollar-denominated, a share that should increase further over the years, since Airbus' purchasing policy is to buy in dollars nearly everywhere in the world. The main A380 suppliers include Fairchild Controls, Goodrich, Hamilton Sundstrand, Honeywell, Parker, Rockwell Collins and TRW Aeronautical Systems.

Looking beyond the target breakeven point, Airbus executives believe the A380's potential market is large enough to sustain the $12-billion program's quest for profitability. Boeing counters that, more than ever, travelers want nonstop service to final destinations.

The Seattle manufacturer's forecast claims that air travel growth will be met mostly by direct flights as well as increased frequencies. The Toulouse-based airframer responds that global urbanization is stronger than ever and will support hub-to-hub growth. Laurent Rouaud, Airbus' vice president of market forecast and research, points out that the bulk of air travel is spurred by population clusters.

Echoing a recent Franco-American political dispute, Rouaud adds that Boeing's approach is "simplistic." He says price remains the leisure-travel passenger's first criterion, well ahead of schedule convenience. According to a U.S. Commerce Dept. survey, complemented by CIC Research quoted by Rouaud, high-yield passengers traveling in either business or first class behave differently. For them, faithfulness to a frequent-flier program comes first, followed by fares, loyalty to a specific carrier, convenient flight schedules and safety reputation and previous good experiences, while the availability of nonstop services comes seventh.

In contrast, Randy Baseler, Boeing Commercial Airplanes' vice president of marketing, believes firmly in traffic fragmentation.

For example, he analyzed routes between the U.S. and Paris to demonstrate that nonstop services are proliferating successfully. Since 1980, the overall number of city pairs was multiplied by 2.5 and frequencies increased nearly five-fold, while average aircraft size decreased slightly. The 767 helped to fragment North Atlantic traffic, the 777 accomplished a similar move in the North Pacific market, and this trend could remain a strong economic reality.