Airbus bets on superjumbo jet

FRANKFURT: In a huge gamble to displace the mighty but ageing Boeing 747 jumbo jet, Airbus Industrie decided on Friday to build a gigantic rival with enough room for 550 passengers as well as amenities such as a restaurant and bedrooms. Though the decision had been expected for months, it set the stage for one of the most dramatic wagers yet in the aerospace industry. The so-called A3XX family of aircraft will cost $12 billion to develop.

The plane will be two stories high, have a range of 13,000 km and probably carry a price of about $230 million. If the A3XX succeeds, it would end the Boeing 747's three-decade monopoly in jumbo jets. The loss of that monopoly, with its relatively fat profit margins, could in turn deprive Boeing of its ability to finance growth in more competitive markets for smaller aircraft.

But the risks to Airbus are extraordinary. Boeing executives have said for years that there is only a tiny market for superjumbo jets, because passengers are increasingly avoiding huge central "hubs" of air transport in favour of direct flights to smaller cities and smaller planes.

Boeing, however, is also preparing for the possibility of building a stretched-out version of the 747, which it says would cost only $3 to $4 billion to develop.

Airbus executives also announced a long-awaited revamping of the company, which is now an unwieldy consortium of four companies: Aerospatiale Matra of France; the aerospace unit of DaimlerChrysler of Germany; BAE Systems PLC of Britain, formerly known as British Aerospace; and Construcciones Aeronauticas of Spain.

Airbus will be a single corporation 80 per cent controlled by the European Aeronautics Defence and Space Company. EADS, as the company is known, is a merger of all the Airbus partners except BAE Systems. After months of negotiating, BAE Systems agreed to accept a 20 per cent stake in Airbus and let EADS retain the balance. EADS is now starting an initial public stock offering, to be completed on July 10, which is expected to raise about $3 billion.

Executives at EADS say the conversion of Airbus into a conventional corporation will save money, eliminate inefficiency and streamline the clumsy decision-making that had plagued the old consortium. European governments are expected to lend Airbus much of the upfront development money.

Although that is allowed under certain circumstances, it may provoke protests from the U.S. Congress about improper subsidies and cause the Clinton Administration to consider whether to bring a case against Airbus at the World Trade Organisation.

The A3XX hardly amounts to a revolution in air transportation, but it would be different. Its initial version will have enough room for more than 500 passengers, compared with 420 seats on the 747-400. Depending on what the individual airline wanted, Airbus executives say the extra space could be used to offer a round-the-clock cocktail lounge, a library, a playing area for small children or a medical clinic. On the other hand, the behemoth could also be configured as a monstrous can of sardines.

Cramming in as many seats as possible, the airplane could hold more than 900 passengers on the two decks.

Airbus executives contend that advances in technology and materials will make it possible to reduce the A3XX's operating costs by as much as 25 per cent in comparison to the Boeing 747- 400.

But that will not count for much if airlines conclude that they cannot keep the huge airplanes loaded with passengers. If Boeing is right and Airbus is wrong, the A3XX would quickly turn into a lumbering and underused elephant on many routes.

Airbus executives argue that the steady growth in air travel requires bigger and more efficient aircraft. Boeing executives agree that long-distance air travel will increase, but they say the nature of the travel is changing. Instead of flying between major hubs like New York and Tokyo, passengers will increasingly demand to bypass the hubs and fly directly to smaller destinations.

The result, in Boeing's view, is that total demand for superjumbo jets will be only 400 or 500 planes over the next 20 years. Airbus executives predict it will be about 1,200. Analysts said Airbus would need to sell at least 200 of the A3XX's to break even on its investment, and at least 600 to reach its profit targets.

Airbus executives say eight companies have thus far expressed interest in buying a total of 52 A3XX's. Of those, five have identified themselves publicly: Air France, Singapore Airlines, Virgin Atlantic, Emirates Airlines and the International Lease Finance Corporation.

Friday's announcement does not represent a point-of-no-return for Airbus. Officially, the company merely announced its readiness to start taking orders. If all goes as planned, development would start at the end of this year and the first planes would be delivered in 2005.

- New York Times

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