FedEx cancels Airbus A380 order, switches to Boeing

[GI Joe]

NEW YORK (Reuters) - European plane maker Airbus (EAD.PA), which has faced a series of production delays on its high-profile A380 superjumbo program, suffered a major blow on Tuesday when FedEx Corp. (FDX.N) canceled a roughly $2.5 billion order and switched to rival Boeing Co. (BA.N)

FedEx Express, the express package delivery unit of U.S. shipping company FedEx, became the first customer to terminate an order for Airbus' flagship plane when it scrapped an agreement to buy 10 A380-800F aircraft.

Instead, FedEx ordered 15 Boeing 777 Freighter aircraft and took options to purchase 15 more. The previous agreement with Airbus included an option for another 10 A380 planes, a FedEx spokesman said, but those options are now invalid.


snip
The cancellation is a further blow to Airbus and its majority parent, EADS (EAD.PA), which have been plunged into financial and political crisis after a string of wiring delays on the A380 pushed the world's largest ever commercial plane two years behind schedule.

FedEx's decision cuts the number of outstanding orders for the A380 freighter to 15 from 25. Last month, FedEx rival United Parcel Services Inc. (UPS.N), which has 10 A380s on order, said it had set up a team to evaluate its purchase.

The switch to Boeing is a boost for the U.S. planemaker, said Morningstar analyst Chris Lozier.


cont
http://www.washingtonpost.com/wp-dyn/content/article/2006/11/07/AR2006110700884.html



Another huge hit against Airbus.

[GI Joe]

UPS still reviewing order for 10 airbus A380 aircraft

United Parcel Services Inc. (UPS) has made no decision yet on whether to maintain its order for 10 Airbus A380 freighter aircraft, a spokesman said Tuesday.
"Our internal review is continuing and we've made no decision," UPS spokesman Norman Black said in an e-mail.
UPS rival FedEx Corp. (FDX) on Tuesday said its FedEx Express unit had canceled an order for 10 A380s, citing the announcement by Airbus (ABI.YY) of significant delays in delivery of the aircraft. FedEx, the first Airbus customer to cancel orders as a result of the delay, has now agreed to acquire 15 new 777 Freighter aircraft from Boeing Co. (BA).
Last month, UPS executives said they had been notified via letter of the aircraft's delay and that the Atlanta-based shipper had requested more information about the matter. UPS, which was expecting its first delivery of the aircraft in the latter part of 2009, said last month it would evaluate alternatives to the A380 because it has enough time to do so.

http://www.marketwatch.com/news/story/story.aspx?siteid=mktw&guid=%7B9C257916-7EE8-4BC0-A6DE-80B87CDED659%7D

[muffins]

Well, they can't be expected to wait 2 years for a delayed plane. They have a company to run, a business to grow and older aircraft to replace.

[GI Joe]

Well, they can't be expected to wait 2 years for a delayed plane. They have a company to run, a business to grow and older aircraft to replace.


The people running Airbus should be fired.

[muffins]

The people running Airbus should be fired.

Already happened I think, though much of the fault probably lies with the people who planned the production and how much labour it would take to wire up the planes. Last I heard they were flying in electricians in from Germany.

[GI Joe]

Already happened I think, though much of the fault probably lies with the people who planned the production and how much labour it would take to wire up the planes. Last I heard they were flying in electricians in from Germany.

Do you think the fact of multi country state control of this company contributed to the companies problems? It would seem since every country has a vested interest it would be harder to make quick changes that might affect the benefit a particular country is getting.

[prst31]

Already happened I think, though much of the fault probably lies with the people who planned the production and how much labour it would take to wire up the planes. Last I heard they were flying in electricians in from Germany.Look to Mexico--problem solved. ;)

[muffins]

Do you think the fact of multi country state control of this company contributed to the companies problems? It would seem since every country has a vested interest it would be harder to make quick changes that might affect the benefit a particular country is getting.

Not the production problems. They've been building planes in parts all across Europe and assembling them in one location for decades now. However, once Airbus announced the need for 2 billion worth of cuts to offset the A380 delay certain national governments (like Germany) suddenly jumped up and started talking about buying up more Airbus shares so that they could protect German employees from the axe. Obviously the potential of state intervention is opposed by EADS/Airbus. A commercial aircraft manufacturer operating in a capitalist economy isn't a socialist jobs-for-life workers paradise and that kind of state interference would lead to doom for any company

[muffins]

Look to Mexico--problem solved. ;)

We've seen what happens when your car manufacturers employed Mexicans. Firestone tyres spontaneously burst, SUV's flip over on gentle bends, fuel tanks explode, airbags decapitate the passengers ... :rolleyes:

[Obvious Child]

Personally, I think you guys are missing the key issue here.

Airbus's business models is wrong and that is what is causing it to lose market share and profits to Boeing. You're focusing on the issues of production rather then the issues of what core business are they in and how are they going to excel in it.

In my humble opinion, Airbus is failing because its model of large passenger loads to hubs is wrong. Boeing has a model of medium passengers, fuel cost leadership and to regional, non-hub transporation. That I believe is the future model of success as shown by Southwest and Jetblue and Boeing's 787 and 777 are far more successful at that then Airbus's monstrosity. While Fedex doesn't operate passenger services, the costs of the Airbuses they bought on fuel and maintence outweight their benefits.

Disclaimer: I own a sizable amount of Boeing stock.

[muffins]

Personally, I think you guys are missing the key issue here.

Airbus's business models is wrong and that is what is causing it to lose market share and profits to Boeing. You're focusing on the issues of production rather then the issues of what core business are they in and how are they going to excel in it.

In my humble opinion, Airbus is failing because its model of large passenger loads to hubs is wrong. Boeing has a model of medium passengers, fuel cost leadership and to regional, non-hub transporation. That I believe is the future model of success as shown by Southwest and Jetblue and Boeing's 787 and 777 are far more successful at that then Airbus's monstrosity. While Fedex doesn't operate passenger services, the costs of the Airbuses they bought on fuel and maintence outweight their benefits.

Disclaimer: I own a sizable amount of Boeing stock.
So you're saying that in a world of ever growing air travel, and an ever increasing middle class in the Far East interested in travel, and with our finite number of airports and landing slots ... that there will be no room for large aircraft? I would have thought that the reverse would have been true :D

[Obvious Child]

So you're saying that in a world of ever growing air travel, and an ever increasing middle class in the Far East interested in travel, and with our finite number of airports and landing slots ... that there will be no room for large aircraft? I would have thought that the reverse would have been true :D

The US has airports. Thousands of them. Many of the smaller regional airports are far more compeitive when it comes to gate prices (hence why cost leadership airlines rely heavily on them rather then fortress hubs like the legacy airlines). Not to mention that many fliers hate hubs with a passion. Why should I fly from Orlando to Atlanta to another hub to get to New York when Jetblue or South west can take me there direct for cheaper? They won't. Plus airlines earn money only when the planes are in the air. Hub methods slow that down. Especially when you have 500+ people, their luggage, and cleaning. Ryan Air (in Europe) has a turnaround time under 20 minutes. It's also the most profitable airline in Europe. Southwest is trying to get it under 30 minutes. Smaller planes = Faster turn around = Higher profits.

Plus larger aircraft are heavily, cost more in fuel to fly, and have exorbiantly higher maintence costs. Airlines and cargo companies are looking heavily at one major issue: Fuel Cost. The A380 is terrible at that compared the 777 and the 787.

Airbus is going to pay for this mistake. Dearly.

[muffins]

The US has airports. Thousands of them. Many of the smaller regional airports are far more compeitive when it comes to gate prices (hence why cost leadership airlines rely heavily on them rather then fortress hubs like the legacy airlines). Not to mention that many fliers hate hubs with a passion. Why should I fly from Orlando to Atlanta to another hub to get to New York when Jetblue or South west can take me there direct for cheaper? They won't. Plus airlines earn money only when the planes are in the air. Hub methods slow that down. Especially when you have 500+ people, their luggage, and cleaning. Ryan Air (in Europe) has a turnaround time under 20 minutes. It's also the most profitable airline in Europe. Southwest is trying to get it under 30 minutes. Smaller planes = Faster turn around = Higher profits.

In most countries, 'hubs' developed next to major population densities (ie - areas that generated many outbound passengers and received many inbound passengers - like London or Paris or New York etc). These congested air routes require larger planes that can transport more people per flight.

Ryan Air is a no-frills budget airline that operates smaller aircraft over quite short distances between minor, less well used airports. They have a different business model from those airlines that dominate the long-haul and high capacity air routes. Obviously in Ryan Air's niche market they do not need a Jumbo, either of the A380 or 747 variety.

Plus larger aircraft are heavily, cost more in fuel to fly, and have exorbiantly higher maintence costs. Airlines and cargo companies are looking heavily at one major issue: Fuel Cost. The A380 is terrible at that compared the 777 and the 787.

Airbus is going to pay for this mistake. Dearly.

Thanks to the incorporation of the latest advances in structures, materials, aerodynamics, systems and engine design, the A380 will provide a direct operating cost per seat which is 15-20 per cent lower than the 747-400.

Despite its ability to carry 35 per cent more passengers than its competitor, the A380 burns 12 per cent less fuel per seat – reducing operating costs and minimising its effects on the environment at the same time through fewer emissions.http://www.airbus.com/en/aircraftfamilies/a380/economics.html

With its three decks for cargo, the A380F freighter version is able to carry 50 per cent more freight than its closest rival – and to fly a full 1,400nm further. Yet with its advanced technology and use of weight-saving composites – 25 per cent of its structure is made from composite materials – the A380F also burns 18 per cent less fuel per tonne than its rival.http://www.airbus.com/en/aircraftfamilies/a380/freight.html

coupled with the significant advances in technology described below, are still expected to provide lower operating costs per passenger than all currently produced 747 variants.http://en.wikipedia.org/wiki/Superjumbo#Design

The A380 will significantly expand the historical improvements that the 747 made — more seats and lower seat-distance costs — while providing wider seats and better amenities. At 555 passengers, the A380's seating capacity represents a 35% increase over the 747-400 in a standard three-class configuration, along with a nearly 50% larger cabin volume — meaning more space per passenger. If, however, the plane is ordered in an all-economy-class configuration, it can hold up to 853 passengers, its maximum certified carrying capacity.http://en.wikipedia.org/wiki/Superjumbo#Passenger_amenities

The A380 was designed to fit within an 80 x 80 m airport gate, and can land or take off on any runway that can take a Boeing 747.http://en.wikipedia.org/wiki/Superjumbo#Airport_compatibility

[mataj]

Airbus's business models is wrong Wrong.

Airbus's wiring is wrong.

Many people find such things kinda hard to believe, but it's true: Fixing business model does not fix technical problems.

[Obvious Child]

In most countries, 'hubs' developed next to major population densities (ie - areas that generated many outbound passengers and received many inbound passengers - like London or Paris or New York etc). These congested air routes require larger planes that can transport more people per flight.

But have serious problems themselves. Hub airports are notorious inefficent compared to regional ports. I'm sure you can figure out the effect on bottom lines.

Ryan Air is a no-frills budget airline that operates smaller aircraft over quite short distances between minor, less well used airports. They have a different business model from those airlines that dominate the long-haul and high capacity air routes. Obviously in Ryan Air's niche market they do not need a Jumbo, either of the A380 or 747 variety.

Exactly. Hence Boeing's business model of small to medium sized planes.

Thanks to the incorporation of the latest advances in structures, materials, aerodynamics, systems and engine design, the A380 will provide a direct operating cost per seat which is 15-20 per cent lower than the 747-400

So? That ignores the mainteince costs of the 380 which are enormous. The whole weight issue which hasn't been significently fixed causes more money and time to be spent fixing and maintaining the wings, landing gear and other support structures. This leads to more time in the shop and significently lost revenue. And then there's the whole issue of the new regulations of the 380 due from its sheer size. I can see why many airlines and cargo companies are jumping ship. You're comparing the 380 to the 747, which is not the forefront of Boeing's business model. Apples and Oranges.

With its three decks for cargo, the A380F freighter version is able to carry 50 per cent more freight than its closest rival – and to fly a full 1,400nm further. Yet with its advanced technology and use of weight-saving composites – 25 per cent of its structure is made from composite materials – the A380F also burns 18 per cent less fuel per tonne than its rival.

But it has nothing on the 787. The plane is still extremely heavy, and that alone is causing costs to rise at airports, as many are increasing costs to airlines to pay for the massive upgrades to allow the planes to even land. I'm again assuming you're thinking the closest rival is the 747 (not the Russia cargo carriers). Again, apples and oranges. Try comparing to the 777 and 787.

coupled with the significant advances in technology described below, are still expected to provide lower operating costs per passenger than all currently produced 747 variants.

Again, the 747 is not the champion or focus of the Boeing business model. Boeing has a VERY different approach and it is far more valid to compare the 380 to the 777 or 787. The 787 is going to be the plane to beat in statistics. Airbus knows this and is desperately trying to match it (without any success to date).

The A380 will significantly expand the historical improvements that the 747 made — more seats and lower seat-distance costs — while providing wider seats and better amenities. At 555 passengers, the A380's seating capacity represents a 35% increase over the 747-400 in a standard three-class configuration, along with a nearly 50% larger cabin volume — meaning more space per passenger. If, however, the plane is ordered in an all-economy-class configuration, it can hold up to 853 passengers, its maximum certified carrying capacity.

Again, you keep comparing the focus of Airbus to a secondary component of Boeing.

555 passengers are a problem itself. No 747 can do a 30 minute turnaround. With 555 to 853 passengers, the turnaround will be immense. Probably at least a hour or two, if not three. That's a huge amount of loss revenue.
Planes make money in the air, not on the ground. Furthermore, increasing the baggage for that many people requires a larger ground crew, which again raises costs. Larger planes also have a larger food requirement, which again creats larger problems in the supply chain. Instead of a mere 300 meels, you need 500-800 meals per plane. Merely unloading passengers is going to be a nightmare on that plane.

The A380 was designed to fit within an 80 x 80 m airport gate, and can land or take off on any runway that can take a Boeing 747.

That's not the problem. The size of the plane has caused in trials, serious air turbulence for planes behind it. The FAA already has a regulation stating that the distance must be increased I believe at least 10 miles more then it currently is. That means more delays and more chances of delays. And many airport's runaways cannot handle such a plane's weight. Singapore's main airport ran into this problem during testing.

The 380 has serious, serious problems.

[Obvious Child]

Many people find such things kinda hard to believe, but it's true: Fixing business model does not fix technical problems.

But it is often the first major step in doing so. A bad business model leads to bad decisions. In Airbus's case, bigger is better is leading to bigger is more costly and more inefficent.

[mataj]

But it is often the first major step in doing so. A bad business model leads to bad decisions. In Airbus's case, bigger is better is leading to bigger is more costly and more inefficent.In general, bigger units are cheaper to operate up to a certain limit, where size related technical problems become too expensive. The only way to ascertain this limit are expensive failures. Such failures are a price of being on the bleeding edge of technology :shrug:

http://en.wikipedia.org/wiki/Spruce_Goose

[muffins]

Again, the 747 is not the champion or focus of the Boeing business model. Boeing has a VERY different approach and it is far more valid to compare the 380 to the 777 or 787. The 787 is going to be the plane to beat in statistics. Airbus knows this and is desperately trying to match it (without any success to date).

I'm afraid it is you that is comparing apples and oranges. The A380 (a jumbo) is designed to compete with the 747 (also a jumbo), not with smaller planes like the 777 or 787. Likewise the 777, and eventually the 787, are competing against the similar A330, A340 and eventually the A350.

Saying that you have to compare the crowning product of a company with other crowning products, instead of like-products, is like asking to compare a Ford Galaxy (a car) with a SAAB Gripen (http://en.wikipedia.org/wiki/Gripen) (a fighter jet from a company that makes both cars and fighters) :rolleyes:

[Obvious Child]

I'm afraid it is you that is comparing apples and oranges. The A380 (a jumbo) is designed to compete with the 747 (also a jumbo), not with smaller planes like the 777 or 787. Likewise the 777, and eventually the 787, are competing against the similar A330, A340 and eventually the A350.

First of all, you need to understand where the focus is in both companies. That then defines which of their products is their core, which are secondary and what you should be dealing with. Boeing's business model is now primarily focused on the 777 and 787 models, medium passengers, fuel cost leadership, medium to long point to point. Airbus's is passenger cost leadership, hub, huge loads. Trying to argue that the core 'firm' of Airbus is beating the secondary 'firm' of Boeing and therefore is better is silly. The market will eventually decide what is the better model, and hence who will prosper. So the real issue here is not intrinsically the planes themselves but what the correct decision on the market will be. I'm arguing that the market will favor smaller planes that support fuel cost and turn around cost leadership. Hence why Boeing is the better choice (for now).

Saying that you have to compare the crowning product of a company with other crowning products, instead of like-products, is like asking to compare a Ford Galaxy (a car) with a SAAB Gripen (http://en.wikipedia.org/wiki/Gripen) (a fighter jet from a company that makes both cars and fighters) :rolleyes:

Perhaps you do not understand what a business model is and how it affects a business....

I know what the Gripen is. It's not a bad 4th gen.