Airlines slow to order jumbo-jets
Struggling airlines, production delays plague sales.
Berlin, building an airport that is underappreciated and over budget, is hosting two aircraft to match.
Airbus and Boeing put their flagship jumbo jets on display last week at the Berlin air show adjacent to the as yet unopened airfield. While the gleaming white aircraft are crowd pleasers at any event, they're getting less affection from the audience that matters most: airlines.
Airbus has won orders for just four A380 superjumbos in 2012, and sales chief John Leahy said last Tuesday he's running out of time to get to his target of 30.
And Boeing this week finally added an order for five 747-8s to its books after zero firm orders for more than a year. Even that was a deal that had been pre-announced in March 2011 and was firmed up only now.
"The theory was that the combination of rapid growth and airport constraints would force carriers to up-gauge and go to very large aircraft," said Robert Mann, a former American Airlines fleet manager who is now an industry consultant in Port Washington, N.Y. "But for any given airline it becomes a daunting prospect to fill 500 seats with every departure."
Boeing and Airbus are the only commercial plane-makers offering four-engine jets. The 747-8 is the world's longest airliner, measuring 250 feet from nose to tail, while the A380 boasts a full-length double-decker cabin.
The two manufacturers, which are presenting their biggest planes at the same venue for the first time in more than a year, remain confident they will overcome the lull, and that the success of aircraft programs is measured in decades.
"One or two or three years in which the demand for very large aircraft is not so strong does not mean you can prematurely call the end of such aircraft," said Tom Enders, chief executive of Airbus parent EADS.
Emirates flew in the A380 in Berlin, while the 747-8 is operated by German flag carrier Lufthansa, which accounts for 20 of the orders for the variant of that plane. Europe's slump, cooling growth in Asia and a slowdown in global air-traffic gains are keeping most airlines at arm's length from jumbo jets.
Virgin Atlantic Airways Chairman Richard Branson said in July that he would again delay his six orders for A380s because of the adverse environment. Turkish Airlines, a long-running potential buyer for jumbo jets as it beefs up its network, has pared its ambition to six planes from 15.
The A380 has a list price of $390 million and typically seats about 525 passengers in a three-class configuration. The 747-8 lists for $351 million and seats about 467 travelers in three classes.
"What is happening isn't so much demand has changed but airlines are thinking more carefully about spending that level of money," said Rupinder Vig, a London-based analyst at Morgan Stanley.
While the jumbos are popular on routes they serve, Boeing and Toulouse, France-based Airbus must still win over airlines whose passengers prefer flexibility when they travel. That drives demand for more, smaller jets than a single large one.
Performance advances on twin-engine widebodies such as the Boeing 777 are also eroding the market for very large aircraft. At 7,725 nautical miles, a 777-200ER can fly almost as far as the 8,000-nautical-mile range of the 747-8, according to specifications on Boeing's website.
Leahy said demand for the largest types will be supported by the doubling of megacities in the next two decades that generate 10,000 long-haul passengers daily. Those cities will represent more than 90 percent of long-haul traffic, requiring bigger planes, he said.
Jim Proulx, a Boeing spokesman in Everett, said airlines that need to fly more than 400 passengers or heavy cargo loads have to buy the biggest jets.
"There's enough of a market there that we can sell a lot of airplanes for a lot of years," Proulx said.
The A380 was designed to dethrone the 747 as the jet with the greatest range and capacity. Leahy scored a victory two years ago at the last Berlin expo when Emirates topped up its A380 order book and bought an additional 32. The Middle Eastern carrier now has 90 A380s on order, using its Dubai base as a hub to connect any two points on the globe with one stop.
Emirates showed off the A380 in Berlin as it tries to pry open a market where local regulations make it difficult to win access.
Berlin is building the new airport next to the old airfield that serves as a low-cost hub, and has extended the life of the Tegel aerodrome that's popular with travelers who can slip directly from a taxi into their departure gate.
After construction delays and protests about excess noise, the city was forced to delay the opening by more than a year to October 2013. Critics say the airport will struggle to siphon traffic from the established Frankfurt and Munich hubs.
China and India, the world's two most populous countries, will be pivotal markets to make or break the future of superjumbos.
China Southern Airlines is the only Chinese carrier with an order so far, for five A380s. Air China committed to five 747-8s, without signing a deal yet. In India, Kingfisher Airlines is the only customer, also with five A380s.
"China is not yet there, but China will be a huge market for the A380," Airbus CEO Fabrice Bregier said in Berlin. "It will take some time."
Both manufacturers may struggle to ever recoup their investment to develop the A380 and 747-8. Airbus remains far off break even after the program ran 6 billion euros (nearly $8 billion) over budget and the aircraft-maker has scrapped the goal of boosting output to four A380s each month. Costs have piled up after cracks emerged in the A380's wings, which Airbus must now fix.
Barclays estimates that by the time the 747-8 program breaks even on a cash basis, Boeing will have poured in more than $8 billion after delays. The plane-maker, which doesn't disclose detailed investment costs, took $2.04 billion in charges as postponements pushed back the jet's debut by two years before the cargo version entered service in 2011.
Slow 747-8 sales center on weakness in global air-cargo shipments, while the A380 order drought stems from Airbus's manufacturing and service issues, said Carter Copeland, a Barclays analyst in New York. Four-engine planes still serve an industry niche, he said.
"I don't think the market is nonexistent," Copeland said. "Two or three years will give us a lot more data to judge its health."