Business/Finance

Airbus leads Boeing but problem lingers

Tuesday, January 12, 2010
Air France Airbus A380

Airbus on Tuesday said it beat rival Boeing in aircraft production in 2009, maintaining its place as the world's largest planemaker, but CEO Tom Enders warned a troubled military transport jet program is hurting competitiveness.

Airbus delivered a record 498 aircraft in 2009, above its 2008 tally of 483 and Boeing's score of 481. But that figure will be of little consolation if the A400M transporter program is scratched, costing the company billions.

Customer governments have so far failed to agree on who should bear the extra costs of the delayed and over budget program, meant to be a groundbreaking example of European defense cooperation.

Speaking at the company's New Year's press conference in the Spanish city of Seville, Enders said he is serious about halting the program if governments don't agree on new financial terms.

Analysts have said the threat is aimed at forcing governments to move ahead with a project that supports 40,000 jobs, many of which would be based in Seville, where the A400M is assembled.

The hulking gray turboprop, which made its first flight only last month, is swallowing euro100 million ($145 million) per month and valuable engineering resources, Enders said.

That is endangering other programs: Airbus is still struggling with its newest plane, the superjumbo A380, and missed a few delivery goals last year. It is also working on a new widebody, the A350 XWB, and is thinking about fitting a new engine to its A320 single-aisle workhorse.

Airbus was "stupid" to agree to the original fixed-price contract for the A400M, he said.

"We should not accept a situation where we continue with stupidity," he told reporters as he announced Airbus' 2009 commercial results.

"That could seriously jeopardize Airbus and its commercial competitiveness. That is why I ring the alarm bell and say guys we cannot go on like that, we need a decision."

The CEO of Airbus parent company EADS, Louis Gallois, said "we need to solve the issue no later than end of January."

The A400M project was launched six years ago with an order for 180 planes from seven governments - Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

The original price was euro20 billion ($29.5 billion), but a preliminary report by auditors PricewaterhouseCoopers said EADS might need an extra euro5 billion - inflating the final bill by 25 percent. Some reports have put the extra bill as high as euro11 billion.

Defense officials involved in the project are due to meet in London on Thursday, ahead of a Jan. 30 deadline to reach a financing deal on how to cope with the cost overruns. That deadline has already been extended several times, and it is a year since Airbus proposed a "new approach" for the troubled program.

In its main jetliner business, Airbus survived a crisis year for the airline industry to post better results than Boeing on both orders and deliveries.

"Under the circumstances it was a rather good year," Enders said.

Airbus rise in deliveries in 2009 includes 402 single-aisle A320s, 86 of the A330/A340 family and 10 of the A380 superjumbos - eight less than the company's original target.

Enders said the A380 program has been a "big disappointment" and Airbus is still struggling with the "complexity" of the aircraft.

He hopes to double production this year "at least 20" this year, he said.

The European planemaker captured 310 gross orders in 2009, within the target range set by Chief Salesman John Leahy a year ago.

The net tally of 271 beat Boeing's 142 after the Chicago-based rival suffered multiple cancellations of its delayed 787.

Enders said he expects deliveries in 2010 to remain at the same level as the past two years, and has no plans to slow down production schedules for any of its planes.

The crisis, however, has caused disruption, with changes to 500 delivery slots, he said. Airbus has moved up some of its more financially secure customers to 2010 slots for planes originally scheduled for delivery in 2011, 2012 and even 2013, he said.

Airbus Chief Salesman John Leahy said he expects between 250 and 300 gross orders this year. The pick up won't come before 2012, he said.

Enders said that in 2010 he plans to make a decision on whether to put new engines on the A320 to keep up with competition. The choice could be the most important of his career.

"That's our bread and butter business," he said. "If I get that wrong I would be in serious trouble."

Airbus' parent company EADS also gave an early view of its full-year earnings, saying 2009 revenue fell 3.6 percent to euro41.7 billion ($60.6 billion) from euro43.26 billion in 2008.

Gallois blamed the weakening dollar, saying revenue was "a bit less than 2008 not in volume but only because of the dollar effect," he said.

Airbus sells its planes in dollars, but many of its costs are in euro.

(Copyright ©2014 by The Associated Press. All Rights Reserved.)

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