After a Record 2005, Airbus Finds Itself in Trouble

While Airbus secured more orders, Boeing's orders were of a higher value, totaling some $10–15 billion more than Airbus's, signaling a serious inability to compete in higher revenue markets. The two companies have three aircrafts launching with very different results.

Boeing's latest design is the 787 Dreamliner, a midsize long-range aircraft. It is designed to take advantage of two trends Boeing sees in the industry. One is an increase in nonstop, long-range flights, instead of the traditional hub-and-spoke system. The 787 is not meant to service a passenger fed from another airport in the region, but instead connect non-traditional hubs with overseas destinations. Therefore, it does not need to carry massive amounts of passengers. However, the aspect of the 787 that has airlines salivating is its fuel efficiency. The fuselage is composed of a composite material, instead of aluminum and steel, making it lighter and stronger. The rest of the aircraft is designed with efficiency in mind, including engines that sip less fuel per mile.

Airbus countered with the A350, essentially intended as a more-efficient update of the A330. Unfortunately, the A350 has not proven an effective competitor, as airlines have flocked to the 787. Airlines complained about its passenger capacity and lower fuel efficiency compared to the 787. Long-range aircrafts represent a very profitable segment of the market, and losing out to Boeing could be very costly. As a result, Airbus is considering a redesign of the A350, the model's fifth. It would push back the first delivery to 2012, a full four years after the 787.

With its super jumbo, the A380, Airbus is betting on a different market trend than Boeing. It expects the hub-and-spoke system to remain strong, and plans on capitalizing on routes transporting a large number of passengers between major cities. The double-decker can fit up to 850 passengers and is targeted to take some of the market from Boeing's 747. The sales performance for the A380 has not been as unsatisfactory as the A350, but it is still sluggish. There seems to be some hesitation amongst airlines about committing to such a large and expensive aircraft until they can see how it performs for other carriers. The problem with the A380 has been largely technical, and Airbus has recently announced a delay in its delivery by six months to work out some electrical problems. The timing could not have been worse considering the issues with the A350. The first airlines expected their aircraft to begin service in mid-2006, and are furious with a delay so late in the process, especially since it appears the manufacturer knew of the technical problems for months before the delay announcement. With all its problems, Airbus's parent, EADS, predicted a yearly operating profit cut of $500 million euro between 2007 and 2010, causing EADS shares to shed 26%.

Boeing found itself in a similar situation a few years back, uncompetitive with Airbus and mired in ethics scandals. With a quality product and an upturn in the market, it was able to right itself. Airbus' response to the obstacles before it could set the stage for the rest of the decade—whether it improves its long-term prospects or falls behind Boeing for years to come.