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Airbus to Halt Production of A380 as Orders Dry Up Efficiency Killed the Market for Airbus’s A380
(about 13 hours later)
TOULOUSE, France — Airbus will cease production of its mammoth A380 passenger jet, an engineering marvel that nevertheless couldn’t keep up with shifts in the way people fly, the European aircraft maker said on Thursday. TOULOUSE, France — Since a solo flight by the Wright brothers on the shore of North Carolina more than a century ago, the size of airplanes has gone in one direction — up. But the era of ever larger jets, and the romantic idea of continent-hopping travel they inspired, came to an unofficial end with the announcement by Airbus on Thursday that it plans to cease production of the A380, the largest passenger airliner ever built.
Citing reduced orders from Emirates Airline, a major customer, and an inability to find other buyers, the company said it would halt deliveries of the jumbo jetliner in 2021, although it said it would continue to support existing A380s. An engineering marvel expansive enough for showers and sleekly designed bars, the planes hark back to the age when flying had glamour. The four engines are powerful enough to reach cruising altitude in roughly 15 minutes, all the while keeping noise to a tolerable hum. There are fan clubs for the A380 on both Twitter and Facebook.
“As a result of this decision we have no substantial A380 backlog and hence no basis to sustain production, despite all our sales efforts with other airlines in recent years,” the company’s chief executive, Tom Enders, said in a statement. “Today’s announcement is painful for us and the A380 communities worldwide.” But for years, the jet has been far more popular with passengers than airlines. When it debuted in 2005, the A380 was a bet that the future of air travel was big planes flying between major hubs, followed by connectors to final destinations.
The decision will lead to job cuts at Airbus, potentially affecting as many as 3,500 of its 134,000 employees over the next three years. Airbus said it would start discussions in the next few weeks about the consequences for its work force. Instead, the dominant trend became smaller planes and direct flights. Dropping $445 million for a jet — the A380’s list price — that can carry more than 500 people made little economic sense, especially as budget airlines cropped up as competition.
The announcement overshadowed the company’s announcement on Thursday of its full-year results. Its net income rose 29 percent in 2018 to 3.1 billion euros, or about $3.5 billion. Airbus, which is based in Toulouse, struggled to market the A380 for years and never sold one to an American carrier. Citing reduced orders from Emirates Airline, a major customer, and an inability to find other buyers, the company said it would halt deliveries of the jetliner in 2021. (It will continue to support existing A380s.)
Airbus spent $25 billion developing the double-decker, four-engine aircraft, which can carry more than 500 passengers while offering amenities like showers and a bar. It was built for a time when crowded airports would demand that planes carry more people to reduce congestion. “As a result of this decision we have no substantial A380 backlog and hence no basis to sustain production, despite all our sales efforts with other airlines in recent years,” the company’s chief executive, Tom Enders, said in a statement.
But flight traffic instead shifted to smaller planes, which are cheaper to maintain, flying to regional airports, a move that reduced demand for larger aircraft. When Airbus started developing the A380 about two decades ago, airport congestion was a rising concern. The company offered its supersized jet, a 6,000-square-foot double-decker, as a way to get more travelers on and off limited tarmac space. Airbus spent $25 billion developing the plane, which is about 50 percent larger than its nearest rival, Boeing’s 747.
Emirates, the Dubai-based airline, was Airbus’s main customer for the jumbo jet, with a fleet of more than 100, but the airline has scaled back its plans and will take delivery of just 14 more over the next two years. But it turned out that the solution to congested airports was not larger planes. It was smaller planes at a wide variety of less crowded airports. Airlines reduced costs by offering direct flights on jets that were cheaper to maintain, in part because they were landing at airports with lower fees and in part because they were burning less gas.
The fate of the superjumbo has been in question for at least a year, and Mr. Enders acknowledged in January 2018 that the company would not be able to continue production of the plane without an order from Emirates. The A380 “is an aircraft of a previous generation where fuel was not as big of an issue,” said Frank Netscher, an analyst at Scope Group, a credit-rating company. “It’s not by accident that all the new models will only have two engines, not four.”
Airbus was thrown a lifeline with a $16 billion order from Emirates a few days later, but Airbus confirmed last month that it was in discussions about whether that deal would ever be realized. The A380 took another hit last week as Qantas canceled its order from 2006 for eight of the planes. The age of the jumbo jet has been winding down for a while. Last year, Boeing’s 747, the original mega-plane, with the iconic hump, took its last flight for an airline based in its home country, the United States.
Emirates is not abandoning Airbus, however. The plane manufacturer said on Thursday that the airline would emphasize two smaller models instead, the A330-900 and the A350-900. Competition had already shifted from the S.U.V.s of the sky to the sedans, with Airbus’s more compact and flexible A350 going head to head against Boeing’s 787, which can carry a little more than half the number of passengers as a 747.
Airbus was at pains to emphasize that A380s will not disappear anytime soon. “Keep in mind that A380s will still roam the skies for many years to come, and Airbus will of course continue to fully support the A380 operators,” Mr. Enders said. To Robert W. Mann, an airline consultant in Port Washington, N.Y., all of these developments seemed inevitable 15 years ago.
The company said the decision to wind down production of the A380 was reflected in the 2018 financial figures released on Thursday, with the company taking a €463 million hit because of the decision by Emirates to reduce its order by 39 aircraft. “If you think of market size as a pyramid, there are zillions of markets at the bottom of the pyramid that have very small volume,” Mr. Mann said. “If you look at why the 787 and A350 are so popular, they have better range, and better range at smaller market sizes. They can capitalize on those parts of the pyramid that you could never fly an A380 economically.”
Airbus also said that preparations were underway in case Britain leaves the European Union without a formal agreement on departure terms, a situation known as a “no-deal Brexit.” The company has asked suppliers to make arrangements that would give Airbus some room to maneuver in the event of supply-chain disruptions. The plane’s survival was ensured only by Emirates, which uses its home in Dubai as a hub for about 1,500 flights a week. Emirates was Airbus’s biggest A380 customer, with a fleet of more than 100. The manufacturer was so dependent on the airline that it acknowledged in January 2018 that it might cancel production of the jet, barring an Emirates order. A few days later, Emirates asked for $16 billion worth of the planes.
Airbus has been particularly outspoken about the dangers of Brexit and the threat it poses for business. Mr. Enders said last month that the British government had not given businesses enough information to help prepare for Brexit, calling its handling of the negotiations a “disgrace.” Since then, the airline has been buffeted by the same forces that have transformed the rest of the industry. Emirates decided to take delivery of just 14 more A380s over the next two years, while ordering 70 smaller aircraft that can serve smaller airports.
“Make no mistake: There are plenty of countries out there who would love to build the wings for Airbus aircraft,” Mr. Enders warned. “While we are disappointed to have to give up our order, and sad that the program could not be sustained, we accept that this is the reality of the situation,” Sheikh Ahmed bin Saeed Al Maktoum, the chairman and chief executive of Emirates Airline and Group, said in a statement. “For us, the A380 is a wonderful aircraft loved by our customers and our crew. It is a differentiator for Emirates.”
He struck a more positive note on Thursday in an earnings call. “I’m still optimistic that a solution can be found that avoids a no-deal Brexit,” Mr. Enders said, “that the forces of reason will prevail in London, but also in Brussels and on the Continent.” The A380 took another hit last week when the Australian airline Qantas canceled its long outstanding order, placed in 2006, for eight of the planes.
The decision to cease production of the A380 will prompt job cuts at Airbus, potentially affecting as many as 3,500 of its 134,000 employees over the next three years. The move also overshadowed positive news in Airbus’s full-year earnings report.
Net income rose 29 percent in 2018 to 3.1 billion euros, or about $3.5 billion. Airbus said the decision to wind down production of the A380 was reflected in the 2018 financial figures, with the company taking a €463 million hit because of the decision by Emirates to scale back its order.
Airbus did not give up easily on the A380, said Mr. Enders, the chief executive. But the demand wasn’t there. “If you have a product that nobody wants any more or you can only sell below production costs, you have to stop it, as painful as it is,” he said.
Mr. Enders emphasized that the airplane would not disappear any time soon, noting that it was likely to be a presence in the skies into the 2030s.
“We’re talking about the end of a production,” he said at a news conference after the company earnings. “We’re not talking about end of a program.”
To aviation analysts, the story of the A380 is the stuff of business case studies, and not the flattering kind. The life and death of the jet will stand as an example of the high cost of poor forecasting.
“It was supposed to be a game changer,” Mr. Netscher of Scope Group said. “But, yeah, well, the game changed.”