Airbus Announces Double Dose of Bad News

Jan. 17, 2007 — -- Airbus delivered a double dose of bad news for the company that could signal another seismic shift in its sharply contested competition with Boeing for dominance of the world's commercial airplane market.

From its headquarters in France, Airbus, the commercial airplane division of the European Aeronautic Defense and Space Co., or EADS, announced that orders for new planes dropped to 824 in 2006, down dramatically from an industry record of 1,111 orders in 2005. The company trailed Boeing in orders for the first time since 2000.

Boeing reported earlier this month that it had won orders for 1,050 airplanes, which set a company record.

When it came to deliveries, however, Airbus, with 434 airplanes, still topped Boeing's by 36.

But that fact could not soften the blow for Airbus, which also warned that it would report an operating loss of as yet unspecified size.

"These are the consequences of our 2006 turbulences, in particular the effect of the A-380 delay," said CEO Louis Gallois in a statement to the press.

At its fanfare-filled unveiling, the A380, a 555-passenger superjumbo jet, was considered a plane that would revolutionize long-haul travel and provide Airbus with a competitive edge and a cash cow. Boeing, with its aging original jumbo jet -- the 747 -- had lost traction.

But after $12 billion of development costs, the A380 has been late in getting to its customers. Delivery has now been delayed twice, for a total of two years, because of manufacturing problems. Now the A-380 is sucking more money out of Airbus in the form of compensation to customers such as Emirates and Singapore airlines, in addition to the money spent to fix the manufacturing problems.

"We at Airbus are taking all measures to get the issue under control and to ensure that something like that never happens again," added Gallois in his statement.

Despite its manufacturing problems, the A380 has met all its flight tests and was certified in December by the U.S. Federal Aviation Administration and European regulators.

But analysts said it might take a while before the company can recover from the A380's disappointing delays.

"The headline today is that the storm's starting to impact Airbus and there's worse to come before it gets better," said Richard Aboulafia at the Teal Group.