[B]Airbus to Spend $10 Bln on New Plane as Orders Sag (Update2) [/B]

[TORONTO]

Airbus to Spend $10 Bln on New Plane as Orders Sag (Update2)

May 10 (Bloomberg) -- Airbus SAS, acknowledging that the proposed redesign of the A350 plane is a failure, plans to spend 8 billion euros ($10 billion) to develop a new 300-seat plane, said three people with direct knowledge of the matter.

European Aeronautic, Defence & Space Co., the parent of Toulouse, France-based Airbus, gave initial approval in mid-April and will make a firm decision this month, said the people, who declined to be identified until a decision is announced. The new plane will cost twice as much as the redesign of the A350.

Airbus, trailing Boeing Co. in the market for midsized planes, only got 100 orders for the A350 compared with 350 for Boeing's 787 Dreamliner. Airbus lost out to Boeing in value of new orders for the first time in five years last year. The world's two biggest planemakers estimate airlines will buy as many as 3,000 of these midsized aircraft over the next 20 years.

``It'll be expensive and they'll have to admit they made mistakes,'' said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia, consulting group. ``But Airbus is finally targeting exactly the right spot in the market.''

Airbus spokeswoman Barbara Kracht said the planemaker is ``exploring'' ideas with customers and declined to comment further.

``From the beginning of the 787 program we fully anticipated that they would have a viable competitor,'' said Mike Bair, chief of Boeing's 787 program. ``I can't wait to see what they come up with.''

Airbus Strategy

Airbus Chief Executive Officer Gustav Humbert, 56, is trying to improve the planemaker's midsized, widebody offerings, which are losing sales to Boeing. While the 787 has been outselling the current A350, the two-engine and more fuel efficient Boeing 777 has been beating Airbus's four-engine A340, which uses more kerosene. He's also working to deliver the first of the 555-seat A380s by year-end, which will be the world's largest commercial plane and cost $13 billion to develop.

Alan Mulally, 56, chief executive of Boeing Commercial Airplanes in Seattle, decided against building a direct competitor to the A380 and to concentrate on planes, such as the 787 and 777, that can fly directly between smaller airports and avoid the congestion of major hubs to be served by the A380 like London's Heathrow Airport.

Shares of EADS have gained 40 percent in the last 12 months, valuing the company at 25.8 billion euros. The shares of Chicago- based Boeing are up 44 percent over the same period, giving it a market value of $70.4 billion.

EADS Earnings

EADS's net income rose 39 percent last year to 1.7 billion euros while sales were up 8 percent to 34.2 billion euros. Boeing's 2005 net income rose 37 percent to $2.57 billion and sales rose 4.3 percent to $54.8 billion.

Airbus will seek government loans to cover 33 percent of the development cost of the new plane, said two people familiar with the proposal. The application might exacerbate a dispute between the U.S. and Europe over aircraft subsidies. The World Trade Organization has been asked to examine complaints by both the U.S. and the European Union against one another on the issue.

The new Airbus model will require newly developed engines in at least one version that would offer more range and capacity than any of Boeing's 787s. It might also be a competitor for the 777.

Airbus will offer the new plane in three models: the A350-800, which will seat around 250 passengers, the A350-900, seating around 300, and he A350-1000, that will carry 350.

The third version might help Airbus ``leapfrog'' Boeing's widebody family by providing sufficient capacity and range to compete with the 777-300ER, Aboulafia said. The 777-300ER seats 365 passengers and offers range of 7,880 nautical miles.

General Electric

``GE and Airbus have a successful 35-year history together, and the majority of all Airbus aircraft have been launched with GE or CFM engines,'' said Rick Kennedy, spokesman for General Electric Co.'s engine unit. ``So the company will work very closely with any future aircraft that Airbus is considering.'' CFM is GE's joint venture with France's Safran.

United Technologies Corp.'s Pratt & Whitney unit, through its venture with GE that makes engines to power the A380, is studying what might be required for a new plane, said Pratt & Whitney spokesman Ron Rand.

The new Airbus plane would first become available in 2012, two years later than the current A350 proposal and four years after the 787s scheduled entry into service. The new plane would also be called A350 and airlines that ordered the earlier model will be able to switch to the new version, the people said. An announcement on the new plane and its customers may come at the Farnborough International Air Show, which opens July 17, the people said.

Customer Criticism

The current A350 design has been criticized by Airbus customers, including Steven Udvar-Hazy, chief executive of International Lease Finance Corp., the world's biggest plane- leasing company, and Chew Choon Seng, chief executive of Singapore Airlines Ltd. the world's No. 2 carrier by market value.

Hazy told an audience of aircraft traders in Orlando, Florida, in March that Airbus needed to design an all-new fuselage and wing to make the A350 bigger and faster to compete with the 787.

Customers have been drawn to Boeing's 787 as fuel prices more than doubled over the last two years. The Boeing aircraft will be more than 50 percent made of carbon fiber composites, which are lighter than the aluminum traditionally used for construction, making the aircraft 20 percent more efficient than aircraft it replaces.

The all-new plane represents Airbus's fifth attempt to come up with a competitor to the 787. Between 2003, when Boeing began marketing the 787, and last October, Airbus announced four different versions, each based on the existing A330-200. As Airbus failed to reach its target of 200 A350 orders last December, the planemaker began exploring possibilities for an all-new plane, the people said.

Emirates Order

Emirates, the largest Arab airline has been looking at both Airbus and Boeing midsized models.

``We're still talking to Airbus about the A350 and we're open to new ideas,'' said Maurice Flanagan, Emirates vice chairman, in an interview in London yesterday. ``We're looking for maximum return in terms of range, comfort and revenue per seat.''

Klaus Breil, who helps manage $6 billion at Adig Investments in Frankfurt, including EADS shares, said an 8 billion euro- investment in a new plane might be warranted.

``They have 5.5 billion euros in cash, and they have deliveries of the A380 starting later this year, which should be good for future cash flow, so I don't have any doubts that if they do an all-new plane, it would be a good decision,'' said Breil. ``I think companies should invest in future products.''

TORONTO

[TORONTO]

Airbus Says No Decision on A350 Redesign
05.10.2006, 01:27 PM


Airbus insisted Wednesday no decision had been made on whether to revamp the design for its A350 airliner, amid reports the European aircraft maker has overhauled plans for the long-range, fuel-efficient jet to include a larger variant.

"We continue looking at further possibilities together with the airlines," Airbus spokeswoman Barbara Kracht said. "No decision has been made."

Chief Executive Gustav Humbert recently said the company was considering modifications to the A350's design, after strong criticism from airlines and jet leasing companies including International Lease Finance Corp.

But investment bank UBS raised its target for shares in Airbus parent European Aeronautic Defence and Space Co. to 40 euros ($50.80) from 38 euros ($48.25) on Wednesday, saying it expected a redesign to be announced.

Merrill Lynch announced a similar move on Monday, upgrading EADS to "buy" from "neutral." On the same day, Flight International magazine reported that Airbus planned radical changes to the A350 models, including a wider fuselage.

Citing internal Airbus documents, the magazine said the revised A350 would have larger wings and more powerful engines to support a new, larger A350-1000 variant to compete directly with Boeing's 777-300ER.

The twin-engined Boeing plane has been winning customers away from the Airbus A340, whose four-engine design makes it less fuel-efficient - a critical drawback when oil prices are running high.

In its report, UBS said the expected A350 revamp "also solves the problems of the troubled A340."

A more ambitious A350 design is likely to cost considerably more than the 4.5 billion euros ($5.7 billion) already budgeted, however, and delay the plane's introduction beyond the current target date of 2010 - already two years behind the rival Boeing 787 Dreamliner.

EADS shares have underperformed for several months, UBS added, offering "an excellent buying opportunity."

The stock rose 3.3 percent Monday and 1.6 percent Tuesday after reports of a possible redesign emerged. On Wednesday, it closed 0.4 percent higher at 31.48 euros ($39.97).

TORONTO

[New York Yankee]

I think they can't afford this. Because they have a too small design/development team, not the money to can develop and afford this, and not the space to develop it, because they are also working on the A380, A400M, A330 Tanker and A330M.

Also Boeing will come up with Y3 in a couple of years. I think it will come up around 2015-2017, just 3 years after the A350-A370 will enter service.

Boeing will also open a second assembly line for the 787. So there will be enough production slots before the A350/A370 enters service, what means the 787 will be ordered better.

Maybe in around 5 years Boeing will came up with the 787-800/900ER versions, we know, that Boeing's ER versions are not only to bring up more range, but the update also advanced the plane. So i think Boeing will have a hard time for a couple of years, (only if Airbus launched this third generation). But as Boeing comes with the Y3, Airbus will have a bit harder time, because they had spend to much money on this new plane.

In the 2015-2020 time period boeing will also launch Y1.

Y1 = Future 737.
Y3 = Future 777/ 747 / A380 class aircraft.

Just my two cents about it.

[MirageBistro]

Hehe, A couple of wing-mounted lovers

[cladiv]

Originally Posted by New York Yankee

I think they can't afford this. Because they have a too small design/development team, .

How would you know that?? Have you worked for Airbus?

Originally Posted by New York Yankee

not the money to can develop and afford this,.

Have you ever heard about LOANS?

Originally Posted by New York Yankee

and not the space to develop it, because they are also working on the A380, A400M, A330 Tanker and A330M. .

The A380 certification process will end up this year ( at the end of this year is expected the EIS with SIA) so not very much work left with the A380.
Themilitary projects are joint projects with other stakeholders so I wouldnt say there is no room for the development of a new aircraft.

Originally Posted by New York Yankee

Also Boeing will come up with Y3 in a couple of years. I think it will come up around 2015-2017, just 3 years after the A350-A370 will enter service. .

Well that's just speculation at the moment, nobody knows for sure datelines of the Y3.I am sure even Boeing does not for certain.

Originally Posted by New York Yankee

Boeing will also open a second assembly line for the 787..

Again, that's just speculation: a decision has not been made yet.I would say that this is not an easy decision as many people would tend to think since Boeing has to make sure that enough orders will keep coming otherwise the additional costs brought up by opening a new assembly line could eat part of the profits and thats the last thing anybody would want....

Originally Posted by New York Yankee

So there will be enough production slots before the A350/A370 enters service, what means the 787 will be ordered better.

Maybe in around 5 years Boeing will came up with the 787-800/900ER versions, we know, that Boeing's ER versions are not only to bring up more range, but the update also advanced the plane. So i think Boeing will have a hard time for a couple of years, (only if Airbus launched this third generation). But as Boeing comes with the Y3, Airbus will have a bit harder time, because they had spend to much money on this new plane.

In the 2015-2020 time period boeing will also launch Y1.

Y1 = Future 737.
Y3 = Future 777/ 747 / A380 class aircraft.

Just my two cents about it.

Again that remains to be seen.

[Cloudship]

Airbus really screwed up with the A350. They took the american approach that time - trying to get away cheap by reusing old designs. It blew up in their face.

Airbus has one huge advantage over Boeing - they don't have the beurocratic company mindset, so they can start fresh, AND they can be efficient about their design, simply because they don't have the BS that Boeing has.

I think it will be interesting to see what they come up with. Certainly Boeing is out of the gate first, but by the time the AIrbus models come out, they will be a bit ahead of the field. It's really a leapfrog game anyway - after Airbus has their double isle, boeing will come out with a new design.

Personally, I think that this is not a market they need to rush out to cater to. The 787 will outclass them technically, but by that point the costs of the Airbus 330/340 planes will be lower, and they can get sales from simply having availbale slots at a better price. Where Airbus really needs to put their next effort is the narrow body field, before Beoing gets going there.

[Bertez]

Airbus is going to have to really push hard and work like crazy to try and steal some orders from Boeing

[New York Yankee]

Originally Posted by cladiv

How would you know that?? Have you worked for Airbus?

No, but as you hear some things from the media en other sources, then you know it.

Originally Posted by cladiv

Have you ever heard about LOANS?

Yes, i've, but the WTO isn't happy with this.

Originally Posted by cladiv

The A380 certification process will end up this year ( at the end of this year is expected the EIS with SIA) so not very much work left with the A380.
Themilitary projects are joint projects with other stakeholders so I wouldnt say there is no room for the development of a new aircraft.

Yes, but as the process ends, then they will begin to build on the new versions, like A380-800R (with a range of 11,000NM), A380-900 or A380-700 (for 470 pax.). The development of the A380 isn't finished jet, and it will take a couple of five years to complete it.
The A330 Tanker will build by airbus/EADS and the A400M too, but the design team of EADS, is the same one as Airbus.

They have allready enough work to do with the A380, his next versions, and the A330 tanker and A400M. As there will come another airplane serie, with 3 or 4 versions, that will bring too much work, so then they can't work on other projects like the other versions of the A380. That will be a problem, because, as they stop with the devolopment, then it will fail, because the serie can't live with only 1 version.

It means, as airbus starts with development of the A350/A370, then there isn't enough money and space left, to begin at 2010-2015 with the development of the new narrowbody, the NG A320.

So as they start development of the A350/A370, Airbus will lose other battles like that of the narrowbody twinjet.

Originally Posted by cladiv

Well that's just speculation at the moment, nobody knows for sure datelines of the Y3.I am sure even Boeing does not for certain.

I know it for sure, i've an intern source at Boeing design team, and many other workers talk about it. My father works also for Boeing, and i work sometimes for it.

Originally Posted by cladiv

Again, that's just speculation: a decision has not been made yet.I would say that this is not an easy decision as many people would tend to think since Boeing has to make sure that enough orders will keep coming otherwise the additional costs brought up by opening a new assembly line could eat part of the profits and thats the last thing anybody would want....

No, they will do that, because they need that for the succes of the whole project.

Originally Posted by cladiv

Again that remains to be seen.

Yes, they will do that. Boeing uses always time and technology. You saw that at the 777-200 developed in 1993 and when the technology was ready, they came up with the 777-200ER.