Recent challenges
9. In the past year, Airbus has had to confront three
overlapping challenges. First, the company is facing increasing
competition from Boeing. One reason for this has been the recent
weakness of the US dollar. Airbus's costs are largely in sterling
and euros, yet its aeroplanes are priced and sold in dollars.
The company estimates it has seen a 20% loss of competitiveness
over the past six years because of the weak dollar.[26]
In addition, Boeing has also benefited from outsourcing large
parts of its manufacturing processes. Whereas Airbus currently
outsources around 25% of the work on its existing programmes,
the figure for Boeing is now 80%.[27]
For example, with the 787 Dreamliner, the firm has developed major
partnerships with Italy and Japan, in which the latter has taken
on full responsibility for wing production.[28]
10. The second major challenge Airbus faces is the
increasing financial burden of the A380 programme. In June and
October 2006, the company announced further delays to the delivery
schedules for the period 2007 to 2010.[29]
The first delivery, in October 2007, will be around two years
behind schedule. The main reason for the delay has been a problem
relating to the electrical harnesses in the aircraft. Although
production will ramp up significantly from 13 aircraft in 2008,
to 25 in 2009, and 45 in 2010, the delays have led to many of
the A380's customers seeking to review their contracts with the
company. Virgin has delayed its order by four years, while the
decision by FedEx and UPS to cancel their contracts has led Airbus
to abandon the freight version of the A380.[30]
Elsewhere, though, Qantas has increased its order from 12 to 20
aircraft, almost certainly as a result of securing a better deal
from the company.[31]
With the compensation bill and delays, Airbus believes it will
not now make a profit on the A380 until it has sold 420 units.[32]
Partly as a result of cost overruns and late delivery payments
to its customers, Airbus reported a loss of £389 million
for 2006.[33] Although
the delays have also had knock-on effects for UK suppliers to
Airbus, the Society of British Aerospace Companies told us that
high overall demand in the sector has prevented the need for any
job losses within the supply chain.[34]
11. The third main challenge faced by Airbus is the
need to finance its new A350 XWB programme.[35]
Announced in December 2006, the medium-sized long haul aircraft
is a reworking of the original A350 design, which was launched
in 2005, but met with criticism from airline customers.[36]
Airbus claims the A350 XWB is a wider, stronger, lighter and more
fuel-efficient version of the original design, being largely made
from advanced carbon-fibre composite materials rather than metals.[37]
It is expected to come into operation in 2013—around five
years after its competitor, the 787 Dreamliner, which has already
received 544 firm orders.[38]
The cost of the programme is estimated at €10 billion.[39]
12. Since its
creation almost 40 years ago, Airbus has developed into a major
player in the large civil aircraft market and, until recently,
has been ahead of Boeing in terms of orders won. In the past twelve
months, however, the company has faced a number of challenges.
These include a loss of competitiveness resulting from the weak
US dollar; cost overruns and delays on the A380 aircraft; and
the need to find finance for its new A350 XWB programme. Overcoming
these difficulties will be crucial to the company putting itself
on track to recovering its market position in the future, and
meeting the challenge laid down by its rival, Boeing.
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