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Airbus—Stalled on the Runway

The news from Paris wasn't pretty. Airbus parent EADS announced Oct. 3 that the delivery of its flagship A380 super-jumbo jetliner will be delayed for another year, pushing back the first aircraft deliveries a total of two years.

Key airline customers have greeted this latest setback with frustration and profound disappointment. Virgin Atlantic Airways and Emirates—the largest A380 customer—issued statements saying they are examining their options, including canceling their orders for the 555-seat mega-jetliner. Said Emirates CEO Tim Clark: "Obviously, this is a very serious issue for Emirates, and we believe Airbus has major problems. We will be reviewing all of our options."

As airline execs mull their options, industry experts say this latest unintended Airbus delay could be a boon for Boeing (BA). Some contend Boeing's new 747-8 passenger version could be the primary beneficiary as airline execs scramble to replace the lost capacity resulting from the A380 delays, or to punish Airbus. "This is all very good news for the 747-8," says Doug McVitie, an aerospace consultant based in Dinan, France.

OPTIONS EXPLORATIONS. But not so fast. It's unclear whether the continued A380 delays will seriously boost sales of the 747 Intercontinental. Airline execs could opt for additional smaller widebody aircraft instead, such as Boeing's 777 or 787, as well as the new Airbus A350. All of these planes carry from 220 passengers to more than 300 passengers and could fill the temporary capacity void. What's more, most of the 16 airlines that had ordered the 159 A380s really want the mega-airliner because of its enormous size and the flexibility to redefine the cabin interior—particularly in the premium class seating.

Finally, the market for very large aircraft with more than 400 seats remains relatively small over the next 20 years compared with the explosive demand for intermediate-size widebody jets. What market exists for jumbo-size jetliners—and it's a matter of intense debate between the two jet makers—has opted for the newer and roomier A380.

An exodus of other customers from Airbus seems unlikely. Singapore Airlines, a key industry leader, appears to be solidly behind the A380 despite the latest setback. Singapore recently turned nine A380 options into firm orders after the second announced delay and will likely squeeze Airbus for other concessions such as hefty discounts on more A380s or new A350s. Lufthansa and Air France (AKH) both appear to have ruled out cancellations. Both carriers weren't expecting their first A380 until 2009. Virgin Atlantic, which has ordered six of the super-jumbo jets, is unlikely to bail on Airbus primarily because the big jet fits well with Virgin's emphasis on catering to premium passengers. But the carrier issued a statement saying it was exploring its options.

BOEING AT THE READY. The most likely scenario is that Emirates could cancel up to half of its 45 A380 orders. The airline's owners, the ruling family of Dubai, are furious with Airbus over the repeated delays. "They want to punish Airbus," McVitie says. One way Emirates can do so is by snatching up additional big twin-engine 777 jetliners that can carry 350 passengers or buying the smaller fuel-sipping 787 Dreamliner. Emirates is already the third-largest airline customer for the 777, and Clark has been a big fan of this aerodynamically efficient flying machine. The carrier also has been mulling a big order for the smaller 787 and could decide to launch the stretch version that could carry about 300 passengers, which is the size Clark prefers.

Boeing has been shopping around its new passenger version of the 747 for about a year with no takers. Sales have taken off for the 747-8 freighter. Boeing officials have hinted that airlines were close to ordering the Intercontinental, but nothing has materialized.

The lack of sales is not the result of some serious revisions and upgrades to what is affectionately known as the "Queen of the Skies." This latest makeover of the 747 is clearly Boeing's best attempt to narrow the gap with the all-new A380 mega carrier. Engineers have stretched the fuselage to cram about 500 seats in three classes. More powerful and fuel efficient jet engines have been adopted from the 787 program, giving the new Intercontinental the ability to fly longer ranges with a full load of passengers and cargo on routes such as New York to Hong Kong. The remodeled interior would resemble the eye-catching ambiance planned for the inside of the 787 Dreamliner. Most compelling of all: Boeing claims the 747-8 trip cost would be 20% lower than that of the A380 even though it touts more than 50 additional seats.

UNCERTAIN FUTURE. So why no orders yet? For all its flaws and recent manufacturing troubles, the A380 is a formidable airplane in this small niche market. The ability to redefine the passenger experience over long-haul flights will give the jet and the airlines flying it a big marketing edge. The fact that the A380 is an all-new airplane packed with new technology, quieter engines, and a wider cabin make it ideal for the carriers that have ordered it.

"If you really did have ideas with playing around with first class and creating an innovative space for premium passengers, then the A380 gives you a lot of possibilities," says Richard Aboulafia, Teal Consulting Group aerospace analyst. Despite the impressive makeover, the 747-8 still comes with a 40-year-old airframe. That's a tough sell.

Still, Emirates could launch Boeing's 747 Intercontinental jetliner. Why? The carrier needs big airplanes to make up for the capacity shortfall, and the new passenger version of the 747 can carry up to 500 people. "I'm sure the 747-8 will gain some momentum from these problems," says John Plueger, president of International Lease Finance Corp., the world's largest aircraft leasing company, which has 10 A380s on order. "But it's hard to speculate. We don't even know what we are going to do."

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