Mega Plane

Airbus is building the biggest airliner ever, and more than 100 A380s have been ordered by the airlines. A brilliant leap-or great folly?

The trucks will lumber onto the highway shortly before midnight, a ghostly caravan of seven custom-built flatbeds creeping along a road that has been closed to other traffic until dawn. Looming against the night sky, the cargo will look as immense and improbable as pieces of the Eiffel Tower being hauled through the French countryside: an airplane wing so long it would top a nine-story building if stood on end. Massive cylinders of aluminum fuselage. A tail fin as big as the wing of a midsize jet.

These are the pieces of the Airbus A380, the biggest passenger plane ever made. Starting next April, the nighttime convoys will become a routine sight on the highway between Bordeaux and Toulouse, in southwestern France. Sections of the plane -- a double-decker able to carry more than 555 passengers -- will travel first by ocean-going ferry and specially designed barges, then by trucks for the final leg of the trip to Toulouse. There, at Airbus headquarters, a newly built factory the size of 16 football fields stands ready to assemble the plane.

Construction of the A380's wings, fuselages, and tails is already well under way in France, Germany, Britain, and Spain. The first A380 is expected to roll off the assembly line late next year, with its initial test flight set for early 2005. Airbus is already making plans to show it off at the 2005 Paris Air Show. "I'm 100% confident that we will be on schedule," says Airbus Chief Executive Officer Noël Forgeard.

That's the kind of bravado that drives Boeing Co. (BA ) nuts. In fact, plenty of aviation experts wondered if the Europeans were making a reckless gamble when, in late 2000, they announced plans to launch this monster. After all, the tab will come to almost $13 billion before the first A380 enters service in 2006. What's more, to many industry sages, the era of the jumbo jet is dead: Smaller, nimbler planes will now rule the skies. "We feel very comfortable that we did not pick a big aircraft to be in competition with Airbus," says Boeing CEO Philip M. Condit. "There may not even be enough profitable market there for any manufacturer."

A Shifting Balance of Power

But Airbus is confounding the skeptics. Construction of the A380 is on schedule and within budget. Airlines in Asia, the Middle East, and Europe are lining up to buy the plane, which they see as key to their long-haul service between heavily congested airports. Airbus has surpassed most analysts' estimates by chalking up 121 firm orders for the A380 (page 54), which lists for about $250 million. That's nearly half the 250 orders Airbus says it needs to break even. It's in advanced talks with two other buyers. No carrier has canceled or delayed an A380 order.

If the European superjumbo continues on this course, the balance of power in global aviation will shift. A successful A380 would cement the dominance of Airbus, which this year will surpass Boeing in deliveries for the first time. It would discredit the market knowhow of Boeing, which maintains that demand for extra-large planes is drying up and that the key to future profitability lies in midsize aircraft such as the fuel-efficient 7E7 that Boeing plans to put into service in 2008.

Already, the A380 has effectively killed the passenger version of the Boeing 747, which revolutionized air travel in the 1970s by lowering seat-mile costs enough to make foreign travel affordable for millions. For years, it was Boeing's most profitable plane. But since 2000, airlines have ordered only 10 passenger 747s, and Boeing failed to find any buyers for a stretch version it proposed that would have boosted the 747's seating capacity from 416 to 504. Airbus predicts that the A380 -- which can fly 1,000 kilometers further than the 747 -- will cost 15% less per seat-mile to operate by spreading out costs over a much larger passenger base. "It will be a huge value driver," Forgeard says.

Battered by the global economic downturn, along with the Iraq war and the threats of terrorism and SARS, air carriers worldwide will take delivery of only about 580 big jets this year, down from 850 in 2001. But Airbus is wagering that the market will soon turn -- and that when it does, airlines will turn to the A380 on heavily traveled long-haul routes, especially those serving Asia. Indeed, the A380's name is meant to be a lucky charm: 8 is considered a propitious number in most Asian countries.

But if Airbus is betting wrong, the A380 will become a crushing burden -- not only on Airbus but also on shareholders of the European Aeronautics Defense & Space Co. (EADS), which owns 80% of the aircraft maker. Major contractors and suppliers would suffer, too, since they have contributed more than $2 billion to development costs. European taxpayers also are at risk since European governments have provided $3.5 billion in low-interest loans for the plane. Airbus would almost certainly stay in business, selling the A330 and A340 widebodies and the single-aisle A320. But after betting so much on the A380, it wouldn't be able to afford a new-model launch for a decade. That would leave the field wide open for Boeing's 7E7.

In building the A380, Airbus also is placing a heavy bet on new technology. Airbus for the first time has created a complete digital mock-up of the aircraft, incorporating the work of some 11,000 engineers and giving managers a powerful tool to track the plane's development. Engineering specifications from the digital mock-up are downloaded directly to production equipment, saving time and reducing errors. Some Airbus factories report that A380 components are being produced with well below half the rate of flaws encountered on earlier planes.

To see how the process works, visit the Airbus wing factory in Broughton, Wales. Inside the cavernous hall, the first pair of wings, each 46 meters long, has already been fastened into a four-story-high scaffolding. By the time they leave Broughton early next year, the wings will have undergone thousands of hours of work, including the installation of 750,000 rivets. Robotic gear moves up and down the huge pieces of metal, grinding, bending, and drilling according to specifications downloaded from the mock-up. "Even five or six years ago, [programming the equipment] would have been done manually," says Scott Coleman, a Broughton factory supervisor. Thanks to digitally streamed data and better organization, fashioning the wing's interior structural supports takes four weeks, not the expected 12.

Airbus also is counting on new technologies to solve problems posed by the A380's unprecedented size and weight. In its eagerness to sign up launch customers, Airbus O.K.'d design changes -- everything from heavier engines to a wider fuselage -- that boosted the plane's weight to 560 tons. That's more than 80 tons above what Airbus engineers originally planned. To compensate, Airbus is making extensive use of lightweight composite materials and innovations such as a less bulky hydraulic system.

Jürgen Thomas, who oversaw development of the A380 until his retirement in 2001, recalls that in early 2000, when engineers thought the plane's basic configuration had been agreed on, he got an urgent phone call from Airbus sales chief John Leahy, who was in Singapore trying to close a deal with Singapore Airlines Ltd. Leahy said that Singapore's then-CEO Cheong Choong Kong was refusing to sign unless Airbus could guarantee that the plane could have a quieter engine, allowing it to land at London Heathrow Airport at night. But the quieter engine was heavier than the standard model, requiring major structural changes in the plane's wing. Thomas recalls hanging up the telephone and telling his staff: "We will have to work all weekend." Their calculations showed that the change was feasible, but as a result, the plane's weight notched up more than a ton. Singapore then agreed to order 10 aircraft, with options for 15 more.

Weathering the Squeeze

The A380's outsize dimensions pose a host of other problems. Consider just one: how to evacuate passengers from the upper deck in case of emergency. U.S. aerospace contractor Goodrich developed a new, higher-friction material for the plane's evacuation slides so that passengers don't pick up too much speed and get injured when they reach the bottom.

Airbus also created an immense challenge by deciding to assemble the plane in Toulouse. Since its beginnings in the 1970s as a loose-knit consortium of European companies, Airbus has always maintained a careful geographic balance in its manufacturing. The wings of all Airbus planes are manufactured in Britain, the tails in Spain, and fuselages in France and Germany. Then the parts are loaded onto bulbous freighter planes and brought to Toulouse for assembly. But the A380's parts are too big to fit in any freighter plane. So Airbus has developed a plan that requires building an ocean-going ferry and specially designed river barges, as well as widening the Bordeaux-Toulouse road and cutting down roadside trees so the oversized cargo can get through. Forgeard says the company considered alternatives -- for example, moving the assembly operation to a port city such as Hamburg, Germany, or St. Nazaire, France, where Airbus already has factories. But such a move would have been politically explosive. Besides, he says, "The cost to ramp up the final assembly line would have been much higher."

Financially Airbus has weathered the worst of the squeeze caused by the plane's development. Reassuring investors, the company has kept its promise to finance its $5.1 billion share of research and development costs from cash flow without commercial borrowing. Most analysts figure Airbus will enjoy a nice bounce in operating earnings, starting at the end of next year as R&D spending tapers.

The A380's backers also are breathing easier about airports' ability to handle it. At most airports, the needed modifications are estimated to cost $80 million to $100 million, mainly for outdoor improvements such as reinforcing taxiway bridges and widening runway shoulders. That isn't peanuts, but it's modest compared to the cost of, say, putting in a new runway, which can run to $1 billion. The A380 can operate on existing runways because, with its swept-back wings, it takes up only slightly more space than a 747. "It's not a dramatically different kind of airplane," says Richard F. Marchi, senior vice-president for technical and environmental affairs at Washington (D.C.)-based Airports Council International North America.

Still, plenty of questions remain about the A380. Out of those 121 orders, 45 are bound for a single carrier, Emirates Airline. "We can't wait to get our hands on the A380," says Emirates President Tim Clark. True, Emirates has posted 30% to 40% sales growth in recent years as its owner, the oil-rich United Arab Emirates, has poured billions into developing its hub in Dubai as a transit station for globetrotting travelers. But if Emirates' growth falters, the A380 order book would take a huge hit.

Another concern is the hefty discounts Airbus has offered to launch customers, by some accounts more than 30% off the roughly $250 million list price. Airbus insists that such reports are exaggerated and that the discounts are built into financial projections. But some analysts think that because of heavy discounting, Airbus's supposed 250 breakeven figure is pure fantasy. "Airbus could sell hundreds and still lose its shirt," says Richard L. Aboulafia, an analyst at Teal Group Corp., a Fairfax (Va.)-based aviation consulting firm. Still, even if the plane were a disastrous money-loser, Airbus would have a bit of a safety cushion because the low-interest loans provided by European governments would not have to be repaid in full.

Moreover, Airbus still hasn't found a buyer in Japan, which the company predicts will account for a major share of the superjumbo's eventual market. Sales chief Leahy predicts that after carriers such as Singapore Airlines and Virgin Atlantic Airways begin flying into Tokyo, "the Japanese are going to buy it." But for now, both Japan Air Lines Co. and All Nippon Airways Co. remain all-Boeing carriers.

Asian Opportunity

The biggest question is whether Airbus has correctly gauged long-term demand for the superjumbo. The European planemaker predicts that over the next 20 years, airlines and freight carriers will need a minimum of 1,500 more aircraft at least as big as the 747. Boeing says that no more than 320 extra-large planes will be sold over the next 20 years as the industry moves away from hub-and-spoke networks toward more convenient direct flights between smaller airports. This route fragmentation is the rationale behind Boeing's 7E7, a fuel-efficient jet carrying about 220 passengers intended to compete with Airbus' A330. Boeing predicts a market for 2,000 to 3,000 such intermediate-size planes over the next 20 years.

Who's right? Boeing's fragmentation scenario certainly looks compelling when viewed from the U.S., where the number of transatlantic departures by Boeing 747s declined slightly from 1990 to 2000, while transatlantic departures by smaller widebodies such as the Boeing 777 and the Airbus A340 nearly tripled. "We believe more passengers are going to want to fly on direct routes on midsize airplanes instead of to hubs on giant size airplanes," Condit says. Smaller and more versatile aircraft reduce financial and operational risks to airlines, particularly in economic downturns, compared to jumbo jets, he adds.

Yet outside North America, the hub-and-spoke model flourishes. "In Asia, that's the only way to move," says Chin Lim, an airline industry analyst at Morgan Stanley in Singapore. "You fly passengers from Australia into Singapore or Hong Kong and then move them to London or Frankfurt." Indeed, some carriers hope the A380 will help them establish major hubs. "We would like to make [Seoul's] Incheon International Airport a strong hub in Northeast Asia, and the aircraft fits our strategy well," says Korean Air Lines Co. Ltd. CEO Cho Yang Ho.

A chronic shortage of departure slots at many Asian and European airports works in the A380's favor, too. Virgin Atlantic, for example, has only 2% of the slots at Heathrow. "We've been through a horrible two years, but air traffic is going to grow, and the A380 is the only way we can grow our business," says Virgin CEO Steve Ridgeway, who is buying six superjumbos.

While Boeing has no plans to offer an updated version of the 747, some industry watchers say it will be forced to reconsider when the A380 enters service. Sandy Morris, a London-based aviation analyst at ABN Amro, predicts that airlines now flying 747s will scramble to buy A380s once their rivals introduce the more efficient superjumbo. "Boeing has made some serious mistakes in the past," he says, "but this is the biggest one."

That may be overstating things a bit. But clearly, Airbus has momentum on its side, and the task of building the world's biggest plane clearly has energized its troops. "At every step, our confidence has grown," says Rob Bray, one of a core group of about a dozen engineers who began roughing out the plane's design more than a decade ago. This dogfight has only begun.

Corrections and Clarifications "Mega plane" stated incorrectly that Emirates Airline is owned by the government of the United Arab Emirates. It is owned by the government of Dubai, one of the emirates that make up the UAE.

By Carol Matlack in Toulouse, France, with Stanley Holmes in Seattle and bureau reports

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