Our Opinion: 2019

A380 – Another European prestige project fails

Airbus will stop making the A380, pulling the plug on its iconic superjumbo that promised to revolutionize commercial air travel but failed to deliver on outsized expectations.

Airbus has said that it will stop delivering A380s in 2021 after Emirates, its key customer, slashed its orders for the world’s largest airliner. The decision could hit as many as 3,500 jobs at the manufacturer, whose operations span four major European countries, over the next three years.

The A380 was developed at a cost of $25 billion and first took to the skies 14 years ago. But the bet that airlines would need a plane that can carry up to 853 passengers between major airport hubs didn’t pay off.

The company has delivered 234 of the planes to date, less than a quarter of the 1,200 it predicted it would sell when it first introduced the double-decker aircraft

Airlines such as Lufthansa, Air France and Qantas have trimmed orders. Virgin Atlantic, an earlier buyer, cancelled its deal before taking delivery of its first A380. The aircraft leasing company,  Amedeo, just reported that it no longer planned to take the 20 A380s it had ordered.

Last week, Qantas said it formally cancelled an order, placed in 2006, for eight more A380s, whilst Singapore Airlines, the first airline to operate the A380, has retired its first two A380s. Those are now parked in France and are being sold for scrap.

Emirates, the world’s largest airline by international traffic, will take 14 more A380s before production ends and said it would keep the planes in operation past 2030. Emirates will have bought 123 of the planes, or about half of the total that Airbus has sold.

Europe’s greatest prestige project has failed. Nobody wants the A380 anymore. Not even at a discount.

The development costs for the A380 are estimated at a staggering €15 billion.  About a third of that was financed by government loans from Germany, France and Spain. Government loans that were to be repaid from the sale of each aircraft. Government loans that will no longer be repaid.

The amount governments will have to write off isn’t clear just yet. But Airbus still owes the German government about €759 million under the project.

Perhaps dumping those debts is why Airbus shares surging almost 3% today. Unburdened by a political project, it might be able to go back to selling economical planes. Although popular with passengers, the A380 was expensive and complicated to build – in true European style spread across various locations.

The reasons for failure were well documented in the German press this morning.  Die Welt reported that A380 flights are uneconomical for a simple reason. Insurance companies aren’t willing to insure an A380 flight at a reasonable premium. The concentration of risk is too high. The joined fate of that many people would require extraordinary premiums.

Der Spiegel has a different theory. It concludes that the ‘hub and spoke’ model is dying. People want to fly wherever they’re actually going, instead of to transit hubs and on from there. This makes the bigger planes designed to fly between hubs obsolete.

The Americans at Boeing warned Airbus about all this. When the plans for a joint designed and built supersized aircraft were cancelled, the Europeans decided to build one anyway – showing what Europeans are capable of.

But the Americans were right. The whole thing just doesn’t work. And not a single Airbus A380 was sold to the Americas – the world’s biggest market.

14th February 2019