Green Light for A350
December 2, 2006
The board of EADS met in Amsterdam to discuss the A350 program and decided to give the go ahead for the commercial development of the aircraft, a statement from EADS said.
"The A350 XWB, together with the A330/A340 aircraft family, will meet a market that requires some 5,700 new aircraft being delivered in the next two decades, with more than 1,000 billion dollars in value," the statement said.
The twin-engine Airbus A350 has been designed to compete with two Boeing airliners, the existing 777 and the future 787 Dreamliner, which has proved highly popular with airlines.
Airbus said the first A350 would enter service in 2013, five years after the new Boeing 787.
Initially drawn up in 2005, the Airbus A350 design was sent back to the drawing board after prospective clients complained of insufficient passenger capacity and excessive fuel consumption. It re-emerged in July this year as the A350 XWB, which stands for extra wide body.
Financing of the project is considered by analysts to be a critical issue and, tellingly, Airbus was vague about the details of how the 10-billion-euro ($13-billion) project would be paid for.
EADS and Airbus, a 100-percent-owned unit of EADS, are stretched for cash because of cost over-runs with the Airbus A380 superjumbo project, which is running two years behind schedule.
As a result, EADS stressed on Friday that the decision on the A350 was linked to the "full implementation" of a vast restructuring plan called Power 8, which aims to cut costs throughout the business.
Company cash not state funding for A350
It said the A350 would be financed "predominantly from the company cash flows" and also from "risk sharing partners." Nevertheless, EADS and Airbus are still expected to need other sources of capital to finance the project.
Other sources could be the capital markets, in the form of a share issue or a bond issue, but might also be from European governments, namely Britain, France, Germany or Spain.
The involvement of governments, which are able to grant low-interest loans or guarantees, is a prickly issue given the ongoing trade dispute between the United States and the European Union.
US unhappy at perceived state aid
The United States has filed a complaint at the World Trade Organization alleging the government loans to Airbus amount to illegal state aid.
The European Union has countered with its own case, alleging that Boeing also benefits from illegal state aid, particularly in the form of uncontested military contracts.
"The funding requirements going forward will be proactively managed in line with company policy to preserve a strong balance sheet," EADS said.
"EADS expects to spread the development costs of the full XWB family over the years 2007 to 2014, with the bulk of the spending occurring in 2010-2013."
Aerospace trade war unlikely to subside
The US government said Friday reports that Airbus could resort to state aid to finance nearly half the costs of the A350 were "not encouraging."
"We're seeking further information from the EU," US Trade Representative spokeswoman Gretchen Hamel told AFP. "Obviously, the reports of four billion euros in state-guaranteed funds are not encouraging," she said.
Boeing spokesman Peter Conte declined to address the prospect of new state subsidies for Airbus, but said the US aviation giant saw no threat from the A350 project. "This does not come as any surprise and nor would we trade our position with anyone," he said. "We feel very good about the position that we are in with both the 777 and 787."
Airbus chief sees bright future
The chief executive of Airbus and EADS co-chief executive Louis Gallois commented on the decision to launch the A350: "The A350 XWB has it all to become a great success -- the most advanced technologies, the best economics and the highest level of comfort."
News of the investment in the A350 will also come as relief to workers and suppliers in the European aerospace industry, who are facing job losses and cut backs as Airbus drills down its costs.
The European plane maker has had a torrid year, hit by repeated delays to its flagship A380 project and major management upheaval.
In the battle for new orders, Airbus has also come second best to a resurgent Boeing.
Airbus announced Friday it had booked 635 orders in the first 11 months of this year compared with 823 orders for Boeing.
Nevertheless, the European group is set to have the second best year in its history this year in terms of new orders -- after setting a record in 2005 -- as airlines continue to expand their services globally and renew ageing fleets.