N79969 From , joined Dec 1969, posts, RR: Posted (3 years 6 months 1 day 8 hours ago) and read 4598 times:
Let me preface by saying that this thread is absolutely not about propriety/legality of launch aid. That is certainly an interesting and lively topic but not what I hope discuss in this thread.
Rather I am interested in discussing and figuring out whether Airbus would have went ahead with the A380 if the launch aid were not available. In other words what was the effect, if any, of launch aid on the Airbus go/no-go decision on the A380?
Since the A380 will provide Airbus with a monopoly of sorts at the top end of the market, they should have pricing power and be able to generate economic (as opposed to accounting) profits. The question is whether the expected value of that franchise would have been sufficient to generate to compensate for the risk/investment necessary to develop the airplane.
What made me curious about this issue is the lack of the critical appraisal report for the 380 that Airbus is supposed to produce for each airplane type built with launch aid. If I were a bureaucrat in Europe and even if it was already a foregone conclusion that the 380 was going to be funded, I would have wanted to know about the economics of such a large project anyway. It would be good to know what effect launch aid exactly has.
Pyxisnautica From Kiribati, joined May 2005, 74 posts, RR: 0 Reply 1, posted (3 years 6 months 1 day 5 hours ago) and read 4509 times:
Quoting N79969 (Thread starter): Let me preface by saying that this thread is absolutely not about propriety/legality of launch aid.
I don't think there's much of a need for such a disclaimer, N79969, we're all adults. What appears to irk some people here is the generally accepted idea within the anti-US, pro-EU/Airbus rah-rah section and the corresponding Boeing rah-rah sections that the "other" is somehow acting in bad faith, and can only succeed if it "cheats". Once you accept that the rules are different for both firms then an argument in good faith becomes possible.
Needless to say the rules are different, which isn't to say that they should or shouldn't be the same only that they are not. Specifically I really don't think that anyone can argue that Airbus is a profit-for-profits-sake seeking entity like the Boeing Co.; it is first and foremost an exercise in national ego and a jobs scheme thereafter. And there's really nothing wrong with that in and of itself (think of the manned missions to the moon for a comparable US example), by any reasonable account they build safe, reliable aircraft, and at this point provide the only real competition for Boeing. But economic "risk" isn't an issue for Airbus, and never has been. In fact I've long harbored the suspicion that the A380 is a sort of "Manifest Destiny" for the European aerospace industry as a whole; the very aircraft that Airbus was simply meant to build right from the start, driven by a European elite so bent out of shape by penis envy ("Mines bigger/longer/faster than yours!") over having to fly around the world on vile American products that they just had to build a plane twice as big even though they surely must have known even then that the actual market for such a plane would be very limited. Rationalizations for the project are now a dime a dozen, but, much like with the Concorde, I'd be willing to bet that most of them came about long after the project was ever given the green light by the powers that be rather than before.
But back to your topic: had Airbus actually faced the risk of making a 16+ billion dollar investment (excluding an additional 3-5 billion in other related transportation infrastructure projects) with their own money on an aircraft unlikely to sell more than a few hundred airframes, even without any comparable competition, would they have chosen to proceed with development?
No. That's the short answer. And I'm sure it would have been an even more emphatic "Hell no!" if they'd only realized (assuming they cared on way or the other) from the start that they'd have to discount the first 150-200+ airframes well below their production costs in order to secure even a small(ish) customer base, with a quarter to a half (if the 40+ Emirates order for additional A380s at the upcoming Paris Airshow pans out) of all orders coming from one ME airline.
That said, I'm glad they finally did go ahead with the A380 and I wish them all the best. Its a very sexy aircraft, and in its own minor way pushed the technological envelope that much further. That and somebody needs to keep Boeing on their toes; and if Lockheed, NGM or GD can't be arsed to do so then better the taxpayers of Europe have a go than no one.
LifelinerOne From Netherlands, joined Nov 2003, 1489 posts, RR: 7 Reply 2, posted (3 years 6 months 1 day 4 hours ago) and read 4457 times:
Quoting Pyxisnautica (Reply 1): No. That's the short answer. And I'm sure it would have been an even more emphatic "Hell no!" if they'd only realized (assuming they cared on way or the other) from the start that they'd have to discount the first 150-200+ airframes well below their production costs in order to secure even a small(ish) customer base, with a quarter to a half (if the 40+ Emirates order for additional A380s at the upcoming Paris Airshow pans out) of all orders coming from one ME airline.
I'm just dying to know how you know the exact prices the airlines paid for the A380...
Leskova From Germany, joined Oct 2003, 5964 posts, RR: 73 Reply 3, posted (3 years 6 months 1 day 3 hours ago) and read 4425 times:
Hi, N79969 - long time no speak...
Quoting N79969 (Thread starter): Rather I am interested in discussing and figuring out whether Airbus would have went ahead with the A380 if the launch aid were not available. In other words what was the effect, if any, of launch aid on the Airbus go/no-go decision on the A380?
Eventually, I'd say yes. As you know, launch aid only goes up to one third of the amount needed, so two thirds already are financed in a way that leaves Airbus open to risks.
Had the launch aid not been available, I guess we'd be seeing a few less things based on new technologies on the plane - or maybe we'd see the same plane but the whole project would have worked under more tight cost controls - or, another possibility, we wouldn't be seeing the A380 flying now but maybe in 5-10 years; but, as mentioned above, I'm certain we'd be seeing the A380.
Pyxisnautica - if you'd have only left out that second paragraph of your post, because somehow I get the feeling that that's precisely the type of comment that N79969 didn't want... because it's exactly the type of comments that will get a lot of people "up in arms" again.
N79969 From , joined Dec 1969, posts, RR: Reply 4, posted (3 years 6 months 1 day 3 hours ago) and read 4394 times:
Thanks to 3 of you for the replies.
Leskova,
It has been a while. So are you saying that they would not have moved forward in 1999 or 2000 with the project without the launch aid in your view?
Lifelinerone,
I think you can find some pretty reliable ballpark figures for the prices paid for the A380 if you look around. It is normal industry practice to kick off a new plane with launch discounts.
Look at www.speednews.com for the shadow critical appraisal of the A380. I think there are some figures in that report.
Pyxisnautica,
I do not disagree at all with you what you say. You make good points.
However in the interests of not firing up those looking for an argument, I propose we focus on the economic decision process of Airbus.
*********
Because of the existence of launch aid, I have a hard time gauging Airbus's actual tolerance for risk. Boeing seems to generally limit the number of big risky leaps but when they do decide to take a chance, they do not mess around and put it all on the table. The B787 project has all kinds of new technology risks.
Pyxisnautica From Kiribati, joined May 2005, 74 posts, RR: 0 Reply 5, posted (3 years 6 months 1 day 3 hours ago) and read 4380 times:
Quoting Leskova (Reply 3): Eventually, I'd say yes. As you know, launch aid only goes up to one third of the amount needed, so two thirds already are financed in a way that leaves Airbus open to risks.
If you think so....and as the man footing the bill, I suspect you're more than entitled to believe whatever you so choose.
Quoting Leskova (Reply 3):
Pyxisnautica - if you'd have only left out that second paragraph of your post...
Not at all. That’s the whole point; the two firms don’t compete on the same terms -- one is motivated by the almighty buck, the other by ego -- and their behavior reflects this. Say what you will about either 'business model', but don’t deny that it isn’t true. And if its true, and has been going on for decades and is likely to continue whatever happens to the A380 or at the WTO, why not embrace it?
Pyxisnautica From Kiribati, joined May 2005, 74 posts, RR: 0 Reply 6, posted (3 years 6 months 1 day 3 hours ago) and read 4372 times:
Quoting N79969 (Reply 4): However in the interests of not firing up those looking for an argument, I propose we focus on the economic decision process of Airbus.
Not quite sure what you mean here, but it seems you're suggesting Airbus got more than one third of the A380 development cost in loans. If that's what you're saying, you'd better have some proof to back it up, as those are pretty hefty accusations...
Quoting Pyxisnautica (Reply 5): one is motivated by the almighty buck, the other by ego
That's a bit of a black and white comparison. Don't forget that Airbus is owned by two publically traded companies, EADS and BAe, which are VERY MUCH in this business to make money.
On topic: The times when Airbus needed the loans purely to survive are gone, they'd have been able to fund the project if it were needed, though it might have taken them a bit longer. But I agree with Leskova that they most likely would have launched it eventually, though possibly at a later date. But the same can be said about Boeing and the 787: would Boeing have launched the 787 now if they hadn't received the huge tax breaks and the subsidies from Japan? A very similar situation, if you ask me...
Leskova From Germany, joined Oct 2003, 5964 posts, RR: 73 Reply 9, posted (3 years 6 months 1 day 2 hours ago) and read 4344 times:
Quoting N79969 (Reply 4): So are you saying that they would not have moved forward in 1999 or 2000 with the project without the launch aid in your view?
Basically, yes - few doubt that there'll be a time when VLAs will be required, though most won't put the timeframe into the 2006-2010 area but more into the 2015-2020 region. While I agree that pre-2010 probably is early, I think sometime between 2010 and 2015 is going to be the area around when these planes (VLAs in general) will come more and more into demand.
With the launch aid, Airbus was basically in a position to get a head-start; at the time the market, on a broader basis, starts requiring planes of this size the A380 will (if all goes according to plan) have proven itself and airlines will know what they're getting, so the head-start, eventually, might very well pay off.
Had they not received the launch aid, first of all they would have needed to finance the one additional third themselves, which - I guess - would have also given Airbus a reason to re-align the entry-into-service more with the time that most think when it'll be required.
Then again, a lot of decisions around the A380 were made at the time while the B747-500/-600 were being floated around airlines, so in the end, for the sake of not letting Boeing win much of the market that Airbus was aiming for, it might have kept the schedule as it's now turned out... I think there are just too many variables involved to be 100% sure.
N79969 From , joined Dec 1969, posts, RR: Reply 10, posted (3 years 6 months 1 day 2 hours ago) and read 4303 times:
Leskova,
I agree with you pretty much on the timing. I think the A380 would have come later if for no other reason other than the time value of money.
"But the same can be said about Boeing and the 787: would Boeing have launched the 787 now if they hadn't received the huge tax breaks and the subsidies from Japan? A very similar situation, if you ask me..."
Scorpio,
I disagree with you on the comparison. Boeing (and currently EADS) basically were (are) evaluating sites to locate a factory. The site shopping occurred after the decision to go forward with the aircraft was made. Firms like Toyota, Daimler, and Hyundai also game the states to minimize their tax bill when finding a place to build a factory.
Given Boeing's very public track record of gauging actual airline interest in a specific model before killing/launching an aircraft (747-500/600, Sonic Cruiser) as opposed to generic market forecasts, I think the primary go/no-go decision variable is apparent. (Not saying that Airbus does not do the same). I think the real question is not whether the 787 would have built but whether it would have been assembled in Washington state or not.
After the decision to go forward was made, then they seem to go look for tax breaks, Japanese subsidies, and so on.
*********
Let me add that I chose the A380 because it is a unique project. The stakes are much greater than for say an A320/350/737/787-type projects.
Alessandro From Sweden, joined Sep 2001, 5107 posts, RR: 0 Reply 11, posted (3 years 6 months 1 day 2 hours ago) and read 4292 times:
Well, one purpose with the A380 is to offer package of planes to airlines
ranging from the A318-A380, like Boeing could in the past with the B717-B744,
so the A380 could be used to sell other Airbuses. Something not everyone is
aware of...
N79969 From , joined Dec 1969, posts, RR: Reply 12, posted (3 years 6 months 1 day 1 hour ago) and read 4280 times:
Alessandro,
Interesting point. I would not be surprised if Boeing bundles aircraft as well.
However do you believe that the incremantal value of additonal sales from package deals would have been great enough for Airbus to assume the risk of the A380 absent launch aid?
Scorpio From Belgium, joined Oct 2001, 4467 posts, RR: 35 Reply 14, posted (3 years 6 months 1 day 1 hour ago) and read 4257 times:
Quoting N79969 (Reply 10): After the decision to go forward was made, then they seem to go look for tax breaks, Japanese subsidies, and so on.
I disagree. Remember that at the time Boeing decided to build the plane at Everett, it was still called the 7E7, i.e. this was before the final decision to go ahead was made. I believe that the tax breaks and Japanese subsidies were most certainly part of the equation that made Boeing decide to go ahead. Not saying they wouldn't have gone ahead, but it sure weighed on the decision.
Jet-lagged From Japan, joined Mar 2002, 709 posts, RR: 0 Reply 15, posted (3 years 6 months 1 day 1 hour ago) and read 4249 times:
This is an interesting question! My first response it that this is a moot point. I am convinced that Europe fundamentally wants Airbus in existance as a strategic entity, and Airbus is safe to somehow receive money from their Sugar . . . OK, I won't say it this time, from the governments in the countries in which Airbus is based, for years to come. So their A380 financial models (I believe) assumed government support, just as (I believe) their A350 financial models assume government support. But sovereign governments get to make those decisions; that is part of their jobs.
Anyway, what if the money wasn't there? Airbus pursued the idea of the A380 for years before they could get it launched. They had a vision and stuck to it. Whether this was good or bad, well, we a.netters all have our own predictions, but only time will tell. The point is, Airbus knew where the wanted to go.
If they hadn't got the money, they would have needed another $3B or so in cash (ignoring development overruns which occurred after they pulled the trigger). While a big chunk of change, this is not outside the realm of Airbus's finances.
Perhaps they would have cut back on some peripheral products, like the A318 or A345 to focus financial resources on the their favorite son.
So, my answer is that Airbus some years ago decided to build their future around the A380. They had the conviction of their ideals such they would have made it happen with out without government money.
Pyxisnautica From Kiribati, joined May 2005, 74 posts, RR: 0 Reply 16, posted (3 years 6 months 1 day 1 hour ago) and read 4215 times:
Quoting Scorpio (Reply 8): Not quite sure what you mean here, but it seems you're suggesting Airbus got more than one third of the A380 development cost in loans. ...Don't forget that Airbus is owned by two publically traded companies, EADS and BAe, which are VERY MUCH in this business to make money.
My dear fellow, “one third” isn’t the half of it. Its long been widely recognized that Airbus “sells” practically all of its aircraft either at cost, or below whenever the market is too soft to afford otherwise. But the cash flow only “flows” in one direction and “profit” has little to do with it, least of all at any of the various “National Champions” that were merged to make up EADS. The rest is simply accounting.
“Corporatism”, as such is the fashion, of the kind has been THE European/“Continental” business model for well over a hundred years meeting its nadir under the Nazis with Junkers, Faber, and VW among others – each the National Champion in their respective industry – all publicly traded or a privately held company supposedly looking out for the bottom line but in reality entirely dependant upon the state and not the markets for their survival/direction. I would have hoped that you had come to terms with this by now, and that we wouldn’t have to argue over such trivial matters.
Pyxisnautica From Kiribati, joined May 2005, 74 posts, RR: 0 Reply 17, posted (3 years 6 months 1 day 1 hour ago) and read 4207 times:
Quoting Leskova (Reply 9): Then again, a lot of decisions around the A380 were made at the time while the B747-500/-600 were being floated around airlines
I think the decision was made to go with a bigger better jumbo much earlier, right after it became apparent that “efficiency” had won out over “speed” (viz the whole Concorde vs Jumbo argument) in the late-mid 1970s, and not coincidentally at about the same time that Airbus came into being. It was always just a matter of time before they took on the real challenge, for better or worse. And I’d bet the A380 is still “too early” by at least a decade if not two or three, by which time Airbus will need its own A380Adv in order to compete with whatever Boeing or one of the other aerospace companies comes up with.
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