TOPICS > Economy

Giant of the Sky

January 18, 2005 at 12:00 AM EDT


JIM LEHRER: That new giant from Europe’s Airbus. We begin with a report from Toulouse, France, by Lauren Taylor of Independent Television News.

LAUREN TAYLOR: It was a lavish ceremony on a grand scale for a landmark moment in aviation history. If the pomp and buildup bordered at times on the ridiculous, that was soon forgotten when the new giant of the skies was finally unveiled; it’s the biggest commercial plane ever.

It’s quieter, flies further and is cheaper to run. But is it really the future of flying? It certainly has powerful backers. Four leaders from the European countries that made this monster possible were there to witness its birth.

TONY BLAIR: This is the most exciting new aircraft in the world. It is a symbol of economic strength, technological innovation, the dedication of the workforce that built it and, above all, of a confidence that we can compete and win in the global market.

LAUREN TAYLOR: The super-jumbo will dwarf everything else in the sky, and could be the height of luxury. Its wingspan is almost 50 feet longer than its nearest rival, the Boeing 747. And the double-decker can carry more passengers– 550 in total, but it could accommodate as many as 850.

There’s room for an in-flight shop, so no more duty- free trolleys. First-class seats could be sealed off from the cabin and turned into bedrooms suites. And it could include a cocktail bar, as well as a Jacuzzi. There are even plans for intelligent lighting, which can reduce the effects of jet lag. Airports aren’t yet ready for this gigantic carrier, although building work is under way. The orders are coming in; 149 of these planes have been sold so far, but 100,000 British jobs depend on it being a success.

JIM LEHRER: Ray Suarez has more.

RAY SUAREZ: The Airbus A-380 super-jumbo jet is expected to take its first test flight before April. Its first commercial passenger flight is scheduled for the middle of next year. Airbus’ rollout of this plane is the latest volley in an ongoing battle between Airbus and Boeing for domination of the worldwide aviation industry.

For more on these two companies, we turn to Caroline Daniel, an aviation reporter for the “financial times.” And Caroline, when Airbus looks at the marketplace, what do they see coming up? Why are they building a jet of this size?

CAROLINE DANIEL: Well, when Airbus looks at the marketplace you certainly see dollar signs in their future. They’ve been taking market share from Boeing for the last six years, and the A-380 is very critical to the way they see the future developing for passenger travel.

They’re making a big bet that airports will continue to be congested and that therefore planes will need to get bigger to accommodate more people. And they’re basically making a big bet that passengers will continue to fly in the hub and spoke system, flying into one big airport and then flying on from there.

RAY SUAREZ: And has the marketplace bought that rationale, both the airline companies, that have to buy the jet and also the analysts and investment bankers who back projects like this?

CAROLINE DANIEL: I think the jury is still out in terms of the economics of the A-380 and the kind of bet that Airbus is making is huge. I mean, this is going to cost $14 billion to make the A-380 and to launch it. So it’s a significant bet which can go badly wrong.

Boeing basically argues that it’s a big plane for a small market. So they see the world in a very different way. They think that more passengers want to fly point-to-point directly between cities, rather than having to go to big airports and to fly onwards. So Boeing basically says this is a bet too far for Airbus.

RAY SUAREZ: So is Boeing doing something that fits its vision of the coming airline market place?

CAROLINE DANIEL: Well, Boeing is definitely falling behind in terms of new product development. It hasn’t come up with a new aircraft since 1995. So at the moment it’s working on something called the 7-E-7, it’s an efficient aircraft which is for mid sized marketplace so, they put all their eggs in that basket, it’s supposed to be coming out in 2008.

But the problem is they expect it to sell 200 of these aircraft. They’ve only sold 126 so far. So Boeing is also having a big bet on its 7-E-7, even though it’s a much smaller aircraft than the A-380.

RAY SUAREZ: The report we heard a moment ago noted there were many European heads of state in attendance in Toulouse, France today for the unveiling. What is Airbus? Is it a nationally owned company, a privately owned company, something in between?

CAROLINE DANIEL: I would say Airbus is a strange hodgepodge. Certainly for Europe, it’s a big deal because it’s a conglomerate between British interests, French interests, Spanish interests and Germans, so this is a great commercial example of whether Europe can make a success of itself on the world stage.

So, what’s interesting about the Airbus 308 is it’s taller and whiter than the White House, so in some ways this is an example of Europe taking on the U.S. quite literally in terms of the size of it. And it’s the kind of big bet that Europe likes. Boeing used to do these kinds of amazing deals when it started out; it had a lot of bravery when it started in the commercial aviation industry.

And I would say that a lot of the mantle of power has moved to Europe in making these kinds of bets. And the Americans certainly don’t like it, which is why we’ve seen recently lots of looming threats, Boeing making dark claims about European governments subsidizing Airbus and why we came close recently to a huge trade war over the WTO between Airbus and Boeing.

RAY SUAREZ: Well, Airbus made similar accusations about Boeing, didn’t it? And why did they step back from the brink and not take that battle to the WTO?

CAROLINE DANIEL: I think it’s one of these cases where it’s pretty much a mutual firing squad. Basically Boeing gets lots of money from state handouts; Washington State has given $3 billion in subsidies. Airbus gets lot of subsidies from European governments.

The difference is that Airbus’ subsidies are direct whereas Boeing’s subsidies are indirect. So there’s a big battle, both of them take money wherever they can get it and both governments realize it was better to step back and try and negotiate than have both of their toys taken away.

RAY SUAREZ: Going back to the A-380 for a moment, it’s so big; can it land at conventional airports? And what will airports have to do to make sure that there’s a place for it to go?

CAROLINE DANIEL: It’s certainly an unconventional plane, and the size of it is posing problems for American airports in particular. In the UK, Heathrow which is going to be one of the big markets for the A-380 has about half a billion dollars to strengthen its runways so the airplane can land, strengthen the… you know, how it can land at the different gates. This has got two floors to the aircraft. So the whole way that, you know, you’re having 800 passengers waiting up, waiting for their luggage, a lot of things are g going to have to change at airports.

What I think you might find some interesting politics with American airports, because obviously if an American airport decides to spend $200 million to accommodate what they see as a European aircraft, I wouldn’t be surprised if you see a bit of background dealings behind the scenes to put pressure on airports to slow down any development work they may have to do.

RAY SUAREZ: And finally, with the business pages so often dominated by news of troubled carriers, both here in the United States and in other places in the world, does this battle between Boeing and Airbus, with billions of dollars on the line, even make sense?

CAROLINE DANIEL: I think it certainly does make sense. I mean, you always have to come up with new aircraft to, you know, continue to push to make more efficiencies and to help airline customers. Certainly the big market for the A-380 is very much in China, not in the U.S. So that’s where the market is coming from first. No American carrier has yet put up any money to buy the A-380, and I don’t think we’ll see purchases from them for some time.

But on the cargo side, we’re seeing more acquisitions. There’s more traffic between the U.S. and China, for example, so having a huge behemoth like the A-380 is going to make it more efficient to do trade with other countries. So I think you’ll have a long time coming with — the American industry is going to lose another, you know, $4 billion maybe this year on top of the $33 billion it’s lost so far. So I think it will be some time before you really see Americans putting money on the table to buy new aircraft.

RAY SUAREZ: Caroline Daniel, thanks a lot for being with us.