Leeham News and Analysis

Assessing the A350 program

News from EADS that it is beginning to consider another Airbus A350 assembly line, or ramping up production more quickly than currently planned, to accommodate increasing demand for the -1000 validates a desire expressed months ago by John Leahy, COO of Customers for Airbus, that he could see more -1000s if he had the capacity to build them.

Delivery slots for the A350 are essentially sold out to 2020. Orders for the -1000 stalled in part because of this, in part because Airbus tweaked the design, in part because Boeing engaged in an effective campaign to cast doubt over the model and in part because Tim Clark of Emirates Airlines and Akbar Al-Baker of Qatar Airways can’t resist negotiating in the press to pressure Airbus to do more.

We believe the -1000, at 350 passengers, is a bit small. It compares with the 365 passengers in the Boeing 777-300ER. We felt from the start that Airbus should have had at least 30 more passengers. But the -1000 threatens the -300ER. Airbus claims the -1000 will have 25% lower trip costs; even Boeing’s own presentations grant the -1000 about 20% lower trip costs.

With Boeing planning a 350-passenger 777-8X and a 406 passenger 777-9X, the need for a larger “A350-1100” becomes acute. Boeing has had the monopoly with the 777-300ER, which will be broken by the -1000. The 9X will retain a monopoly; Airbus, to be fully competitive, needs to match this size.

This will mean a new wing and larger engines, of course, no small investment. There is already a huge gap between the -1000 and the A380. The 777-9X, which will be more efficient than the 747-8 (and which will kill the dying 748), will eat into the A380 demand. So will an A350-1100, but better to do so from within than to see your competitor take the sales.

The A350-900 is moving forward with continued market demand.

This leaves the A350-800.

Boeing engaged in a public campaign to cast doubt on the viability of the -800. Airbus has poorly defended the airplane, and its efforts to switch customers to the -900 further casts doubt. But officials insist the -800 has a future. The question is, when?

The current entry-into-service plan for the family is the -900 in the second half next year (we think it could slip into early 2015); late 2016 for the -800 and 2017 for the -1000. There are only two -800s scheduled for delivery in 2016, with the bulk in 2017, when the -1000 is due for delivery in reasonably sizable numbers.

We’re told from several sources that Airbus is switching customers from the smallest model to larger versions in part to de-risk the program. Schedule on the -900 is already tight and resources are focused on this sub-type. Switching customers relieves pressure on these limited resources.

Another reason, expressed by Leahy: the -900 is more profitable for Airbus (though we are also told reliably Airbus is offering incentives valued at “millions of dollars” to switch).

Leahy also says switching to the -900 gives customers earlier delivery slots. We’re not quite sure how, but this is what he told us.

We believe the increasing demand for the -1000 will prompt Airbus to resequence the EIS, moving the -800 from 2016/2017 to 2018. This will open slots in 2017 for the -1000 and ease integration pressure for Airbus.

But will Airbus keep the -800? Our checks in the market with customers so far suggest the answer is yes. Abandoning the -800 will totally cede the middle-twin-aisle sector to the 787 and we doubt Airbus wants to do this. The A330 will be approaching its 30th year from EIS in 2024, and by then will reach the end of its natural life cycle, if not somewhat before. Airbus needs to come up with a solution to replace the A330 (perhaps that ever-talked about NEO?).

Airbus needs to address (1) the absence of a competitor to the 777-9X, (2) the future of the A350-800, (3) the absence of a new technology competitor to the 787-8 and (4) the successor to the A330.