Airbus Problems Could Affect A350

October 5, 2006

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The problems affecting European planemaker Airbus could spread beyond the troubled A380 superjumbo on Thursday as doubts surfaced over the mid-sized A350 project.

Aerospace group EADS raised the possibility for the first time that the delays and profit warnings surrounding the A380 could endanger plans to build the A350, an aircraft Airbus insists is "fundamental" to its future.

The planemaker also said the A400M military airlifter it plans to build for seven European NATO countries faced the risk of future delays and would not make money unless costs were cut.

"The (A400M) timetable is exactly on the edge... We are exactly on track but without any reserves (of time)," Airbus Chief Executive Christian Streiff told the Financial Times.

Analysts say Airbus is straining its resources to handle all three projects at once, while the weak dollar is also hurting.

Bruised by a 30 percent drop in its share price this year, EADS made clear it would not automatically allow Airbus to launch its A350 until it could prevent another crisis unfolding.

"In the next few weeks we will hold in-depth discussions to see whether the financial... and the engineering resources are available to actually take on this program," EADS co-CEO Thomas Enders told reporters in Berlin.

"I personally believe in the A350," he added.

After several false starts, Airbus has come up with a new wider design for the A350 to try to counter a surge in sales of Boeing's rival 787. Both planes exist only on paper, but the mid-sized market is already the biggest battleground between the two firms despite public focus on the A380.

Analysts estimate the new plane will cost EUR8 billion (USD$10.15 billion) instead of EUR4 billion (USD$5.08 billion) to develop, eating into cash that is already being drained by a two-year delay in the A380 project.

Airbus announced the latest delays to the world's largest airliner on Tuesday along with a EUR4.8 billion cumulative shortfall in the operating profit it projects over four years.

Angry airlines refused to rule out canceling their orders over the delays, which Airbus's biggest customer, leasing firm ILFC of the United States, called an "industrial tragedy".

"The A380 timetable was ambitious from the start and from today's point of view perhaps unrealistic," Enders told Financial Times Deutschland.

Asked whether the problems with the mammoth plane could endanger the A350, he said, "I cannot rule that out".

Streiff said Airbus must produce the A350 even if it is three or four years behind Boeing's rival model.

"The A350 is fundamental for us. It is up to the EADS board to decide," he told Le Monde in an interview, adding such mid-sized jets represent 40 percent of global demand by value.

"We will need 10 years to return to the same level as Boeing in terms of development and efficiency. Their production benefits from a weak dollar," he told the French newspaper.

Streiff wants to revamp the company's industrial machine spread across 16 plants in France, Germany, Spain and Britain. But he is under some pressure in France and Germany over jobs.

The recently appointed Airbus chief held talks with the German government on Thursday to explain how his overhaul would affect investments and jobs at the Airbus plant in Hamburg.

German Economy Minister Michael Glos said afterwards that no Airbus production sites in Germany were under threat.

Germany is upset about suggestions that Hamburg engineers are to blame for wiring installation problems on the A380 and that work on the superjumbo could be sent to Toulouse in France.

The plane has been flying well for over a year in tests but the problems started when Airbus moved into mass production.

Germany has called for the pain in any restructuring to be spread evenly, while the French government warned in parliament on Wednesday that it would be "vigilant" on French jobs.

German member of parliament Laurenz Meyer of Chancellor Angela Merkel's Christian Democrats (CDU) said the French had been for some time trying to make Airbus a French project.

"We can't let that happen," Meyer told N-24 television, adding that Airbus should remain a European project.

Britain has told European politicians to stop interfering in the future of EADS, the London Times said on Thursday after an interview with Defence Procurement Minister Lord Paul Drayson.

Britain's BAE Systems is selling its minority stake in Airbus to EADS but the wings for Airbus planes are still built in the UK and wants a seat on the EADS board to have its say.

The fourth partner Spain said it wanted to participate as much as possible in Airbus, and France opened the possibility of talks over raising Spain's 5.5 percent stake in EADS.

(Reuters)