Airbus lags in fuel-saving race

Airbus has struggled for 20 months to design an intercontinental plane to compete with Boeing's fuel-saving 787 "Dreamliner". During that period, oil prices have more than doubled and Boeing has received 185 orders for its aircraft.

It took three redesigns for Toulouse-based Airbus to come up with a plane it says will cost 4 per cent per seat less to fly than the 787.

The world's biggest commercial aircraft maker, already spending more than 13.5 billion ($23.6 billion) to develop three other planes, says it will need to invest an additional 4.5 billion to bring the A350 to market.

"They need to build it," says Klaus Breil, a fund manager at Adig Investments in Frankfurt who helps oversee US$6 billion ($8.6 billion) of assets, including shares of Airbus parent European Aeronautic, Defence & Space. "If they don't, they'll leave this market completely to Boeing."

The market for planes such as the A350 and 787 will total more than 3000 aircraft, valued at US$400 billion, over the next 20 years, Airbus and Chicago-based Boeing estimate.

Airlines such as Qantas Airways and Northwest Airlines are turning to fuel-saving planes that carry about 250 passengers as rising fuel prices crimp profits worldwide.

Air New Zealand is one of Boeing's launch customers for the new 787, marketed as the "dreamliner". It hopes to take delivery of the first of its two planes in 2010.

Airbus initially balked at matching the 787 as it poured 12 billion into developing the 555-seat A380, designed to reduce traffic at increasingly crowded airport hubs.

The company in June said deliveries of the A380 would be delayed by six months because of wiring problems in the passenger entertainment system. The plane maker plans to ship the first A380 next year, with a cargo version scheduled to enter service in 2008.

Airbus is also developing the A400M military transport, which will be delivered to seven countries beginning in 2009.

Adding the A350 would give Airbus four planes in development at the same time. Airbus says it will decide whether to build the plane by October.

"I think it's a stretch," says Hans Weber, president of Tecop International, a San Diego consulting firm.

"There's a good deal of work to be done on the A380 to correct all the niggly problems, and that takes engineering."

The A350 project may strain Airbus's engineering resources, says Mike Turner, chief executive officer of BAE Systems.

Airbus planned to hire about 2500 workers, including 1000 engineers, said company spokesman David Voskuhl.

Hiring engineers will create long-term costs for Airbus because European labour laws make it difficult for the company to dismiss employees, particularly highly-skilled workers, says Nick Cunningham, an analyst at Panmure Gordon in London.

Boeing has more flexibility. In the 18 months after the September 11 attacks, Boeing reduced its workforce by about 28,000, or 14 per cent, as demand for planes declined and the company stopped making aircraft models acquired in the 1997 purchase of McDonnell Douglas. Airbus cut about 200 jobs during the same period.

The A350 may prove to be a bigger financial burden if Airbus decides to forgo risk-free loans from the governments of Germany, Britain, France and Spain to blunt protests from the US.

Airbus is struggling to catch Boeing in the market for the next generation of mid-size, long-range aircraft partly because it initially misjudged the appeal of Boeing's model.

The 787 will contain more than 50 per cent composite materials, making it lighter and easier to maintain than planes built from aluminium and steel.

- Bloomberg