Cost control continues to challenge Airbus, even as new orders flow

 - February 12, 2011, 11:12 AM

Airbus entered 2011 with a clear perspective on its main challenges and opportunities. In the start-of-year press conferences staged by both the European airframer and its EADS parent during January, executives identified the overriding challenge as the continuing battle to control costs. In fact, costs on the troubled A380 program have continued to undermine profitability as the manufacturer struggles to increase output rates in the face of new challenges, such as those resulting from the failure of a Rolls-Royce Trent 900 engine on a Qantas A380 last November.

Meanwhile, Airbus treads cautiously as it endeavors to keep development of its new A350XWB widebody on track. It has been noticeably muted in terms of how little detail it offers by way of updates on the new program, but COO Fabrice Br⁄gier told the press on January 17 in Toulouse that it seeks to avoid costly engineering and planning errors that could result in work having to be redone. The Airbus financial team also sustains an ongoing strategy for hedging against the continued imbalance between its cost currency, the Euro, and its income currency, the U.S. dollar.

In the opportunities column, Airbus has already notched some encouraging results in terms of winning new business. The January 17 announcement of a 30-aircraft order from Virgin America for up to 30 of its new A320Neo narrowbodies built upon the feel-good factor engendered by a potentially massive agreement sealed earlier in the month for Indian carrier IndiGo covering up to 180 A320s (of which 150 would be the re-engined Neo model). Further good news came this week with an order from GE Capital Aviation Services for 12 A330s and another from the Thomas Cook Group for a dozen A321s fitted with the new Sharklet wingtip devices.

Airbus’s decision to proceed with the re-engined Neo potentially gives it an edge over Boeing in the single-aisle battleground for as long as its U.S. rival remains silent about its next big idea in fuel efficiency. The Neo promises a 15-percent cut in fuel burn at a time when the price of oil is set to break through the alarming $100 per barrel mark. But the high cost of fuel and fresh concerns about the possibility of a double-dip recession in markets such as Europe mean that for both Airbus and Boeing sales teams 2011 could prove a challenging time. Airbus itself has not discounted the possibility of seeing order cancellations this year, even as its backlog has been extended to 3,552 aircraft worth up to around half-a-trillion dollars.