Industry Perspective: Airbus

 - September 20, 2007, 7:25 AM

When Airbus tentatively entered the corporate jet market a decade ago with the ACJ, its expectations for the airplane were modest. Success would be measured in single-digit sales primarily to wealthy individuals in the Middle East who dreamed of creating miniature flying palaces.

With the first sale of a giant Airbus A380 to an unidentified private individual announced earlier this year, the concept of the flying palace is being elevated to
a new level. Edése Doret, a jet interior expert asked to design the executive A380 interior, said the airplane will cost $300 million and the cabin will add another $150 million.

The price tag includes the cost of modifying the fuselage for an Air Force One-style stairway that will allow passengers and crew to enter the airplane through the cargo bay. That stairway leads to a lower spiral staircase that takes passengers to the entry lounge. Another sweeping staircase leads to the grand lounge on the upper deck, which will also includes a 600-sq-ft master suite, a Jacuzzi, a family dining room and a game room.

In the midst of his division’s best year ever, Airbus Corporate Jet vice president Richard Gaona spoke with NBAA Convention News about the current state of the market and the outlook for the future.

The market is very strong for large VIP airplanes, obviously. How many sales have you made so far this year?

At the moment we are at 28 sales for the year, and I’m just now waiting for a phone call from a customer to tell me that he is OK for sale number 29.

So that would make 2007 the strongest year ever for Airbus corporate jets?

Absolutely. Last year we sold 21 airplanes and this year we’re at almost 30. An important point to make about sales this year is that we have taken orders for six widebody VIP aircraft, including an A330-200, A340-300, two A340-500s and an A340-600, as well as one super-large A380. It’s quite amazing that we arebooking so many big aircraft at the moment. It’s speaks to the strength of the current market.

In the last decade Airbus has sold more than 100 corporate jets. Looking back to when the ACJ program started, how does the reality of today match with your expectations then?

It’s certainly true that the market turned out to be much better than we thought. When we launched the program we thought the market would support sales of about six airplanes a year, and now this year we will be delivering 13 airplanes. So it’s true that the market has been much, much better than we originally thought. The reasons are, first, the economy has been very good in the last two or three years and, second, more private jet customers are now aware of our products and they are moving from traditional business jets to wider cabins.

Which markets around the world are the strongest?

Originally one of the stronger markets was the Middle East, and the bigger airplanes are mostly going to that market. But at the moment we are seeing very strong demand in Eastern Europe and, based on the fact that we booked six orders in the U.S., it seems that the U.S. market is once again interested in a wider cabin.

There are three categories of buyers: corporations, wealthy individuals and governments. At the moment, more than 50 percent of the orders are from private individuals. We have made sales into Russia, where there is a lot of demand. In fact, we have delivered three airplanes for customers in Russia, which we are now in the process of completing. We have placed more than 10 airplanes in Asia, in places like Thailand, Malaysia and Hong Kong. I think the China mainland could become a booming market in the next decade because they are relaxing barriers for flying corporate jets and there are huge opportunities for corporations and private individuals there.   

With so many orders booked this year, is completion capacity becoming a concern?

Yes, it is. The completion centers are completely full until early 2009 for ACJ-type aircraft, and it’s an even longer wait for widebody VIP airplanes. Today, if we were to sell an A340, I don’t think there would be any completion center able to take it before 2010. That’s why we decided to re-open the ex-Sogerma facility in Toulouse, France. This center is full for the next two years at a rate of three aircraft per year. For the moment we are limiting the production at this facility to the ACJ, while Lufthansa, Jet Aviation and Gore Design are receiving widebody completions.

And finding the capacity to do A380 completions is an even bigger problem?

Yes. We have booked one sale, as we announced at the Paris Air Show, and we are in the process of discussing the sale of another. Our concern today is really the completions because I don’t think there are any big completion centers that could take an A380 before mid-2010. It’s becoming an issue because, after all, mid-2010 is quite far in the future. Customers decide themselves which completion center will take care of the cabin, because on widebody aircraft we are not involved in interior completion. We help the customer define the concept for the cabin, but then it’s the responsibility of the customer to choose a completion center.

Looking at your model line, from the A318 Elite through the ACJ and up into the widebody aircraft and the A380, how do you foresee sales breaking down over the next decade or so?

For the moment we are trying to have one third of ACJ sales on the A318 and two thirds on the A319 and A320. The total will be around 18 airplanes per year, which is the number we’ll put into service each year starting in 2010. As far as the A380 market is concerned, the number of real customers may be limited to a maximum of 10 in the world. If we could sell one a year, that would be very, very good. There is a lot of speculation at the moment about big widebody sales, and I know exactly and in detail which completion center is doing what, and I can tell you that whoever buys a super-large widebody 380 or even 747 today will not get a slot before 2010 or 2011.