FreightWaves Classics articles look at various aspects of the transportation industry’s history. If there are topics that you think would be of interest, please send them to firstname.lastname@example.org.
The many industries that make up the world of freight have undergone tremendous change over the past several decades. Each week, FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.
In this week’s edition, from the February 2005 issue of American Shipper (Page 66), FreightWaves Flashback recalls the introduction of the Airbus A380, a significant moment in the long-haul market. The author of the story is Eric Kulisch, currently a FreightWaves staff writer.
Airbus is ready to break Boeing’s 30-year monopoly on making large passenger aircraft.
The European aircraft manufacturing consortium unveiled its super jumbo, long-range passenger plane at a mid-January ceremony attended by dignitaries from Great Britain, France, Germany and Spain.
Airbus plans to begin certification test flights at the end of March and deliver its first double-decker A380 in 2006. It has orders for 149 planes so far.
The colossus of the sky will carry 550 people, or more in some versions. That also means more cargo space for air freight forwarders and their customers.
For those who want all the cargo space they can get, there is the all-cargo A380 variant.
UPS placed an order in January with European aircraft manufacturer Airbus for 10 A380 super jumbo, long-range freighters as part of the parcel delivery giant’s effort to keep up with demand for international shipping.
“The A380 will allow UPS to effectively meet the fast-growing demands of our customers across a variety of global trade lanes,” said John Beystehner, chief operating officer and president of UPS airlines, in a statement.
Deliveries are scheduled to begin in 2009 and continue through 2012. UPS has the option to purchase 10 more of the super jumbo jets. The purchase price was not disclosed.
The order matches one by rival FedEx in 2001. FedEx is one of the original launch customers for the A380 and will begin taking deliveries in 2008.
The A380 freighter version has three cargo decks, compared to two in the Boeing 747-400 freighter, with 40,000 cubic feet of capacity and a maximum payload of 150 tons. It can accommodate 71 large cargo pallets. The standard Boeing 747-40 freighter can carry 124 tons and has a range of 2,600 miles. The A380 has nearly twice the payload of the MD-11, another long-range aircraft that’s part of both the UPS and FedEx fleets. It has a range of 5,600 nautical miles, enabling it to fly more nonstop legs than other aircraft.
The extra capacity means FedEx and UPS can handle more cargo with fewer flights, an important factor in China, where U.S. airlines have a limited number of weekly slots.
UPS’ international business grew 13.2% in the third quarter compared to the same 2003 period. Asia export volume increased 29% and export volume from China more than doubled.
UPS’ decision is a blow to Boeing, which has lost market share and the overall lead in worldwide deliveries for commercial airliners to Airbus in recent years. UPS operates nine 747-100s and four 747-200s.
The competition between Boeing and Airbus is as fierce as ever. 2003 marked the first time that Airbus passed Boeing in total airplane deliveries — 305 to 281. Last year Boeing delivered 285 commercial airplanes, but Airbus bested it again with 320 deliveries. The fact that Boeing cannot take advantage of the weaker U.S. dollar to spur more export sales indicates the challenge it faces.
The European Union and the United States recently agreed to settle their dispute over state subsidies for aircraft makers Airbus and Boeing through direct negotiations rather than pursue actions through the World Trade Organization.
Both sides pulled their request for WTO arbitration in December and now begin three months of talks to end commercial aircraft subsidies. They both also agreed to suspend new subsidies during the negotiation period.
“For the first time in this long-standing dispute, the U.S. and the EU have agreed that the goal should be to end subsidies. To sharpen the focus of our work, we have further agreed to use the definitions and framework of the WTO subsidies rules as the basis for an agreement. This approach should also help us multilateralize the effort over time,” U.S. Trade Representative Robert Zoellick said in a statement.
After a bilateral fair-trade agreement is reached, the two sides will work to get other countries with civil aircraft industries, including major suppliers to Airbus and Boeing, to adopt it, according to the U.S. trade representative.
The dispute escalated last year after the United States terminated a decade-old agreement permitting limited subsidies to commercial aircraft producers. The United States argued that the EU was not phasing out state aid as the agreement required. The United States filed a complaint against the EU over state aid to Airbus and the EU retaliated with an action for U.S. support of Boeing.
For logistics providers, the Airbus-Boeing competition bears watching on several fronts. It’s an air cargo story with implications for capacity, especially in the tight Asia/U.S. lane. And it’s a trade dispute that has the potential to escalate and lead to retaliation in other economic sectors.
Of particular note is the two companies have completely opposite strategies for meeting the huge projected growth in demand for aircraft during the next 20 years. Both strategies seem to have logic behind them.
Airbus is betting that airlines will prefer the efficiency of moving large numbers of people over long distances. With airports and air space already congested, it makes sense to use fewer planes to haul more passengers and cargo.
The Airbus A380 is a phenomenal engineering project, but will it pay off? Company officials recently disclosed that the $13 billion project is already over budget by $2 billion, primarily due to research and development designed to improve the efficiency and weight of the aircraft. But they insist the program will still be profitable, projecting a 20% rate of return. The company says it needs 100 more orders to break even.
Boeing takes the view that people prefer more convenient, point-to-point service rather than connecting through hub airports. With more competition among airlines and countries loosening restrictions on the number of foreign carriers and flights that can serve their markets, the Chicago-based manufacturer is gambling that the time is right for a fuel-efficient, midsized plane that can fly nonstop almost anywhere in the world, and is developing the 250-seat 7E7 Dreamliner to meet that demand. Boeing executives say history shows that Airbus has the wrong formula. The Boeing 767 and 777 became more popular and stole market share away from the 747 even though they were more efficient to operate. Boeing has received 56 orders for the 7E7, less than the 200 it had protected so far.
Both sides seem to be covering their bets, just in case. Airbus recently said it would develop the A350 as a direct competitor to the 7E7 — and apparently plans to apply for European government loans to develop the plane. Boeing, which hasn’t sold a 747-400 jumbo jet since 2002, is considering whether to offer a “stretched” version of the 747 that could carry 450 passengers, up from 416, and use 7E7-type engines to extend its range.
It will be interesting to see who is right.
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