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Excuse Me, Is My Plane Ready NOW?

As the price of jet fuel goes through the roof, airlines are eager to replace old gas-guzzling planes with a new generation of fuel-efficient airliners. Airbus and Boeing are taking plenty of deposits, but not one of the shiny new planes has yet been delivered.

As the price of jet fuel goes through the roof, airlines are eager to replace old gas-guzzling planes with a new generation of fuel-efficient airliners. Airbus and Boeing are taking plenty of deposits, but not one of the shiny new planes has yet been delivered.

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Perhaps it’s karmic revenge for passengers, since the airlines themselves are stranded in the departure lounge. On June 13, Airbus announced delayed deliveries of the A380 superjumbo, a double-decker wide body that can carry over 500 passengers. Airlines who were awaiting the plane will lose millions, and their contracts enable them to penalize Airbus. The company warns of two billion euros in lost profit due to the missed deadlines.

On July 2, Airbus CEO Gustav Humbert resigned in disgrace, as did Noel Forgeard, co-CEO of parent company EADS. While he was still CEO, Humbert must have approved this language from the June 13 press release: “The new delays are caused by industrial issues only. They are mainly traceable to bottlenecks formed in the definition, manufacturing and installation of electrical systems and resulting harnesses.” Newspapers reported this verbiage to mean that installing custom entertainment systems for each airline proved more complicated than expected.

Archrival Boeing is promoting a smaller widebody, the 787, designed to carry 210-250 passengers. The 787 is designed for use on many different point-to-point routes, unlike the A380 which funnels passengers through major hubs. Scheduled to enter service in 2008, the 787 will be made of advanced lightweight materials, promising airlines a twenty percent fuel savings.

Last month, Business Week reported early signs of trouble in Boeing’s manufacturing process for the fancy new plane, which will be produced using a consortium of subcontractors. Rather than riveting together aluminum panels, Boeing and its partners will be making the 787 with carbon fiber.

I’ve seen this process in person, and it’s the classic example of substituting capital for labor. Instead of watching dozens of riveters swarming in and around the fuselage, you see a largely empty room, with a giant spool onto which the carbon fiber is laid. Just a few workers participate in this computer-controlled process. When the huge tube is ready, it is baked and thus hardened.

Apparently, one of Boeing’s early 787 bakes didn’t go very well, and the fuselage “barrel” had to be scrapped. Boeing says this setback will not delay the first 2008 deliveries, but only time will tell.

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In the golden age of passenger aviation, vertically integrated companies delivered analog, aluminum planes on a “one size fits all” basis. The Airbus A380 and Boeing 787 embrace several of today’s hottest business concepts: outsourcing, digitization, and customization. Can these concepts work for a $100 million airplane that needs to operate reliably and safely for twenty years on a 24/7/365 basis? It should be an interesting space to watch.

July 5th follow-up note: commenter PRoales suggests that the A380 and 787 will be flown approximately 800 hours per year, which would mean an average of 2.19 flight hours per day. I beg to differ. An MIT study claims that aircraft utilization is one way the best-managed airlines gain competitive advantage, getting maximum use out of their capital investment. From the study:

“In 2004, JetBlue operated its Airbus 320 aircraft on average for 13.6 block hours per day, an aircraft utilization rate 46% higher than Northwest for the same aircraft type, and highest of all US Major airlines. At the same time, JetBlue’s unit aircraft operating cost for this aircraft fleet was 3.2 cents per available seat mile (ASM), less than two-thirds of that reported by Northwest (5.1 cents).”

Cargo users put even more demand on their aircraft. From a Boeing press release about the 747 freighter: “Cargolux has flown its existing two 747-400 Freighters an average of almost 16 hours per day, setting a new utilization record. Cargolux attributes its high utilization rate to the airplane’s superior performance and a dispatch, or scheduled, reliability record of more than 99 percent.”

For more on the Boeing/Airbus rivalry, visit the aerospace section of my personal blog.

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