LONDON (Dow Jones)--Airbus now needs to sell around 420 A380 aircraft to break even on the delayed program, according to a presentation given at an investor meeting of parent company, European Aeronautic Defence & Space Co. NV (5730.FR) Thursday.

The break-even outlook is updated for 2006 and updates the 2005 business case, which was based on 270 A380 orders, according to a presentation by Airbus Chief Financial Officer Andreas Sperl.

Toulouse-based Airbus has so far booked 159 orders for its double-decker A380 aircraft, but earlier this month announced another year-long delay in deliveries due to electrical wiring problems. EADS has said that this delay and two previous six-month delays will knock its profits by some EUR4.8 billion in total through to 2010.

The A380 program has involved an investment of around EUR12 billion. The first airplane won't now be delivered until October 2007. Sperl's presentation added that with a starting reference of 2007, the notional A380 break-even is 150 airplanes.

Due to the delayed deliveries and cost overruns linked to the production ramp-up phase, Airbus is now forecasting an internal rate of return for the A380 program of 13%, compared to the 19% forecast in 2005. The company still anticipates delivering 751 A380s over the long-term, according to Sperl's presentation, which was posted on EADS' Web site.

In a presentation due to be given later Thursday, Airbus Senior Vice President for Financial Control Harald Wilhelm says Airbus' restructuring plan, dubbed "Power 8," is aimed at speeding up sluggish aircraft development, maximizing cash and cutting costs.

The airplane maker's cash needs are huge, the presentation says, particularly as the delays to the A380 imply a EUR6 billion cash shortfall. It also needs cash to fund capital expenditure and inventory beyond research and development.

Wilhelm will tell analysts in Hamburg that Airbus intends to centralize its procurement operations and consolidate its base of suppliers, as well turning to lower-cost countries for the sourcing of some of its components in an effort to save money. In addition, Airbus will increase its use of external funding to finance its programs.

Airbus' plan, launched earlier this month, is designed to improve efficiency and cut costs by about EUR2 billion a year by 2010. According to Wilhelm's presentation, the cutbacks will start bearing fruit in 2008.

Airbus' plan has raised concerns of heavy job losses, especially in Germany and France where much of the plane maker's production is concentrated.

But, in the presentation, Wilhelm will stress Airbus is "ready to address difficult social and political issues" and that, in the face of a weak U.S. dollar, fierce competition from U.S. rival Boeing Co. (BA) and costly overruns on its A380 super-jumbo project, "to do nothing is not an option."

They will probably pay, and soak their tax payers all the more.

Indeed. They will. They are already on the hook for throwing another $10 billion into trying to counter the 787 and still more to try and counter the 777! In a decade or so. And that was when they had brought in outside managerial help which more clearly saw their marketing predicament. Now he has been cashiered....

Here was his take on their debacle before the bureaucracy succeeded at killing the messenger...

JULY 19, 2006

Europe

By Carol Matlack

Airbus Eats Humble Pie at Farnborough

The plane maker dismissed the threat of rival Boeing's Dreamliner and fell into crisis. Now it's pinning its hopes on the A350 XWB

Slide Show >>

Airbus got the message. In an extraordinarily public mea culpa at the Farnborough International Airshow near London this week, executives of Airbus and its parent European Aeronautic Defense & Space admitted that they misjudged their market, handing a big advantage to U.S. archrival Boeing. "Airbus is in the middle of a serious crisis in our relationship with our customers," the plane maker's new boss, Christian Streiff, said at a July 17 press conference.

But if Airbus now grasps what the airlines want—faster, more fuel-efficient, widebody jets—it still has to prove that it can match what the competition is offering. As expected, Airbus used the Farnborough show to announce plans for a new long-range jet, dubbed the A350 XWB for "extra wide body."

The aircraft, which will cost an estimated $10 billion to develop, is intended to counter two of Boeing's best-selling aircraft, the new 787 Dreamliner and recently updated models of the Boeing 777. Both planes have been clobbering Airbus in the marketplace, mainly because of superior fuel efficiency, a key concern for airlines at a time of soaring oil prices.

WIDEBODY WINNER. Underscoring its market advantage, Boeing ( ) continued to rake in orders during the Farnborough show. Among the biggest: a $3.3 billion deal with Dubai-based Emirates for the freighter version of Boeing's updated 747, and a $1.2 billion order from U.S.-based International Lease Finance for 10 Boeing planes, including two Dreamliners.

As of Wednesday, Airbus's biggest deal at the show was a $1 billion preliminary agreement by Libya's Afriqiyah Airways to buy 12 planes. Going into the show, Boeing had logged 486 firm orders this year compared to only 117 for Airbus.

Can the A350 XWB get Airbus back on track? It does boast some appealing features. It has an advanced new engine design and a sleek wing made of lightweight plastic composite materials. Airbus says the new plane will at least match the Dreamliner on fuel efficiency and flying range, while exceeding the 777 on both measures.

BAD TIMING. In response to tepid customer response to an earlier version of the A350, Airbus also has widened the cabin and upped the plane's flying speed. "What's new? Virtually everything," Airbus sales chief John Leahy said in describing the new design. He called the A350 XWB "a step ahead of the 787 and a leap ahead of the 777." While some airline executives have welcomed Airbus' announcement, most are taking a wait and see stance. That makes sense because Airbus still faces some formidable obstacles.

Timing is one. Airbus says it expects to get the first A350 XWB into service in 2012. That model, a 314-seater, will compete mainly against a 280-seat version of the Dreamliner that Boeing expects to get airborne in 2010. Two years doesn't sound too bad—until you consider that a smaller, 242-seat version of the Dreamliner will start flying in 2008. It will have the skies to itself until 2013, when Airbus plans to launch a comparably-sized version of the A350 XWB.

Equally worrisome for Airbus, the Boeing 777 is already flying. Airbus plans to counter that plane with a 350-seat version of the A350 XWB—but it won't enter service until 2014. Nor is it clear that the A350 XWB will be a technological slam-dunk. Although detailed technical specifications are still months away, Airbus has already made clear that the new plane will not have an all-composite fuselage and wings as Boeing's 787 does.

GOOD NOT GREAT. Composites can yield impressive fuel savings, but they're tricky to manufacture. Indeed, the U.S. company already has encountered some production problems (see BusinessWeek.com, 6/7/06, "On a Wing and a Prayer at Boeing").

Airbus is taking a more conservative approach on the A350 XBW, using advanced metal alloys as well as composites. To reduce fuel consumption, it's counting on an advanced engine and aerodynamic wing design. That could enable the plane to match the Dreamliner's fuel efficiency, but probably not exceed it by much, says Doug McVitie, a France-based aerospace analyst who previously worked at Airbus. "The A350 will be a good aircraft, but it's not going to set the industry on fire, and it's not going to worry Boeing too much," McVitie says.

But surely the A350 XWB can leapfrog the older Boeing 777—or can it? Given its big head start, Boeing has time to develop new engines or other modifications to improve the 777's performance. What's more, the largest versions of the 777 have more seats than the biggest A350 XWBs will have, and the Airbus plane can't be stretched further without seriously compromising efficiency, says Richard Aboulafia, an aerospace analyst with the Virginia-based Teal Group.

Even if its new plane isn't a champion, Airbus at least has shown customers and investors something that many thought was overdue: humility. After pulling ahead of Boeing as the world's No. 1 plane maker in the past few years, Airbus seemed to take its eye off the ball.

For months, it dismissed the sales threat posed by the Dreamliner, arguing that minor modifications to an existing Airbus jet were all that was needed to counter the Boeing plane. The company also stumbled on manufacturing, allowing technical problems on the new A380 megaplane to get out of control before acknowledging belatedly that deliveries would be delayed.

The company says it has learned from those mistakes and will shape up. "Airbus will get out of this crisis stronger than before," Streiff said at Farnborough. Now Airbus has to deliver on that promise.

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