Case 4: Airbus and the A380

By Lincoln C. Wood and Linh N. K. Duong

Dr Lincoln C. Wood is a Senior Lecturer in operations and supply chain management in the Department of
Management, the University of Otago (Dunedin, New Zealand) and an Adjunct Research Fellow at the
School of Management, Curtin University (Perth, Australia).
Dr Linh N. K. Duong is a Lecturer in supply chain and operations management in the National Centre of
Food Manufacturing, the University of Lincoln (UK).
The global airline industry consists of competitors of various sizes that tend to adopt either of two
broad models of serving passengers. The traditionally adopted ‘hub-and-spoke’ model uses a major
central airport as the hub with customers travelling from point A to B often being flown to the hub
before being passed into a different flight to their destination. The short-haul flights from the hub tend
to use smaller aircraft with longer, hub-to-hub flights dominated by larger aircraft with greater
capacity. The ‘point-to-point’ model was championed by lower-cost competitors such as Southwest
Airlines in the US and Ryanair in Europe. This model avoids the high charges at major airports that act
as hubs and, instead, creates a web of routes often from smaller regional or secondary airports. The
long-distance flights from hub-to-hub use larger planes with smaller planes shuttling passengers on
the spokes; the point-to-point model tends to use smaller planes over shorter distances.
Most major airlines purchase aircraft from Airbus (Europe) and/or Boeing Corporation (US).
Established in 1970, Airbus is a consortium between the governments of UK, France, Germany, and
Spain.1 Most design, production, and assembly processes occur at distributed locations around Europe,
following the original vision for a European consortium. Airbus manufactures components throughout
Europe before transporting them to Toulouse, France, for final assembly. With design and
manufacturing work spread over European countries, Airbus must carefully manage the flow of
information and materials.
The competitive advantage of Europe is debatable. According to common opinion, labourers in
Europe are costly, highly regulated, unionised, and inflexible. The World Economic Forum warns that
competitors from other parts of the world will soon pass European companies because the European
Union is falling behind other countries in higher education, innovation, and training systems. 2 Despite
these difficulties, Europe is still leading the field in many areas. Nine of the top 20 competitive countries
are in Western Europe and the European Union has comparative advantages in about two-thirds of the
manufacturing sector in the world, especially in highly sophisticated products. Airbus is one example
of the success of the European model.
Airbus’ achievement is based on its political foundation. While each government recognised that
consolidating national strengths is the only way to create Airbus’ competitiveness, the negotiation for
the consolidation requires political sensitivity. The location of the manufacturing plants was the most
sensitive decision. The easiest solution to resolve tensions was to site different parts of the plane in
different partner countries. Another reason to spread this supply chain amongst original partners was
to minimise arguments about where to put the final assembly line. Though the decision was to put the
final assembly line in Toulouse, each country does as much work as possible in its own manufacturing
plant. Thus, the time to assemble at the final assembly line is minimised.
Airbus believes that its spread supply chain enables the development of specialisation at each
manufacturing site. It leads to innovation and lowers the production costs of its planes. For example,
Airbus has developed and commissioned laser beam welding technologies to reduce weight and
corrosion. With its spread supply chain, Airbus also develops innovative means of collaboration. The
3D digital mock-up within Airbus has been developed and used for discussions between engineers at
different countries where they can see every part of the plane. Airbus is one example of a company that
is competitive because of the collaboration between countries. If each country follows its own national
objectives, its domestic industries would not be able to compete with global competitors.
While the spread supply chain brings many advantages to Airbus, there is always the risk of limited
supply due to disruptions (such as unforeseen technical issues and natural disasters). Stirring memories
of cabling and quality problems at a Hamburg plant caused a shortage of engines which in turn delayed
2 Case 4: Airbus and the A380

aircraft deliveries. While production has ramped up due to increasing demand, shortage of skilled
workers is also a risk in its supply chain. Recent concerns relating to Brexit has made Airbus reconsider
its investment in the UK.
Airbus has a vast and significant number of suppliers around the world; thus, it relies heavily on a
global supply chain. In 2006, insufficient coordination between engineering departments and suppliers
caused issues with Airbus A380 harnesses. Because of its development characteristics and strategies,
Airbus has always advocated fair and balanced trade in which government support is an integral part.
However, Airbus has been accused of receiving low-interest loans from European countries. Airbus
will continue to defend its position robustly and resolve the disputes.
As Asian countries become increasingly important customers, Airbus established a plant in Tianjin,
China, in 2009, another in Harbin, China, in 2011, and in Mobile, Alabama, in 2013. The reasons for
moving production to those locations are not that it is easier or cheaper to produce out of Europe, but
because it is difficult to lure government support and break into those markets. In China, having a joint
venture helps to increase sales. However, there is a long-term threat for this internationalisation
strategy as those countries could develop their own aircraft manufacturing industries. In 2011, the first
Chinese-built passenger jet flew more than 1,300 kilometres from Shanghai to Xi’an, and officials hope
the plane will become a rival of the Airbus A320 and the Boeing B737.
The success of Airbus A380 also puts Boeing into a race to gain back its market share. While Boeing
focuses on the ’point-to-point‘ strategy, they need to do something to compete with Airbus on the long
haul flights market. Boeing has developed B777X to compete with Airbus A380. While Boeing B777X
has 414 seats on board, Airbus A380 has over 500 seats. However, with more room for cargo, Boeing
B777X will be a rival for Airbus A380.
In the 1990s, the Airbus and Boeing collaborated on a Very Large Commercial Transport (VLCT)
aircraft project. The joint feasibility study ended in 1993. In the following year, Airbus began
development of the A3XX VLCT and from 1997–2000 it targeted a 15–20 per cent reduction in operating
costs over the Boeing B747. In 2000, the Airbus supervisory board voted to launch an €8.8b development
programme for the VLCT, dubbed the A380. Six key customers placed firm orders for 50 aircraft,
providing confidence to progress. Manufacturing commenced in 2002 with aircraft expected to be
worth US$330m each. A single flight can transport over 800 passengers with the correct configuration,
providing a large capacity that can be moved long-distance from hub-to-hub.
The project was not easy or simple. The original Airbus approach included freighting components
in specially enlarged jets; however, several A380 components were too large for this. The control
systems, cockpit, and the lower-centre section of the fuselage (length 28.26 metres, width 8 metres,
height 10.07 metres, weight 55.5 tonnes) are made in France. The rest of the fuselage and a part of the
centre section (length 23.17 metres, width 8 metres, height 10.3 metres, weight 60 tonnes) are made in
Germany. The wings (length 45.38 metres, wide 7.2 metres, height 11.9 metres, and weight 135 tonnes)
are made in the UK. The flags, the spoilers, and the moving parts of the wing are made in Holland. The
horizontal tailplanes (length 27.35 metres, width 7.68 metres, height 11.68 metres, weight 49.5 tonnes)
are made in Spain. Now, components are shipped on special ferries, then by boat and barge to a port
near Toulouse, and then transported in convoys of six articulated lorries in the middle of the night to
the assembly plant using a specially widened road. After assembly, the aircraft fly to Germany for
painting. The supply chain is capable of producing four A380s per month.
Airbus cited the complexities associated with wiring as being the cause for delays in June 2005. Each
aircraft contains 530 kilometres of wiring. A cause of the design problems was that British and French
facilities changed to a new computer-aided design platform, while the German and Spanish facilities
did not. With two different platforms there were problems with sharing and distributing work between
facilities. Further problems emerged as components were manufactured using materials that did not
meet the original specification, requiring alternate design rules that were not easily transferred between
the software versions being used by the different partners.
In June 2006, Airbus announced another delay, causing a 26 per cent drop in the share price of
Airbus’ parent company, EADS, and forcing the departure of the CEOs at EADS and Airbus. In October
2006, Airbus announced a third delay and declared that full production of 45 aircraft would commence
in 2010. At this point, the delay meant that there was a projected shortfall in earnings of €4.8b. To try
 Case 4: Airbus and the A380 3

to bring the project back on track, managers re-prioritised workloads and resources by pulling them
from other projects and allocating them to the A380 passenger plane development.3 One related project
that suffered because of this resource allocation was the A380F, designed as a freighter. As a result,
FedEx and UPS cancelled orders for the freighter version. Airbus does not have any orders for freighters
and has not delivered any. In 2009, Airbus delivered ten passenger A380s; by the end of 2012, they had
delivered 86; by the end of 2018 they had delivered 234 against an order book of 321.4
The sheer size of the new aircraft creates additional challenges in the use and scheduling of the
aircraft. Airport facilities frequently require upgrades, with runways and the boarding facilities and
procedures all requiring attention. With significantly more passengers on an A380, it becomes
necessary to board passengers from two points, which few airports have been traditionally equipped
to do. Introducing the plane on flights, therefore, requires airports to adapt and change.
The early delays in the A380 project, changes in the business environment, and costs associated with
operating VLCT aircraft changed business decisions relating to these aircraft. Qantas (Australia)
decided to delay their acquisition of further A380s for up to five years as part of their measure to reduce
capital expenditure and invest in other, smaller, aircraft. As of January 2019, Qantas had 12 of 205
ordered (the second largest order, globally). Qantas operates a mixture of jet and turbo-propelled
aircraft built by Airbus and Boeing.
One of the largest A380 customers has been Emirates; however, the lack of orders in late 2017 from
this key customer has led to perceived weakness 6. In 2018, two A380s were even broken up and sold
for parts, after being unable to sell. One challenge has been that designs for smaller aircraft have been
updated and modified to enable them to fly longer distances. Over the life of Southwest Airlines, the
single-aisle Boeing B737 has almost doubled the distance it can fly. By late 2018, none of the three major
US airlines (American, Delta, and United) had purchased an A380 as they focused on the older B777
that can carry almost 400 passengers. While the big three US airlines own other Airbus planes, the two-
engine nature of the B777 represents significant cost savings over a four-engine A380.
Emirates reduced its A380 orderbook by 39 aircraft in 2019 leaving 14 A380s remaining in the
backlog yet to be delivered. As a consequence of that decision and given the lack of order backlog with
other airlines, Airbus announced in 2019 that deliveries of the A380 would cease in 2021.7
As the operating environment changes, Airbus continues to monitor developments. With two
significantly sized players competing globally, there is little room for a strategic stumbling, with new
competitors appearing as emerging economies continue to experience strong growth. The duration,
size, and value of projects and significant penalties associated with failure to deliver on time and to
specification means that aircraft manufacturers need to judge the market direction carefully. While
Airbus has a focus on VLCT that enable airline companies to offer fewer flights, Boeing has turned its
attention to improving the fuel efficiency of existing fleets and supporting mid-sized flights with the
increasingly fuel-efficient B787 aircraft. However, Airbus believes that the emergence of megacities
(they expect 95 by 2036) will drive more reliance on high-volume transport between these points,
creating economies of scale and reducing the congestion at major airports by handling more passengers
per plane. A final source of uncertainty has been the 2016 Brexit vote and the on-going uncertainty
about Britain’s place in the European Union. As an employer of 14,000 staff in Britain, Airbus has
labelled the scenario of a British withdrawal without an agreement as ‘catastrophic’ and would
reconsider investments in Britain. The withdrawal would also disrupt supply chains and flow of goods
over the borders with the EU states.

Discussion
1 How does Airbus compete?
2 What are the challenges and benefits of Airbus’ distributed manufacturing?
3 How would political issues affect competition between Airbus and Boeing?
4 How would you expect Airbus to engage with their suppliers and customers during the A380
development project?
5 What changes would you expect to see in the Airbus supply chain in the future?
4 Case 4: Airbus and the A380

6 Considering Qantas’ experience, how might changing fuel prices and global financial shocks
change the success of the A380?

Endnotes

1 Input relating to the Airbus company and their products retrieved from <www.airbus.com>
2 Gordon, S. (2014, May 23). Airbus – the European model. Financial Times. Retrieved January 2019, from
https://www.ft.com/content/c9a9a77c-db07-11e3-8273-00144feabdc0
3 Gumbel, P. (2006, October 8). Trying to untangle wires. Time. Retrieved October 2012, from
http://www.time.com/time/magazine/article/0,9171,1543879,00.html
4 Airbus (2018, December 31). Orders and Deliveries. Retrieved January 2019 from
https://www.airbus.com/aircraft/market/orders-deliveries.html
5 Qantas (n. d.). Qantas A380. Retrieved January 2019 from https://www.qantas.com/au/en/about-us/our-
company/fleet/qantas-a380.html
6 Halsey III, A. (2018, August 19). Is the Airbus 380 the future of air travel or a relic of the past? Washington Post.
Retrieved from https://www.washingtonpost.com/local/trafficandcommuting/is-the-airbus-380-the-future-of-
air-travel-or-a-relic-of-the-past/2018/08/19/d98bae82-539f-11e8-9c91-7dab596e8252_story.html
7 Airbus reports strong full-year 2018 results, delivers on guidance. (2019, February 14). [Press release]. Retrieved
from https://www.airbus.com/newsroom/press-releases/en/2019/02/airbus-reports-strong-fullyear-2018-
results-delivers-on-guidance.html