The biggest bet placed by Europe's aerospace industry will be officially revealed on Tuesday. The Airbus A380 - a twin-decked behemoth with seats for 555 passengers - will be rolled out in the southern French city of Toulouse, watched by the leaders of France, Germany, Spain and the UK, Airbus's government backers.
With the A380, Airbus - whose first aircraft entered service in 1974 - will finally have a complete range of models to challenge Boeing, the US giant. The new aircraft, expected to make its maiden test flight within a few weeks and due to enter service in mid-2006 with Singapore Airlines, will end the lucrative monopoly Boeing's 416-seat 747 jumbo has had in the very large aircraft market for 35 years.
Today, the industry for making jetliners - those with 100 seats or more - has become a duopoly. But if the 20th century belonged to Boeing, the start of the 21st century belongs to Airbus. It has outsold its US rival in five of the last six years. It has also established an order backlog of 1,500 aircraft - compared with Boeing's 1,097.
This year, Airbus will deliver more aircraft than Boeing for the third year in succession. It believes that this - together with its A380 and the forthcoming long-range, mid-sized A350 aircraft, which is pitched as a direct rival to Boeing's planned 7E7 Dreamliner - will help consolidate its commercial advantage over Boeing.
Noël Forgeard, Airbus chief executive, says the company has made a "successful metamorphosis to a world leader". He claims the group is almost twice as profitable as Boeing's commercial airplanes division, helped by a "huge, relentless effort to reduce unit cost and grow our productivity: it is the reason why we can gain market share and grow profitably".
Boeing has certainly looked increasingly vulnerable. The group's critics say its long years of success led to complacency and it allowed the pace of product innovation to slow as it prioritised short-term earnings over investment. Its share of aircraft deliveries worldwide has fallen from 68 per cent in 1999 to 47 per cent last year.
"Boeing has struggled with the development work needed to take the company into the 21st century," says Tim Clark, president of Emirates, the Dubai-based airline that is one of the world's most important buyers of long-haul aircraft and will be the biggest operator of the Airbus A380.
Boeing's latest setback was revealed last Friday, when it announced $615m in write-offs. Next year it will close its production line for the 717, the smallest aircraft in its range. The company, which blamed a lack of new customers, had already closed the line for the larger single-aisle 757 late last year.
The production line for the wide-bodied, mid-market 767, to be replaced from 2008 by the 7E7 Dreamliner, is also threatened by early closure as a result of Boeing's failure - so far, at least - to sell the aircraft to the US Air Force as an in-flight refuelling tanker. Of the latest write-off, $275m was on the tanker programme.
Emirates' Mr Clark describes Boeing's 777 - its most recent all-new aircraft, which entered service in 1995 - as a "brilliant aircraft". But he has reservations about the rest of the US group's range. Airbus "has been braver, more brazen, more prepared to push the boat out", he says. "Boeing was more concerned about shareholder returns. It lost its bravery about developing new lines. The sonic cruiser [the planned aircraft Boeing abandoned because of lack of airline support] was great for the aircraft enthusiast but was going nowhere."
Airbus's A380, meanwhile, has been gathering support, particularly from airlines in Asia and Europe and from US express air cargo carriers. "This aircraft will change the game for long-haul airlines and airports," says Chris Avery, aviation analyst at JP Morgan. "With [operating] costs 15 per cent below the B747-400, we believe A380 operators will have an advantage on long-haul services in markets between Europe and Asia, across the Pacific and across the Atlantic."
Boeing, however, thinks the A380 will be a white elephant, designed for a world that no longer needs aircraft of such great size. "Is there any question that the A380 is a very expensive airplane for a very small market?" asks Randy Baseler, marketing vice-president of Boeing's commercial airplanes division.
Airbus forecasts that from now until 2023 there will be a market for 1,250 passenger aircraft of 450 seats or more. Boeing thinks there will be a market for only 900 of them.
Boeing has so far failed to sell a stretched version of the 747. It is still trying to market a modified larger jumbo, the 747 Advanced, but it has no firm customers for it. "If they don't do anything with the 747, they are getting to crunch-time," Mr Clark says. "They could throw in the towel and say: 'The A380 rules'. They seem to have lost the plot a bit and, in the meantime, the A380 will clean up if it has the startling operating economics Airbus claims."
Boeing and Airbus agree that air traffic over the next 20 years is expected to increase on average by about 5 per cent a year. But they differ greatly on how airlines will accommodate that.
Boeing's vision is based on the "fragmentation" of aviation markets, reflecting passengers' preference for more point-to-point, non-stop services and more frequent services instead of being routed to destinations via connecting hubs. Airbus accepts that fragmentation is taking place, which is why it is developing the A350, but it also expects consolidation on the main trunkroutes.
Airbus appears to be winning the argument. In recent years, it has won over some operators that previously used only Boeing aircraft, such as EasyJet and Air Berlin in Europe. Last month Malaysia's AirAsia, the leading low-cost operator in the Asia-Pacific region, became Airbus's latest defector client from Boeing after a contest lasting almost two years. Tony Fernandes, AirAsia chief executive, says Airbus "ran a fantastic campaign, really proactive: they had to go out and win because we were a Boeing operator".
But Airbus still has plenty to prove. In Japan, Boeing reigns supreme: There, the government and the aerospace industry are backing the 7E7 and Japanese carriers have emerged as the first big buyers. All Nippon Airways was the launch customer last year, with firm orders for 50 7E7s. Last month Japan Airlines announced plans to buy 30.
Airbus is seeking to exploit the opportunities in China. Last week, Mr Forgeard said Airbus was planning to establish an engineering centre in Beijing. It also plans to increase its procurement in China. Furthermore, Airbus is offering China's aerospace industry a 5 per cent risk-sharing role in the A350's development.
Beyond their day-to-day commercial battles, Airbus and Boeing are involved in a dispute between the US and the European Union over the appropriate method for channelling state finance into the development of civil aircraft. The immediate cause of the dispute is the €1bn ($1.3bn) of launch aid from France, Germany, Spain and the UK for the Airbus A350 and the billions of dollars of subsidies the EU claims Boeing is receiving for the 7E7 - whose success is crucial to Boeing's fightback.
The argument has threatened to escalate into the worst dispute in the World Trade Organisation's history. But last week the EU and the US stepped back from the brink, agreeing to spend three months trying to negotiate a settlement between themselves away from the WTO.
Any deal between the EU and the US will have a profound impact on the companies. In the meantime, Airbus faces a series of immediate challenges. One is prompted by its decision to raise production quickly to mid-2006. It risks over-reaching itself as it tries to cement its newly won leadership of the global industry. It is increasing output of its main seller, the single-aisle A320, from 20 to 30 a month by March 2006. At the same time, production of its A330/A340 wide-bodied long-haul aircraft is being increased by one-third from just over six a month to eight a month by April. But Airbus knows the risks it is taking. "You must make sure the whole system replies to the load increase without failure," a senior executive said last week. "You can be taken hostage if you have one single-source supplier that is defective."
Another challenge, not of its own making, is the weakness of the US dollar against the euro. This has the potential to undermine its long-term competitiveness. For most of 2005 and 2006 Airbus is protected, having hedged about $40bn of revenues at around €1/$1. It has also taken the precaution of pricing most of its purchases in dollars - even in Europe - thereby transferring exchange risk to its suppliers.
But, for all this, a much weaker dollar still poses a big long-term threat. "In the end, if the dollar goes to €1/$1.60 or $1.70, who knows?" Gerard Blanc, Airbus executive vice-president operations, warned last week. "This will probably impair our ability to invest as much in research and development as we have done so far."
A third challenge is Airbus's ability to show it will not be thrown off course by the change of management at the top. Mr Forgeard, Airbus' chief executive for the last seven years, fought a bruising battle in recent weeks to succeed Philippe Camus as French co-chief executive of European Aeronautic Defence and Space (EADS), its parent company.
He will probably take up his new role in May. But his successor has yet to be named. The tussle for supremacy at Airbus could spark further arguments between EADS' dominant French and German shareholders (see below). And Mr Forgeard will want his say. Certainly few expect him to relinquish his overseeing of Airbus. This is because it accounts for 92 per cent of EADS' profits and 67 per cent of its revenues.
Mr Forgeard will have to move quickly and with great skill to make sure that Airbus and EADS managements are not destabilised by further upheaval. Over the champagne and canapés in Toulouse on Tuesday the European aerospace industry will have much to celebrate - and much to ponder.
Sources for charts: company; Thomson Datastream
Three race to succeed as Airbus chief
The contest to succeed Noël Forgeard as Airbus chief executive must be decided soon, with three candidates dominating the race.
The front-runner still appears to be Gérard Blanc, Airbus’s 61-year-old executive vice-president of operations, who is understood to have the backing of Mr Forgeard himself. But he has still to overcome the significant reservations expressed last month by German shareholder interests in EADS, Airbus’s parent company.
If his candidacy falters, the task of succeeding Mr Forgeard could fall to the younger generation of executives. Of these, Fabrice Brégier, 43, the high-flying young head of EADS’ Eurocopter division, the world’s biggest helicopter maker, is regarded as the brightest prospect. He has already headed MBDA, Europe’s leading missile manufacturer, a joint venture between EADS, BAE Systems and Finmeccanica.
But Mr Brégier has no experience in the civil aircraft sector and would be entering Airbus at the most testing time in its history.
His great rival is Charles Champion, 49, an aeronautical engineer, who has spent his career in the aircraft industry - first at Aerospatiale and then at Airbus itself. He has experience of production, programmes, engineering and sales. Since December 2000 he has been leading the A380 programme.
The question is whether Airbus can risk moving him from the A380 project, which is about to enter the crucial phase of flight testing, certification and the build-up of production before the first delivery during the second quarter of 2006.
However strong the other candidates, Mr Blanc, offering continuity of management, remains the favourite. He lost out to Mr Forgeard in 1998 and this is surely his last chance to land the coveted top job after a career dedicated to Airbus.
But he has powerful opponents. In the early 1990s, before Airbus switched from being a consortium to a single integrated company, Mr Blanc was head of finance at Deutsche Airbus in Hamburg. And to win the chief executive’s job he will have to overcome objections in Germany.
At the height of the bitter battle last month over the management structure of EADS, DaimlerChrysler, the single largest EADS shareholder with 30 per cent, let it be known that it would not favour Mr Blanc. The objections were voiced on account of his age, his management style and the role he is believed to have played at the end of the 1990s in securing the siting of the A380 assembly line in Toulouse rather than Hamburg.
Inside the A380
What will it cost?
Total costs are still to be finalised, but could be about E13.7bn ($18bn at current exchange rates). When the project was launched in December 2000 the development cost was estimated at $10.7bn (€9.55bn at the then rate of €1/$1.12) with an additional $1.8bn of capital expenditure. Airbus now expects development costs of about €10.7bn, plus €1.6bn of capital expenditure and cost overruns to 2011 of up to €1.45bn
€2.9bn of the funding is coming from repayable state launch aid from the French, German, UK and Spanish governments, of which around €2bn has been received. The balance comes from Airbus and risk-sharing partners and suppliers
The Airbus business case forecasts a rate of return of about 20 per cent, with break-even production of some 260 aircraft
Where will it fly?
The A380 will fly chiefly on the busiest long-haul routes. London Heathrow could be the airport with the most A380 traffic. BAA, the airport’s operator, is spending £450m ($847m, €641m) in terminal and airfield modifications to accommodate the superjumbo and estimates that by 2016 the A380 will account for one in every eight flights, or 60,000 take-offs and landings a year
Singapore Airlines will be the first to fly the A380 in mid-2006 and says it will use it on high-density routes, in particular to London, New York, Tokyo and Sydney
Who is buying?
To date 13 customers have made firm orders for 139 aircraft, including 11 airlines, one express cargo carrier (FedEx, for 10) and one leasing company (ILFC, for 10)
The airlines include Emirates, (43 plus 2 to be leased), Lufthansa (15), Qantas (12), Singapore Airlines (10), Air France (10), Virgin Atlantic (6), Malaysia (6), Thai (6), Korean (5), Etihad (4) and Qatar (2)
The current list price is $281m, but big discounts are usually available. JP Morgan, the US investment bank, estimates the net price of a new A380 to the first customers at around $160m
Where is it built?
Modules are pre-assembled at Airbus plants around Europe and transported by sea, river barge and then road to Toulouse in south-west France for final assembly
How will airlines exploit its size?
The A380 will be the world’s biggest commercial jetliner, with two full decks for passengers and a third deck for cargo, crew accommodation and perhaps entertainment. It will have a range of 8,000 nautical miles
Airbus estimates that a three-class configuration could accommodate 555 passengers but that could rise to more than 800 for economy use with dense seating
There is much talk of new features such as bars, gyms, bedrooms, casinos and duty-free shops. The Airbus cabin mock-up includes showers, a water feature, a double-width staircase between decks, and luxurious, book-lined club-style bars
Singapore Airlines says it will have three classes but fewer than 500 seats. Emirates plans four versions, a 500-seater able to fly non-stop from Dubai to Australia, a 533-seat three-class lay-out and a 653-seat two-class aircraft
Get alerts on Companies when a new story is published