Pies in the sky – A380 and Dreamliner Delays

They are perhaps the two most eagerly awaited aeroplanes in aviation history. But while both are making records – Boeing's 787 Dreamliner is for being the fastest selling and Airbus's A380 for being the biggest – both are newsworthy for anything but positive press at present. The one thing that ties both projects together, despite their record-breaking feats, is that both projects are incredibly late.

Boeing has blown 15 months off course with the Dreamliner and faces paying angry airlines up to $4.1m in penalty payments. Airbus is two years behind schedule – a situation that has cost it and parent company EADS an estimated $6bn in lost earnings and penalty payments. Subsequently, senior executives have fallen on their swords, 10,000 people have lost, or will lose, their jobs and EADS has plunged into the red.

According to Les Weal, head of valuations at aviation analysts Ascend Worldwide, it is a situation unlike any other seen in the industry before.

"I've worked in the industry for over 20 years and I've never seen delays of this magnitude. I always thought the projects were ambitious but I didn't expect them to go this wrong," Weal says.

So what is causing the delays? Are there any positives to come out of the situation? And what does it all mean for the future of an industry already squeezed by oil prices and credit crunches?

TRIPS IN TIME

The main problem holding Boeing back has been the reliance on a huge network of overseas contactors required to get the Dreamliner off the ground according to John Scholle, aerospace analyst at Global Insight's Washington office.

"Boeing set up a very ambitious supply chain which relied on big parts – fuselages and whole wings – being assembled overseas and then brought to the Seattle factory. In the end it has proved a little too ambitious but it will be an impressive system if they can get it working," Scholle says.

EADS subsidiary and maker of the A380, Airbus has also experienced problems in the production line. Its German and Spanish arms of the company have been using a different version of CAD software to its French and British counterparts. Although manufacturers Dassault Systèmes claim the two versions are compatible, lost data has set Airbus further back in the A380's production schedule.

"The early hold-ups with the A380 highlighted the bad institutional problems within EADS," Scholle says. "The French and Germans were using incompatible software and they haven't been able to ramp up to serial production yet. However, they rearranged things a while back and that seems to have taken care of the problems."

The rearrangement has included the announcement of mass job cuts at Airbus factories across Europe while intensive recruitment and in-house training programmes have happened elsewhere to help get production of the A380 back on track.

"People need to adapt, learn and improve more and more quickly," Airbus president and CEO Paul Enders said in May. "Airbus continues to ask a hell of a lot from employees, and if we are behind schedule on the A380 programme it's certainly not due to lack of effort, commitment, and determination from the thousands of people working to get it back on track. But there is a limit to what we can ask of people who have given so much already."

DELAYED SIDE EFFECTS

The delayed appearance of the A380 and Dreamliner has potentially damaging knock-on effects for the industry. With oil costing an all-time high of $135 a barrel, many airlines were counting on the new super-sized jets to increase flight capacity so costs could be spread over a larger number of seats. They were also counting on deliveries to replace less fuel-efficient planes and expand into new routes.

"The delays to the A380 and Dreamliner will certainly cause planning problems for those airlines that wanted to shift to more fuel-efficient planes or expand routes," says Ascend Worldwide's Weal. "The Dreamliner is more fuel efficient and the A380 has a better fuel burn per seat than existing aircraft. Instead of flying two 747s close together, Singapore Airlines, for instance, could use one A380."

News of the delays has not been all bad, though some quarters have seen it as a blessing given the current climate of worldwide events.

"A delay in delivery suits us very well, since there is a general slowdown in the industry and we can easily do without the B787 addition at this point in time," a senior official from the National Aviation Company of India said in May. "Meanwhile, we are also going to claim compensation from Boeing on delayed deliveries. It's a win-win."

The delays will also be welcomed by US airlines currently fighting against high oil prices and a weak dollar, according to Scholle, especially in the US.

A huge run-up in fuel prices has coincided with a softening of demand. Airlines can't increase prices anymore – certainly not in the US as people would just drive instead – so they are looking to cut capacity by 10%-12% by the end of the year. So, what they don't need right now, is new capacity," Scholle says.

There will be a further positive knock-on effect for owners of the much in-demand next-generation wide-bodied aircraft. Weal says the long-haul market is growing, with big carriers unable to compete with the budget airlines on short-haul flights. "But supply of aircraft isn't growing as quickly, so there has and will be a doubling of lease rates," Weal says.

PIES IN THE SKY?

So, the $10.1bn question is: when are we going to see the planes in flight? Boeing's latest schedule suggests the Dreamliner's maiden flight will be in the fourth quarter of this year with deliveries commencing in the third quarter of 2009, but totalling only 25 by the end of that year rather than 109 as initially planned.

Airbus, which has already delivered four A380s, plans to cut this year's deliveries from 13 to 12 and next year's from 25 to 21. Is the new schedule workable or will there be more delays?

"I'm hoping they've got all the bad news out," says Weal. "Neither Boeing nor Airbus can afford to announce further delays. Mind you, nothing would surprise me anymore."

With routes being cut and airlines going bust on an almost weekly basis, the delays to the Dreamliner and A380 are further evidence that these are turbulent times for the aerospace industry. What does the future hold?

"Despite the problems, manufacturers remain in good shape," says Scholle. They have such huge backlogs that if you buy an aircraft now you won't get it for six or seven years. There's enough of a lag to ride out any problems. I'm optimistic for airlines too in the longer term. Of course, there's going to be downsizing risks in the short term but I think, with new wealth being created all the time, the trend for air travel will continue."

Les Weal sees a bright future too although he disagrees with John on one crucial point: the burden of cost for the high oil prices will have to be transferred to customers in order for the industry to prosper.

"In my view no airline has a business plan that can cope with $130 a barrel for oil," he says. "The industry will have to readjust to survive. It's fairly easy to cure – airlines will simply have to put up fares. This will reduce demand for travel, which will reduce demand for new aircraft. The industry will right itself."