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Airbus taken down by its own momentum

Marketplace Staff Oct 5, 2006

BOB MOON: And then there was one, maybe. The European parent company of Airbus admitted today it’s fallen a decade behind archrival Boeing in the commercial aircraft business. We told you earlier this week about the latest delay in Airbus production. Its giant A380 won’t be delivered for at least another two years. And the aerospace company is suggesting other projects might face delays and cost cuts as a result. The aviation industry is cyclical, so we may yet see Airbus come storming back. But commentator John Gapper says at least now everybody’s learned bigger ain’t always better.

JOHN GAPPER: Too much money can be bad for businesses, just as it can be for people. When companies are doing well and generating capital, they can afford to dream a little. When they’re up against the wall, they have to shed their vanity and make the tough decisions.

Take the latest round in the rivalry between aircraft makers Boeing and Airbus. Five years ago, both companies were pondering grand ideas for their next aircraft launches. Airbus dreamed of displacing Boeing’s 747 jumbo jet with a supersized airliner — the 550-seat A380.

Boeing thought it could defeat Airbus with the Sonic Cruiser. This futuristic plane would fly at speeds just below the sound barrier. Then Boeing got into all kinds of trouble. It suffered cost over-runs and accounting write-downs. It lost its chief executive in an industrial spying scandal.

So, Airbus sold more aircraft than Boeing for the first time ever in 2003. The European company was on a roll and also able to use government loans to fund the launch of the A380.

Meanwhile, Boeing had to retrench. It cancelled the Sonic Cruiser. Instead, it settled on something much less glamorous — a replacement for its 767 that would eat less fuel and be cheaper to fly.

And then what happened? Not many airlines ordered the A380s. And Airbus ran into production problems too. Some top executives got the boot. And now its parent, EADS, is in financial difficulties.

Meanwhile, Boeing’s humbler, smaller aircraft — now called the 787 — won plenty of orders from airlines. Boeing is once again soaring.

As Airbus found out the hard way, easy money and success in business can go to your head, with nasty consequences for your shareholders.

All Boeing needs to do now is build its 787. And then avoid getting caught up in its own flight of fancy.

BOB MOON: John Gapper is chief business commentator for The Financial Times.

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