LONDON (CNNfn) - Airbus Industrie raised its dogfight with Boeing Co. to new heights Tuesday, unveiling the formal decision to build the biggest ever passenger jet.|
The Toulouse, France-based aircraft maker said it got the green light from its shareholders to go ahead with the development of the 555-seat, double-deck superjumbo, which it dubbed the A380.
The European company estimates the program will cost $10.7 billion, although some people outside the company bet the price tag will be nearer $14 billion. Industry watchers predicted Boeing was far from ready to yield ground to Airbus, however.
"Boeing can't afford to give away market segments to anyone," Keith McMullan, an analyst at London-based consultancy Aviation Economics, told CNNfn.com. "Boeing will spend a fraction of the cost that Airbus will need to spend and is in a lot better position than Airbus."
Boeing (BA: Research, Estimates) expects to spend about $4 billion to develop its proposed 747X, an enlarged version of its current jumbo airliner. Airbus foresees demand for 1,200 aircraft in the over-400-seats category over the next 15 years, while Boeing estimates demand at just a third of that. Airbus has said it expects sales of about $282 billion in this market segment over the period.
Airbus currently has no answer to Boeing's 30-year dominance of the jumbo jet market, but has won 50 firm orders from six airlines – Air France SA, Emirates Airlines, International Lease Finance Corp (AIG: Research, Estimates), Qantas Airways, Singapore Airlines Ltd. and Virgin Atlantic – for the A380. In addition, the same six customers have taken options to buy another 42 of the new jets, known until now as the A3XX.
But the company needs to book between 250 and 300 A380 orders before the project breaks even, analysts said, cautioning that it was too early to say whether the A380 would be a success.
Airbus's remaining business "could not support the failure of the A3XX," McMullan said.
The fate of the plane will dictate the fortunes of Airbus's main shareholder, the European Aerospace, Defense & Space Co. (PEAD), which owns 80 percent of the airplane maker.
"In its 35-year history Airbus has been a huge success" in terms of selling planes, said Howard Wheeldon, an analyst at Prudential-Bache - "but not for shareholders."
Still, Wheeldon said the financial assistance of European governments would take some of the financial burden off EADS: "Over the next three years, EADS has the support of government loans, which should pick up about two-thirds of the tab." BAE Systems, which owns 20 percent of Airbus, has reduced its risk by allowing EADS to take the lion's share of ownership, he said.
And there is be reason to believe Airbus could deliver the hugely ambitious project without costs spiraling out of control, Wheeldon said. "Airbus has only ever been over budget on one project since 1965, that's the A320. The others have been strictly to budget."
On the Paris market Tuesday, EADS (PEAD) jumped 3.8 percent to 22.01, while BAE Systems (BA-) climbed 1.3 percent to 356 pence in London.