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How can investing 20-30 billion euros into a massively unprofitable project serve a commercial purpose? How did it here?

notahacker 9y ago
Speculatively, by (i) having a more negative effect on the profitability of their major competitor in a duopoly and (ii) by having indirect positive effects on their sales of other aircraft. As unsuccessful airliner programs go, the A380 wasn't that bad, with over 200 actually delivered. Though it would have looked a lot worse if it wasn't for Emirates There are also likely technologies developed for the A380 which will have long run benefits when adapted for newer generation versions of other Airbus aircraft.
- valuearb 9y ago
  i) 747 sales were already declining and it required expensive investment to continue. ii) How would A380 sales help sell other Airbus aircraft? It's such a low volume plane that it offers virtually zero benefits to purchasing other Airbus models. 200 deliveries for a $30B+ development costs is a disaster. Airbus has already admitted the development costs will never be recouped, they'd have to sell over 400 planes to ever have a shot. And any technology you want to develop for other planes would have been far cheaper to just develop for the other, presumably profitable, planes. Boeings brilliance was sucking Airbus into this market. Instead of canceling the 747, they kept the 747 production line open with a low cost update (the 747-8) allowed them to crater A380 pricing. That cost Airbus a huge amount of capital, and delayed/hamstrung their efforts to compete with the 777 and 787. Airbus has lost at least 10x as much on the A380 as Boeing lost on the 747 since 2000.
  - notahacker 9y ago
    Nobody is saying Airbus has made a profit on the A380, but absorbing development costs over 250 aircraft delivered leads to much lower losses than absorbing them over 14 aircraft delivered like a certain innovative indirect ancestor of Airbus... And much as program costs are accounting fiction, Boeing's written down far more than a 10th of the A380 program costs as 747-8 development programme specific losses, never mind the bigger issue of losing a natural monopoly cash cow - even a declining one - and the tag of being the undisputed best at large widebodies which has wider ramifications. Not sure the 747-8 was ever really a significant factor in A380 pricing, because Emirates were even less likely to buy something only fit for freighters as their flagship passenger aircraft than they were to take any notice of what the actual sticker price for the A380 was when negotiating deals. It's an open question whether the A350 would have done much better if Airbus had doubled down on launching at the same time as the 787, or whether it will do better in the long run for being the more recent aircraft model for its first couple of generations.
    - valuearb 9y ago
      Airbus isn't absorbing development costs over 250 aircraft at all, those aircraft are barely going to be profitable on their own construction costs, let alone chip away at the $30B+ developmental costs. The 747-8 cost only $2.5B to develop. The accounting fiction is Airbus's attempt to minimize how much it actually spent on A380 development. The sole ramification of being the undisputed leader in large wide bodies is apparently limited to massive capital losses.
      - Gibbon1 9y ago
        What boggles me a bit about the A380 vs the 747 is the 747 development was a bit of an accident based on 1960's era irrational exuberance. At the same time they were working on that they were trying to develop an SST. The SST was supposed to be the future of passenger aircraft. It failed and the 747's succeeded. And managed to side line some smaller competitors like the DC10. But since it went into service no one built a comparable or larger aircraft for 30 years. And if there was a huge untapped market for super large passenger jets, why weren't more 747's in service?
- tankenmate 9y ago
  Not just technologies but also operational gains. The problems with the development of the A380 forced Airbus to synchronise their CAD/CAM software and development practices between their previously semi-autonomous offices in Germany and France. It also led to further organisational rationalisation and the removal of French and German government influence on commercial decisions. It led to the removal of a lot of identical functions on both sides of the border and removal of the rules stating that work had to be split rather than concentrating similar functions in certain countries. That in itself was a big gain for Airbus, probably worth a quarter of the money spent on the development of the A380 if amortised over the length of the project. Once the costs started building up it was easier to convince the various governments to back off a bit.
  - valuearb 9y ago
    Methinks the operational gains could be done for 1/100th or less of the $30B+ the A380 cost. Failing at a huge project isn't a way to get governments to back off, it's a way to get them to realize they should stop funding you.
    - tankenmate 9y ago
      But there is also the human factor to consider, especially in organisations that are fully or partly government owned. They don't have their "own" money (it's taxpayer money), and in some ways they aren't allowed to pursue their own agenda (it's not their money right?), it is political; so rocking the boat by pushing change can be difficult. So for these types of organisation sometimes it takes catastrophic events to foment change.

notahacker 9y ago

Speculatively, by (i) having a more negative effect on the profitability of their major competitor in a duopoly and (ii) by having indirect positive effects on their sales of other aircraft. As unsuccessful airliner programs go, the A380 wasn't that bad, with over 200 actually delivered. Though it would have looked a lot worse if it wasn't for Emirates There are also likely technologies developed for the A380 which will have long run benefits when adapted for newer generation versions of other Airbus aircraft.

valuearb 9y ago
i) 747 sales were already declining and it required expensive investment to continue. ii) How would A380 sales help sell other Airbus aircraft? It's such a low volume plane that it offers virtually zero benefits to purchasing other Airbus models. 200 deliveries for a $30B+ development costs is a disaster. Airbus has already admitted the development costs will never be recouped, they'd have to sell over 400 planes to ever have a shot. And any technology you want to develop for other planes would have been far cheaper to just develop for the other, presumably profitable, planes. Boeings brilliance was sucking Airbus into this market. Instead of canceling the 747, they kept the 747 production line open with a low cost update (the 747-8) allowed them to crater A380 pricing. That cost Airbus a huge amount of capital, and delayed/hamstrung their efforts to compete with the 777 and 787. Airbus has lost at least 10x as much on the A380 as Boeing lost on the 747 since 2000.
- notahacker 9y ago
  Nobody is saying Airbus has made a profit on the A380, but absorbing development costs over 250 aircraft delivered leads to much lower losses than absorbing them over 14 aircraft delivered like a certain innovative indirect ancestor of Airbus... And much as program costs are accounting fiction, Boeing's written down far more than a 10th of the A380 program costs as 747-8 development programme specific losses, never mind the bigger issue of losing a natural monopoly cash cow - even a declining one - and the tag of being the undisputed best at large widebodies which has wider ramifications. Not sure the 747-8 was ever really a significant factor in A380 pricing, because Emirates were even less likely to buy something only fit for freighters as their flagship passenger aircraft than they were to take any notice of what the actual sticker price for the A380 was when negotiating deals. It's an open question whether the A350 would have done much better if Airbus had doubled down on launching at the same time as the 787, or whether it will do better in the long run for being the more recent aircraft model for its first couple of generations.
  - valuearb 9y ago
    Airbus isn't absorbing development costs over 250 aircraft at all, those aircraft are barely going to be profitable on their own construction costs, let alone chip away at the $30B+ developmental costs. The 747-8 cost only $2.5B to develop. The accounting fiction is Airbus's attempt to minimize how much it actually spent on A380 development. The sole ramification of being the undisputed leader in large wide bodies is apparently limited to massive capital losses.
    - Gibbon1 9y ago
      What boggles me a bit about the A380 vs the 747 is the 747 development was a bit of an accident based on 1960's era irrational exuberance. At the same time they were working on that they were trying to develop an SST. The SST was supposed to be the future of passenger aircraft. It failed and the 747's succeeded. And managed to side line some smaller competitors like the DC10. But since it went into service no one built a comparable or larger aircraft for 30 years. And if there was a huge untapped market for super large passenger jets, why weren't more 747's in service?
tankenmate 9y ago
Not just technologies but also operational gains. The problems with the development of the A380 forced Airbus to synchronise their CAD/CAM software and development practices between their previously semi-autonomous offices in Germany and France. It also led to further organisational rationalisation and the removal of French and German government influence on commercial decisions. It led to the removal of a lot of identical functions on both sides of the border and removal of the rules stating that work had to be split rather than concentrating similar functions in certain countries. That in itself was a big gain for Airbus, probably worth a quarter of the money spent on the development of the A380 if amortised over the length of the project. Once the costs started building up it was easier to convince the various governments to back off a bit.
- valuearb 9y ago
  Methinks the operational gains could be done for 1/100th or less of the $30B+ the A380 cost. Failing at a huge project isn't a way to get governments to back off, it's a way to get them to realize they should stop funding you.
  - tankenmate 9y ago
    But there is also the human factor to consider, especially in organisations that are fully or partly government owned. They don't have their "own" money (it's taxpayer money), and in some ways they aren't allowed to pursue their own agenda (it's not their money right?), it is political; so rocking the boat by pushing change can be difficult. So for these types of organisation sometimes it takes catastrophic events to foment change.