:: January 2005 Letter ::
Onceuponatime, my mother told me a great story. A beggar visited a rich man, claiming he could make soup from rocks. Intrigued by the idea of feeding his peasants for free, the rich person let the vagabond demonstrate. The beggar boiled some rocks, pronounced them tasty, but said an onion would add flavor. The rich guy gave him one. The beggar proceeded to request carrots, potatoes, and a chicken. The rich guy agreed to each request, all the while thinking how great it was to make soup from ordinary rocks. The beggar got a tasty meal.
I can only guess why my beloved mother told me this folksy parable: ďYou can extract cash from unsuspecting people,Ē she might have been saying. ďStart an air taxi manufacturing business.Ē Iím kidding, of course. I donít really know her point in telling me that story. Yet it works in many circumstances. For example, Airbusís A350. Airbus watchers remember their original competitive response to the 7E7: A basic A330 with the 7E7ís new engines and other systems appended. Cost: zero. Soup from rocks. Yum!
There were many naysayers, however. How could a mere derivative compete with a comprehensive family of new airplanes with pathbreaking technologies? The Airbus response changed. It became an A330 with new engines, systems, and some composite technology insertion. Cost: about $3 billion. Soup from rocks, and an onion, and maybe a turnip too.
Again with the naysaying. Perhaps a new wing would do the trick, with more composite content. Cost: about $5.3 billion. Rock soup, with lots of vegetables. This latest A350 incarnation received EADS/BAE Authorization to Offer on December 10.
But if customers donít like this option, or if the design looks inadequate, why not develop a new fuselage to go with those wings? Cost of this all-new plane: $8-9 billion, about the same as the 7E7. Rock soup with vegetables and a chicken.
Whatís going on? The A350ís convoluted development isnít just about fine-tuning a new product to meet market needs. Something much bigger is happening. Europeís defense scene is changing. The failure of a ridiculous French Government industrial coup, which would have created a deeply wrongheaded EADS-Thales merger, underscored that European aerospace privatization and restructuring are far from complete.
For a continent that abhors genetic engineering, Europe sure likes the idea of industrial Frankensteins. EADS-Thales may die a mercifully quick death, but who knows what deeply embarrassing ideas might come next? As some of the current EADS stakeholders seek to sell their stakes in the next few years (as they are allowed to sell), thereís no telling who might pick up the slack.
Airbus is watching this process uneasily. What if they wind up marginalized in some huge, fully privatized cash-hungry defense, telecoms and space entity, one that (unlike EADS) they canít dominate? What would that do to their ability to launch new jetliners? They would be in the same position as Boeing Commercial relative to Boeing Corporate. Out of the driverís seat, and forced to beg for scraps.
Airbus faces other changes, especially in EADS leadership. Germany and France are in disagreementónot exactly a huge break with historical precedent. Then thereís WTO. Boeing might not win the case, and the US might not fight for them if they win. But what if they do, and those generous European product development loans go away? And the less said about the currency issue the better.
Either way, Airbus can read the handwriting on the CAD/CAM monitor. The world is changing. Launch some kind of 7E7 competitor now. Start with a small, inexpensive, rock-flavored development program, one thatís too small for anyone to oppose. Move on to the current medium sized effort. It could grow bigger. It doesnít matter. Just get it going, before the money goes away. That way, when Europe completes its next aerospace privatization phase in a few years, Airbus can still match or outgun Boeing across its product line, despite Europeís A380 albatross.
Meantime, real or not, the A350 does yeoman work clobbering the 7E7 business case. Few airlines actually need planes in this class right away; why not wait until both manufacturers aggressively compete? Best-case scenario for customers: a repeat of the DC-10/L-1011 bloodbath, from which airlines benefited mightily.
This A350 guerilla marketing campaign looks highly effective. Something has disrupted Boeingís lofty goal of 200 7E7 orders by year end, along with Boeingís finalized 7E7 industrial arrangements. The A350 is the likely culprit. Throwing Toby Bright into a volcano to appease the market gods wonít change this.
In conclusion, I canít tell you what the A350 will ultimately look like. I canít tell you who will launch it, or when it will be launched. I can only say that Airbus will produce some kind of competitor to the 7E7. And my mom would recognize a Rock Soup Moment when she saw it.
Januaryís supplement includes the World Aircraft Overview, plus updates of the MiG-29, E-6, and Challenger 300. Please note: Iíll be on vacation December 27 through January 18. If you need anything industry related, please contact Phil Finnegan at firstname.lastname@example.org. If you need anything logistical, please contact Tim Storey at email@example.com. And have a great new year.
Yours, ĎTil Emirates Buys 400 Of Each Plane,
© Richard Aboulafia 1997-2006, All rights reserved.