Tag Archives: Aviation Week & Space Technology

A380: “one-off items” versus “accounting block”

Aviation analyst Richard Aboulafia recently published an opinion article at Aviation Week & Space Technology magazine, Airbus Twin-Aisles—Big Needs, Limited Means, in which he discussed strategic product portfolio options for Airbus. He was particularly critical to the A380. Let me bring a couple of passages from the article:

Historically, Airbus has spent more than Boeing on development as a percent of sales than. But during the past 15 years, the bulk of this heavy spending was squandered on the A380. Today, development spending is set to fall in line with the company’s new direction. Last year, it fell below 6% for the first time since the company was established (see graph). Given the requirements of funding the A350XWB and A320neo, Airbus isn’t likely to have the resources to fund both an A330neo and A380neo and a new large twin, too. Tough choices will need to be made. […]

In short, Airbus will be paying the price for the A380 for many years to come.

From these 2 paragraphs, the first assertions are factual: Airbus spends more on research and development than Boeing Commercial Airplanes and during the last years most of that spending was dedicated to the A380. In my opinion the last sentence overstates the issue of the current burden of A380 over the company’s future. If the A380 did not derail EADS during 2006-2010 it will not do so in the coming years. As numbers show and top management has indicated at investors events the A380 programme is expected “to emerge from the red by 2015“.

A380 MSN4 (credit: A. Doumenjou).

Today the A380 is a recurring cost issue, not more. The situation would be entirely different had Airbus (or rather EADS, now Airbus Group) applied the same accounting system that Boeing does (since the merger with McDonnell Douglas). EADS has passed in the profit and loss accounts in the previous years several one-off items related to the A380 valued in billions of euros (refer to yearly financial reports). What is left are R&D (mainly D) expenses to bring down unitary recurring costs and producing enough numbers of aircraft so that learning curve effects can be benefited from.

On the other hand, Boeing accounting system spreads the capital expenditures and research and development costs along what they refer to as an accounting block, which for example for the 787 now takes 1,300 airplanes to amortize those costs (previously were 1,100, see here a post on the 787 break even).


Filed under Aerospace & Defence

Dear Congressman, send the C-27Js to The Boneyard

I read yesterday the following article from Aviation Week & Space Technology: “U.S. Coast Guard Patrol Aircraft May Fall To Cuts“. Part of the article stated the obvious, that the Coast Guard modernization programs may fall also victims of the budgetary pressures faced elsewhere in the Department of Defense or Department of Homeland Security. However, the following passage caught my attention:

“While the results of the portfolio review, started in April, remain to be seen, the Coast Guard has not given up on gaining new equipment. Obama administration officials are looking at transferring at least 14 newly built Finmeccanica C-27J transports from the Air Force, which has controversially declared them “excess” to its needs. As CRS reported, if the Coast Guard were to receive 14 or more C-27s, it could stop procurement of EADS HC-144A maritime patrol aircraft (MPA) at the halfway point, with 18 aircraft, saving $887 million.”

I was amazed, since:

The rationale behind was the potential saving of up to 800M$ in acquisition costs (not buying the remaining 18 out of 36 aircraft which originally made up the Deepwater program) and getting some 14 C-27J instead…

If I were an US Congressman looking for savings across the US Armed Services, I would have it clear: instead of interfering with sound acquisition programs, I would simply get those C-27Js already acquired, send a couple of them to museums and the rest to The Boneyard in Davis-Monthan Air Force Base, to lay there forever close to their older brothers the C-27As and avoid any cost-ineffective operating and maintenance expenses on them…

The only cost-effective C-27s are in the desert (or already scrapped).

The only cost-effective C-27s are in the desert (or already scrapped).


Filed under Aerospace & Defence