24 June 2000

Airbus powers up super-jumbo

By Alistair Osborne, City Correspondent

The dogfight for supremacy of the skies climbed to a higher altitude yesterday after Europe's Airbus Industrie finally turned itself into a company and said the world's first super-jumbo aircraft was primed for take-off.

Throwing down a challenge to its arch-rival Boeing of America, Airbus said it was now ready "to begin making firm commercial offers to potential launch customers" for the new 555-seat double-decker jet, A3XX.

It will cost $10 billion-$12 billion to develop, including a £530m loan from the British government. According to BAE Systems, which emerges with a 20pc stake in the new Airbus Integrated Company (AIC), the A3XX will create 22,000 jobs in Britain, including 8,000 at BAE, by the time the first plane is airborne in 2004.

Airbus said it had already received expressions of interest from eight companies, including Sir Richard Branson's Virgin Atlantic, his partner Singapore Airlines, Air France, Emirates and aircraft leasing company International Lease Finance Corporation. It said Singapore was initially interested in "up to 16", Emirates could buy 10 and Virgin had declared "a strong interest in becoming one of the first European launch customers".

John Weston, BAE chief executive, said: "If they come back with binding expressions of interest, that would be enough to launch." Airbus sees demand over the next 20 years for over 1,200 passenger aircraft with more than 400 seats, a market worth $263 billion.

It said the A3XX family of aircraft would provide 15pc-20pc lower operating costs than existing aircraft and be able to fly 10pc-15pc further, or about 15,000km without refuelling. A stretched design could carry 650 passengers. However, Boeing disagreed, saying: "Market studies conducted over several years - some in conjunction with Airbus-member companies - reveal a very limited market for airplanes larger than the 747-400." This has about 440 seats. It could stretch this design if necessary.

The launch of the super-jumbo coincided with the long-awaited restructuring of the Airbus alliance of manufacturers into a corporation - something BAe has been attempting to achieve for more than a decade. Mr Weston said: "We now have clear authority and accountability for the business." He said AIC's shareholders expected Eu350m (£220m) of cost savings by 2004, though he did not believe this would lead to job losses in Britain.

The other 80pc of AIC, which will have pro-forma sales of about Eu16 billion, will be held by the European Aeronautic Defence and Space Company (EADS). It comprises Aerospatiale Matra of France, DaimlerChrysler Aerospace of Germany and Casa of Spain. EADS is planning to float about 30pc of the company next month in Frankfurt and Paris. Mr Weston said: "Their float gave us the window of opportunity to strike a very good deal."

Although BAE was originally pushing for more than 20pc of AIC, it has also negotiated a royalty, dependent on sales of the latest Airbus long-haul jet, the A340-500/600, which could produce annual dividends of Eu237.5m for 10 years. BAE will inject its wing design business at Filton and Broughton, employing 10,000 workers, into AIC.

Mr Weston also revealed that BAE had negotiated an option, exercisable after three years, to sell its 20pc stake to the other shareholders, if it disagreed with the business plan. He said: "If we didn't like what was going on, we have a put option." BAE shares rose 9.5 to 427p.