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UPS follows FedEx in canceling A380 freighter orders

In November of last year, DailyTech reported that FedEx cancelled its order for 10 A380-800F freighters and instead went with 15 Boeing 777s. The cancellation notice left UPS as the sole customer for Airbus' A380-800F.

Today, we learn that UPS has also decided to back out and abandon the A380-800F. "Based on our previous discussions, we had felt that 2012 was a reasonable estimate of when Airbus could supply this plane," said UPS president David Abney. "We no longer are confident that Airbus can adhere to that schedule."

UPS had 10 planes on order with the option to purchase 10 additional planes from Airbus, but it looks as though Boeing's 747 may be the next best alternative for the shipping company. "It almost spells the demise for that cargo business, because the alternative to the 380 is the (Boeing) 747," said Chris Lozier, an analyst for Morningstar. "You would expect UPS to be at the negotiating table with Boeing right now, if not weeks ago, working out details for the 747."

The news comes just a week after Airbus announced that it was cutting 10,000 jobs. In addition, French unions plan to strike next week in response to the job cuts and German Airbus workers may also join in.

Airbus' A380 program has been plagued with number setbacks, most notably due to problems wiring the large aircraft.

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By alifbaa on 3/2/2007 1:41:02 PM , Rating: 5
As an economist and a member of the aerospace industry, this was fairly predictable to me. You will never achieve as efficient a business model when your decisions are based primarily on the politics of factory locations and numbers of jobs and your investment capital is coming from a government seeking a piece of the limelight instead of investors seeking a maximized return on investment.
Watch the Discovery channel documentary on the A380, and pay attention to the amount of time, money, and effort that go into transporting around the pieces of the airframe from country to country. Boeing has begun doing that too, but the difference is that their pieces are limited to items that can be safely broken up into easily managed parts. Airbus kept trying to prove to the world that they were capable of doing things on an unheard of scale. They succeeded, but they forgot that the reason they were the first was because everyone else knew it was neither efficient nor profitable.
In the future, Airbus will learn, and will get more efficient. Eventually, they will be an even bigger source of competition for Boeing. But not today.

RE: Subsidies
By cochy on 3/2/2007 1:52:27 PM , Rating: 3
In the future, Airbus will learn, and will get more efficient. Eventually, they will be an even bigger source of competition for Boeing. But not today.

I would hope so. Every piece of news about that company for the longest time has been horrible. Seems like they are spiraling into the abyss. The A380 is Concord part 2. I can not see Airbus closing up shop over this disaster as I don't think Boeing can supply the entire world market.

RE: Subsidies
By KaiserCSS on 3/2/07, Rating: 0
RE: Subsidies
By Lord 666 on 3/2/07, Rating: 0
RE: Subsidies
By Scabies on 3/2/2007 2:24:27 PM , Rating: 5
someone should hit you for trying to tie in Sony (and thus the PS3) into an explicitly irrelevant news article. Do me a favor and hit yourself.

RE: Subsidies
By Lord 666 on 3/2/07, Rating: 0
RE: Subsidies
By stromgald on 3/2/2007 3:41:53 PM , Rating: 4
Not everything has to do with Sony. It's actually quite different from Sony since 1) the problems are different, 2) the failures mean different things for Sony and Airbus, and 3) Airbus receives heavy government support.

You automatically thinking of Sony just mean's you're infatuated with Sony.

RE: Subsidies
By kmmatney on 3/6/2007 11:45:17 PM , Rating: 2
Wasn't it the blu-ray entertainment centers that delayed the A380?

RE: Subsidies
By timmiser on 3/2/2007 9:24:33 PM , Rating: 1
I don't think Boeing can supply the entire world market.

Why not? They dominated it for so many years and they are already doing it again now.

2006 was a great year for Boeing but 2007 will be even more dominating because Airbus has all their attention resources on getting the A380 to market.

Boeing knew from experience that they were going to be tied up resource wise for quite a few years in this development. The 747 development of the 1960's almost put Boeing out of business and the payoff didn't occur until decades later. That is why they focused on the 787 program which is turning out to be a huge success already by showing airlines that the big transport and hub system are not the way of the future. Airbus has recognized this however they do not have the resources to start development on another new aircraft. All they can do is possibly stretch an existing plane to meet a target market but it won't have the efficiency that a new design will give.

RE: Subsidies
By michal1980 on 3/2/07, Rating: -1
RE: Subsidies
By KaiserCSS on 3/2/2007 2:13:04 PM , Rating: 5
I seriously can't understand what you're trying to say.

RE: Subsidies
By bbomb on 3/2/2007 2:56:00 PM , Rating: 2
One of the routes for one of the bodies peices being delivered ran through a small village where they only have like a few feet on each side to get through. It was on the Discovery Channel documentary.

RE: Subsidies
By michal1980 on 3/2/07, Rating: -1
RE: Subsidies
By stromgald on 3/2/2007 3:36:29 PM , Rating: 2
I didn't see the documentary, but yeah, that would seriously be a lot of wasted time and effort. Boeing usually moves the large components for the 787 made around the world by plane (check out the 747-LCF) or by truck when the parts are small enough and its within the US.

It would've been cool if Airbus took the same method and converted an Antonov 224 Myra to carry the large sections . . . if its big enough.

RE: Subsidies
By Nanobaud on 3/2/2007 3:49:25 PM , Rating: 2
Weren't they going to eventually use a guppy-like modified transport to make that delivery by air. IIRC ground transport was only to be used for the first few planes.


RE: Subsidies
By alifbaa on 3/2/2007 4:15:58 PM , Rating: 5
The point I was trying to make wasn't that the act of constructing the airplane in pieces to be assembled somewhere else is stupid. Every aircraft manufacturer in the world does that to some extent nowadays. The difference between all the other companies and Airbus is that Airbus does it for the sake of being able to say country x is responsible for y piece and country z assembles it. In the case of the A380, all the major assembly is done in France, with the fuselage done in England, the tail (i believe) in Germany, and the wiring in Spain, to name a few. All those locations have varrying degrees of high-cost labor. In other words, there is absolutely no savings involved in going through the effort of dispersing the manufacturing of the aircraft. In Boeing's case, a lot of component manufacturing has been moved to various Asian and South American countries where less skilled labor is required and the costs associated with the labor are a fraction of the US'. The major assembly work has remained in the US, since in Boeing's experience, the US is still the cheapest place to find a large supply of highly skilled labor. The enormous costs of moving pieces all around the earth are more than overcome by the savings created in this process. It is an efficient practice, and increases profitability.

Why doesn't Boeing move manufacturing to Europe? The labor skills are the same, perhaps even better. What you lose on in Europe is labor price. Wages are way too high, unions are way too strong and eager to strike, taxes are enormous, and the workers work at most 88% (35 hours) of the work-week of the US with massive amounts of government mandated paid leave. The European worker has legislated his way out of being able to compete without the aid of massive subsidies. Ironically, it's those same subsidies which also prevent his company from producing an aircraft efficiently.

RE: Subsidies
By spazmedia on 3/2/2007 7:58:04 PM , Rating: 4
The labor markets may be more expensive and complicated to work with, however this is not what caused the delay on the A380. Plus Airbus would never build these planes if it were not for these subsidies; how else are they going to finance the projects? The latest news I heard is that the A380 was delayed due to the complicated wiring on board the plane, which is done in Germany not Spain if memory serves me. I doubt anyone would know for sure unless they worked at Airbus.

Strangely enough I know for a fact that some delays are also due to subcontractors who are not delivering on time, one of which is American though I prefer not to name.

The model might not be great however I do not see Airbus financing the development of new planes without the assistance of the government in the same way Boeing is subsidized through the profitable military contracts it has in the US.

RE: Subsidies
By Ringold on 3/3/2007 12:14:50 AM , Rating: 4
His main point was not that labor markets caused delay. In fact, he noted highly skilled labor exists in Europe. His point was an efficiency one; read again the part where he clearly lays out that the European worker has legislated his or herself out of profitable employment. That said, it's almost undeniable that there must be some small impact from such generous government handouts on the delays. If Boeing fails, it goes bankrupt. If Airbus fails, EU member states bail them out with low (or no) interest rate bonds. That's perfect to create a culture not as performance oriented as that of Boeing, leading to poor execution. Excuses are excuses and nothing more; investors could care less about the 'why'.

Additionally, Boeing's military contracts are pedestrian in compared to the WTO-busting subsidies forked over to EADS/Airbus. The OP is more versed in it than I am, since he said he was an analyst for the market, but it's clear enough there's no comparison. You're merely trying to shake any weak stick you can at Boeing. Fact is, Boeing has single-handidly proven that the capitalist system does indeed lead to the best outcomes, while Airbus is a case study in the failure of socialism.

RE: Subsidies
By dever on 3/3/2007 11:00:49 AM , Rating: 3
Well said Ringold. But my favorite quote of his was...
Plus Airbus would never build these planes if it were not for these subsidies; how else are they going to finance the projects?
He just made the point for the rest of us. Apparently, the market wouldn't support the project so government had to step in.

These socialist ideas and ideals sound good to the uninitiated, because they promise to steal from the rich and give to the poor, but the reality is always the opposite.

RE: Subsidies
By slunkius on 3/5/07, Rating: 0
RE: Subsidies
By alifbaa on 3/3/2007 12:16:38 AM , Rating: 3
EADS has a great many military and government contracts all over europe and the US as well. Contracts aren't subsidies, they are contracts from customers who expect a product and a price. The fact that one company has more contracts than another is an indication that it has something to offer that other companies do not. Boeing's contracts all had to go through a very stiff competition amongst all sorts of other defense related contractors. Recently, they've even begun competing with European and Canadian contractors.

Subsidies aren't investments, they're handouts. Investment happens after you work to convince people you're company is capable of two things... accountability and profitability. Subsidies happen after you convince a politician it's in his personal best interests, i.e. employment rates, publicity, factory locations, etc. Whenever you see someone getting a subsidy, rest assured the requirements for receipt of the subsidy were less than those of an investor.

As for your argument about how these are just "wiring problems," perhaps that's the case. But I guarantee that working 12% less and taking 45 days of leave Vs. 15-30 and having a three-four day free weekend every month does not get engineering problems fixed faster. Work gets work done. That is why EADS gets subsidies, not investment. It is also why they are having trouble getting this project going. No one can deny it's potential. Look at how many orders they got. You also can't deny it's trouble -- look at how many orders they've lost or have never made.

RE: Subsidies
By timmiser on 3/3/2007 12:26:34 AM , Rating: 2
Good points. And this year's European vacation season is right around the corner!

RE: Subsidies
By Ringold on 3/3/2007 12:31:21 AM , Rating: 2
I think you should post around here more often.

I know you get the 12% less figure based on the comparison of a 35hr work week vs 40, but to add to that it's worth pointing out a lot of hungry, hard-working individuals (in all industries and at all pay grades) often times have no reservations about 50 to 60 hour work weeks for weeks on end. That could be up to a 41% difference. I don't care how a European might try to slice it, someone working 41% more than a counterpart doing identical work will be far more productive at that task.

I only thought to bring it up due to the number of "The 40hr work week is dead" and "The 40hr work week lives on!" articles that pop up throughout the year. 40hr weeks, IMHO, is a minimum.

RE: Subsidies
By JS on 3/4/2007 11:25:16 AM , Rating: 2
As far as I know the 35 hour work week is only standard in France, and I believe 40 hours and up is the norm in the rest of the EU.

RE: Subsidies
By alifbaa on 3/4/2007 8:17:50 PM , Rating: 4
Incorrect. 36 hours is about the average throughout Europe. England leads with 38. France is the worst at 33, and trending downwards. To make matters worse, most European countries have pretty massive mandatory leave policies and "bank holidays" once a month. In France, workers are mandated to have 45 days of paid leave every year regardless of experience. If a bank holiday falls on a Tuesday or Thursday, the government will extend that holiday to Monday or Friday, making that work week only 3 days long. Thus, for the price of 3 days' leave, you can get a week long vacation. In the end, the typical French worker will only work about 10 months out of the year. As if that wasn't unproductive enough, social security laws allow workers to retire in their mid 50's, which provides a huge disincentive to the economy's most experienced and knowledgeable workers to continue contributing in spite of still having decade's worth of remaining productivity left.

And that's how you can blame a "simple" wiring delay on labor policies.

RE: Subsidies
By cpeter38 on 3/3/2007 9:23:25 AM , Rating: 2
In automotive engineering (US), vacation for new people starts at 1 week per year. You have to work for 20 years to get to 25 days of vacation!! The average over a "30 year career" is in the neighborhood of 17 days. However, that assumes that you will get 30 years at the company (hmm, don't think that is likely at Chrysler, GM, or Ford).

In my 9 years in the industry, I am sure that my average work week is between 47 and 50 hours. I am too lazy to do the math right now, but, if you add up the hours in a year, there is no comparison.

RE: Subsidies
By essjae on 3/2/2007 8:01:25 PM , Rating: 2
Well said!

RE: Subsidies
By timmiser on 3/2/2007 9:09:39 PM , Rating: 2
That remote little town is called Toulouse, France. That is the headquarters of Airbus and the root of the A380 logistics problem. Toulouse is a city that is landlocked, ie-no ocean port or river/barge access. This wasn't such a big problem when they were making 'normal' sized planes but when they took on the A380 project and decided to keep the final assembly in this town, that was just plain stupid! As others have pointed out here the difficulties in doing this, the towns they have to squeeze through also tax the heck out of them and lay down restrictions on what times of the night they are allowed to do this.

Boeing on the other hand, is based in Seattle. All of their manufacturing plants are ocean connected. Everett for the widebodys (747/777/787) and to a lesser extent, via Lake Washington and the locks, the Renton plant is also. (737 assembly). (Boeing built a series of civilian and military hydrofoils here in the late 70's from this plant utilizing the lake/ocean access!)

Airbus knew they were going to have these logistics problems but the political pressure they are subjected to far outweighs the political pressure that Boeing has to deal with. It comes to the point that the local politicians have too much interest and input on decisions that should never be there. That is the problem when your company is subsidized by the government.

RE: Subsidies
By Inepted on 3/2/2007 10:29:14 PM , Rating: 2
Don't mean to be a stickler but Boeing is no longer 'based' in Seattle. Their headquarters are now located in Chicago. The Seattle production facilities are being downsized what seems like every year now. Most of the engineers still work there but it seems major manufacturing is being done in Japan and other parts of the US, as noted in a previous comment.

RE: Subsidies
By timmiser on 3/3/2007 12:12:43 AM , Rating: 2
Good point. The corporate offices moved to Chicago and made the company an 'Illinois' company for tax puroses/benefits. Washington State was a little over zealous in taxing the Boeing company and eventually drove them out of town. Of course there is zero production being done in Chicago, it was just a move for the tax reasons. Boeing lobbied for some tax relief but the local politicians thought they were bluffing. Oops, sounds like an Airbus problem already!!

Airplanes parts and sub-sections are produced all around the world, but the final assembly (where all the big parts come together, which is what I was comparing to Toulouse/Airbus), is still done and will continue to be done in Seattle.

RE: Subsidies
By atm on 3/2/2007 3:01:20 PM , Rating: 2
Its sad to see such a collosal failure. I look forward to their next effort. Hopefully they'll be able to deliver.

RE: Subsidies
By dever on 3/3/2007 10:49:15 AM , Rating: 1
Actually, the educational value should not be under estimated. It's temporarily sad for those whose livelyhood are directly affected.

However, the longer term result should be a better perspective of why free markets are superior than those artificially controlled. What a great lesson this is for all of the wanna-be socialists. Even with tax dollars stolen from individuals to prop up a government influenced industry, it still could not compete with companies operating in a more open market.

Fortunately for the rest of the world, they can only control their own markets. And, in the long run, we will all benefit from the purely economic decisions of companies like UPS in the way of lower prices.

RE: Subsidies
By nanokompressor on 3/3/2007 3:09:15 AM , Rating: 2
Absolutely. Airbus was so heavily subsidized by government funding it might as well have been government owned. Their incentives were so skewed in that I would compare it to a social institution instead of a capitalist one. As you've mentioned many of their decision making was based on what was politically sound instead of one based on efficient allocation of resources. The unions also did not make things any better and really have themselves to blame for their members being axed out of their jobs. The market forced them to wake up and realize their position in the world whether they liked it or not.

RE: Subsidies
By alifbaa on 3/3/2007 12:02:37 PM , Rating: 2
It is, in fact, government owned. Not only is it funded by governments, but it is owned by them as well. That is changing in some country's however. I a little fuzzy on the specifics, but I know France and Germany have been divesting themselves of EADS lately. France sold a large portion of its stock to a very politically connected person at a pittance after buying another large portion from another politically connected person at a tremendous premium only a few years ago. There was a big scandal about it over there. I'm not sure, but I don't think England owns any of EADS, and Spain owns all most all of its portion.

"People Don't Respect Confidentiality in This Industry" -- Sony Computer Entertainment of America President and CEO Jack Tretton
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