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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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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...
quote:
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!


"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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