Home > Economics - General > The significance of the A380

The significance of the A380

January 19th, 2005

The unveiling of the Airbus A380 raises a couple of thoughts (not entirely new ones, and pointing in somewhat different directions). First, this is another example of the US loss of dominance in manufacturing. Boeing has ceded the jumbo jet market it created with the 747 to Airbus, betting everything on the proposition that airlines will want medium size planes like its forthcoming 7E7. Even if this turns out to be true (and limp early orders don’t support the idea) Airbus has an entrant in this market as well (the A350). Meanwhile, by abandoning the 717 (the old DC 9 inherited in the merger with MacDonnell Douglas), Boeing has abandoned the small jet market, the winner here being the Brazilian fimr Embraer. All of this parallels Detroit’s loss of dominance in the car market. And all this despite the big decline in the dollar-euro exchange rate. This suggests that winding down the US trade deficit is going to be a painful process.

The second point is the slowdown in progress in transport. In the 25 years from the end World War II to 1970, passenger air travel went from essentially nothing to the 747 jumbo jet launched by Boeing in 1967. Move ahead another 35 years, and we still rely on the jumbo jet. With the A380, we are looking at what will probably be the state of the art for the next few decades, and it’s … a jumbo jet, only 50 per cent bigger. Of course, there have been improvements in every part of the plane, from composite materials to more efficient engines, but it’s still, in essence, a bigger 747. The same is true, in spades, for cars. For all practical purposes, it looks as though we reached our collective speed limit 40 years ago[1].

So, maybe it doesn’t matter that the US is losing the markets for cars and planes. With firms like Intel and Microsoft it dominates the moneymaking end of the most innovative part of the economy, and with Apple, it provides most of the creativity. On the other hand, you need a lot of iMacs to buy an A380.

fn1. In fact, we’ve slowed down in the interim, with the introduction, commercial failure and ultimate withdrawal of the Concorde.

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  1. January 20th, 2005 at 01:40 | #1

    With your last comments you fall in the old trap of defining progress by a single, quite unimportant metric: top speed. As you yourself already note, the A380 (or indeed a modern built 747) is quite an improvement on the 747 as it was originally designed.

  2. John Quiggin
    January 20th, 2005 at 06:08 | #2

    Martin, speed (average not top) isn’t the only thing but, in transport, it’s the biggest single thing. If you’re comparing travel from Australia to Europe now and 100 years ago, the most important single fact is that a journey that took weeks then takes hours now.

    That said, I was using speed metaphorically (or maybe as synecdoche) to say that, despite all the incremental changes, when you make the comparison over 40 years, it doesn’t amount to a radical change in any dimension.

  3. Fyodor
    January 20th, 2005 at 07:29 | #3

    JQ,

    The lesson from Concorde is not that we can’t go faster, but that people won’t pay for it. The 747 is, relatively speaking, a bus, but it’s cheap.

    On Boeing, the (possible) strategic mistake of one company is not a good indicator for the overall health of US manufacturing. The politics of the situation aren’t entirely neutral, either, on both sides.

  4. John Quiggin
    January 20th, 2005 at 07:56 | #4

    Fyodor, on your first point I agree, but I’d rephrase it: It’s not that we can’t go fast, but that we can’t go fast cheaply. By contrast, up to, say, 1970, travel was getting both faster and cheaper.

    On the second point, one firm need not represent the whole. But in this case it does, including the fact that there’s a lot of politics involved.

  5. still working it out
    January 20th, 2005 at 08:14 | #5

    I think that it does matter that the US is losing its market for planes and automobiles. Not because those losses cannot in theory be replaced by new industries, but because it seems to be indicative of a larger problem.

    There is no inherent economic reason for Boeing to have lost so much market share to Airbus. Boeing talks about subsidies being an advantage but that is a load of garbage as Boing recieves its fair share of US military defense pork. See the tanker deal scandal for a particularly bad example. Europe does not have any comparitive advantage in manufacturing airplanes. The only obvious reason that Airbus is doing better than Boeing is that it has been more innovative and put money into developing newer aircraft. Nobody could expect Boeing to maintain market share without actually developing new aircraft. This article gives a pretty good insight into how Boeing became so conservative that it basically stopped developing new aircraft.

    This leaves the question of why Boeing’s shareholders were satisfied with management that was losing market share and doing nothing about it? This the heart of the matter and I think that the proximate answer is obvious. None of the shareholders were thinking of the long term. It could easily be a decade from the time the A380 first entered development until it has sold enough aircraft to break even. And this is likely to be a very successful aircraft. If shareholders are uninterested in timeframes of ten years+ then they will not choose senior management that invests in new aircraft as it is a high risk investment and, more importantly, will inevitably reduce returns in the time periord they are interested in.

    I am saying that Airbus overtaking Boeing is indicative of a fundamental problem in the American economy of it being unable to make investments on timescales as long as its competitors (Europe, Japan, China etc) because the capital markets of America are motivated by returns on a shorter timeframe.

    (sorry for the long post)

  6. doctor k
    January 20th, 2005 at 08:22 | #6

    The big revolution has not been top speed, but pricing and generalised access to flying. Thus, if you take average speed of all people travelling now, compared to the average speed of people travelling by car, boat, and planes forty years ago, there has been a huge increase.

  7. Chris B
    January 20th, 2005 at 08:54 | #7

    The point about lack of progress in aviation technology can be shown even more precisely on the military side. Australia ordered its primary strike fighter – the F111 – in 1970. We’re planning to fly them till 2010 – a 40-year run. That’s the equivalent of using the Wright brother’s first machine in the dogfights over Germany, or Zepplins in Korea. _That’s_ stability.

  8. Fyodor
    January 20th, 2005 at 08:59 | #8

    SWIO,

    Lots of good points, particularly on Boeing’s conservatism. However, I’m not sure that investor short-termism is the entire answer behind Boeing’s decision not to contest the A380. I would contend that any project that takes 10 years to reach break-even is of questionable worth. Time will tell if Boeing stuffed it.

    There is a further difference between Boeing and Airbus, in that Boeing has always been controlled by its shareholders on a commercial basis, whereas Airbus was a political creation with political objectives (i.e. to challenge US dominance of civil aviation). This has probably made a huge difference to their respective ability to deploy capital. Every dollar Boeing invests is required to generate a reasonable return, whereas it is arguable this is the case for Airbus or, more appropriately, EADS (its 80% owner).

    Also, the alleged inability of US companies to finance long-term growth is belied by the success of its technology and pharmaceutical industries, which require long-term investment and planning. Generally speaking, if there’s a buck to be made, the Americans are good at making it.

  9. Fyodor
    January 20th, 2005 at 09:16 | #9

    JQ,

    On your point (4), I think it’s open to argument as to whether we can’t fly fast more cheaply. I suspect that if airlines had enough demand for faster flights then they would be willing to pay for the aircraft and scale economies would start to kick in. BA and Air France subsidised the Concorde to a ridiculous degree and struggled to make the service work, and this was before the spate of crashes. That is, I think the limitation is consumer-driven, not technological.

    Another point I’ve only just remembered is that supersonic travel is typically banned over most developed countries, which limits the usefulness of very fast civil aircraft, which spend a lot of their time travelling intra-continentally. I think the aerospace pundits are talking about sub-orbital aircraft as the next step up: supersonic travel that won’t disturb people on the ground. However – you guessed it – it’s fiendishly expensive at the moment.

    Chris B,

    The US Air Force stopped using the F-111 some time ago. We’re the only country flying the dinosaurs.

  10. Steve Edney
    January 20th, 2005 at 10:34 | #10

    Fyodor,

    The US airforce continues though to use the B-52 a 50 year old design, that is not planned to be phased out in the forseable future. I think there is no doubt that aricraft design changes have slowed dramtically, with the maturation of the jet engine. Unless some new breakthough propulsion appears commerically I doubt there will be vast changes in the near future.

  11. Fyodor
    January 20th, 2005 at 11:41 | #11

    Yes, good point. I thought someone might raise that. At the same time, the USAF is introducing a new generation of fighters (F-22) and fighter/bombers (JSF).

    You’re right about the maturation of the jet engine, but google “scramjet” and you may find that propulsion technology is progressing.

  12. Giles
    January 20th, 2005 at 11:42 | #12

    I’d have thought that the main worry for Airbus would that in 5 years time Russia or China start on a rival jumbo. Russia has the tech no how on bulding really large aircraft and China by then has the tech knowhow. Of course it wont be as good as the A380, but if it costs only 100m a shot as opposed to 280, I’m sure there’ll be plenty of buyers in Asia and South America. If so good bye to Aibus’s chances of recouping its money. I’m sure that some of this thinking probably crept into Boeings descision not to run in this race.

  13. Steve Edney
    January 20th, 2005 at 11:52 | #13

    I know about the scram jet and if it becomes commercial yes it will probably bring in a new generation of planes. That’s yet to see however.

    With regards the fighters/ fighter bombers, over the last 30 years they have dramatically increased their manoveurability. This is due (in a drasticly simplified version) to older designs emphasing stability of flight, which in general decreased the manoveurability. In the last 30 years computers take over many of the low level stability controls which would otherwise consume the pilots attention continually. As a result they can be designed less stable and more manoveurable.

    Also I would think there is an issue that it is much easier to rework a large aircraft with new internal electronics, weapons systems, whereas a smaller aircraft are much custom designed to available technology.

    With regards commerical passanger jets, the B-52 is a better example than a military fighter.

  14. John Quiggin
    January 20th, 2005 at 11:59 | #14

    As regards the cost-speed trade off, Boeing planned a Sonic Cruiser which would travel just below the speed of sound, but abandoned it due to lack of interest.

  15. Giles
    January 20th, 2005 at 12:24 | #15

    I wouldn’t be so sure that super sonic flight is dead. One of the cost problems of concorde was its need to use afterburners. The F35 is the first place to be able to cruise super sonically without after burners. If this can be developed to civilian use then you have a much better product than concorde – not only will it be cheaper to fly, it’ll also have a much longer range.

    Concorde was hamstrung by only having the limited transatlantic market. A long range version might open up the pacific and that might just open up a market large enough to make it viable.

  16. derrida derider
    January 20th, 2005 at 14:47 | #16

    Na, Giles – its the physics that drives the economics. Once up near the speed of sound drag begins to rise very sharply with increasing speed, so even with 100% efficient engines the fuel needed rises disproportionately. So long as fuel is the major cost in commercial aviation (it is, of course, only a minor cost in military aviation) supersonic flight will not be commercially viable, except possibly for small jets carrying the very rich (hence Learjet’s interest).

  17. kyan gadac
    January 20th, 2005 at 17:04 | #17

    I’d like to second derrrida’s comment above. In fact, the speed/cost trade off is much more like the hieght/cost trade off that one faces in building apartments or sky scrapers. The optimum hieght I’ve, read somewhere, in terms of physical costs is about 5 to 10 storeys. Of course, the cost factor is dependent upon demand as well, so we build higher in the middle of cities. But that demand is a result of social status not technology or physics.
    And just a small point, AFAIK the A360 hasn’t actually flown yet – so perhaps much of this conversation is speculation about a plane that may yet fall out of the sky like Icarus….

  18. paul2
    January 21st, 2005 at 12:02 | #18

    Doesn’t Giles’ scenario, about Russia and China making Airbus clones in a few years, just mean that Boeing is still going to lose marketshare, just to different competitors?

  19. January 21st, 2005 at 13:30 | #19

    Paul, No my idea is that the Antonon 224 could be converted into an 800 seater and directly compete with Airbus. I think by now the 747 would directly drop out.

    DD – cost isnt the only issue. Getting rid of afterburners reduces the quantity of fuel needed so I think the range issue is more important. Concorde could (just) fly across the Atlantic but couldnt fly over land. this limited it to the transatalantic market and thus just 20 plane.

    Now however, the development of Asia opens up a much larger cash cow – the trans pacific flight. Concordes range was 3500 nm; increase that to 5400 miles and LA to Tokyo becomes feasible – flying time about 4 1/2-5 hours. So does LA Shanghai – flying time 5 1/2 hrs. These are the sort of times that businesses are prepared to pay big time for and considering the size of the economies the markets large.

    So instead of just 20 planes maybe theres a market to 80. And given scale economies, maybe then Cape Town to Mumbai (flight time 4 hours) opens up as well?

  20. still working it out
    January 21st, 2005 at 16:14 | #20

    Even 80 planes is far too small a market to justify all the development costs a single model of airliner. Plus a supersonic airliner is going to be almost all new so its development costs will be much larger than for a conventional jet.

    The real breakthrough in supersonic flight is the discovery of new shapes which dramatically reduce the sound level of sonic booms. Don’t have a link but its been talked about in New Scientist a few times. If these new shapes can actually work then supersonic flight overland may be viable. There are some people saying Airbus could conceivably have a supersonic 1200 seater flying by 2020.

  21. January 21st, 2005 at 18:50 | #21

    I think I’m going to have to prepare a long comment for this off line.

  22. January 21st, 2005 at 21:33 | #22

    The politics and network externalities have had a huge effect. Once the USA dropped out of supersonic passenger travel because of Concorde’s superiority, the vested interests keeping infrastructure adequate for SST went away. That’s why Concorde found itself uneconomic; local residents won campaigns to keep it from landing efficiently. (That’s common to all democracies, not just the USA – back in the ’30s British vested interests did the same to Sikorski’s flying boats.)

    Also, Concorde was designed for a smaller, richer flying public; 747s came in partly once it became clear there was a larger market that needed cheaper rates (oil costs rose, too), and partly because more same-sized planes were impractical both because of shortage of staff and because of air traffic control problems.

    Concorde does not need afterburners for supersonic cruising. It only uses them to get through the high drag regime as it breaks the sound barrier. Engines that can do that without afterburners are actually unwanted overhead at the lower drag higher cruising speeds.

    One of the main reasons for the decline in the US air industry has been the increase in litigiousness there. In fact, their designs are technically sounder than the management driven fly by wire designs elsewhere (as was proved in a recent air show accident). The pilots do need more involvement in the loop than computerised systems offer, despite the performance cost. This is the judgment of pilots, not managements.

    The US aircraft industry has always had a thumb on the scales from the military, or at any rate since the 1930s, so it is not a straightforward commercial judgment they make about how to get a buck.

    Externalities in the industry include economies of scale external to the firm, having a pool of expertise (the common failing of outsourcing is that over time you lose the ability to assess what you are getting in from outside). US interests require that pool to be kept up for military reasons too. Other externalities come from the market dominance, with a large home market too; it shows up from needing to establish routes and – literally – networks, not just aircraft sales.

    The decline in marketing is what is being measured here, not in manufacturing (unless you fold marketing into manufacturing). The US aircraft industry has been in relative decline since the ’50s, only redeemed by financial and marketing clout (a wry comment of that era was “you bury your jet engines in the wing roots, we bury ours in the fields of France” – a reference to what was happening to the early pod-mounted US jets). It was only the adverse shocks of the unforeseeable Comet 1 failures, with the bad publicity and catch up time, that let the US aircraft industry catch up on Europe then.

    Boeing was certainly forward thinking when it went for 707s and even more so with 747s, because it had to sink so much into them (that long lag until returns). With 747s it even had to bet the company. The lack of foresight now is partly ascribable to agency costs that happen far more in all companies these days (stockholders do not rule), partly to the ascendancy of marketing over operations in all sectors, and partly to the lack of a clear prize – they already hold the niche they won. Yet they can only forfeit it unless they go fly by wire.

    Fly by wire is quite simply not yet up to it, despite European received opinion which was not altered by bitter experience – just now fly by wire needs military roles for the risk to be worth it.

    The niche that may open – once computer control is up to it – is flying cars. These have been almost there for fifty years, and are quite practical technically (they just need a bit of specific development, not new technology).

    What kills flying cars is that they are not economic until there are a lot of them, and that is still an insurmountable air traffic control problem. When computer methods (not hardware) are up to it, they may well become realistic. Given their faster door to door performance, they well materialise as more than a hobby interest.

    In case anyone’s interested, at the moment I believe the most practical approach is a lifting body using the Custer channel wing system, with a canard providing elements of the Flying Flea’s benefits like roll stability and reducing air flow separation problems. The channel wing isn’t quite the VTOL miracle its proponents claim, though.

  23. January 21st, 2005 at 21:37 | #23

    Interesting – the link I tried to give to http://www.custerchannelwing.com didn’t seem to go in properly. Probably my fault – and that damned lack of a proper preview. That’s what I used to use to confirm I had links in OK.

  24. January 22nd, 2005 at 00:05 | #24

    Look here for an example of the distortions being applied in the area of these aircraft sales.

    Please note that I am not being anti-American, I am just telling it how I see it.

  25. Giles
    January 22nd, 2005 at 02:16 | #25

    Thanks for that PM; politics is important.

    But Back to my point, I still think that if the range can be extended to 10,000 k or thereabouts then there is a viable set of flight routes open to sustain a fleet. The transpacific route is obviously the largest but once this is taken then economies open up other routes – like Melborne to Perth, Perth to Cape town and Calcutta, Calcutta Bangkok. You could also then do something like Melborne to Perth to Nairobi super sonically – time 6-7 hours, then Nairobis to London 7 hours by normal plane. People would I think pay for this.

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