Take off for super jumbo

The A3XX: Taking a double-decker to the skies

Europe's Airbus has agreed to go ahead with the £8bn (12.8bn euro, $12bn) project to build the world's biggest passenger jet.

The first passengers are expected to fly the A3XX at the end of 2005.

Airbus Industrie, the consortium which builds the Airbus fleet of commercial jet aircraft and challenger to Boeing, also announced a shake up in its structure to allow it to go ahead with building the new giant of the skies.

This is an historic day for Airbus

EADS co-chief executive Philippe Camus

After years of speculation and negotiations between the multi-national consortium, terms have finally been agreed on transforming it into a private commercial company.

The move was made more urgent by the need to officially launch the A3XX super jumbo, which is intended to challenge Boeing's 747 for dominance in the large jet market.

Super Jumbo Facts

Wingspan: 80m

Length: 67.4-78.9m

Passengers: 480-656

Minimum range (A3XX-100): 7,650 nautical miles (14,150 km)

Top range (A3XX-100R): 8,750 nm (16,200 km)

Engines: four Rolls-Royce or Pratt-Whitney-General Electric jet engines

On-board services: shops, sleeping areas, creche and exercise room over two decks

The development of the plane - which aims to have cruise liner-like facilities - will require huge development funds much of which will have to be borrowed by issuing corporate bonds.

"This is an historic day for Airbus," EADS co-chief executive Philippe Camus said.

"Our landmark agreement and the authorisation to offer for the A3XX are tremendous news for the European aerospace industry."

The reorganisation had been complicated by the fact that the main members of the Airbus Consortium have been themselves undergoing a massive shake-up.

France's Aerospatiale Matra, Germany's DaimlerChrysler Aerospace (Dasa), and Spain's Casa are merging to form the European Aerospace, Defence and Space Company (EADS).

The other member of the Airbus group, BAE Systems, was created when British Aerospace acquired the defence business of GEC.

Structural reform

The new Airbus company will be largely controlled by EADS, with an 80% stake, while BAE Systems contributes 20%.

Philippe Camus, EADS co-chief executive, predicts the A3XX will be launched at the end of this year

BAE Systems, which makes the wings for the Airbus, was reported to have demanded assurances that it would not be squeezed out of further projects.

It was thought to have insisted on retaining a veto power over new projects. It has been given the option of selling its 20% stake to EADS in three years time.

BAE Systems chief operating officer Mike Turner said the company had "no intention of exiting unless we disagree with the way the business is being run".

The new Airbus company will be formally incorporated in France on 1 January 2001, and the current Airbus chief executive, Noel Forgeard, will head the group.

Airbus currently is the second largest commercial aircraft manufacturer in the world, and is vying with Boeing for the Number One spot.

In 1999 it sold more aircraft than its American rival, and recently made massive inroads into the North American market.

But its best selling jet is the smaller A320 and related models, which has a lower profit margin than Boeings 747 jumbo jet.

Airbus had sales of $16.7bn in 1999, and has over 2,200 aircraft in service. It hopes to realise cost savings of $250m a year by becoming a listed company.

It employs just over 3,000 people directly, but more than 100,000 jobs are based in its partner companies and their suppliers.

Wrangle over production sites

The transformation of the consortium into a company was also delayed by a dispute over where the new plane would be assembled.

Although final assembly is only a small part of the whole production process, it is important for prestige - and it helps boost a country's trade balance as exports to non-EU countries are counted as from the place of final assembly.

Germany was pushing for final assembly for the super jumbo to take place in Hamburg, but has accepted a deal in which Toulouse, Airbus headquarters, will be the site of final assembly, while final interior fitting will take place in Germany.

But will it fly?

The launch of the new Airbus company came on the same day shares in EADS itself were offered for sale to investors.

Institutional investors, in particular, are expected to shy away from an "old economy" company, and there are questions over the burdens that the development of the A3XX will place on the company's finances.

It is also seen as too close to the French and German governments who will still own a significant stake in the company.

About 30% of the shares were offered to the public, and it hopes to raise over $3bn by listing on the Paris, Frankfurt and Madrid exchanges.

Uncertainty over the future sales of the super jumbo are also expected to hit the share issue.