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Last Updated: Friday, 1 December 2006, 21:49 GMT
Airbus plays catch-up in A350 dream
An artist's impression of the A350
The A350 has finally got the go-ahead
Larissa Klinker, business reporter with German broadcaster ARD, analyses the role the newly approved Airbus A350 will play in its battle for global supremacy with Boeing.

It has been a very turbulent time for Airbus, as its once so praised A380 plane has been hit by a two-year delay.

However, solving the A380 problem will not be enough, if Airbus is to compete with rival Boeing. It will also need to show that its medium-sized long haul jet, the A350, is better than Boeing's 787 "Dreamliner".

For a long time, Airbus didn't take Boeing's Dreamliner project seriously.

While the Toulouse-based company revelled in the imminent success of its A380 superjumbo, Boeing unveiled the 787 and quietly took more and more orders for the super-efficient plane.

The Dreamliner is a long-range, midsized, wide-body, twin-engine passenger airliner capable of carrying 200-350 passengers.

It was begun in 2003, and aircraft assembly started in June 2006.

European Answer

When the Americans started to enjoy huge success with its future mid-sized jet, Airbus decided the best form of defence was to attack.

Kieran Daly, Editor of Air Transport Intelligence, said it was "inconceivable" that Airbus would not follow its rival into this market.

An A380 plane
Will the mammoth cost of the A380 constrain Airbus?

The A350 - also a fuel-efficient, long-haul twinjet able to carry 200-350 passengers - was to be the European answer to the Dreamliner, replacing the much older A330 model.

But airline customers were unhappy with the early design of the A350 forcing, Airbus to return to the drawing board.

In July, Airbus revealed there was to be a new design with the name A350 XWB for Extra Wide Body.

This new version will be wider, stronger, lighter and more fuel-efficient, entering into service in 2012 - four years after its rival.

However, Mr Daly believes demand for these type of aircraft are so high that Boeing alone will not be able to satisfy the market. As a result, there is hope for Airbus even though its plane will be late.

Funding question

The biggest issue affecting the A350 is how to finance this new project, which is expected to cost up to $13 billion.

Facing financial problems with the A380, experts believe Airbus cannot pay for the A350 from its own resources although it says it will provide the bulk of funding itself.

Airbus chief executive Louis Gallois has made it clear that the new plane can only be built if a $2bn cost-cutting plan is in place and if as much as a third of it is built in low-cost countries outside Europe.

A model of Boeing's 787 Dreamliner
Boeing's 787 will enter service long before its rival

Its financing has been complicated by the fact that shareholders in EADS - Airbus' parent firm - are in process of reducing their stakes and firmly oppose a capital increase.

French firm Lagardere wants to lower its stake from 15% to 7.5% while German-US carmaker Daimler Chrysler is looking to reduce its holding from 22.5% to 15%.

Other options to raise the finance include attracting new investors or accepting state aid, which would mean that governments would bankroll part of the development costs.

Protecting jobs

Jim Smith, editor of Jane's Transport Finance, said the reason for government interest in the project is linked to concern about possible job losses.

Countries such as Germany and France are under pressure to support Airbus when it comes down to protecting employment.

However, state aid could cause renewed problems with the US and the World Trade Organization.

Washington has fiercely criticised the use of European government loans to fund previous Airbus projects.

Public assistance from the French, German, British or Spanish governments - whose firms all benefit from Airbus contracts - would likely spark vigorous US opposition.

The US and the EU are already embroiled at the WTO over government assistance to the A380 and a further squabble over the A350 could further jeopardize the project.

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