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Aviation History
1984
1984 - 0004.PDF
-^1 AIR TRANSPORT Boeing could build A320 wings LONDON Consider the Airbus Industrie A320 flying on wings designed and built by Boeing. That is one of the more bizarre but realistic consequences that could arise if Mrs Thatcher declines British Aerospace's application for launch aid for the A320. British Aerospace has revealed details of the applica tion which it put before the Government, individual MPs, and Mrs Thatcher herself, at meetings in September and November. The application is for £437 million of launch aid to be paid between 1983 and 1991, rising to a maximum in any one year of £79 million. The aid would be equivalent to a deferred-interest loan, with the interest and principle being paid back out of income between 1991 and 1997. In addition British Aero space plans to put £200 million of its own money into the project. The total, £637 million, would secure for BAe a 20 per cent stake in the A320. In terms of work share, British Aerospace is proposing to undertake 26 per cent of A320 production, building the entire wing. A300 and A310 slats and flaps are built by other participating companies, and BAe's work amounts to 18 per cent. Earlier ideas of British Aero space taking on final assembly at Filton have been dropped. It would have cost the company a further £70 million-£90 million to set up the facility. British Aerospace has based its application on Airbus Industrie's latest market predictions. These foresee a growth in the market of 5 • 4 per cent per annum to the end of the century, with the total passenger kilometres flown rising from the present 1,000 billion to nearly 3,000 billion. The market for all commercial aircraft above 70 seats is forecast as 7,670 units, in both replacements and growth, valued at $308 billion. The requirement for aircraft in the 140-200 seat category is seen as 2,570, valued at $76 billion. Airbus Industrie is aiming to capture 30 per cent of this market, or 760 aircraft, Inex-Adria, Jugoslav domestic and charter carrier, is the latest of four airlines to order Airbus A320s although BAe's own financial assessments are based on a more conservative figure of 600 aircraft sold. When doubts are cast on the validity of these market predictions, Airbus points to other manufacturers' as well as outsiders' forecasts, which predict a market of from 2,515 to 4,790 aircraft to the year 2003. The second most opti mistic is from the indepen dent investment broker Merrill Lynch. Airbus also points to the experience of the years 1955 to 1974, when the European manufacturers working separately sold 742 aircraft into the short- medium-range sector. BAe's financial forecasts show that the maximum investment in all its Airbus projects will come in the 1984-85 period. After that the position improves rapidly, and the cash flow becomes positive in about 1994. The company has looked closely at other methods of financing its participation in the project, including rights issues, project financing and zero coupon bonds, but all of them cost more than the company could prudently afford. It considered funding a greater share of the project by commercial borrowing but, says BAe chairman Sir Austin Pearce, interest is the prob lem. "I am determined not to jeopardise other sectors of the company for this one project," says Sir Austin. BAe plans a total company investment of £570 million during the next five years on space, guided weapons, and military aircraft. "We believe we are approaching our limit if we are not to take too high a risk, jeopardise our profit and dividend cover, and fail to maintain a prudent gearing ratio." Sir Austin said that under the 1949 Civil Aviation Act, launch aid was appropriate to meet the company's present circumstances. Other Euro pean countries, as well as Japan and in different ways the United States, applied comparable systems to their aerospace industries. Sir Austin stressed that granting part of the applica tion would not be acceptable. There were some flexibilities in the timing of the aid, but "unless we receive the £437 million or its equivalent, we are out of Airbus". Sir Austin dismissed the idea of British Aerospace building the wings as a sub contractor to an Airbus Industrie project in which it was not a partner. If Britain did not commit its resources to the project, the British would have been in, out, in and out again, and would have no credibility with the organisation. Sir Austin said that Airbus has already had approaches from other companies, including both McDonnell Douglas and Boeing to build the wings if the British pull out. It will not have escaped Airbus Industrie's notice that with American wings and a half-American engine, the entire model would then be more than half American. Neither McDonnell Douglas nor Boeing has made any promises, but the possi bility of substantial numbers of North American airlines choosing the model as the result of McDonnell Douglas or Boeing involvement cannot be ruled out. Airbus so far counts on a minimal North American market penetration of 124 aircraft, or 10 per cent of that market. If Mrs Thatcher does not advance launch aid, the A320 sales picture, looking healthy even without an American customer, could be enhanced. If the 10 per cent US pene tration rose to 50 per cent, it would boost A320 sales by nearly 500. On those figures, the other partners might not be too troubled to see the Brit ish withdraw. Mrs Thatcher has promised an answer to the application by the end of January. Meanwhile, Airbus has defined a long-range version, the A320-200, which is now under development. Changes are: A320-100 A320-200 Max to Weight 147,5001b 168,5001b Fuel 29,2O0lb 43,6701b Range 3,250km 4,800km Pax 140-179 150-180 FLIGHT International, 7 January 1984
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