UPDATE 4-Airbus pledges to keep A350 on track
Wed Jan 14, 2009 1:11pm EST* Airbus says 10 bln euros A350 programme on track

* Plane's biggest customer warns against more delays

* Parent EADS shares fall on aviation gloom

(Adds Qatar Airways, analyst)

By Tim Hepher and Matthias Blamont

TOULOUSE, France, Jan 14 (Reuters) - European planemaker Airbus (EAD.PA: Quote, Profile, Research, Stock Buzz) vowed to break free of a string of damaging aircraft production delays as it began construction of a factory for its next major project, the 10 billion euros ($13.25 billion) A350 jetliner.

The aircraft is its response to the Boeing (BA.N: Quote, Profile, Research, Stock Buzz) 787 Dreamliner as the world's two biggest jetmakers battle over the potentially lucrative mid-sized market, but is overshadowed by delays to other big aircraft projects and the financial crisis.

"This plane must enter service in 2013. We have sold 478 so far and it is out of the question that we can be late," A350 programme chief Didier Evrard told reporters on Wednesday.

"We are doing everything at Airbus and among our suppliers to ensure it is on time."

His reassurances failed to prevent a 7 percent slide in parent EADS shares to 12.92 euros as more evidence piled up of economic problems thought likely to depress travel and feed through into lower demand and deferrals of existing contracts.

The A350 and 787 both rely on a leap in technology allowing planes to be built to a greater degree out of composite carbon materials that save weight and ease fuel bills for airlines.

Saving weight means planes can fly further with two engines. Their range and size -- seating 250 people -- allows airlines to fly more direct routes, avoiding congested hubs.

Boeing was first to the market with its successful 787 and gained a five-year advantage while Airbus dithered over strategy and focused initially on its larger 525-seat A380 superjumbo.

Airbus has since recovered some ground as Boeing grapples with two years of production delays that pushed first delivery to 2010.

But the A350's top customer said there was little margin for a repeat of two-year delays to the A380. And with 5,000 sales of the A350 or 787 up for grabs in 20 years, the stakes are high.

"The A350 is a core plane for Airbus. It has to get it right," Qatar Airways adviser Stephen Vella told Reuters.

The A380 delays cost Airbus huge penalties to disappointed airlines and plunged the planemaker into two years of losses. EADS predicted a 5 billion euros earnings shortfall up to 2010 when the programme first went seriously off track in 2006.

"We have worked to make sure all the weaknesses we could find in the way Airbus is developing aircraft are identified and that we work as an integrated entity," Airbus Chief Operating Officer Fabrice Bregier said.



"BETTER BE BETTER"

Airbus parent EADS is simultaneously wrestling with delays to its A400M military transport aircraft, which has now been placed under the direct control of Toulouse-based Airbus.

"When we sign a contract we give guarantees to customers, so we had better be better (on the A350) than the A400M," Bregier said. EADS (EAD.PA: Quote, Profile, Research, Stock Buzz) blames engine makers for A400M problems.

Airbus officials were speaking at the groundlbreaking of a plant to build the A350, which will be assembled in Toulouse.

The A350 passed a key hurdle in December when the design was "frozen" or fixed for the first model to enter service, the 314-seat A350-900, Airbus said. Two other variants are on the drawing board and have yet to be finalised.

Airbus has sold 478 of its A350 XWB series -- Extra Wide Body -- to 29 customers. Sales of the 787 stand at 910 planes.

The first A350 flight will be in early 2012, Evrard said.

Airbus will confirm on Thursday that it overtook Boeing to reclaim the top spot in total airplane orders last year, something seen by analysts as inevitable after Boeing reported a 53 percent drop in annual plane orders last week.

But investors fear a sharp drop in 2009 plane orders and analysts are warning EADS's 9 billion euros cash pile could dissolve quickly as it offers credit and battles A400M delays.

"The problem is less about execution and more about resources. Given the downturn, Airbus will have a difficult time financing the current schedule," aerospace expert Richard Aboulafia of Washington-based consultancy Teal Group said.

EADS said on Tuesday it was conserving cash and had frozen acquisition plans to cope with having to offer credit financing to customers to prevent them cancelling civil airplane orders. ($1=.7547 euros)

Statements like this always crack me up. Of course Airbus won't repeat the same mistakes of the A380 program (using two different CAD programs to design the plane). But as Rummy, would say, it's the "unknown unknowns" that pose potential problems.

The things that caused the A380 delays are not the same as those that caused the A400M delays or the 787 delays. Each new plane has new issues particular to that program.