South-Western College Publishing - Economics  
Now That's a Big Plane!
Subject Airbus incurs fixed costs as it moves to create its new jumbo airliner
Topic Production and Costs
Key Words Production, Fixed Costs
News Story

Airbus has a problem: As it makes its new Airbus A380 airplane - the so-called "eighth wonder of the world" - it has to put the pieces together. And some of the pieces are bigger than any available transportation vehicle to get these huge pieces to the assembly plant.
Airbus is planning to build pieces of the plane in factories around Europe, and assembling the finished product in Toulouse, France, or Hamburg, Germany. The new Airbus A380 will seat 800 passengers on two-story planes, making it 1/3 larger than the largest current airplane, the Boeing 747. But how to get some very large pieces to Toulouse or Hamburg? Some pieces are bigger than any other plane that could be used for transportation. This raises a new logistical problem for Airbus - how to get the pieces from the factory to final assembly?

The head of A380 transportation spent three years traveling around Europe, hoping to find the easiest way to move the gigantic pieces of the plane. He discovered that the straightest road wasn't the easiest road to use, and ended up with a more creative route. Parts from around Europe will arrive in Bordeaux, France on a ferry built in China. A floating dock, built in Poland, will move the parts to barges being built in the Netherlands for the 59-mile trip up the Garonne River. The boat can take on water to sink more than three feet, allowing it to slide under bridges along the way, and then pump out the water. Giant trailers with security and police escorts will then begin the 3-day, 159-mile trip to Toulouse, at 15 miles per hour, traveling by night. The entire convoy will be 1.24 miles in length. Assembly of the 121 planes currently on order is slated to begin in the spring.

The French government completely redesigned the 159-mile road to Toulouse for this purpose, including adding 18 miles of bypass roads around towns to handle the trucks' weight and size. The entire transportation process is slated to cost $370 million, of which Airbus is paying one-third. The French government and private shipping companies will pick up the rest of the bill. Developing and building the A380 cost about $11 billion.


(Updated February, 2004)

Questions
1.

Are these initial transportation costs fixed or variable? Why?

2. Why would Airbus undertake these gargantuan transportation costs prior to selling any of the final products-the planes themselves?
3. Given the amount of these costs, would Airbus want to build more or fewer of these planes? Or don't these costs matter when Airbus is determining a profit-maximizing level of production?
Source Daniel Michaels, "Giant New Jetliner Faces Jumbo Problem: Assembly Required." The Wall Street Journal. 16 December 2003.

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