UPDATE 4-20-2024
The options have gotten too numerous and confusing so I have put together what I think is the best of everything for a complete new release. This also includes several new improvements.
1. All blemishes of the model are fixed with a new flame, new brazier, and new textures.    The model is now perfect.
2. The player automatically gets the Teleport to Airship spell with a fresh install.
3. The Deathray Spell has been changed to a Fireball of Enlightenment that directly targets agressive enemies within 50 yards/45 meters (including altitude) of the ship .
4. The wind sound has been toned down and is adjusted by speed instead of altitude.
5. The ship can no longer be summoned in interior spaces.

You don't have to do a fresh install if you already have the Teleport to Airship spell, or if you don't want it. If you want the Teleport to Airship spell you can alternatively do a fresh install or use the console with the command "player.addspell xx024b91" substituting xx with the load order of the airship in hexadecimal. You can get that by opening the console and clicking on the airship.

UPDATE 12-10-2023
Added two new models to the Optional Section with better looking balloons and a couple minor fixes. One with a helium balloon and one with a hot air balloon (see images). Just swap the bsa file and it's best not to load a game the first time from a save when you were onboard and in the air on the old model.

UPDATE 6-18-2023
Added an optional (esp only) file that adds a teleport to ship spell. Comes in handy as a mark and recall function or for teleporting out of a dungeon. Sometimes your followers may end up on the ground depending on the location and height above ground of the ship in which case your just cast the spell a second time or activate the ship to bring them onboard.

UPDATE 2-28-2023
Added an optional (esp only) file for twice the speed forward and back. I like it better because you don't have to press the forward and back key 6 times. It still has six speeds but second and third gear is a good speed now for good sightseeing but you have full speed available if you're in a huge world space like Ubanga. The spread between speeds is better.

UPDATE 11-21-2022
Added a new model for the ship for a better view. After 100 hours airtime you might notice the swan neck is right in the middle of what you want to be looking at 90% of the time. The swan ship is okay for a parade or a kiddie ride but the new model is better for practical use. The new download is the new main file and is complete with all the latest. You shouldn't have to re-install but after you swap the bsa I wouldn't recommend loading a save where you were up in the air on the old model.

UPDATE 11-14-2022
Vertical control is changed to 3 speeds. Keys are momentary press instead of press and hold. Works just like forward and back. Controls are set to zero whenever the ship stops by itself from low altitude. The first time you try it you might have to hit the up key twice depending on how the ship was last stopped. Check the update files section.

UPDATE 11-11-2022
Thanks to some expert help from LenaWolfBravil I have an important fix and configurable keys. Lena has found a work-around to stop the ship from disappearing when going through city gates. She has also shown me how to add configurable keys with an ini file. The new esp-only and ini file is in the update section. This download also includes the Update 9-20-22.

UPDATE 9-20-2022
I added an optional download of the esp only that removes the ability to raise and lower the ship while not onboard. This is for compatibility with my new Skyship. When these two airships are within sight of each other and you raise the Dwemer Skyship the Airship goes up too because because they share the same hotkeys. It's not really a problem but it looks a little funny could be inconvenient.

HOW IT WORKS:
You will get a spell to summon the ship and a flight manual added to your inventory the first time you start Oblivion. It doesn't take more than a few seconds for me but with a heavily modded game I don't know. You should get the completed quest message no matter where you're at. Summon the ship and activate it to go onboard. If your companion is in following mode they will go onboard with you, likewise for a second follower. You have to activate the ship to go onboard. You can't just jump on because the controls will not work. To exit the ship you do just jump off and your companion will jump with you. The ship knows when you are onboard and offboard. It is your distance from the center of the ship that tells it you are offboard. It is the activation that tells it you are onboard.

INSTALLATION:
Put Airship.esp and Airship.bsa in your Data folder and check Airship.esp in the Data Files section of the Oblivion Launcher.
You should have:
. . .\Oblivion\Data\Airship.esp
. . .\Oblivion\Data\Airship.bsa

UNINSTALL:
Remove Airship.esp and Airship.bsa from your Data folder.

CONTROLS:
Up, down, left and right are the U H J K keys.
Forward and back are the O and L keys.
There are 7 speeds forward and backward and repeatedly hitting the O and L keys will speed up, slow down, and stop.
You can use the Up and Down (U J) keys while not onboard and the other controls are disabled if not onboard.

FEATURES:
1. While flying you can move about and face any direction.
2. You can use archery and spells while in the air when the ship is stopped.
3. While you are in the air enemies can detect you and can attack you with spells and archery. They also move toward your X Y position and will eventually end up directly below making them hard to target. For this situation the ship has a powerful destruct spell with a 30 foot radius that casts straight down. Activate by pressing the B key. This spell works while moving.
4. Tested to work in Morroblivion, Nehrimblivion, Oblivion Planes, and many other New World Spaces, even inside a dungeon.
5. The second follower passenger capability is handy for doing escort missions. This is where someone ( damsel in distress ) is in danger and you have to find them and escort them to safety. Once they are located and are following you they will board the ship with you and you can fly them to safety. This feature is mainly for the elderly hero whose arm tires swinging a blade all day.
6. Cleaned with Tes4Edit

ISSUES:
1. This problem has been fixed by Update 11-11-2022. The ship should no longer disappear when going through city gates or interior cells. Thanks to LenaWolfBravil for the fix. The ship may disappear when you go to an interior space and return. Some places it will stay forever and some places it will disappear as soon as you go through a door, turn around, and come back out. It's not a problem since you can summon it back.

2. The ship and passengers do not have proper collision detection while moving. This is because the movement is accomplished by the SetPos command which causes clipping. It's not a problem since the ship operates in the air. The ship does detect it's elevation above the ground and will stop moving when too close. When this happens only the Up key will work. This works for the ground but not for bridges and other structures. After a few hundred hours of use I think it's actually better to not have collision detection.

3. I've been using the Airship for about a year now and once in a while it will stop moving for no reason. If this happens you just activate the ship again while in the air and it starts moving again at the same speed it was traveling before it stopped. I've done some debugging and I'm 99% sure it stops because the Game Mode block of the script stops running and I don't think that's supposed to happen. I can reproduce it by starting out near the I.C. main entrance and flying south all the way past Leyawiin, turn around, fly all the way back, and somewhere between the Waterfront and the I.C. bridge it will stop.

4. Most all of my testing has been done with companion Vilja. If she is in Attack All Enemies mode she will try to get off the ship to go after the enemies she sees but the freeboard stops her mostly. Every once in a great while she manages to jump ship and you can descend and jump ship yourself to help out or you can activate the ship again to bring her back. It's interesting that the player can't use spells or archery while moving but Vilja can.

CREDITS and THANKS:
LenaWolfBravil - Programming help, finding the fix for the disappearing ship and adding configurable keys.
Alimal - Mesh and texture resources
EmeraldDemon - For the idea of a simple airship
Mr_siika - For ship models that I modified and pieced together and tutorials on 3D modeling with Blender
side777 - For the method of how to move a ship and the passengers
kilos - For help with the script, model, and quest, testing, and valuable suggestions