From the Business Section of Today’s Washington Post:
Contents of article:
Carriers Grounding Airbus Orders
By Angela Charlton
Thursday, June 15, 2006; Page D06
PARIS, June 14 – Airlines around the world punished Airbus on Wednesday for delays in the delivery of its A380 superjumbo jet, demanding compensation, reconsidering orders – and in one case, striking a major deal with its rival Boeing Co.
Shares of Airbus’s parent company crashed and Boeing’s soared as repercussions of the production problems with the world’s biggest passenger plane resonated throughout the industry.
They also raised questions about the European planemaker’s management and strategy and the future of the double-decker A380. Boeing is staking its bets on a smaller, more fuel-efficient model.
Singapore Airlines, one of the world’s top carriers and the first to buy the A380, said it was unhappy with the delays Airbus announced Tuesday. It demanded compensation and, on Wednesday, worsened the blow by announcing it would buy 20 Boeing 787-9 aircraft worth $4.52 billion and take options on another 20 planes.
Emirates Airlines, another sought-after buyer, said it was reconsidering its order of 45 A380s. Australia’s Qantas Airways said it was seeking talks with Airbus over its orders for 12 A380s and wants some of its money back. Malaysia Airlines said it was reviewing terms of its deal for six of the planes.
Airbus parent European Aeronautic Defense and Space Co. saw billions of dollars wiped off its value Wednesday as shares plummeted by 26 percent to close at $23.63, after it warned that operating profit would be cut by about $625 million each year from 2007 to 2010.
Shares in Boeing Co., meanwhile, rose $5.03, or 6.5 percent, to close at $82.01 on the New York Stock Exchange.
The dismal day for Airbus reflected a sharp shift in the Toulouse, France-based company’s fortunes since the 555-passenger A380 made a triumphant maiden flight last year over the Pyrenees. Airbus overtook Boeing in order numbers in 2001 and in deliveries in 2003 and until recently looked in robust shape.
But the anger fueled by Tuesday’s announcement of production bottlenecks with the plane’s electrical systems – the second major delay for the $300 million A380 – suggests a less rosy future for the company.
“Boeing is eating Airbus’s lunch, certainly this year. And they’ll do it again next year and for the foreseeable future, unless Airbus can pull a rabbit out of a hat,” said Jim Smith, aviation analyst and editor of Jane’s Transport Finance.
It was the second Airbus project to falter in recent years, after the A350, which the company hoped would be the answer to Boeing’s 787.
The Singapore-Boeing deal stung especially deep because Airbus had hoped Singapore Airlines would be one of the first and biggest customers for the A350. But airline dissatisfaction with the A350 has forced Airbus to redesign some of its parts and consider a costly overhaul, delaying its launch for several years.
Airbus insisted Wednesday that it was not the A380 itself but minor production problems at fault for the delay.
“There have been minor production issues which have accumulated into a large number and require a complete, very detailed rethinking of the installation process of wires and harnesses,” said Thore Prang, spokesman for the company in Hamburg. "It has nothing to do with the aircraft. "With the A380, Airbus was taking a risk, since only a few of the world’s airports have runways long enough for the superjumbo jet. Airbus wagered that the airline industry would increasingly offer large flights to international hubs. But Boeing bet that air travel would be marked by the need for fuel efficiency and long-haul flights and is focusing on the 330-passenger 787.
“EADS made a strategic error by opting for a jumbo-sized jet rather than a fuel-efficient model, especially if the price of oil increases further,” said Matthieu Raimbault of French brokerage Viel Tradition.
Singapore was the first carrier to buy the A380, ordering 10 with an option to purchase another 15. Airbus said the first delivery to Singapore was still expected by the end of this year.
But deliveries probably will be limited to nine in 2007 instead of the 20 to 25 initially planned, Airbus said, with an additional shortfall of five to nine A380 deliveries expected in 2008 and “around five” in 2009.
Airbus’s chief operating officer, John Leahy, confirmed that the company will incur more late delivery penalties, but declined to provide a figure. It could in theory also face order cancellations.
EADS co-chief executive Noel Forgeard, who in 2000 oversaw the launch of the A380 as the head of Airbus, deflected suggestions that the setback could cost him his job.
“We have now to find the right ways forward,” Forgeard said in a conference call Wednesday.