Airbus puts on brave face over cancelled $16bn contract
An Airbus A350 XWB flight-test aircraft is towed during a media-day at the German headquarters of aircraft company Airbus in Hamburg-Finkenwerder, April 7, 2014. European planemaker Airbus unveiled on Monday the first cabin for its new mid-sized twin-engined airliner, the A350 XWB, vowing to avoid a repeat of the delays caused by cabin design changes on its bigger A380 super jumbo. REUTERS/Fabian Bimmer (GERMANY - Tags: TRANSPORT TRAVEL)©Reuters
Fabrice Brégier, Airbus chief executive, has put a brave face on Emirates Airline’s cancellation of a $16bn order for 70 of the aircraft maker’s planned new A350 passenger jets.
It is Airbus’s largest contract cancellation, but at a dinner with journalists on Wednesday evening Mr Brégier insisted Emirates’ decision would have “zero negative impact” on the European aerospace group. “Is it a problem for us?” he said. “The answer is clearly ‘No’ … [but] I do not like it because Emirates is a top-class customer and I would prefer them to operate the A350.”
For Airbus, the loss on Wednesday of Emirates as an A350 customer throws an uncomfortable spotlight on its strategy for long-range aircraft – particularly in the lucrative market for wide-body, twin-engined jets, where it trails Boeing. The fast-growing Gulf carrier’s contract cancellation also raises broader questions about whether there are signs of a downturn in the commercial-jet industry – which could force Airbus and Boeing to stop making so many aircraft.
But for Mr Brégier, the most pressing concern is whether Airbus can hit its ambitious timetable for getting the A350 into service before the end of the year, and then ramp up production of the aircraft.
The A350 is the biggest single risk at Airbus’s commercial-jet business – the aircraft involves a step-change in technology because it is mainly made from lightweight carbon composites rather than aluminium, so as to reduce fuel burn.
The flight-test programme, which began almost a year ago, has gone relatively smoothly, and Airbus hopes to obtain certification of the A350 from regulators this autumn.
The bigger challenge could come after the first aircraft is handed over to Qatar Airways – as Airbus seeks to increase production of the A350 to 10 each month by 2018.
The company is closely monitoring the ability of suppliers to cope with the proposed production increases, and although Mr Brégier said that many were in good shape, some still have problems. “We are working hard to mitigate this risk,” he told the Financial Times at Airbus’s annual technology event for media.
Then there is the issue of whether the A350 is an adequate competitor for Boeing’s two wide-body twin-engined jets – the Dreamliner and the planned 777X. There will be three different versions of the Dreamliner and two 777X aircraft, but Airbus is planning only three A350 models.
In an apparent admission that Airbus needs to strengthen its position, it is considering making a new version of its A330 jet featuring more fuel-efficient engines. The A330 is an ageing aircraft, with a small order backlog, but Mr Brégier said that new engines could put its fuel burn on a par with the midsized Dreamliner.
A350’s round of applause
The interior of the business class of the new Airbus A350 XWB is pictured during a presentation in Hamburg, northern Germany on April 07, 2014. European aircraft manufacturing company Airbus presented the interior of its future A350 which - according to the company - will offer "more personal space, flexibility and comfort" than other aircrafts in its class. AFP PHOTO / PATRICK LUX (Photo credit should read PATRICK LUX/AFP/Getty Images)
Can the Airbus A350, the world’s newest passenger jet, live up to the hype?
On Thursday, Airbus gave journalists the opportunity to decide whether Emirates Airline had made a mistake, when it cancelled an order for 70 of these next-generation aircraft, by inviting the media to fly on a prototype A350, writes Andrew Parker.
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Nick Cunningham, analyst at Agency Partners, said that it was strongly in Airbus’s interests to extend the life of the profitable A330 programme until the end of the decade, when the A350 is supposed to start generating earnings.
However, he questioned if there would be strong demand for a revamped A330 because its fuel consumption was likely to be worse than Boeing’s aircraft.
Meanwhile, Airbus is coming under increasing pressure from Emirates to make a new version of the A380 superjumbo with more fuel-efficient engines.
Emirates is the world’s largest operator of the four-engine A380, having ordered 140 superjumbos, and Tim Clark, the carrier’s president, said that it could be willing to buy more if Airbus made a new version.
Airbus executives sounded cautious, but Mr Cunningham said: “If Emirates wants Airbus to re-engine the A380, it probably has to.”
Since the financial crisis, and in an era of high oil prices, Airbus and Boeing have enjoyed several years of strong sales for their new, more fuel-efficient aircraft.
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But Airbus has already had more order cancellations by airlines this year than in the whole of 2013. A total of 173 aircraft have been cancelled in 2014 so far, compared with 116 last year. Other airlines, such as AirAsia, have deferred delivery of aircraft for several years.
In a further sign of possible market deterioration, Airbus’s book to bill ratio – calculated by dividing annual orders for aircraft by jet deliveries – could decline this year compared with 2013.
But John Leahy, Airbus’s chief operating officer for customers, said: “Are we building too many aeroplanes? Is there a [market] bubble? I don’t think so.”
Several analysts agreed with Mr Leahy, but a minority have concerns. David Strauss, analyst at UBS, estimated in a research note before Emirates’ cancellation that 20 per cent of the combined jet orders placed with Airbus and Boeing were vulnerable to cancellation or deferral because some airlines had signed contracts based on over-optimistic growth assumptions.