Tuesday, July 12, 2016

Airbus Cuts A380 Production Plans: Aircraft maker to build 12 A380 planes a year from 2018, down from 27 in 2015 -Kathryn's Report

The Wall Street Journal
By Robert Wall and jon Ostrower
Updated July 12, 2016 2:28 p.m. ET

FARNBOROUGH, England— Airbus Group SE took the dramatic step of slashing planned production of A380 superjumbos amid a persistent failure by the European plane maker to secure significant orders for its flagship.

Airbus said it would build only 12 A380 planes from 2018, down from 27 in 2015.

The company also hinted it may return to the red on the program after reaching break-even only last year. Airbus said it would break even this year and again in 2017 while building 20 aircraft. Beyond that, it said, it “targets additional cost reduction initiatives to lower break-even further.”

Airbus suffered one of its worst crises in developing and building the A380. The program ran years late and billions of dollars over cost. Top company officials lost their jobs.

“With this prudent, proactive step we are establishing a new target for our industrial planning, meeting current commercial demand but keeping all our options open to benefit from future A380 markets, which we consider in the environment of ongoing aviation growth and constrained airport capacity as a given,” Airbus jetliner boss Fabrice BrĂ©gier said.

Airbus said it had orders for 126 A380s planes left to be built. Most of those are for Emirates Airline, the plane’s largest customer.

Airbus chief plane salesman John Leahy earlier Tuesday said he was in talks to find new buyers for the double-decker that cost $432.6 million each and was targeting a deal this year.

Airbus this year announced that French carrier Air Austral had canceled an order for its two A380s. Kingfisher Airlines Ltd. and Hong Kong Airlines Ltd. are among other carriers to order the plane only to backtrack. Japan’s Skymark Airlines Inc. had ordered the A380 before the contract was voided over payment issues.

Air France-KLM SA this year said it had dropped plans to take the last two A380s it had ordered. Malaysia Airlines, which owns six of the planes, plans to stop using them in about two years.

Airbus is scrambling for deals and said it is in talks with new and existing customers for more A380 orders. Qantas Airways Ltd. is among the existing carriers to say it doesn’t want any more. International Consolidated Airlines Group SA Chief Executive Willie Walsh said the group that includes A380-operator British Airways may take more than the dozen ordered, but was looking to the second hand market to pick them up more cheaply

Airbus earlier this year announced an agreement to supply a mega-order of airliners, including 12 A380s, to Iran Air. Plane sanctions on Iran were lifted on such deals in return for limits on the country’s nuclear program. That deal hasn’t been finalized yet amid a delay in getting U.S. government approvals. Mr. Leahy said he was “disappointed” the U.S. government licenses for the deals haven’t been received yet.

Still, he shrugged off a move by some U.S. lawmakers to block Boeing and Airbus from selling planes to Iran, though, suggesting the proposed congressional language was unlikely to become law.

Airbus has long insisted demand for the A380 would grow as airports become more crowded and cities around the world become more populated. So far that has failed to translate into a surge in appetite for the double-decker as airlines worry about how to fill that many seats.

Mr. Leahy acknowledged it has been a challenge to book new orders for the A380 superjumbo, with Boeing also struggling to sell its 747-8 jumbo jet. Boeing also has cut output on its 747-8 to 0.5 planes a month from September.

Russian cargo operator Volga-Dnepr Group at the Farnborough air show on Tuesday completed a deal with Boeing for 20 747-8 freighters, providing a lifeline for the company’s venerable jumbo jet. Boeing had already supplied four of the planes before the deal, previously announced, became final. The Volga-Dnepr announcement was a rare bit of good news for Boeing in the largest-plane segment. As of the end of June, Boeing held just 21 remaining orders for its 747. The company has significantly scaled back production of the jumbo jet and now plans to build just six annually, starting in September.

The move comes as Airbus and Boeing warned at the Farnborough air show that sales momentum was slowing. Mr. Leahy on Monday said reaching the plane maker’s full-year target of around 650 plane orders would be a stretch.

Still, Mr. Leahy insisted there was a continued need to push up output of popular plane models.

“The ramp-up is still warranted,” he said at the Farnborough air show Tuesday.

Airbus and rival Boeing Co. have announced plans to build more of their most popular planes after years of strong demand caused their backlogs to balloon with airliners ordered and yet to be delivered. Airbus’s backlog is for more than 6,000 aircraft, while Boeing’s tops 5,000.

Airbus has said it plans to build 60 A320 single-aisle planes a month in 2019, up from the mid-40s today.

“We need every one of the aircraft being built up to rate 60 and even beyond,” Mr. Leahy said. He is also eager for the company to build more A350 long-range jets to satisfy demand, he said.

Airbus reached a deal with Germania to kick off Tuesday’s order activity at the Farnborough show. The German carrier will buy 25 A320neo jetliners and took options for 15 more. The list-price value of the deal, including options, is roughly $5 billion.

Budget carrier WOW Air Ehf. of Iceland said it was buying four A321 jets for $460 million at list price.

Airbus, based in Toulouse, France, later secured a deal to supply 72 A320neo planes to Go Airlines (India) Ltd. at a catalog-price value of $7.74 billion.

It topped that deal when Asian budget carrier AirAsia Bhd. said it would buy 100 A321neo planes in an agreement valued at $12.6 billion at list price. AirAsia Group Chief Executive Tony Fernandes said even that deal, which puts the company’s commitment for Airbus single-aisle planes at 575 units, leaves the airline in need of more planes.

Boeing started the second day of the show with an order for 10 737 Max single-aisle planes and one 787-9 Dreamliner from TUI AG of Germany at a list-price value of $1.4 billion. Boeing is raising production of both models because of strong demand.

The Chicago-based plane maker also said Air Lease Corp. would buy six 737 Max single-aisle planes at a list-price value of $660 million, while Kunming Airlines Co. agreed to buy 10 737 Max 7 planes at the same value. An unnamed Chinese airline agreed to take 30 narrow-bodies.

Original article can be found here:  http://www.wsj.com

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