Tuesday, December 27, 2016

Airbus Cuts A380 Production Plans in 2017: Company says delayed deliveries agreed to with Emirates Airline, engine maker Rolls-Royce




The Wall Street Journal
By ROBERT WALL
Updated Dec. 27, 2016 1:50 p.m. ET


LONDON— Airbus Group SE for the second time this year is cutting production plans for its flagship A380 superjumbo and now faces the prospect of losing money on the plane again already next year.

The move comes at a time both the European plane maker and its larger rival Boeing Co. face the prospect the era of the big, four-engine long-haul plane is ending. Airbus has struggled to win orders for the A380 and Boeing has had to cut production plans for its 747-8 jumbo jet owing to slack demand.

Airbus in July had to concede the outlook for the A380 was darkening when it cut production plans to just 12 A380s planes a year starting in 2018, down from the 27 it built last year. It had planned to build around 20 of them next year, reaching break-even on those deliveries.

But Airbus Tuesday said it had to cut further. After a three-way agreement involving also Emirates Airline, the biggest buyer of A380s, and engine maker Rolls-Royce Holdings PLC, the plane maker will delay six A380 deliveries planned for next year to 2018 and another six from 2018 to 2019. Airbus wouldn’t detail the reason for the schedule change.

Deliveries of the first Rolls-Royce-powered A380s to Emirates Airline have been slightly delayed amid concerns by the carrier about technical issues with the engine, though the airline’s president Tim Clark this month said those had been resolved.

On Tuesday, state-owned Emirates Airline said it expected to receive its first A380 powered by Rolls-Royce engines this week and a further two by the end of the month. The Dubai-based airline, the world’s biggest by international traffic, currently operates all its A380s with engines made by a joint venture of General Electric Co. and United Technologies Corp.

Rolls-Royce said it was working with Airbus and Emirates Airline to meet their requirements.

But for Airbus, the latest schedule change represents another headwind for the A380.

The double-decker A380 that seats on average 544 passengers is Airbus’s most iconic plane, but the Toulouse, France-based company has struggled to secure orders for the jet. Airlines are worried they will struggle to fill all those seats on a plane that costs $432.6 million at list price, though buyers get often big discounts.

Development and production delays have made the plane a financial headache for the company. Airbus only last year began delivering A380s that no longer lost money, eight years after the first was shipped.

Airbus said it would accelerate efforts to minimize the financial hit, though signaled the program would fall back into the red already next year. It had previously forecast it could remain at break-even in 2017, before falling back into the red in 2018. “The impact on break-even in 2017 is minimal,” the company said.

Cutting 2017 delivery plans is only the latest in a string of setbacks for Airbus on the A380 in 2016.

Earlier this year Airbus said French carrier Air Austral had canceled an order for two of the planes. Air France-KLM SA this year also 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.

And Qantas Airways Ltd., which flies the plane, has said it doesn’t want any more.

Singapore Airlines Ltd. .—the aircraft’s first buyer and currently its second-largest customer—in September said it won’t renew the lease for its first plane and maybe more.

Iran Air in January also signaled interest in buying 12 A380s as part of a mega-order with Airbus. But when the state-owned carrier and Airbus last week announced their 100 plane deal valued at more than $18 billion at list price, it no longer included A380 planes. Airline officials have indicated other planes Iran Air was buying would suffice.

Iran Air also took a pass on buying Boeing’s 747-8 jumbo jet, instead opting for the new 777X twin-engine long-range plane that can seat more than 400 passengers and is due to enter service around the turn of the decade.

Airbus executives have said they remain optimistic of winning new customers for the A380 and that production would eventually increase beyond one-plane a month.

For Emirates Airline, the delay in introducing additional A380s comes as the airline is dealing with the slump in premium demand because of the sharp fall in oil and gas prices. Ticket prices have fallen sharply. Mr. Clark this month said he was delaying a decision on ordering additional long-range jets in part because of concerns about tepid traffic growth in the coming years.

The airline wouldn’t comment on plane delivery plans, beyond saying it would continue to introduce new A380s and Boeing 777 widebodies in 2017 and 2018.

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

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