Superjumbo delays to cost Airbus millions

22nd September 2006, Comments 0 comments

PARIS, Sept 22, 2006 (AFP) - New delays expected for the A380 superjumbo airliner are a blow to Airbus after a production crisis three months ago but are unlikely to cause customers to cancel orders, analysts said on Friday.

PARIS, Sept 22, 2006 (AFP) - New delays expected for the A380 superjumbo airliner are a blow to Airbus after a production crisis three months ago but are unlikely to cause customers to cancel orders, analysts said on Friday.

Airbus and parent company EADS admitted on Thursday that wiring difficulties were likely to set back deliveries of the A380, the third announcement of delays since June 2005.

Client airlines reacted cautiously, mostly saying they would wait for clarification from Airbus but some were expected to seek compensation under penalty clauses written into buying agreements.

Analyst Scott Babka at Morgan Stanley said that the biggest danger for Airbus was knock-on effects elsewhere in its business.

"Real risk from here is that the A380 delays start to affect Airbus' competitiveness across the rest of its portfolio," said Babka in a research note.

He explained that this could happen if "further delays on the superjumbo tie up resources and impede Airbus' ability to compete and introduce new products in other segments of the market".

Airbus has been struggling to compete with rival Boeing in the mid-sized segment of the market and has been forced to re-design its A350 model on the advice of clients.

A JP Morgan analyst, Harry Breach, cited a figure reported in French newspaper Les Echos that each A380 required 40,000 hours of re-work, which he said would result in an incremental cost of EUR 1.6 million per aircraft.

Babka estimated that each of the first 100 planes delivered would also be discounted by an additional EUR 5 million as compensation for the new delays.

In London, the Financial Times reported that "the spectre of order cancellations is hanging over Airbus" and an unnamed analyst quoted in fellow British paper The Daily Telegraph made a similar suggestion.

The unnamed analyst said that the Dubai-based Emirates airline, the biggest client for the A380 with 43 out of a total 159 orders, was "so angry that it might cancel a couple of planes to send a message".

Analysts said that this was unlikely, given the perceived strategic advantages of the A380, which can transport between 555-840 passengers on distances of up to 15,000 kilometres.

"We'd be surprised to see any A380 order cancellations because demand for wide-body aircraft is strong and there are no alternatives in this segment of the market," said Babka at Morgan Stanley.

Emirates said its deal remained in tact and that it was waiting for a final schedule for deliveries.

Breach also said the A380 order book would be unlikely to shrink.

"We believe that most A380 customers have the aircraft as a cornerstone of future capacity and cabin product differentiation plans, and hence are unlikely to cancel orders."

Hints by airlines of possible cancellations were "prudent negotiating tactics for penalties or other concessions".

He implied however that the bad publicity surrounding the A380 might make winning new orders more difficult.

"We believe that incremental orders for the A380 from Qantas and Lufthansa, which were reported to be under consideration last month, appear to have evaporated," he said.

Deliveries of the A380 are already running more than a year behind schedule and Airbus is expected to announce another six-month delay when it clarifies its delivery schedule next month.

In June, the group had said it would make nine deliveries in 2007 instead of 25 as previously forecast, but this figure could slip further to only four, analysts and press reports have predicted.

The announcement of production problems in June had caused a crisis at Airbus and parent company EADS, forcing management changes and damaging the standing of EADS in financial markets.

EADS owns 80 percent of Airbus, with the remainder held by British defence group BAE Systems.

Copyright AFP

Subject: French news

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