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Dubai Crisis Threatens Airbus and Boeing, Too

Posted by: Carol Matlack on November 27, 2009

As if Airbus and Boeing didn’t have enough to worry about already, the looming debt crisis in Dubai has cast a shadow over a backlog of aircraft orders, worth more than $60 billion, from Dubai, Inc.

The biggest – but by no means the only – example is Emirates, Dubai’s government-controlled carrier. It has more than $30 billion worth of planes on order from Airbus, including 53 of the double-decker A380, for which Emirates is by far the largest customer. Emirates also has placed 70 orders for Airbus’s forthcoming A350 widebody. And Airbus has outstanding orders from state-controlled leasing outfit DAE Capital totaling about $12.6 billion.

No surprise, then, that shares in Airbus parent European Aeronautics Defence & Space Co. fell more than 3% on Nov. 26 when the Dubai government asked to postpone debt repayments.

Boeing is considerably less-exposed than Airbus to potential turmoil in Dubai, but it still has plenty at stake. Emirates has about $4 billion worth of Boeing 777s on order, while DAE Capital and low-cost carrier Flydubai have a combined $16 billion on order from Boeing. As U.S. markets reopened on Nov. 27 after Thanksgiving, Boeing shares were down 1.2%

Emirates, which in less than a decade has grown from obscurity into one of the world’s biggest airlines, has long said that it receives no government subsidies. Even so, the debt crisis could wreak havoc with its future. Travel to Dubai had already started to slump as the economy weakened earlier this year – although Emirates is cushioned somewhat because about 60% of passengers coming through its Dubai hub are on flights connecting elsewhere.

A scarier prospect for Emirates is that Dubai’s oil-rich neighbor, Abu Dhabi, might demand control of the airline as part of a deal to bail out its debt-strapped neighbor. Abu Dhabi’s state airline, Etihad, has ambitions to become a global player and turn the Abu Dhabi airport into a major hub.

If that happens, it’s unlikely Abu Dhabi would take delivery of all Emirates’ order backlog, in addition to the 100 aircraft it has ordered. Longterm market analyses by Airbus and Boeing predict that air travel in the Middle East will grow an average 6% to 7% annually over the next two decades, too little to absorb both carriers’ order books. And those estimates were made before the Dubai debt crisis.

The outlook for DAE Capital and Flydubai is worrisome, too. Both now have small fleets and have been counting on robust revenue growth to pay for new aircraft purchases. It could add up to a very bumpy ride for both Airbus and Boeing.

Reader Comments

Robert

November 27, 2009 06:41 PM

A labor analyst in Washington state told me as goes Boeing so goes Washington! I hope he's wrong this time.

Hsiao Hsian Li

November 27, 2009 11:51 PM

About the A380 Boeing, just increases a new device that can prevent the hijack of airplane.

sunil

November 28, 2009 02:39 AM

gr8

bob

November 28, 2009 09:32 AM

If you want to see something troubling, Google "Moodys downgrades." It gives pages of corporations and banks being downgraded. Dubai finally brought back the reality of debt. Now the United States will have its own Dubai next year! It's called Housing 2, Resets for Jumbo loans to Alt-A's to Option ARMs! Good luck, America.

Daniel

November 29, 2009 03:16 AM

Bob, I second that!

Interconnect

November 29, 2009 08:13 AM

Emirates in particular is not Dubai carrier! It is a regional/international hub, providing connections, connectivity, and interconnect to millions of people and nations. There's lot of reconstruction work after Iraq war, Afghanistan, Pakistan with wrecked surface transport.

With zero railways network, roads doesn't exist, or had mines, in Afghanistan. No the war extending onwards to the North region, and the almost non existent the poorest railways network of 120 years old in Pakistan. It would require decades to build railways network in many parts of the world.

Emirates can cash in the opportunity in the region with war zone countries as Iraq, Afghanistan with immediate air services, for freight, passenger, re-construction with international donor agencies, and development agencies for the reconstruction by deploying air services of Emirates with new, efficient, and cost effective services to the region.

If an order is placed by the affected country it would long time to deliveries, and this way the queue can be by passed.

booch221

November 30, 2009 01:40 AM

I see some people are still in denial about Emirates and the Dubai economy.

rob

November 30, 2009 03:09 AM

I agree with most of the comments above.

Emirates has offered some of the lowest fares on many routes but has been getting pressure from countries, first Australia and now Germany that they need to increase fares.

The lowest JFK-DXB is $625 and five carriers offer fares below Emirates, which is $1,350, but is non-stop, one way.

They also have way too many empty premium seats and may need to increase seats in coach/economy.

My brother is an Emirates Capt on the 777 and is flying now - I'm anxious to hear from him. We email each other about once a week so I am somewhat up to date on the airline.

I would never believe Emirates will be able to take delivery of all the aircraft they have on order....time will tell.

Emirates is operating a 380 from DXB-SYD and over to AKL. They offer a low
fare on the last leg, which will give people a chance to try the aircraft on a 3 hour flight-pretty clever move since this airplane is designed to use on long haul flights.

As far as Emirates flying into Kabul or
Baghdad, I think that will be a long
time down the road. There are 9 flights a day to Kabul and one to Baghdad from
DXB but none on Emirates.

I spent 40 years in the airline industry.

Paul

November 30, 2009 04:07 AM

@Bob. I wouldn't put so much faith in anything Moody's says... Were they slashing ratings of wall street firms in bulk before Lehmans filed for bankruptcy? Nope!

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