Bloomberg News

Airbus Says Some A380s on Order May Not Be Delivered

July 30, 2014

Airbus Group NV (AIR) said it’s closely monitoring the financial health of customers for the flagship A380 and acknowledged that not all superjumbos on order will get built after it pulled a purchase accord with a Japanese carrier.

“Without referring to any specific airline, I can assure you that we have cases where airlines are in the order backlog but not in the production plan,” Chief Executive Officer Tom Enders said today on a conference call to discuss earnings. “We are watching the situation carefully, and know about the strengths and weaknesses of customers.”

Enders sought to reassure investors about the robustness of the A380 program, which hasn’t won a new airline customer in two years and drew a blank at this month’s Farnborough Air show. Airbus acted “proactively” in scrapping a deal for six double-deckers with Japan’s Skymark Airlines Inc. (9204), and is confident it can place two already-built planes with another buyer, he said.

Among customers that have ordered superjumbos yet remain undecided about actually taking them is Virgin Atlantic Airways Ltd., with six units on the order book. Qantas Airways Ltd. (QAN) had also planned to top up its existing fleet by as many as eight planes, an expansion that’s been thrown into doubt amid a cost-cutting drive. And Amedeo, an aircraft lessor that ordered 20 A380s this year, has yet to find a single client for the jet.

Boeing Competition

The double-decker was designed to dethrone Boeing Co. (BA:US)’s 747 as the model with the greatest range and capacity.

Twilight of the 747

While the A380 can hold more than 800 passengers, and was originally marketed as a plane that could comfortably accommodate 555 in three classes, the majority of airlines have outfitted it with 500 seats or fewer. Enders conceded that the market for very large aircraft remains “weak.”

The A380 has one very faithful customer in Emirates, the Gulf carrier that has ordered a total of 140 planes. Enders said Airbus would be content with more repeat business from existing buyers because it’s easier to build planes and customize the interiors with proven specifications.

“This is rather an unhealthy concentration of demand, as it represents a big single point risk,” said Nick Cunningham, managing partner at London-based Agency Partners.

Enders told analysts that Airbus’s decision to cancel Skymark’s order before installing buyer-furnished equipment such as seats and in-flight entertainment would make it easier to re-market the first two planes that had been built but not customized. Some observers said it may still be tough.

‘Significant Challenge’

“The placement of the ex-Skymark A380 will be a significant challenge for Airbus,” said Bertrand Grabowski, managing director for transport at DVB Bank in Frankfurt. “The first unit has not been fully customized but Airbus has not recorded any order for this aircraft since Amadeo’s. And Amedeo has yet to demonstrate that it can create a market.”

Airbus Chief Financial Officer Harald Wilhelm said that A380 production for this year and next has been secured, with the planemaker expecting to deliver “around 30” planes in 2105, letting it break even on the program going forward.

Airbus has been trying to get early 2016 customers to move forward to take two delivery positions at the end of 2015, though Wilhelm offered no detail about whether that process is complete. He also said there would be “no impact” on Airbus’s purchase and loss statements from the Skymark planes.

Earnings before interest, tax and one-time items rose to 1.77 billion euros ($2.37 billion) in the first half from 1.61 billion euros a year earlier, Airbus said today, reiterating a full-year target for “moderate return-on-sales growth” and an increased jetliner backlog.

Stock Gains

New plane orders, predicted earlier at around 630, are set to top that goal after Airbus left the Farnborough expo southwest of London with 648 net contracts in hand and commitments for several hundred more aircraft.

Airbus stock rose as much as 2.39 euros, or 5.5 percent, to 46.08 euros in Paris, and traded 4.1 percent higher at 45.48 euros as of 12:30 p.m. That pares the decline this year to 18 percent, valuing the company at 35.6 billion euros.

Second-quarter sales rose 7 percent to 14.6 billion euros, beating the average analyst estimate of 14.2 billion euros.

Airbus reiterated that it wants to dispose of its stake in Dassault Aviation SA (AM), the French maker of the Rafale fighter jet as well as Falcon business aircraft. Enders said “it’s not a question of ‘if’ but a question of ‘when’” the holding will be sold, declining to elaborate on the mechanics of the process.

The new A350 wide-body plane -- smaller than the A380 and with two engines versus the superjumbo’s four -- is on track for certification in the third quarter and service entry later in the year, the company said.

The A320neo narrow-body, which has more fuel-efficient engines than the current plane, is being prepared for its first flight in September and is slated to begin commercial operations in the fourth quarter of 2015, it said.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Christopher Jasper


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