Fresh Airbus A380 delay hits earnings
A fresh six-month delay in delivery of the Airbus A380 superjumbo will cost parent EADS 2 billion euros.india Updated: Jun 14, 2006 11:30 IST
A fresh six-month delay in delivery of the Airbus A380 superjumbo revealed on Tuesday will cost parent EADS 2 billion euros ($2.5 billion) starting in 2007 just as it looks to fund an all-new, mid-sized model and buys out stakeholder BAE Systems Plc.
With this second shock six-month delay for the world's biggest airliner, Airbus could now risk airlines dropping out of the programme, which has not yet won enough orders to cover its development costs of 12 billion euros.
The setback comes as 20 per cent stakeholder BAE of Britain prepares to bail out of Airbus, leaving EADS as sole owner.
"We have had an industrial delay. It will shift the programme to the right by six to seven months," John Leahy, chief commercial officer at Airbus, told Reuters.
The European planemaker said it would still deliver the first aircraft to Singapore Airlines by the end of 2006 but would be forced to slash deliveries of the massive doubledeckers next year to nine from an expected 20 to 25.
Dubai-based airline Emirates, by far the biggest buyer of the $300-million A380 with 43 on order, said it had been informed of a six-month delay to its 2007 delivery schedule and would now not fly the plane until January 2008.
"Emirates now expects to receive its first A380 in October 2007," an airline spokesman said. "We are considering our position and will be engaging with the manufacturer over the next few weeks."
Airbus expects shortfalls of five to nine planes in 2008 and about five in 2009.
EADS said this year's earnings would not be affected, but the delay would hit earnings before interest and tax to the tune of 500 million euros a year between 2007 and 2010.
EADS, a Franco-German-Spanish company, hinted at the possibility of cancellations, which would be a marketing disaster for Airbus given the focus on its boldest project.
"Possible contract terminations under the new timetable have not been taken into account in this estimate," EADS said in a statement describing the accounting impact of the delay.
This time as last, the delay stems from a surge in demand for customised interiors and problems installing electrical wiring harnesses, which thread through the plane and drive systems such as the inflight entertainment systems that allow passengers to select from hundreds of films and songs.
"There have been bottlenecks on the installation of wiring harnesses but the test flying is still going well," Leahy said.
EADS also acknowledged it would have to pay additional penalties. Airbus once before was forced to tell A380 buyers of a six-month delay in deliveries after insisting for months that it was on schedule, sparking a wave of compensation demands.
Carriers were angry because the delay disrupted plans to deploy the big plane on routes and in some cases meant airlines would have to lease aircraft to use until the A380 was ready.
Sixteen carriers have so far ordered 159 A380s, which list for $300 million, though some analysts believe Airbus has cut deals with customers for about half that. Airbus says the programme needs sales of 250 to 300 to make back its money.
Delays in new airliner projects are common, especially for one as radical as the A380 -- a project as unprecedented as the Boeing 747 or the supersonic Concorde, both born in the 1960s.
But the new problems come at an especially tough time for Airbus, which is in the middle of a review of its wide-body aircraft strategy embracing the slow-selling A340 and the mooted A350, its newest model.
Airbus faces its worst crisis in years as the twin-engined long-range models of US archrival Boeing Co, the 777 and the 787 due in 2008, have dried up demand for the less cost-efficient four-engined A340 and dented early A350 sales.
The Toulouse, France-based planemaker, after several false starts, has vowed to reveal by mid-July a definitive design for the A350 to take on the 777 and 787, though Boeing is confident it cannot do it with just one new model range, meaning the US company could have a lucrative slice of the market to itself.
Analysts say, at best, Airbus is now likely to announce a long-range, mid-sized model range that will hit the market a full four years after the rival 787, around 2012, and likely at a cost far above its early estimates of 3 or 4 billion euros.
Airbus held on to its position as the world's leading passenger jet maker ahead of Boeing in 2005, but decisions expected in the next few weeks are seen as crucial.
The A380 delays raise the prospect of cash shortfalls on the project, which will tie up working capital until Airbus can get the undelivered planes out of its plants. Planemakers are paid on delivery.
EADS faces the challenge of funding more A380 development, further variants, the A350, the A400M military transport plane due in 2009, and a mooted cargo version of its A330, all while being forced to buy BAE's Airbus stake, which some analysts esimate to be worth up to 4.5 billion pounds ($8.3 billion).
Under a 2001 shareholder pact, BAE is set to sell its stake to EADS in the coming month for cash, EADS stock or both.