Launch customers 'unhappy' with Airbus A380 delay, EADS warns of €2bn lost earnings

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By staff and agencies

Airbus parent company EADS issued a financial warning overnight, saying that its revision to the A380 production schedule will cost the company at least €2 billion ($2.5 billion) in lost earnings from 2007 to 2010. Key risk-sharing suppliers are also assessing the impact the announcement will have to their earnings forecasts as launch customers have expressed concern over delivery delays of up to seven months.

EADS’s warning stems from yesterday’s announcement that Airbus’s A380 delivery schedule will be revised again and pushed back a further seven months. Because of this, Airbus will still deliver one A380 this year, but only nine of the 20 planned for 2007 and as few as 26 aircraft in 2008 and 40  in 2009 before returning to schedule in 2010.

The warning led to shares in EADS dropping by more than 20% to just over €20 in early morning trading on the Paris bourse. The UK’s BAE Systems, which owns 20% of Airbus, also saw a small drop in share price, despite plans to sell the stake to EADS.

The delays in the programme are being attributed to certification concerns over bespoke configurations for the aircraft’s launch customers, and the resulting changes to electrical systems and harnesses.

EADS says this will lead to a €500 million a year drop in earnings in the period 2007- 2010, which covers “the shift of margin to later years, excess costs tied to the [unspecified] recovery action and the late delivery charges which are to be negotiated with customers,” but does not factor contract terminations.

Launch customers were contacted today by telephone and an action plan to tackle the set-back will be in place by mid-July, says Airbus.

Joint EADS chief executives Tom Enders and Noël Forgeard add: “We have a serious issue with the industrial ramp-up of the A380. We expect Airbus management to fully deliver according to the revised schedule and, if possible, even to improve. We will strongly support the recovery actions.”

Suppliers on the programme are also expected to issue revised sales forecasts in light of the new delay over the coming days as they are briefed by Airbus. Goodrich said yesterday it sees a slight dip in sales over the next two years, but said it would have a negligible impact on share earnings for this year and next. Goodrich reiterated its profit and revenue forecast for 2006.
Airbus president and chief executive Gustav Humbert insists there must be no further delays to the A380 programme having today shouldered initial feedback from disgruntled airline customers.

Humbert declines to comment on the late delivery charges Airbus will have to pay as a result of the delay, although he adds: “For sure, in every contract there are penalties.”

He says that none of the launch airlines have expressed an interest in cancelling an order, but delivery schedule changes could emerge in response to such requests.

Singapore Airlines (SIA) will take its first aircraft in late 2006 as planned, but all deliveries scheduled for 2007 will experience a six to seven month delay. SIA says it continuing to await word from Airbus on when exactly in December it will be able to take delivery of its first A380, following the news of fresh production delays.

SIA has 10 Rolls-Royce Trent 900-powered A380s on firm order. The Star Alliance carrier says the airline is “not happy” about the latest delays and has now been told the first aircraft will be delivered “sometime” in December.  SIA adds: “We’re in discussions with Airbus about the implications of this delay and the consequences for the projected delivery positions we had bought.”

Meanwhile Australia’s Qantas Airways is to explore deferring the retirement of older aircraft and leasing aircraft on a temporary basis to help cope with the latest delays in the delivery of its first Airbus A380s.

The Oneworld alliance carrier says that it will hold talks with Airbus in the next two weeks after completing an internal review of the implications of the fresh delays. It has 12 A380s on firm order.

SIA is due to take delivery of the first four production A380s before Qantas and Emirates start taking their first aircraft. Qantas does not say when it now expects its first but it is thought that it will be around September 2007.

The above text contains portions of articles originally published on Flight's 24h news and data premium service, Air Transport Intelligence.

Blog:
Read the web log from Flight group editor Kieran Daly on how this week's multiple events provided EADS and Airbus with their blackest day