Emirates Abandons Huge Plane Order Hitting Airbus Shares

A delegate talks on her phone next to a poster of an Airbus A380 during the Dubai Airshow on November 18, 2013 in Dubai, United Arab Emirates. The Dubai Air Show is the premier Middle East air show for trade and business delegates organized by F&E Aerospace. (Photo by Christopher Furlong/Getty Images)

Emirates Abandons Huge Plane Order, Hitting Airbus Shares

Emirates airline delivers a huge blow to European aerospace group Airbus, cancelling an order for 70 new-generation A350 airliners.

TOULOUSE, France -- Emirates airline delivered a huge blow to European aerospace group Airbus (IW 1000/52) on Wednesday, cancelling an order for 70 new-generation A350 airliners, which analysts estimate represents about a tenth of the aircraft maker's 2014 orders.

The long-distance aircraft, due to go into service this year, is the Airbus flagship project of the moment to compete with the Boeing (IW 500/14) 787, which has been flying since 2011.

The size of the cancellation is the biggest ever by a prestigious customer for a civil airliner.

Airbus said that the cancellation followed an order placed by Emirates at the Dubai air show in November for an extra 50 A380 superjumbo planes.

The cancellation decision was made following "ongoing discussions with the airline in light of their fleet requirement review," Airbus said.

The deal was said to be worth $16.5 billion when it was announced in 2007, but Airbus said that customers were already interested in taking up the canceled aircraft.

The sudden announcement by Emirates, a powerful player in the expanding Gulf airline industry, sent Airbus Group shares down more than 5% at one point. They were showing a loss of 3.3% to 52.08 euros in afternoon trading in the Paris market.

And in London, aero-engine maker Rolls-Royce (IW 1000/234) warned that the decision would cut the value of its order book by 2.6 billion pounds ($4.3 billion).

The cancellation "amounts to 11% of orders which Airbus expects to take in 2014," said Christophe Menard, an analyst at broker KeplerChevreux.

The airliner business accounts for the main part of activities by Airbus Group, formerly EADS. The head of its sales division, John Leahy, said, "It's not good news commercially but it has no impact financially."

Customers Lining Up

Opening an innovation show by Airbus at its headquarters in Toulouse, Leahy, who has played a major role in the rise of Airbus over the years, said that he had time to find other customers for the canceled planes, which were due to be delivered from 2019.

He had only just heard of the cancellation, he said, so the decision was not a direct counterbalance to the order placed in Dubai.

"I am amazed that we already have enquiries," he said. "There is already a queue of people."

In Dubai, Emirates also ordered 150 Boeing very-long-haul 777-8 and 777-9 airliners, which are due to enter service from 2020. It also took an option on another 50 of this version.

An Emirates spokesman said, "The contract which we signed in 2007 has lapsed. We are reviewing our fleet requirements."

Airlines had been making massive aircraft orders in anticipation of a pickup in air traffic as advanced economies recover from a slump and with emerging economies expected to deliver a boost in demand.

Airbus, Boeing Go Head to Head

The future Boeing 777 models and the Airbus A350 are competitors in what is known as the medium twin-engined segment, the heart of the market, said analyst Scott Hamilton at Boeing's home base in Seattle.

Airbus added that it was still very confident in the A350, with a fuselage made largely of composite materials, and noted that it had orders from 28 airlines for 742 aircraft six months ahead of the plane entering service.

"The program of test flights for the A350 is progressing well and is on schedule for certification [by aviation authorities] in the coming months," Airbus said.

Emirates had ordered 50 A350-900 and 20 stretched A350-1000 aircraft in 2007, marking the second-biggest order by volume for the A350 plane after 80 ordered by Qatar Airways.

Singapore Airlines has also ordered 70 A350 planes.

Scott Hamilton said that the cancellation could leave a gap in the Emirates fleet. That would give Boeing an opportunity to sell its 777-300R model, which is available for delivery from 2017.

Menard said that in all probability Emirates had decided to streamline its fleet and focus on the Airbus A380 and the Boeing 777 series.

Copyright Agence France-Presse, 2014

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