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Airbus 380 Freighter in Doubt

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FOCUS: Future Of Airbus' A380 Freighter Looks In Doubt
8:06 AM EST November 8, 2006


By Rod Stone
OF DOW JONES NEWSWIRES

LONDON (Dow Jones)--Airbus could be forced into an embarrassing cancellation or mothballing of its A380 freighter plane program following the loss of key customer FedEx Corp. (FDX).
The two remaining freighter orders from United Parcel Service Inc. (UPS) and American International Group Inc. (AIG) unit International Lease Finance Corp. look seriously in doubt and there are few other potential buyers out there, experts said Wednesday.
Canceling or postponing the A380 cargo program would be a serious blow for Airbus, but might free up some resources to fix the bigger-selling passenger version and develop the planned new A350 XWB, the experts added.
In a surprise move Tuesday, parcel giant FedEx said it's pulling its order for 10 A380 freighters and instead buying 15 Boeing Co. (BA) 777 cargo planes with options for 15 more. Then on Wednesday, Hans Peter Ring, chief financial officer for Airbus parent company European Aeronautic Defence & Space Co. (5730.FR), said the two remaining freighter orders are in the "cancellation zone."
UPS has ordered 10 A380 freighters while leasing giant ILFC has bought five. EADS' Ring - who will also become Airbus CFO in January - said Airbus is looking to reconfirm the UPS and ILFC orders and will take a decision on going forward with the program once these customers have made up their minds. Airbus, however, said on Tuesday it remains committed to the freighter program.
"If they can't sell to FedEx, they can't sell to anybody," said Doug McVitie of France-based aviation consultancy Arran Aerospace Ltd.. "If you take ILFC, which has five freighters on order, who are they for if there are no customers?"
Ring's comment on the state of the remaining A380 cargo orders "virtually confirms" that UPS will cancel, McVitie said. UPS has said it's still reviewing its order and has made no decision on whether to keep it.
Daniel Solon, an aerospace industry analyst with Avmark International Ltd. in Barcelona, said ILFC's ultimate decision on its order depends on how it views the potential market to lease the planes out.
Solon said the future of the A380 cargo plane is clearly in doubt, although Airbus might look to delay it rather than kill it outright. "I could see the freighter program at risk in terms of timeframe. Obviously it would be an enormous embarrassment to Airbus and EADS if they had to cancel the A380 freighter program," he said.
FedEx opted to cancel the A380 order after Airbus announced in October another year's delay in deliveries of the giant planes due to production problems. So far, no customers have dropped orders for the passenger versions although Virgin Atlantic Airways Ltd. has deferred deliveries of the six it has ordered by four years to 2013.
Yan Derocles, an analyst with Oddo Securities in Paris, added that canceling the order isn't that straightforward for UPS although it retains the option. In particular, when UPS placed the firm order for the 10 freighters back in 2005, it agreed to amend its order for smaller A300 freighters to 53 from 90.
McVitie of Arran Aerospace added that working against the UPS order is a rumored move by FedEx and UPS to establish a joint A380 maintenance facility in Europe. FedEx's cancellation would work against the economics of this move if it occurs, he said. UPS, however, said in a statement it isn't looking to build a maintenance hangar in Europe at this stage and is planning to expand its maintenance hangar in Louisville, Ky., in the U.S. FedEx officials couldn't immediately be reached for comment.
Ironically, a cancellation or deferral of the A380 freighter program could be a blessing in disguise for Airbus, albeit a costly one.
Avmark's Solon said this move could potentially free up valuable engineering resources for Airbus as it looks to solve wiring and other problems with the A380. The plane maker may also shortly launch a new mid-sized airliner known at the A350 XWB and over the longer term will need to develop a successor to its highly successful A320 range of single-aisle airplanes.
Company Web site: http://www.airbus.com
-By Rod Stone, Dow Jones Newswires; +44 207 842 9295; [email protected]
 
Airbus Says To Continue A380 Freighter Program
2:08 AM EST November 8, 2006

(This item was originally published Tuesday.)

By Rod Stone
Of DOW JONES NEWSWIRES

LONDON -(Dow Jones)- Airbus said Tuesday it plans to continue with its A380 freighter airplane program, despite U.S. parcel giant Fedex Corp.'s (FDX) decision to cancel its order for 10 of the aircraft.
"We expect to continue the A380 freighter program ... We still believe that the freighter will be indispensable for coping with cargo growth," an Airbus spokesman in Toulouse said. "Airbus regrets the decision made by Fedex but we understand they need to urgently address capacity growth," he added.
Fedex's decision to pull the A380 freighter order and buy 15 Boeing Co. (BA) 777 freighters, with options for 15 more, follows long delays in planned A380 deliveries due to electrical wiring problems.
Fedex is the first customer to cancel an order for the A380. There have been no cancellations so far for the passenger version of the plane, although Virgin Atlantic Airways Ltd. has deferred its order for six by four years until 2013.
Airbus now has just orders for 15 of the freighter A380s. Plane-leasing giant International Lease Finance Corp. - a unit of American International Group Inc. (AIG) - has ordered five and United Parcel Service Inc. (UPS) ten. Keeping UPS on board will be crucial for the future of the A380 freighter program. The company said on Tuesday it has made no decision yet on whether to maintain its order for the Airbus planes. If it did lose UPS, Airbus could potentially switch the production slots for the freighter planes over to the passenger version. It could also free up much needed engineering resources to help fix the A380's wiring problems.
The Fedex cancellation puts Airbus further way fro, its targeted 420 orders to break even on the overall passenger and freighter A380 airplane program. Excluding Fedex's 10, it has firm orders for 149 airplanes, although Singapore Airlines Ltd. (S55.SG) and Qantas Airways Ltd. (QAN.AU) have recently signed commitments for another nine and eight respectively. Dubai's Emirates Airline (EA.YY) - the biggest buyer of the passenger A380 with more than 40 on order - has so far remained committed to the A380 although it's sending a team of engineers into Airbus plants this month to conduct an audit of the program. The personnel will examine how Airbus managers are resolving industrial problems that have pushed production of the world's largest passenger plane two years behind schedule and more than one-third over its original $12 billion budget.
Speaking in London Tuesday, Emirates Airline President Tim Clark said the A380 remains the plane to help deliver its planned expansion.
Airbus' parent company European Aeronautic Defence & Space Co. NV (5730.FR) is due to release third quarter results on Wednesday.
EADS shares closed down EUR0.65, or 3.1%, at EUR20.66 in Paris, the biggest faller on the CAC-40 index.
 

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